UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
811-6165
(Investment Company Act File Number)
Federated Municipal Securities Income Trust
_______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 8/31/07
Date of Reporting Period: Six months ended 2/28/07
ITEM 1. REPORTS TO STOCKHOLDERS
Federated
World-Class Investment Manager
Federated California Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
Class B Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.97 | | | $11.10 | | | $10.94 | | | $10.70 | | | $11.00 | | | $11.08 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.25 | | | 0.51 | | | 0.52 | | | 0.52 | | | 0.52 | | | 0.52 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.08
|
|
| (0.13
| )
|
| 0.16
|
|
| 0.24
|
|
| (0.30
| )
|
| (0.08
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.33
|
|
| 0.38
|
|
| 0.68
|
|
| 0.76
|
|
| 0.22
|
|
| 0.44
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.25
| )
|
| (0.51
| )
|
| (0.52
| )
|
| (0.52
| )
|
| (0.52
| )
|
| (0.52
| )
|
Net Asset Value, End of Period
|
| $11.05
|
|
| $10.97
|
|
| $11.10
|
|
| $10.94
|
|
| $10.70
|
|
| $11.00
|
|
Total Return 2
|
| 3.06
| %
|
| 3.55
| %
|
| 6.32
| %
|
| 7.26
| %
|
| 1.98
| %
|
| 4.16
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.59
| % 3,4
|
| 0.52
| %
|
| 0.50
| %
|
| 0.50
| %
|
| 0.50
| %
|
| 0.50
| %
|
Net investment income
|
| 4.64
| % 3
|
| 4.68
| %
|
| 4.68
| %
|
| 4.81
| %
|
| 4.72
| %
|
| 4.81
| %
|
Expense waiver/reimbursement 5
|
| 0.82
| % 3
|
| 0.88
| %
|
| 0.90
| %
|
| 0.85
| %
|
| 0.80
| %
|
| 0.85
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $60,853
|
| $55,168
|
| $44,159
|
| $34,269
|
| $36,607
|
| $39,872
|
|
Portfolio turnover
|
| 8
| %
|
| 18
| %
|
| 18
| %
|
| 13
| %
|
| 24
| %
|
| 21
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Computed on an annualized basis.
4 Includes 0.04% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.97 | | | $11.10 | | | $10.94 | | | $10.70 | | | $11.00 | | | $11.08 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.21 | | | 0.43 | | | 0.43 | | | 0.44 | | | 0.44 | | | 0.44 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.08
|
|
| (0.13
| )
|
| 0.16
|
|
| 0.24
|
|
| (0.30
| )
|
| (0.08
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.29
|
|
| 0.30
|
|
| 0.59
|
|
| 0.68
|
|
| 0.14
|
|
| 0.36
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.21
| )
|
| (0.43
| )
|
| (0.43
| )
|
| (0.44
| )
|
| (0.44
| )
|
| (0.44
| )
|
Net Asset Value, End of Period
|
| $11.05
|
|
| $10.97
|
|
| $11.10
|
|
| $10.94
|
|
| $10.70
|
|
| $11.00
|
|
Total Return 2
|
| 2.67
| %
|
| 2.77
| %
|
| 5.52
| %
|
| 6.46
| %
|
| 1.22
| %
|
| 3.39
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 1.35
| % 3,4
|
| 1.27
| %
|
| 1.25
| %
|
| 1.25
| %
|
| 1.25
| %
|
| 1.25
| %
|
Net investment income
|
| 3.86
| % 3
|
| 3.91
| %
|
| 3.93
| %
|
| 4.06
| %
|
| 3.97
| %
|
| 4.05
| %
|
Expense waiver/reimbursement 5
|
| 0.57
| % 3
|
| 0.63
| %
|
| 0.65
| %
|
| 0.60
| %
|
| 0.55
| %
|
| 0.60
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $24,156
|
| $29,730
|
| $37,464
|
| $43,773
|
| $50,921
|
| $49,363
|
|
Portfolio turnover
|
| 8
| %
|
| 18
| %
|
| 18
| %
|
| 13
| %
|
| 24
| %
|
| 21
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Computed on an annualized basis.
4 Includes 0.04% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual:
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,030.60
|
| $2.97
|
Class B Shares
|
| $1,000
|
| $1,026.70
|
| $6.78
|
Hypothetical (assuming a 5% return before expenses):
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,021.87
|
| $2.96
|
Class B Shares
|
| $1,000
|
| $1,018.10
|
| $6.76
|
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). The annualized net expense ratios are as follows:
Class A Shares
|
| 0.59%
|
Class B Shares
|
| 1.35%
|
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 40.3
| %
|
Special Tax
|
| 10.1
| %
|
Hospital
|
| 9.8
| %
|
Refunded
|
| 8.9
| %
|
Education
|
| 6.5
| %
|
General Obligation--State
|
| 5.0
| %
|
Multi-Family Housing
|
| 4.6
| %
|
Resource Recovery
|
| 4.3
| %
|
Water and Sewer
|
| 3.4
| %
|
Senior Care
|
| 3.2
| %
|
Other 2
|
| 5.1
| %
|
Other Assets and Liabilities--Net 3
|
| (1.2
| )%
|
TOTAL
|
| 100.0
| %
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2 For purposes of this table, sector classifications constitute 96.1% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--99.8% | | | | |
| | | California--96.6% | | | | |
| $ | 500,000 | | ABAG Finance Authority for Non-Profit Corporations, CA, Revenue Bonds, 6.125% (Southern California Presbyterian Homes)/(Original Issue Yield: 6.25%), 11/15/2032
| | $ | 546,885 | |
| 500,000 | | Anaheim, CA Public Financing Authority, Lease Revenue Bonds (Series 1997C), 6.00% (Anaheim Public Improvements Project)/(FSA INS), 9/1/2016
| | | 584,290 | |
| 500,000 | | Bell Community Redevelopment Agency, CA, Refunding Tax Allocation Revenue Bonds, 5.50% (Radian Asset Assurance INS), 10/1/2023
| | | 543,365 | |
| 605,000 | | Blythe, CA Financing Authority, Sewer Revenue Bonds (Series 1998), 5.75%, 4/1/2028
| | | 626,308 | |
| 1,000,000 | | Brentwood, CA Infrastructure Financing Authority, Infrastructure Refunding Revenue Bonds (Series 2006A), 5.00% (AMBAC INS), 9/2/2034
| | | 1,087,700 | |
| 500,000 | | California Educational Facilities Authority, Revenue Bonds (Series 2000A), 6.75% (Fresno Pacific University), 3/1/2019
| | | 536,205 | |
| 750,000 | | California Educational Facilities Authority, Revenue Bonds (Series 2005), 5.00% (California College of the Arts), 6/1/2035
| | | 774,008 | |
| 1,000,000 | | California Educational Facilities Authority, Revenue Bonds (Series 2006), 5.00% (University of the Pacific), 11/1/2036
| | | 1,055,370 | |
| 225,000 | | California Educational Facilities Authority, Student Loan Revenue Bonds (Series 1998), 5.55% (AMBAC INS), 4/1/2028
| | | 231,147 | |
| 425,000 | | California Educational Facilities Authority, Student Loan Revenue Bonds (Series A), 5.40% (Cal Loan Program)/(MBIA Insurance Corp. INS), 3/1/2021
| | | 438,893 | |
| 425,000 | | California Health Facilities Financing Authority, Health Facility Revenue Bonds (Series 2004I), 4.95% TOBs (Catholic Healthcare West), Mandatory Tender 7/1/2014
| | | 450,168 | |
| 1,000,000 | | California Health Facilities Financing Authority, INS Health Facilities Refunding Revenue Bonds (Series 1997), 5.50% (Valley Care Hospital Corp.)/(California Mortgage Insurance GTD)/(Original Issue Yield: 5.737%), 5/1/2020
| | | 1,022,240 | |
| 500,000 | | California Health Facilities Financing Authority, Insured Revenue Bonds (Series 2006), 5.00% (California-Nevada Methodist Homes)/(California Mortgage Insurance GTD), 7/1/2036
| | | 523,530 | |
| 435,000 | | California Health Facilities Financing Authority, Revenue Bonds (Series 1996A), 6.00% (Catholic Healthcare West)/(MBIA Insurance Corp. INS)/(Original Issue Yield: 6.15%), 7/1/2017
| | | 444,487 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 1,000,000 | | California Health Facilities Financing Authority, Revenue Bonds (Series 1998), 5.40% (Northern California Presbyterian Homes, Inc.)/ (Original Issue Yield: 5.417%), 7/1/2028
| | $ | 1,014,680 | |
| 1,000,000 | | California Health Facilities Financing Authority, Revenue Bonds (Series 1999A), 6.125% (Cedars-Sinai Medical Center)/(United States Treasury PRF 12/1/2009@101), 12/1/2030
| | | 1,075,010 | |
| 500,000 | | California Infrastructure & Economic Development Bank, Revenue Bonds (Series 2000A), 5.75% (Scripps Research Institute)/(Original Issue Yield: 5.85%), 7/1/2030
| | | 514,970 | |
| 1,000,000 | | California Infrastructure & Economic Development Bank, Revenue Bonds (Series 2001B), 5.50% (Kaiser Permanente), 8/1/2031
| | | 1,062,330 | |
| 1,000,000 | | California PCFA, Refunding Revenue Bonds (1996 Series A), 5.35% (Pacific Gas & Electric Co.)/(MBIA Insurance Corp. INS), 12/1/2016
| | | 1,071,390 | |
| 1,000,000 | 1 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025
| | | 1,073,450 | |
| 750,000 | 1 | California PCFA, Solid Waste Disposal Revenue Bonds, 5.125% TOBs (Waste Management, Inc.), Mandatory Tender 5/1/2014
| | | 787,778 | |
| 700,000 | | California PCFA, Solid Waste Disposal Revenue Bonds, 6.875% (Browning-Ferris Industries, Inc.)/(Original Issue Yield: 6.95%), 11/1/2027
| | | 704,235 | |
| 1,000,000 | | California PCFA, Solid Waste Refunding Revenue Bonds (Series 1999A), 5.125% (West County Resource Recovery, Inc.)/(Comerica Bank LOC)/ (Original Issue Yield: 5.323%), 1/1/2014
| | | 1,007,350 | |
| 30,000 | | California Rural Home Mortgage Finance Authority, SFM Revenue Bonds, (Series 1998 B-4), 6.35% (GNMA Home Mortgage Program COL), 12/1/2029
| | | 30,615 | |
| 1,900,000 | | California State Public Works Board, Lease Revenue Bonds (Series 2007B), 4.75% (California Community Colleges)/(FGIC INS), 3/1/2032
| | | 1,984,360 | |
| 870,000 | | California State, UT GO Bonds, 5.25% (Original Issue Yield: 5.375%), 12/1/2027
| | | 906,932 | |
| 1,000,000 | | California State, UT GO Bonds, 5.125% (Original Issue Yield: 5.40%), 6/1/2025
| | | 1,044,780 | |
| 20,000 | | California State, UT GO Bonds, 5.75% (Original Issue Yield: 6.25%), 3/1/2019
| | | 20,180 | |
| 1,000,000 | | California State, Various Purpose UT GO Bonds, 5.125% (Original Issue Yield: 5.16%), 4/1/2023
| | | 1,073,300 | |
| 1,000,000 | | California State, Various Purpose UT GO Bonds, 5.25%, 11/1/2021
| | | 1,084,730 | |
| 400,000 | | California Statewide Communities Development Authority, COPs, 5.25% (St. Joseph Health System Group, CA)/(Original Issue Yield: 5.47%), 7/1/2021
| | | 409,160 | |
| 1,000,000 | | California Statewide Communities Development Authority, COPs, 5.50% (Sutter Health)/(FSA INS)/(Original Issue Yield: 5.77%), 8/15/2018
| | | 1,051,140 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 485,000 | 1 | California Statewide Communities Development Authority, Revenue Bonds (Series 2001), 6.75% (St. Mark's School), 6/1/2028
| | $ | 523,160 | |
| 400,000 | 1 | California Statewide Communities Development Authority, Revenue Bonds (Series 2002), 6.75% (Prospect Sierra School)/(United States Treasury PRF 9/1/2010@103)/(Original Issue Yield: 6.85%), 9/1/2032
| | | 441,256 | |
| 400,000 | 1 | California Statewide Communities Development Authority, Revenue Bonds (Series 2005A), 4.875% (Thomas Jefferson School of Law)/(Original Issue Yield: 4.93%), 10/1/2035
| | | 413,744 | |
| 1,000,000 | | California Statewide Communities Development Authority, Revenue Bonds (Series 2005A), 5.25% (Daughters of Charity Health System), 7/1/2035
| | | 1,054,470 | |
| 500,000 | 1 | California Statewide Communities Development Authority, Revenue Bonds, 6.50% (Turningpoint School), 11/1/2031
| | | 533,470 | |
| 1,000,000 | | California Statewide Communities Development Authority, Revenue Bonds, 5.75% (Los Angeles Orthopedic Hospital Foundation)/(AMBAC INS), 6/1/2030
| | | 1,014,550 | |
| 500,000 | | Capistrano Unified School District, CA Community Facilities District No. 90-2, Special Tax Bonds (Series 2003), 5.875% (Talega Ranch), 9/1/2023
| | | 535,215 | |
| 500,000 | | Carlsbad, CA Community Facilities District No. 3, Special Tax Bonds (Series 2006), 5.30% (Original Issue Yield: 5.33%), 9/1/2036
| | | 515,855 | |
| 455,000 | | Central Unified School District, CA, UT GO Bonds (Series 2004A), 5.50% (FGIC INS), 7/1/2024
| | | 503,817 | |
| 1,000,000 | | Chabot-Las Positas, CA Community College District, UT GO Bonds (Series 2006B), 5.00% (AMBAC INS), 8/1/2031
| | | 1,077,850 | |
| 1,000,000 | | Chowchilla, CA Redevelopment Agency, Tax Allocation Bonds (Series 2005), 5.00% (Radian Asset Assurance INS), 8/1/2037
| | | 1,048,280 | |
| 250,000 | | Chula Vista, CA Community Facilities District No. 06-1, Special Tax Revenue Bonds (Series 2002A), 6.15% (Eastlake-Woods, Vistas & Land Swap), 9/1/2026
| | | 268,290 | |
| 425,000 | 1 | Community Facilities District No. 3 (Liberty Station), Special Tax Bonds (Series 2006A), 5.75%, 9/1/2036
| | | 433,853 | |
| 1,000,000 | | Coronado, CA Community Development Agency, Tax Allocation Bonds (Series 2005), 5.00% (AMBAC INS), 9/1/2035
| | | 1,064,090 | |
| 1,000,000 | | Daly City, CA HDFA, Mobile Home Park Senior Revenue Bonds, Series 2002A, 5.85% (Franciscan Acquisition Project)/(Original Issue Yield: 5.95%), 12/15/2032
| | | 1,104,180 | |
| 1,000,000 | | El Centro, CA Financing Authority, INS Hospital Revenue Bonds (Series 2001), 5.25% (El Centro Regional Medical Center)/(California Mortgage Insurance GTD)/(Original Issue Yield: 5.32%), 3/1/2018
| | | 1,040,940 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 730,000 | | El Monte, CA Public Financing Authority, Tax Allocation Revenue Bonds (Series 1998), 5.75% (El Monte, CA Community Redevelopment Agency), 6/1/2028
| | $ | 750,185 | |
| 1,000,000 | | Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Refunding Revenue Bonds, 5.75% (Original Issue Yield: 5.774%), 1/15/2040
| | | 1,051,570 | |
| 2,000,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Revenue Bonds (Series 2003A-1), 6.75% (Original Issue Yield: 7.00%), 6/1/2039
| | | 2,292,160 | |
| 1,000,000 | | Inglewood, CA Public Financing Authority, Refunding Revenue Bonds (Series 1999A), 5.625% (AMBAC INS), 8/1/2016
| | | 1,063,010 | |
| 455,000 | | Inland Empire Solid Waste Financing Authority, CA, Revenue Bonds (Series B), 6.25% (Escrowed in Treasuries COL), 8/1/2011
| | | 479,565 | |
| 1,000,000 | | Irvine, CA Unified School District Financing Authority, Special Tax Revenue Bonds (Series 2005A), 5.00% (AMBAC INS), 9/1/2034
| | | 1,064,320 | |
| 1,000,000 | | Kern Community College District, CA, GO Bonds (Series 2006) (FSA INS), 11/1/2023
| | | 493,450 | |
| 500,000 | | La Verne, CA, Revenue COPs (Series 2003B), 6.625% (Brethren Hillcrest Homes)/ (Original Issue Yield: 6.70%), 2/15/2025
| | | 554,710 | |
| 845,000 | | Lancaster, CA Redevelopment Agency, Tax Allocation Bonds (Issue of 2004), 5.00% (XL Capital Assurance Inc. INS), 12/1/2023
| | | 899,097 | |
| 500,000 | | Loma Linda, CA, Hospital Revenue Bonds (Series 2005A), 5.00% (Loma Linda University Medical Center Project), 12/1/2023
| | | 520,840 | |
| 1,000,000 | | Long Beach, CA Bond Financing Authority, Plaza Parking Facility Lease Revenue Bonds, 5.25% (Original Issue Yield: 5.54%), 11/1/2021
| | | 1,047,550 | |
| 35,000 | | Los Angeles, CA Community Redevelopment Agency, Housing Revenue Refunding Bonds (Series A), 6.55% (AMBAC INS), 1/1/2027
| | | 35,058 | |
| 1,000,000 | | Los Angeles, CA Unified School District, UT GO Bonds (Series 2006G), 5.00% (AMBAC INS), 7/1/2030
| | | 1,077,260 | |
| 1,000,000 | | Metropolitan Water District of Southern California, Water Revenue Bonds (Series 2006C), 5.00%, 7/1/2035
| | | 1,075,640 | |
| 1,000,000 | | Oakland, CA Unified School District, UT GO (Series 2000F), 5.60% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.63%), 8/1/2019
| | | 1,062,220 | |
| 500,000 | | Orange County, CA Community Facilities District No. 2000-1, Special Tax Bonds (Series 2000A), 6.25% (Ladera Ranch)/(United States Treasury PRF 8/15/2008@100)/(Original Issue Yield: 6.28%), 8/15/2030
| | | 519,155 | |
| 400,000 | | Orange County, CA Community Facilities District No. 2000-1, Special Tax Bonds (Series 2002A), 6.00% (Ladera Ranch)/(United States Treasury PRF 8/15/2010@101)/(Original Issue Yield: 6.03%), 8/15/2032
| | | 435,076 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 500,000 | | Orange County, CA Community Facilities District No. 2000-1, Special Tax Bonds (Series 2004A), 5.625% (Ladera Ranch)/(Original Issue Yield: 5.65%), 8/15/2034
| | $ | 527,225 | |
| 500,000 | | Oxnard, CA Community Facilities District No. 3, Special Tax Bonds (Series 2005), 5.00% (Seabridge at Mandalay Bay)/(Original Issue Yield: 5.22%), 9/1/2035
| | | 505,925 | |
| 1,000,000 | | Oxnard, CA Union High School District, Refunding UT GO Bonds (Series 2001A), 6.20% (MBIA Insurance Corp. INS), 8/1/2030
| | | 1,183,230 | |
| 500,000 | | Perris, CA Public Financing Authority, Tax Allocation Revenue Bonds (Series 2001A), 5.75% (Original Issue Yield: 5.85%), 10/1/2031
| | | 532,935 | |
| 900,000 | | Port of Oakland, CA, Revenue Bonds (Series 1997G), 5.50% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.83%), 11/1/2017
| | | 936,342 | |
| 1,000,000 | | Port of Oakland, CA, Revenue Bonds (Series 2000K), 5.75% (FGIC INS)/ (Original Issue Yield: 5.78%), 11/1/2020
| | | 1,057,440 | |
| 600,000 | | Poway, CA Unified School District, Special Tax Bonds (Series 2005), 5.125% (Community Facilities District No. 6 (4S Ranch))/(Original Issue Yield: 5.21%), 9/1/2035
| | | 617,286 | |
| 1,000,000 | | Rancho Mirage Joint Powers Financing Authority, CA, Revenue Bonds (Series 2004), 5.875% (Eisenhower Medical Center), 7/1/2026
| | | 1,117,530 | |
| 2,000,000 | | Richmond, CA, Wastewater Revenue Bonds (Series 1999), 5.80% (FGIC INS), 8/1/2018
| | | 2,141,160 | |
| 500,000 | | Riverside, CA Hunter Park Assessment District, LT Obligation Improvement Bonds, 5.20% (Original Issue Yield: 5.25%), 9/2/2036
| | | 517,080 | |
| 1,000,000 | 2 | San Bernardino County, CA Housing Authority, Multifamily Mortgage Revenue Bonds (Series 2001A), 6.70% (Glen Aire Park)/(GNMA COL Home Mortgage Program GTD), 12/20/2041
| | | 1,121,300 | |
| 349,000 | | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042
| | | 237,135 | |
| 1,000,000 | | San Diego County, CA, COPs, 5.25% (University of San Diego)/(Original Issue Yield: 5.47%), 10/1/2021
| | | 1,048,500 | |
| 300,000 | | San Dimas, CA Housing Authority, Mobile Home Park Revenue Bonds (Series 1998A), 5.70% (Charter Oak Mobile Home Estates Acquisition Project)/(Original Issue Yield: 5.90%), 7/1/2028
| | | 311,202 | |
| 400,000 | | San Francisco, CA City & County Redevelopment Agency Community Facilities District No. 6, Special Tax Revenue Bonds, 6.625% (Mission Bay South), 8/1/2027
| | | 432,812 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 1,000,000 | | San Jose, CA Redevelopment Agency, Merged Area Redevelopment Project Tax Allocation Bonds (Series 2006B), 5.00% (Radian Asset Assurance INS), 8/1/2032
| | $ | 1,055,330 | |
| 1,000,000 | | San Jose, CA Unified School District, COPs, 5.75% (MBIA Insurance Corp. INS)/ (Original Issue Yield: 5.85%), 6/1/2020
| | | 1,015,420 | |
| 500,000 | | San Mateo, CA Redevelopment Agency, Merged Area Tax Allocation Bonds (Series 2001A), 5.50% (Original Issue Yield: 5.55%), 8/1/2022
| | | 528,545 | |
| 3,250,000 | | Sanger, CA Unified School District, UT GO Bonds (Series 2006A) (FSA INS), 8/1/2029
| | | 1,211,275 | |
| 1,000,000 | | Santa Clara County, CA Housing Authority, MFH Revenue Bonds (Series 2001A), 5.85% (River Town Apartments Project), 8/1/2031
| | | 1,063,030 | |
| 1,500,000 | | Simi Valley, CA PFA, Lease Revenue Bonds (Series 1995), 5.75% (AMBAC INS), 9/1/2015
| | | 1,574,670 | |
| 1,000,000 | | South El Monte, CA Improvement District, Tax Allocation Bonds (Series 2005A), 5.00% (Radian Asset Assurance INS), 8/1/2030
| | | 1,059,150 | |
| 1,000,000 | | South Orange County, CA Public Financing Authority, 1999 Reassessment Revenue Bonds, 5.80% (FSA INS)/(Original Issue Yield: 5.85%), 9/2/2018
| | | 1,060,020 | |
| 400,000 | | Stockton, CA Community Facilities District No. 2001-1, Special Tax Revenue Bonds, 6.375% (Spanos Park West)/(United States Treasury PRF 9/1/2012@102)/(Original Issue Yield: 6.43%), 9/1/2032
| | | 457,260 | |
| 1,400,000 | | Stockton, CA, COPs (Series 1999), 5.875% (Original Issue Yield: 5.90%), 8/1/2019
| | | 1,488,382 | |
| 400,000 | | Stockton, CA, Health Facility Revenue Bonds (Series 1997A), 5.70% (Dameron Hospital Association), 12/1/2014
| | | 412,208 | |
| 1,000,000 | | Sweetwater, CA Union High School District Public Financing Authority, Revenue Bonds (Series 2005A), 5.00% (FSA INS), 9/1/2029
| | | 1,064,090 | |
| 1,000,000 | | Torrance, CA, Hospital Revenue Bonds (Series 2001A), 5.50% (Torrance Memorial Medical Center)/(Original Issue Yield: 5.65%), 6/1/2031
| | | 1,057,800 | |
| 1,000,000 | | University of California, General Revenue Bonds, (2005 Series G), 4.75% (FGIC INS), 5/15/2027
| | | 1,040,180 | |
| 1,000,000 | | Vallejo, CA Unified School District, UT GO Bonds, 5.90% (MBIA Insurance Corp. INS), 2/1/2021
| | | 1,214,500 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 1,000,000 | | Vista, CA Community Development Commission, Tax Allocation Bonds (Series 2001), 5.80% (Vista Redevelopment Project Area)/(Original Issue Yield: 5.85%), 9/1/2030
| | $ | 1,040,730 | |
| 500,000 | | Watsonville, CA, INS Hospital Revenue Refunding Bonds (Series 1996A), 6.20% (Watsonville Community Hospital)/(Escrowed In Treasuries COL)/ (Original Issue Yield: 6.225%), 7/1/2012
| | | 541,465 | |
| 1,000,000 | | West Sacramento, CA Financing Authority, Special Tax Revenue Bonds (Series 2006A), 5.00% (XL Capital Assurance Inc. INS), 9/1/2026
| | | 1,100,180 | |
| 1,000,000 | | Whittier, CA, Health Facilities Revenue Bonds, 5.75% (Presbyterian Intercommunity Hospital)/(United States Treasury PRF 6/1/2012@101)/ (Original Issue Yield: 5.80%), 6/1/2031
|
|
| 1,110,390
|
|
| | | TOTAL
|
|
| 82,156,599
|
|
| | | Puerto Rico--3.2% | | | | |
| 595,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Cogeneration Facility Revenue Bonds (Series 2000A), 6.625% (AES Puerto Rico Project)/(Original Issue Yield: 6.65%), 6/1/2026
| | | 645,135 | |
| 2,000,000 | 3 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds (Series 2006), 5.00%, 7/1/2046
|
|
| 2,108,080
|
|
| | | TOTAL
|
|
| 2,753,215
|
|
| | | TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $80,430,835)
|
|
| 84,909,814
|
|
| | | SHORT-TERM MUNICIPALS--1.4% 4 | | | | |
| | | California--1.4% | | | | |
| 1,150,000 | | Metropolitan Water District of Southern California, (Series 2001 B-1) Weekly VRDNs (Dexia Credit Local LIQ), 3.520%, 3/1/2007 (AT AMORTIZED COST)
|
|
| 1,150,000
|
|
| | | TOTAL INVESTMENTS--101.2%
(IDENTIFIED COST $81,580,835) 5
|
|
| 86,059,814
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(1.2)%
|
|
| (1,050,061
| )
|
| | | TOTAL NET ASSETS--100%
|
| $
| 85,009,753
|
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 11.1% of the Fund's portfolio as calculated based upon total market value.
1 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2007, these restricted securities amounted to $5,314,791, which represented 6.3% of total net assets.
2 The issuer failed to distribute to the Fund its scheduled semi-annual interest payment.
3 Underlying security in inverse floater structure.
4 Current rate and next reset date shown for Variable Rate Demand Notes.
5 The cost of investments for federal tax purposes amounts to $80,578,347.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| COPs | - --Certificates of Participation |
| FGIC | - --Financial Guaranty Insurance Company |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HDFA | - --Housing Development Finance Authority |
| INS | - --Insured |
| LIQ | - --Liquidity Agreement |
| LOC | - --Letter of Credit |
| LT | - --Limited Tax |
| MFH | - --Multi-Family Housing |
| PCFA | - --Pollution Control Finance Authority |
| PFA | - --Public Facility Authority |
| PRF | - --Prerefunded |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $81,580,835)
| | | | | $ | 86,059,814 | |
Cash
| | | | | | 59,252 | |
Income receivable
| | | | | | 1,153,075 | |
Receivable for investments sold
| | | | | | 909,000 | |
Receivable for shares sold
| | | | | | 129,788 | |
Other assets
|
|
|
|
|
| 8,351
|
|
TOTAL ASSETS
|
|
|
|
|
| 88,319,280
|
|
Liabilities:
| | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 1,000,000 | | | | |
Payable for investments purchased
| | | 1,982,710 | | | | |
Payable for shares redeemed
| | | 189,826 | | | | |
Income distribution payable
| | | 98,297 | | | | |
Payable for shareholder services fee (Note 5)
| | | 17,598 | | | | |
Payable for distribution services fee (Note 5)
| | | 14,121 | | | | |
Accrued expenses
|
|
| 6,975
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 3,309,527
|
|
Net assets for 7,694,917 shares outstanding
|
|
|
|
| $
| 85,009,753
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 83,441,990 | |
Net unrealized appreciation of investments
| | | | | | 4,478,979 | |
Accumulated net realized loss on investments
| | | | | | (2,911,823 | ) |
Undistributed net investment income
|
|
|
|
|
| 607
|
|
TOTAL NET ASSETS
|
|
|
|
| $
| 85,009,753
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share
| | | | | | | |
Class A Shares:
| | | | | | | |
Net asset value per share ($60,853,305 ÷ 5,508,376 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $11.05
|
|
Offering price per share (100/95.50 of $11.05) 1
|
|
|
|
|
| $11.57
|
|
Redemption proceeds per share
|
|
|
|
|
| $11.05
|
|
Class B Shares:
| | | | | | | |
Net asset value per share ($24,156,448 ÷ 2,186,541 shares outstanding) ,no par value, unlimited shares authorized
|
|
|
|
|
| $11.05
|
|
Offering price per share
|
|
|
|
|
| $11.05
|
|
Redemption proceeds per share (94.50/100 of $11.05) 1
|
|
|
|
|
| $10.44
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 2,205,522
|
Expenses:
| | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 168,851 | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 94,220 | | | | |
Account administration fee- Class A Shares
| | | | | | | 1,765 | | | | |
Custodian fees
| | | | | | | 2,202 | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 30,026 | | | | |
Directors'/Trustees' fees
| | | | | | | 1,347 | | | | |
Auditing fees
| | | | | | | 9,781 | | | | |
Legal fees
| | | | | | | 4,330 | | | | |
Portfolio accounting fees
| | | | | | | 33,721 | | | | |
Distribution services fee--Class A Shares (Note 5)
| | | | | | | 71,992 | | | | |
Distribution services fee--Class B Shares (Note 5)
| | | | | | | 100,618 | | | | |
Shareholder services fee--Class A Shares (Note 5)
| | | | | | | 68,573 | | | | |
Shareholder services fee--Class B Shares (Note 5)
| | | | | | | 33,539 | | | | |
Share registration costs
| | | | | | | 13,210 | | | | |
Printing and postage
| | | | | | | 10,136 | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 16,834 | | | | |
Insurance premiums
| | | | | | | 3,343 | | | | |
Miscellaneous
|
|
|
|
|
|
| 928
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 665,416
|
|
|
|
|
Waivers and Reimbursement (Note 5):
| | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (168,851 | ) | | | | | | | |
Waiver of administrative personnel and services fee
| | | (16,934 | ) | | | | | | | |
Waiver of distribution services fee--Class A Shares
| | | (71,992 | ) | | | | | | | |
Reimbursement of other operating expenses
|
|
| (55,227
| )
|
|
|
|
|
|
|
|
TOTAL WAIVERS AND REIMBURSEMENT
|
|
|
|
|
|
| (313,004
| )
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 352,412
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 1,853,110
|
Realized and Unrealized Gain on Investments:
| | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 168,672 |
Net change in unrealized appreciation of investments
|
|
|
|
|
|
|
|
|
|
| 447,802
|
Net realized and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
| 616,474
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 2,469,584
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
| Year Ended
8/31/2006
| |
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 1,853,110 | | | $ | 3,602,448 | |
Net realized gain on investments and futures contracts
| | | 168,672 | | | | 260,646 | |
Net change in unrealized appreciation/depreciation of investments and futures contracts
|
|
| 447,802
|
|
|
| (1,223,568
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 2,469,584
|
|
|
| 2,639,526
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | | | | | | |
Class A Shares
| | | (1,334,089 | ) | | | (2,288,186 | ) |
Class B Shares
|
|
| (518,567
| )
|
|
| (1,313,299
| )
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (1,852,656
| )
|
|
| (3,601,485
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 10,852,340 | | | | 21,896,935 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 1,248,682 | | | | 2,418,362 | |
Cost of shares redeemed
|
|
| (12,606,242
| )
|
|
| (20,078,577
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| (505,220
| )
|
|
| 4,236,720
|
|
Change in net assets
|
|
| 111,708
|
|
|
| 3,274,761
|
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 84,898,045
|
|
|
| 81,623,284
|
|
End of period (including undistributed net investment income of $607 and $153, respectively)
|
| $
| 85,009,753
|
|
| $
| 84,898,045
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (Unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated California Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Class A Shares and Class B Shares. All shares of the Fund have equal rights with respect to voting, except on class specific matters. 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 AMT) and the personal income taxes imposed by the state of California and California municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Gains and Losses, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as account administration, distribution and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Inverse Floater Structures
The Fund may participate in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund, that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investments, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the Statement of Assets and Liabilities. At February 28, 2007, Fund investments with a value of $2,108,080 are held by the trusts and serve as collateral for the $1,000,000 in floating rate certificate securities outstanding at that date. The Fund recorded interest and trust expenses of $16,834 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund periodically may sell bond interest rate futures contracts to manage duration and to potentially reduce transaction costs. Upon entering into a bond interest rate futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had no net realized gains or losses on futures contracts.
At February 28, 2007, the Fund had no open futures contracts.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at February 28, 2007, is as follows:
Security
|
| Acquisition Date
|
| Acquisition Cost
|
California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025
|
| 3/30/2005
|
| $ 1,000,000
|
California PCFA, Solid Waste Disposal Revenue Bonds, 5.125% TOBs (Waste Management, Inc.), Mandatory Tender 5/1/2014
|
| 4/30/2004
|
| $ 750,000
|
California Statewide Communities Development Authority, Revenue Bonds (Series 2001), 6.75% (St. Mark's School), 6/1/2028
|
| 7/3/2001
|
| $ 485,000
|
California Statewide Communities Development Authority, Revenue Bonds (Series 2002), 6.75% (Prospect Sierra School)/ (United States Treasury PRF 9/1/2010@103)/(Original Issue Yield: 6.85%), 9/1/2032
|
| 5/10/2002
|
| $ 394,864
|
California Statewide Communities Development Authority, Revenue Bonds (Series 2005A), 4.875% (Thomas Jefferson School of Law)/(Original Issue Yield: 4.93%), 10/1/2035
|
| 8/26/2005
|
| $ 396,560
|
California Statewide Communities Development Authority, Revenue Bonds, 6.50% (Turningpoint School), 11/1/2031
|
| 3/23/2001
|
| $ 500,000
|
Community Facilities District No. 3 (Liberty Station), Special Tax Bonds (Series 2006A), 5.75%, 9/1/2036
|
| 6/30/2006
|
| $ 425,000
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class A Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 961,222 | | | $ | 10,585,497 | | | 1,859,201 | | | $ | 20,329,368 | |
Shares issued to shareholders in payment of distributions declared
| | 82,786 | | | | 912,311 | | | 141,857 | | | | 1,549,668 | |
Shares redeemed
|
| (565,404
| )
|
|
| (6,231,362
| )
|
| (950,351
| )
|
|
| (10,361,788
| )
|
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS
|
| 478,604
|
|
| $
| 5,266,446
|
|
| 1,050,707
|
|
| $
| 11,517,248
|
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class B Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 24,051 | | | $ | 266,843 | | | 143,104 | | | $ | 1,567,567 | |
Shares issued to shareholders in payment of distributions declared
| | 30,524 | | | | 336,371 | | | 79,487 | | | | 868,694 | |
Shares redeemed
|
| (578,729
| )
|
|
| (6,374,880
| )
|
| (887,832
| )
|
|
| (9,716,789
| )
|
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS
|
| (524,154
| )
|
| $
| (5,771,666
| )
|
| (665,241
| )
|
| $
| (7,280,528
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| (45,550
| )
|
| $
| (505,220
| )
|
| 385,466
|
|
| $
| 4,236,720
|
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $80,578,347. The net unrealized appreciation of investments for federal tax purposes was $4,481,467. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $4,595,040 and net unrealized depreciation from investments for those securities having an excess of cost over value of $113,573.
At August 31, 2006, the Fund had a capital loss carryforward of $3,084,124 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 510,323
|
2009
|
| $ 1,337,342
|
2010
|
| $ 166,229
|
2011
|
| $ 562,757
|
2012
|
| $ 507,473
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $168,851 of its fee and reimbursed $55,227 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.183% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class B Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses according to the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name
|
| Percentage of Average Daily
Net Assets of Class
|
Class A Shares
|
| 0.25%
|
Class B Shares
|
| 0.75%
|
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, FSC voluntarily waived $71,992 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC did not retain any fees paid by the Fund.
Sales Charges
For the six months ended February 28, 2007, FSC retained $10,124 in sales charges from the sale of Class A Shares. FSC also retained $6,750 of contingent deferred sales charges relating to redemptions of Class A Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class B Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $11,750,000 and $11,420,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 7,800,128
|
Sales
|
| $
| 6,364,683
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 41.8% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 10.9% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one and three year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923104
Cusip 313923203
4031005 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated Municipal High Yield Advantage Fund
(Formerly, Federated Municipal High Yield Advantage Fund, Inc.)
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares 1
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
|
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.02 | | | $10.05 | | | $9.71 | | | $9.55 | | | $9.73 | | | $9.91 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.25 | | | 0.50 | | | 0.51 | | | 0.55 | | | 0.56 | | | 0.55 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.11
|
|
| (0.04
| )
|
| 0.37
|
|
| 0.17
|
|
| (0.18
| )
|
| (0.19
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.36
|
|
| 0.46
|
|
| 0.88
|
|
| 0.72
|
|
| 0.38
|
|
| 0.36
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.24
| )
|
| (0.49
| )
|
| (0.54
| )
|
| (0.56
| )
|
| (0.56
| )
|
| (0.54
| )
|
Net Asset Value, End of Period
|
| $10.14
|
|
| $10.02
|
|
| $10.05
|
|
| $9.71
|
|
| $9.55
|
|
| $9.73
|
|
Total Return 2
|
| 3.69
| %
|
| 4.80
| %
|
| 9.34
| %
|
| 7.77
| %
|
| 4.06
| %
|
| 3.79
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 1.30
| % 3,4
|
| 1.26
| % 4
|
| 1.52
| % 4
|
| 1.43
| % 4
|
| 1.44
| % 4
|
| 1.43
| % 4
|
Net investment income
|
| 5.04
| % 3
|
| 4.98
| %
|
| 5.19
| %
|
| 5.70
| %
|
| 5.86
| %
|
| 5.67
| %
|
Expense waiver/reimbursement 5
|
| 0.28
| % 3
|
| 0.19
| %
|
| 0.00
| % 6
|
| 0.00
| % 6
|
| - --
|
|
| - --
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $238,765
|
| $235,204
|
| $193,899
|
| $136,812
|
| $117,435
|
| $111,642
|
|
Portfolio turnover
|
| 16
| %
|
| 20
| %
|
| 17
| %
|
| 11
| %
|
| 16
| %
|
| 22
| %
|
1 Note that the Fund is the successor to the Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund, a series of Federated Municipal Securities Income Trust, as of the close of business on November 10, 2006. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization.
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 Computed on an annualized basis.
4 Includes interest and trust expenses related to the Fund's participation in certain inverse floater structures of 0.52%, 0.38%, 0.45%, 0.37%, 0.37% and 0.35% for the six months ended February 28, 2007 and the years ended August 31, 2006, 2005, 2004, 2003 and 2002, respectively.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares 1
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
|
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.01 | | | $10.05 | | | $9.71 | | | $9.54 | | | $9.73 | | | $9.90 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.22 | | | 0.42 | | | 0.44 | | | 0.48 | | | 0.49 | | | 0.47 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.11
|
|
| (0.04
| )
|
| 0.37
|
|
| 0.18
|
|
| (0.19
| )
|
| (0.17
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.33
|
|
| 0.38
|
|
| 0.81
|
|
| 0.66
|
|
| 0.30
|
|
| 0.30
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Total distributions from net investment income
|
| (0.21
| )
|
| (0.42
| )
|
| (0.47
| )
|
| (0.49
| )
|
| (0.49
| )
|
| (0.47
| )
|
Net Asset Value, End of Period
|
| $10.13
|
|
| $10.01
|
|
| $10.05
|
|
| $9.71
|
|
| $9.54
|
|
| $9.73
|
|
Total Return 2
|
| 3.31
| %
|
| 3.91
| %
|
| 8.53
| %
|
| 7.07
| %
|
| 3.18
| %
|
| 3.11
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 2.06
| % 3,4
|
| 2.02
| % 4
|
| 2.27
| % 4
|
| 2.18
| % 4
|
| 2.19
| % 4
|
| 2.18
| % 4
|
Net investment income
|
| 4.28
| % 3
|
| 4.23
| %
|
| 4.45
| %
|
| 4.95
| %
|
| 5.11
| %
|
| 4.93
| %
|
Expense waiver/reimbursement 5
|
| 0.28
| % 3
|
| 0.19
| %
|
| 0.00
| % 6
|
| 0.00
| % 6
|
| - --
|
|
| - --
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $96,693
|
| $106,124
|
| $120,901
|
| $120,205
|
| $124,736
|
| $107,348
|
|
Portfolio turnover
|
| 16
| %
|
| 20
| %
|
| 17
| %
|
| 11
| %
|
| 16
| %
|
| 22
| %
|
1 Note that the Fund is the successor to the Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund, a series of Federated Municipal Securities Income Trust, as of the close of business on November 10, 2006. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization.
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 Computed on an annualized basis.
4 Includes interest and trust expenses related to the Fund's participation in certain inverse floater structures of 0.52%, 0.38%, 0.45%, 0.37%, 0.37% and 0.35% for the six months ended February 28, 2007 and the years ended August 31, 2006, 2005, 2004, 2003 and 2002, respectively.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares 1
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
|
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.01 | | | $10.05 | | | $9.71 | | | $9.54 | | | $9.73 | | | $9.90 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.22 | | | 0.42 | | | 0.44 | | | 0.47 | | | 0.48 | | | 0.48 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.12
|
|
| (0.04
| )
|
| 0.37
|
|
| 0.19
|
|
| (0.18
| )
|
| (0.18
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.34
|
|
| 0.38
|
|
| 0.81
|
|
| 0.66
|
|
| 0.30
|
|
| 0.30
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.21
| )
|
| (0.42
| )
|
| (0.47
| )
|
| (0.49
| )
|
| (0.49
| )
|
| (0.47
| )
|
Net Asset Value, End of Period
|
| $10.14
|
|
| $10.01
|
|
| $10.05
|
|
| $9.71
|
|
| $9.54
|
|
| $9.73
|
|
Total Return 2
|
| 3.41
| %
|
| 3.91
| %
|
| 8.52
| %
|
| 7.07
| %
|
| 3.17
| %
|
| 3.13
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 2.06
| % 3,4
|
| 2.01
| % 4
|
| 2.27
| % 4
|
| 2.18
| % 4
|
| 2.19
| % 4
|
| 2.18
| % 4
|
Net investment income
|
| 4.30
| % 3
|
| 4.23
| %
|
| 4.44
| %
|
| 4.95
| %
|
| 5.11
| %
|
| 4.92
| %
|
Expense waiver/reimbursement 5
|
| 0.28
| % 3
|
| 0.19
| %
|
| 0.00
| % 6
|
| 0.00
| % 6
|
| - --
|
|
| - --
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $57,735
|
| $52,875
|
| $42,419
|
| $25,646
|
| $14,083
|
| $10,220
|
|
Portfolio turnover
|
| 16
| %
|
| 20
| %
|
| 17
| %
|
| 11
| %
|
| 16
| %
|
| 22
| %
|
1 Note that the Fund is the successor to the Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund, a series of Federated Municipal Securities Income Trust, as of the close of business on November 10, 2006. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization.
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 Computed on an annualized basis.
4 Includes interest and trust expenses related to the Fund's participation in certain inverse floater structures of 0.52%, 0.38%, 0.45%, 0.37%, 0.37% and 0.35% for the six months ended February 28, 2007 and the years ended August 31, 2006, 2005, 2004, 2003 and 2002, respectively.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class F Shares 1
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
|
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.02 | | | $10.05 | | | $9.71 | | | $9.55 | | | $9.73 | | | $9.91 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.25 | | | 0.50 | | | 0.52 | | | 0.55 | | | 0.57 | | | 0.55 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.11
|
|
| (0.04
| )
|
| 0.36
|
|
| 0.17
|
|
| (0.19
| )
|
| (0.19
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.36
|
|
| 0.46
|
|
| 0.88
|
|
| 0.72
|
|
| 0.38
|
|
| 0.36
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.24
| )
|
| (0.49
| )
|
| (0.54
| )
|
| (0.56
| )
|
| (0.56
| )
|
| (0.54
| )
|
Net Asset Value, End of Period
|
| $10.14
|
|
| $10.02
|
|
| $10.05
|
|
| $9.71
|
|
| $9.55
|
|
| $9.73
|
|
Total Return 2
|
| 3.69
| %
|
| 4.80
| %
|
| 9.34
| %
|
| 7.77
| %
|
| 4.06
| %
|
| 3.79
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 1.30
| % 3,4
|
| 1.26
| % 4
|
| 1.52
| % 4
|
| 1.43
| % 4
|
| 1.44
| % 4
|
| 1.43
| % 4
|
Net investment income
|
| 5.05
| % 3
|
| 4.98
| %
|
| 5.20
| %
|
| 5.70
| %
|
| 5.86
| %
|
| 5.67
| %
|
Expense waiver/reimbursement 5
|
| 0.28
| % 3
|
| 0.19
| %
|
| 0.00
| % 6
|
| 0.00
| % 6
|
| - --
|
|
| - --
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $198,186
|
| $186,648
|
| $177,351
|
| $160,088
|
| $167,097
|
| $183,467
|
|
Portfolio turnover
|
| 16
| %
|
| 20
| %
|
| 17
| %
|
| 11
| %
|
| 16
| %
|
| 22
| %
|
1 Note that the Fund is the successor to the Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund, a series of Federated Municipal Securities Income Trust, as of the close of business on November 10, 2006. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization.
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 Computed on an annualized basis.
4 Includes interest and trust expenses related to the Fund's participation in certain inverse floater structures of 0.52%, 0.38%, 0.45%, 0.37%, 0.37% and 0.35% for the six months ended February 28, 2007 and the years ended August 31, 2006, 2005, 2004, 2003 and 2002, respectively.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1,2
|
Actual:
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,036.90
|
| $ 6.57
|
Class B Shares
|
| $1,000
|
| $1,033.10
|
| $10.38
|
Class C Shares
|
| $1,000
|
| $1,034.10
|
| $10.39
|
Class F Shares
|
| $1,000
|
| $1,036.90
|
| $ 6.57
|
Hypothetical (assuming a 5% return before expenses):
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,018.35
|
| $ 6.51
|
Class B Shares
|
| $1,000
|
| $1,014.58
|
| $10.29
|
Class C Shares
|
| $1,000
|
| $1,014.58
|
| $10.29
|
Class F Shares
|
| $1,000
|
| $1,018.35
|
| $ 6.51
|
1 Note that the Fund is the successor to Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund as of the close of business on November 10, 2006. Prior to the reorganization, the Fund had no investment operations. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization and the Predecessor Fund.
2 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). The annualized net expense ratios are as follows:
Class A Shares
|
| 1.30%
|
Class B Shares
|
| 2.06%
|
Class C Shares
|
| 2.06%
|
Class F Shares
|
| 1.30%
|
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's 1 sector composition 2 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Hospital
|
| 18.3
| %
|
Refunded
|
| 15.0
| %
|
Special Tax
|
| 14.8
| %
|
Senior Care
|
| 13.8
| %
|
Single Family Housing
|
| 7.0
| %
|
Insured
|
| 5.8
| %
|
Transportation
|
| 5.6
| %
|
Industrial Development Bond/Pollution Control Revenue
|
| 5.2
| %
|
Electric & Gas
|
| 4.4
| %
|
Education
|
| 4.1
| %
|
Other 3
|
| 14.6
| %
|
Other Assets and Liabilities--Net 4
|
| (8.6
| )%
|
TOTAL
|
| 100.0
| %
|
1 Note that the Fund is the successor to Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund as of the close of business on November 10, 2006. Prior to the reorganization, the Fund had no investment operations. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization and the Predecessor Fund.
2 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
3 For purposes of this table, sector classifications constitute 94% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--107.0% | | | | |
| | | Alabama--1.2% | | | | |
| $ | 2,000,000 | | Courtland, AL IDB, Solid Waste Disposal Revenue Refunding Bonds (Series 2005B), 5.20% (International Paper Co.), 6/1/2025
| | $ | 2,064,600 | |
| 2,000,000 | 1 | Mobile County, AL IDA, (Ipsco, Inc.) Industrial Development Revenue Bonds (Series 2000), 5/1/2030
| | | 2,122,640 | |
| 545,000 | | Montgomery, AL Medical Clinic Board, Health Care Facility Revenue Bonds (Series 2006), 5.25% (Jackson Hospital & Clinic, Inc.), 3/1/2036
| | | 573,345 | |
| 2,100,000 | | Sylacauga, AL Health Care Authority, Revenue Bonds (Series 2005A), 6.00% (Coosa Valley Medical Center)/(Original Issue Yield: 6.05%), 8/1/2035
|
|
| 2,210,418
|
|
| | | TOTAL
|
|
| 6,971,003
|
|
| | | Alaska--0.2% | | | | |
| 1,440,000 | | Alaska Industrial Development and Export Authority, Power Revenue Bonds, 5.875% (Upper Lynn Canal Regional Power Supply System)/(Original Issue Yield: 6.00%), 1/1/2032
|
|
| 1,441,166
|
|
| | | Arizona--1.3% | | | | |
| 500,000 | | Arizona Health Facilities Authority, Hospital System Revenue Bonds, 6.375% (John C. Lincoln Health Network), 12/1/2037
| | | 571,690 | |
| 4,000,000 | 2,3 | Arizona Health Facilities Authority, RITES (PA-1454), 9.143% (Phoenix Children's Hospital), 2/1/2042
| | | 4,250,000 | |
| 1,500,000 | 2 | Pima County, AZ IDA, Education Facilities Revenue Bonds (Series 2006), 6.375% (Choice Education & Development Corp.), 6/1/2036
| | | 1,582,380 | |
| 1,000,000 | 2 | Watson Road Community Facilities District, AZ, Special Assessment Revenue Bonds (Series 2005), 6.00%, 7/1/2030
|
|
| 1,066,140
|
|
| | | TOTAL
|
|
| 7,470,210
|
|
| | | Arkansas--0.4% | | | | |
| 2,000,000 | | Arkansas Development Finance Authority, Hospital Revenue Bonds (Series 2000), 7.375% (Washington Regional Medical Center)/(United States Treasury PRF 2/1/2010@100)/(Original Issue Yield: 7.50%), 2/1/2029
|
|
| 2,193,180
|
|
| | | California--4.5% | | | | |
| 1,000,000 | 2 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2002B), 5.00% (Waste Management, Inc.), 7/1/2027
| | | 1,039,250 | |
| 1,000,000 | 2 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025
| | | 1,073,450 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | California--continued | | | | |
| $ | 2,000,000 | 2 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005C), 5.125% (Waste Management, Inc.), 11/1/2023
| | $ | 2,111,280 | |
| 670,000 | | California State, UT GO Bonds, 5.75% (United States Treasury PRF 5/1/2010@101), 5/1/2030
| | | 719,634 | |
| 2,075,000 | | California State, UT GO Bonds, 5.75% (United States Treasury PRF 5/1/2010@101), 5/1/2030
| | | 2,228,716 | |
| 1,270,000 | 2 | California Statewide Communities Development Authority, MFH Revenue Bonds (Series 1999X), 6.65% (Magnolia City Lights Project), 7/1/2029
| | | 1,331,366 | |
| 980,000 | 2 | California Statewide Communities Development Authority, Revenue Bonds, 6.625% (Tehiyah Day School), 11/1/2031
| | | 1,023,806 | |
| 2,000,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2005A), 5.00% (California State), 6/1/2045
| | | 2,087,840 | |
| 4,000,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Bonds (Series 2003A-3), 7.875%, 6/1/2042
| | | 4,866,360 | |
| 2,825,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Revenue Bonds (Series 2003A-1), 6.75% (Original Issue Yield: 7.00%), 6/1/2039
| | | 3,237,676 | |
| 750,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Revenue Bonds (Series 2003A-2), 7.90%, 6/1/2042
| | | 913,477 | |
| 1,000,000 | | Los Angeles, CA Regional Airport Improvement Corp., Facilities Sublease Refunding Revenue Bonds (Series 2002B), 7.50% (American Airlines, Inc.)/(Original Issue Yield: 7.929%), 12/1/2024
| | | 1,152,830 | |
| 2,000,000 | | Los Angeles, CA Regional Airport Improvement Corp., Lease Revenue Bonds, Series C, 7.50% (American Airlines, Inc.)/(Original Issue Yield: 7.929%), 12/1/2024
| | | 2,305,660 | |
| 1,000,000 | | Oxnard, CA Community Facilities District No. 3, Special Tax Bonds (Series 2005), 5.00% (Seabridge at Mandalay Bay)/(Original Issue Yield: 5.22%), 9/1/2035
| | | 1,011,850 | |
| 349,000 | 4 | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042
| | | 237,135 | |
| 1,000,000 | | Western Hills Water District, CA, Special Tax Revenue Bonds, 6.875% (Diablo Grande Community Facilities No. 1)/(Original Issue Yield: 6.954%), 9/1/2031
|
|
| 1,070,490
|
|
| | | TOTAL
|
|
| 26,410,820
|
|
| | | Colorado--6.7% | | | | |
| 1,500,000 | | Aspen Grove, CO Business Improvement District, LT GO Bonds (Series 2001), 7.625%, 12/1/2025
| | | 1,626,900 | |
| 2,000,000 | | Beacon Point, CO Metropolitan District, Revenue Bonds (Series 2005A), 6.25% (Original Issue Yield: 6.375%), 12/1/2035
| | | 2,150,420 | |
| 1,500,000 | | Castle Oaks, CO Metropolitan District, LT GO Bonds (Series 2005), 6.125%, 12/1/2035
| | | 1,560,090 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Colorado--continued | | | | |
| $ | 1,500,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2001), 7.625% (Peak to Peak Charter School Project)/(United States Treasury PRF 8/15/2011@100)/(Original Issue Yield: 8.00%), 8/15/2031
| | $ | 1,737,180 | |
| 970,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2005), 6.50% (Knowledge Quest Academy)/(Original Issue Yield: 6.50%), 5/1/2036
| | | 1,018,287 | |
| 585,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2006), 5.625% (Carbon Valley Academy), 12/1/2036
| | | 585,380 | |
| 1,000,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds, 7.375% (Frontier Academy)/(Original Issue Yield: 7.50%), 6/1/2031
| | | 1,132,950 | |
| 940,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds, 7.25% (Platte River Academy)/(United States Treasury PRF 3/1/2010@100)/(Original Issue Yield: 7.40%), 3/1/2022
| | | 1,007,718 | |
| 500,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds, 7.25% (Platte River Academy)/(United States Treasury PRF 3/1/2010@100)/(Original Issue Yield: 7.50%), 3/1/2032
| | | 550,545 | |
| 760,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds, 7.50% (Excel Academy)/(United States Treasury PRF 12/1/2011@100)/(Original Issue Yield: 7.75%), 12/1/2033
| | | 884,883 | |
| 800,000 | | Colorado Educational & Cultural Facilities Authority, Revenue Refunding Bonds (Series A), 7.125% (Denver Academy)/(Original Issue Yield: 7.375%), 11/1/2028
| | | 894,440 | |
| 755,000 | | Colorado Health Facilities Authority, Health Facilities Revenue Bonds (Series 2005), 5.25% (Evangelical Lutheran Good Samaritan Society), 6/1/2023
| | | 809,851 | |
| 4,250,000 | | Colorado Health Facilities Authority, Revenue Bonds (Series 2005), 5.00% (Covenant Retirement Communities, Inc.)/(Original Issue Yield: 5.05%), 12/1/2035
| | | 4,352,637 | |
| 1,000,000 | | Colorado Health Facilities Authority, Revenue Bonds (Series 2006A), 5.75% (Christian Living Communities), 1/1/2037
| | | 1,050,600 | |
| 1,000,000 | | Conservatory Metropolitan District, CO, LT GO Bonds, 6.75%, 12/1/2034
| | | 1,081,740 | |
| 1,000,000 | | Conservatory Metropolitan District, CO, LT GO Bonds, 7.55%, 12/1/2032
| | | 1,126,340 | |
| 600,000 | | Deer Creek Metropolitan District, CO, UT GO Bonds, 7.625% (United States Treasury PRF 12/1/2010@101), 12/1/2019
| | | 684,150 | |
| 2,000,000 | | Denver, CO City & County Airport Authority, Revenue Bonds, 5.00% (XL Capital Assurance Inc. INS), 11/15/2022
| | | 2,150,380 | |
| 500,000 | | Denver, CO Health & Hospital Authority, Healthcare Revenue Bonds (Series 2001A), 6.00% (Original Issue Yield: 6.05%), 12/1/2031
| | | 535,055 | |
| 505,000 | | Eagle County, CO Air Terminal Corp., Airport Terminal Project Revenue Improvement Bonds (Series 2006B), 5.25%, 5/1/2020
| | | 516,963 | |
| 1,000,000 | | Granby Ranch, CO Metropolitan District, LT GO Bonds (Series 2006), 6.75%, 12/1/2036
| | | 1,051,090 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Colorado--continued | | | | |
| $ | 1,000,000 | | High Plains, CO Metropolitan District, Revenue Bonds (Series 2005A), 6.25% (Original Issue Yield: 6.375%), 12/1/2035
| | $ | 1,075,210 | |
| 500,000 | | Maher Ranch, CO Metropolitan District No. 4, LT GO Bonds (Series 2006), 7.00%, 12/1/2036
| | | 546,950 | |
| 1,000,000 | | Maher Ranch, CO Metropolitan District No. 4, LT GO Bonds, 7.875%, 12/1/2033
| | | 1,143,840 | |
| 1,770,000 | | Murphy Creek, CO Metropolitan District No. 3, Refunding & Improvement LT GO Bonds, 6.00%, 12/1/2026
| | | 1,860,819 | |
| 2,235,000 | | Northwest, CO Metropolitan District No. 3, LT GO Bonds (Series 2005), 6.25%, 12/1/2035
| | | 2,391,718 | |
| 1,500,000 | | Southlands, CO Metropolitan District No. 1, LT GO Bonds (Series 2004), 7.125% (Original Issue Yield: 7.18%), 12/1/2034
| | | 1,669,095 | |
| 2,000,000 | | Sterling Hills West Metropolitan District, LT GO Bonds (Series 2110B), 8.00%, 12/1/2021
| | | 2,153,360 | |
| 2,000,000 | | Tallgrass Metropolitan District, CO, Refunding & Improvement LT GO Bonds (Series 2007), 5.25%, 12/1/2037
|
|
| 2,015,180
|
|
| | | TOTAL
|
|
| 39,363,771
|
|
| | | Connecticut--0.3% | | | | |
| 1,000,000 | | Connecticut Development Authority, Airport Facility Revenue Bonds, 7.95% (Bombardier, Inc.), 4/1/2026
| | | 1,209,120 | |
| 800,000 | | Connecticut State HEFA, Revenue Bonds (Series 2005C), 5.125% (Eastern Connecticut Health Network)/(Radian Asset Assurance INS), 7/1/2030
|
|
| 851,576
|
|
| | | TOTAL
|
|
| 2,060,696
|
|
| | | District of Columbia--0.4% | | | | |
| 25,000,000 | | District of Columbia Tobacco Settlement Financing Corp., Tobacco Settlement Asset-Backed Bonds (Series 2006), 6/15/2046
|
|
| 2,336,250
|
|
| | | Florida--7.2% | | | | |
| 1,500,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A), 5.35%, 5/1/2036
| | | 1,515,900 | |
| 1,000,000 | | Ave Maria Stewardship Community District, FL, Capital Improvement Revenue Bonds (Series 2006A), 5.125% (Original Issue Yield: 5.15%), 5/1/2038
| | | 1,002,470 | |
| 1,400,000 | | Belmont, FL Community Development District, Capital Improvement Revenue Bonds (Series 2006B), 5.125%, 11/1/2014
| | | 1,412,712 | |
| 2,000,000 | | Capital Projects Finance Authority, FL, Continuing Care Retirement Community Revenue Bonds, 8.00% (Glenridge on Palmer Ranch)/(United States Treasury PRF 6/1/2012@102)/(Original Issue Yield: 8.125%), 6/1/2032
| | | 2,378,280 | |
| 109,218 | | Capital Trust Agency, FL, Housing Revenue Notes, 4.25% (Atlantic Housing Foundation Properties), 7/1/2040
| | | 107,991 | |
| 1,000,000 | 2,5 | Capital Trust Agency, FL, Revenue Bonds (Series 2003A), 8.95% (Seminole Tribe of Florida Convention and Resort Hotel Facilities)/(United States Treasury PRF 10/1/2012@102), 10/1/2033
| | | 1,226,600 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Florida--continued | | | | |
| $ | 805,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2005), 5.45%, 5/1/2036
| | $ | 817,711 | |
| 1,000,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2006), 5.375%, 5/1/2036
| | | 1,009,470 | |
| 435,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2006B), 5.00%, 5/1/2011
| | | 435,296 | |
| 460,000 | | Fishhawk Community Development District II, Special Assessment Revenue Bonds (Series 2004B), 5.125% (Original Issue Yield: 5.20%), 11/1/2009
| | | 459,926 | |
| 5,200,000 | 1 | Florida Housing Finance Corp., Homeowner Mortgage Revenue Bonds (Series 4), 5.050%, 7/1/2026
| | | 5,414,136 | |
| 1,000,000 | | Greater Orlando, FL Aviation Authority, Special Purpose Airport Facilities Revenue Bonds (Series 2005), 6.50% (Jet Blue Airways Corp.)/(Original Issue Yield: 6.811%), 11/15/2036
| | | 1,070,130 | |
| 635,000 | | Harbor Bay, FL Community Development District, Special Assessment Capital Improvement Revenue Bonds (Series 2001B), 6.35%, 5/1/2010
| | | 636,226 | |
| 1,000,000 | | Highlands County, FL Health Facilities Authority, Hospital Revenue Bonds (Series 2001A), 6.00% (Adventist Health System/ Sunbelt Obligated Group)/(United States Treasury PRF 11/15/2011@101)/(Original Issue Yield: 6.026%), 11/15/2031
| | | 1,105,630 | |
| 990,000 | | Lakes by the Bay South Community Development District, FL, Special Assessment Revenue Bonds (Series 2004A), 6.25% (Original Issue Yield: 6.277%), 5/1/2034
| | | 1,068,220 | |
| 140,000 | | Lee County, FL HFA, SFM Step Coupon Revenue Bonds, 6.85% (GNMA Home Mortgage Program COL), 3/1/2029
| | | 141,719 | |
| 2,000,000 | | Lee County, FL IDA, Health Care Facilities Revenue Bond (Series A), 6.75% (Cypress Cove at Healthpark)/(Original Issue Yield: 6.98%), 10/1/2032
| | | 2,167,380 | |
| 925,000 | | Mediterra North Community Development District, FL, Capital Improvement Revenue Bonds (Series A), 6.80%, 5/1/2031
| | | 993,394 | |
| 1,000,000 | | Miami Beach, FL Health Facilities Authority, Hospital Revenue Bonds (Series 2001A), 6.70% (Mt. Sinai Medical Center, FL)/(Original Issue Yield: 6.80%), 11/15/2019
| | | 1,099,900 | |
| 700,000 | 2 | Miami Beach, FL Health Facilities Authority, Refunding Revenue Bonds, 6.75% (Mt. Sinai Medical Center, FL)/(Original Issue Yield: 7.05%), 11/15/2029
| | | 798,203 | |
| 500,000 | | Miami, FL Health Facilities Authority, Health System Revenue Bonds (Series 2003C), 5.125% (Catholic Health East)/(Original Issue Yield: 5.30%), 11/15/2024
| | | 524,695 | |
| 1,000,000 | | Midtown Miami, FL Community Development District, Special Assessment Bonds (Series 2004A), 6.25% (Original Issue Yield: 6.30%), 5/1/2037
| | | 1,091,490 | |
| 965,000 | | Orlando, FL Urban Community Development District, Capital Improvement Revenue Bonds (Series 2001A), 6.95% (Original Issue Yield: 7.00%), 5/1/2033
| | | 1,043,252 | |
| 600,000 | | Orlando, FL Urban Community Development District, Capital Improvement Revenue Bonds, 6.25%, 5/1/2034
| | | 647,406 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Florida--continued | | | | |
| $ | 2,000,000 | 2 | Palm Beach County, FL, Tax-Exempt Revenue Bonds (Series 2005A), 6.75% (G-Star School of the Arts for Motion Pictures and Broadcasting Charter School), 5/15/2035
| | $ | 2,145,480 | |
| 1,000,000 | | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A), 7.375%, 5/1/2033
| | | 1,112,830 | |
| 1,200,000 | | South Lake County, FL Hospital District, Revenue Bonds, 6.625% (South Lake Hospital, Inc.), 10/1/2023
| | | 1,360,812 | |
| 2,000,000 | | St. Johns County, FL IDA, Health Care Revenue Bonds (Series 1999), 8.00% (Glenmoor at St. Johns Project)/(Original Issue Yield: 8.10%), 1/1/2030
| | | 2,229,520 | |
| 710,000 | | Tern Bay, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005), 5.00%, 5/1/2015
| | | 710,895 | |
| 1,760,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2006), 5.40%, 5/1/2037
| | | 1,784,235 | |
| 500,000 | | Tuscany Reserve Community Development District, FL, Capital Improvement Revenue Bonds (Series 2005A), 5.55%, 5/1/2036
| | | 513,700 | |
| 375,000 | | Tuscany Reserve Community Development District, FL, Capital Improvement Revenue Bonds (Series 2005B), 5.25%, 5/1/2016
| | | 383,468 | |
| 1,000,000 | | Verandah East, FL Community Development District, Capital Improvement Revenue Bonds (Series 2006A), 5.40%, 5/1/2037
| | | 1,026,040 | |
| 855,000 | | Verandah West, FL Community Development District, Capital Improvement Revenue Bonds (Series 2003A), 6.625% (Original Issue Yield: 6.75%), 5/1/2033
| | | 932,360 | |
| 1,630,000 | | Volusia County, FL Education Facility Authority, Educational Facilities Refunding Revenue Bonds (Series 2005), 5.00% (Embry-Riddle Aeronautical University, Inc.)/(Radian Asset Assurance INS), 10/15/2025
| | | 1,721,084 | |
| 500,000 | | Winter Garden Village at Fowler Groves Community Development District, FL, Special Assessment Bonds (Series 2006), 5.65%, 5/1/2037
|
|
| 518,430
|
|
| | | TOTAL
|
|
| 42,606,991
|
|
| | | Georgia--1.5% | | | | |
| 1,845,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2001), 7.75% (Atlantic Station Project)/(Original Issue Yield: 7.90%), 12/1/2014
| | | 2,034,408 | |
| 770,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2005B), 5.60% (Eastside Tax Allocation District)/(Original Issue Yield: 5.65%), 1/1/2030
| | | 800,184 | |
| 1,235,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2006), 5.50% (Princeton Lakes), 1/1/2031
| | | 1,266,184 | |
| 1,000,000 | | Augusta, GA Airport, General Passenger Facilities Charge Revenue Bonds, Series A, 5.15%, 1/1/2035
| | | 1,041,280 | |
| 750,000 | | Augusta, GA Airport, General Passenger Facilities Charge Revenue Bonds, Series B, 5.35%, 1/1/2028
| | | 794,632 | |
| 1,875,000 | | Augusta, GA HFA, MFH Refunding Revenue Bonds, 6.55% (Forest Brook Apartments), 12/1/2030
| | | 1,939,237 | |
| 750,000 | | Fulton County, GA Residential Care Facilities, Revenue Bonds (Series 2004A), 6.00% (Canterbury Court), 2/15/2022
|
|
| 762,863
|
|
| | | TOTAL
|
|
| 8,638,788
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Hawaii--0.5% | | | | |
| $ | 1,000,000 | | Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds (Series A), 7.00% (Kahala Nui)/(Original Issue Yield: 7.00%), 11/15/2012
| | $ | 1,087,320 | |
| 1,000,000 | | Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds (Series A), 8.00% (Kahala Nui)/(Original Issue Yield: 8.175%), 11/15/2033
| | | 1,161,980 | |
| 435,000 | | Hawaii State Department of Transportation, Special Facility Refunding Revenue Bonds (Series 2000), 7.00% (Continental Airlines, Inc.)/(Original Issue Yield: 7.20%), 6/1/2020
|
|
| 463,762
|
|
| | | TOTAL
|
|
| 2,713,062
|
|
| | | Idaho--0.0% | | | | |
| 85,000 | | Idaho Housing Agency, SFM Revenue Bonds (Series F-2), 7.80% (FHA GTD), 1/1/2023
|
|
| 85,192
|
|
| | | Illinois--4.6% | | | | |
| 625,000 | | Bolingbrook, IL, Special Service Area No. 2005-1 Special Tax Bonds (Series 2005) (Forest City Project)/(Original Issue Yield: 5.90%), 3/1/2027
| | | 648,162 | |
| 1,000,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2005A), 5.00% (FGIC INS), 1/1/2033
| | | 1,060,040 | |
| 5,000 | | Chicago, IL SFM Revenue Bonds (Series A), 7.25% (GNMA COL), 9/1/2028
| | | 5,138 | |
| 415,000 | | DuPage County, IL, Special Tax Bonds (Series 2006), 5.625% (Naperville Campus LLC), 3/1/2036
| | | 435,775 | |
| 11,695,000 | 1 | Illinois Finance Authority, (SwedishAmerican Hospital), Revenue Bonds, 5.000%, 11/15/2023
| | | 12,368,826 | |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 5.625% (Friendship Village of Schaumburg)/(Original Issue Yield: 5.70%), 2/15/2037
| | | 1,034,650 | |
| 1,250,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.00% (Landing at Plymouth Place)/(Original Issue Yield: 6.04%), 5/15/2037
| | | 1,338,138 | |
| 2,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.125% (Clare at Water Tower)/(Original Issue Yield: 6.25%), 5/15/2038
| | | 2,109,180 | |
| 1,500,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.25% (Smith Village), 11/15/2035
| | | 1,599,360 | |
| 1,500,000 | | Illinois Finance Authority, Revenue Refunding Bonds (Series 2006A), 5.125% (Proctor Hospital)/(Original Issue Yield: 5.20%), 1/1/2025
| | | 1,549,980 | |
| 1,000,000 | | Illinois Finance Authority, Solid Waste Disposal Revenue Bonds, 5.05% (Waste Management, Inc.), 8/1/2029
| | | 1,035,220 | |
| 1,000,000 | | Illinois Health Facilities Authority, Revenue Bonds (Series 2006), 5.25% (Tabor Hills Supportive Living LLC), 11/15/2036
| | | 1,029,840 | |
| 2,000,000 | | Lombard, IL Public Facilities Corp., First Tier Revenue Bonds (Series 2005A-1), 7.125%, 1/1/2036
| | | 2,159,980 | |
| 1,000,000 | | Quad Cities, IL Regional EDA, MFH Revenue Bonds (Series 2006), 6.00% (Heritage Woods of Moline SLF), 12/1/2041
|
|
| 1,012,520
|
|
| | | TOTAL
|
|
| 27,386,809
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Indiana--1.8% | | | | |
| $ | 1,000,000 | | Goshen, IN, Revenue Bonds (Series 1998), 5.75% (Greencroft Obligated Group)/(Original Issue Yield: 5.87%), 8/15/2028
| | $ | 1,019,460 | |
| 3,000,000 | | Indiana Health Facility Financing Authority, Hospital Revenue Bonds (Series 2001A), 6.375% (Community Foundation of Northwest Indiana)/ (Original Issue Yield: 6.68%), 8/1/2031
| | | 3,224,190 | |
| 2,000,000 | | Indiana Health Facility Financing Authority, Revenue Refunding Bonds (Series 1998), 5.625% (Greenwood Village South Project)/(Original Issue Yield: 5.802%), 5/15/2028
| | | 2,019,740 | |
| 2,000,000 | | Indianapolis, IN Airport Authority, Special Facilities Revenue Refunding Bonds (Series 2004A), 5.10% (FedEx Corp.), 1/15/2017
| | | 2,123,300 | |
| 1,000,000 | | South Bend, IN, EDRBs (Series 1999A), 6.25% (Southfield Village)/(Original Issue Yield: 6.375%), 11/15/2029
| | | 1,025,290 | |
| 1,355,000 | | St. Joseph County, IN Hospital Authority, Health Facilities Revenue Bonds (Series 2005), 5.375% (Madison Center Obligated Group), 2/15/2034
|
|
| 1,418,360
|
|
| | | TOTAL
|
|
| 10,830,340
|
|
| | | Iowa--1.6% | | | | |
| 375,000 | | Bremer County, IA Retirement Facilities, Retirement Facility Revenue Bonds (Series 2005A), 5.375% (Bartels Lutheran Retirement Community)/(Original Issue Yield: 5.45%), 11/15/2027
| | | 386,006 | |
| 6,000,000 | 1 | Iowa Finance Authority, SFM Revenue Bonds (Series 2006I), 4.95%, (GNMA Home Mortgage Program COL), 7/1/2037
| | | 6,154,320 | |
| 1,000,000 | | Palo Alto County Hospital, IA, Hospital Revenue Bonds (Series 2006), 5.125% (Original Issue Yield: 5.20%), 8/1/2029
| | | 1,012,560 | |
| 1,785,000 | | Wapello County, IA, Revenue Bonds, 6.25% (Ottumwa Regional Health Center)/(United States Treasury PRF 10/1/2012@100)/(Original Issue Yield: 6.40%), 10/1/2022
|
|
| 1,961,876
|
|
| | | TOTAL
|
|
| 9,514,762
|
|
| | | Kansas--1.6% | | | | |
| 1,625,000 | | Manhattan, KS IDRB, Industrial Revenue Bonds (Series 1999), 7.00% (Farrar Corp. Project), 8/1/2014
| | | 1,676,935 | |
| 2,015,000 | | Norwich, KS, Industrial Revenue Bonds (Series 2006), 5.90% (Farrar Corp. Project), 8/1/2021
| | | 2,034,163 | |
| 1,000,000 | | Olathe, KS, Senior Living Facility Revenue Bonds (Series 2000A), 8.00% (Aberdeen Village, Inc.)/(United States Treasury PRF 5/15/2010@102)/ (Original Issue Yield: 8.25%), 5/15/2030
| | | 1,143,570 | |
| 2,000,000 | | Olathe, KS, Senior Living Facility Revenue Bonds (Series 2006A), 6.00% (Catholic Care Campus, Inc.), 11/15/2038
| | | 2,148,100 | |
| 2,000,000 | 1 | Overland Park, KS Development Corp., (Overland Park Convention Center Hotel Project), First Tier Revenue Bonds (Series 2000A), 7.375%, (Original Issue Yield: 7.50%), 1/1/2032
| | | 2,122,640 | |
| 380,000 | | Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1), 6.95% (GNMA Home Mortgage Program COL), 6/1/2029
|
|
| 396,127
|
|
| | | TOTAL
|
|
| 9,521,535
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Kentucky--0.7% | | | | |
| $ | 2,000,000 | | Kentucky EDFA, Hospital System Refunding Revenue Bonds, 5.875% (Appalachian Regional Health Center)/(Original Issue Yield: 5.92%), 10/1/2022
| | $ | 2,042,280 | |
| 435,000 | | Kentucky EDFA, Revenue Bonds (Series 2000A), 6.625% (Norton Healthcare, Inc.)/(Original Issue Yield: 6.97%), 10/1/2028
| | | 481,532 | |
| 1,565,000 | | Kentucky EDFA, Revenue Bonds (Series 2000A), 6.625% (Norton Healthcare, Inc.)/(United States Treasury PRF 10/1/2010@101)/(Original Issue Yield: 6.97%), 10/1/2028
|
|
| 1,730,733
|
|
| | | TOTAL
|
|
| 4,254,545
|
|
| | | Louisiana--1.2% | | | | |
| 1,000,000 | | De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds, Series A, 5.00% (International Paper Co.), 11/1/2018
| | | 1,028,810 | |
| 1,980,000 | 2 | Louisiana Public Facilities Authority Hospital Revenue, Revenue Bonds, 8.625% (Lake Charles Memorial Hospital)/(Original Issue Yield: 8.75%), 12/1/2030
| | | 2,130,579 | |
| 2,000,000 | | St. James Parish, LA, Solid Waste Disposal Revenue Bonds, 7.70% (IMC Phosphates Co.)/(Original Issue Yield: 7.75%), 10/1/2022
| | | 2,049,260 | |
| 2,000,000 | | West Feliciana Parish, LA, PCR Refunding Bonds (Series 1999B), 6.60% (Entergy Gulf States, Inc.), 9/1/2028
|
|
| 2,018,780
|
|
| | | TOTAL
|
|
| 7,227,429
|
|
| | | Maine--2.2% | | | | |
| 930,000 | | Maine Health & Higher Educational Facilities Authority, Health Facilities Revenue Bond, Series A, 7.50% (Piper Shores)/(United States Treasury PRF 1/1/2009@100), 1/1/2019
| | | 986,655 | |
| 1,000,000 | | Maine Health & Higher Educational Facilities Authority, Health Facilities Revenue Bonds, Series A, 7.55% (Piper Shores)/(United States Treasury PRF 1/1/2009@100), 1/1/2029
| | | 1,061,800 | |
| 5,450,000 | 1 | Maine State Housing Authority, Mortgage Revenue Bonds (Series 2006G), 4.625%, 11/15/2031
| | | 5,471,925 | |
| 5,465,000 | 1 | Maine State Housing Authority, Mortgage Revenue Bonds (Series 2006G), 4.70%, 11/15/2037
|
|
| 5,486,986
|
|
| | | TOTAL
|
|
| 13,007,366
|
|
| | | Maryland--1.1% | | | | |
| 2,000,000 | | Maryland State Economic Development Corp., Senior Lien Revenue Bonds (Series 1999B), 7.75% (Chesapeake Bay Conference Center)/(United States Treasury PRF 12/1/2009@101), 12/1/2031
| | | 2,228,460 | |
| 980,000 | 1 | Maryland State Economic Development Corp., (Baltimore Association for Retarded Citizens, Inc. Project), Health and Mental Hygiene Providers Facilities Acquisition Program Revenue Bonds (Series 2000A), 7.750%, (Original Issue Yield: 7.85%), 3/1/2025
| | | 1,040,094 | |
| 1,000,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2006), 5.50% (Washington Christian Academy), 7/1/2038
| | | 1,031,360 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Maryland--continued | | | | |
| $ | 395,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2007A), 5.25% (King Farm Presbyterian Retirement Community), 1/1/2027
| | $ | 403,192 | |
| 1,100,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2007A), 5.30% (King Farm Presbyterian Retirement Community)/(Original Issue Yield: 5.35%), 1/1/2037
| | | 1,120,185 | |
| 500,000 | | Maryland State IDFA, EDRBs (Series 2005A), 6.00% (Our Lady of Good Counsel High School), 5/1/2035
|
|
| 538,385
|
|
| | | TOTAL
|
|
| 6,361,676
|
|
| | | Massachusetts--2.6% | | | | |
| 2,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2004A), 6.375% (Northern Berkshire Health System)/(Original Issue Yield: 6.60%), 7/1/2034
| | | 2,139,460 | |
| 2,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 1999A), 5.75% (Caritas Christi Obligated Group)/(Original Issue Yield: 5.80%), 7/1/2028
| | | 2,074,960 | |
| 2,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2002B), 9.20% (Civic Investments), 12/15/2031
| | | 2,460,560 | |
| 1,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2003E), 6.75% (Jordan Hospital)/(Original Issue Yield: 7.00%), 10/1/2033
| | | 1,108,420 | |
| 3,430,000 | 1 | Massachusetts Water Resources Authority, Revenue Bonds, 5.500%, 8/1/2019
| | | 3,716,234 | |
| 3,610,000 | 1 | Massachusetts Water Resources Authority, Revenue Bonds, 5.500%, 8/1/2020
|
|
| 3,911,254
|
|
| | | TOTAL
|
|
| 15,410,888
|
|
| | | Michigan--1.1% | | | | |
| 500,000 | | Conner Creek Academy East, MI Public School, Public School Academy Revenue & Refunding Bonds (Series 2007), 5.25%, 11/1/2031
| | | 508,690 | |
| 500,000 | | Conner Creek Academy East, MI Public School, Public School Academy Revenue & Refunding Bonds (Series 2007), 5.25%, 11/1/2036
| | | 507,160 | |
| 1,000,000 | | Delta County, MI Economic Development Corp., Environmental Improvement Refunding Revenue Bonds (Series 2002B), 6.45% (MeadWestvaco Corp.)/(United States Treasury PRF 4/15/2012@100), 4/15/2023
| | | 1,105,730 | |
| 550,000 | | Gaylord, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2004), 6.50% (Otsego Memorial Hospital Obligated Group)/(Original Issue Yield: 6.70%), 1/1/2037
| | | 578,809 | |
| 1,500,000 | | Kent Hospital Finance Authority, MI, Revenue Bonds (Series 2005A), 6.25% (Metropolitan Hospital), 7/1/2040
| | | 1,683,000 | |
| 500,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2005), 5.00% (Chelsea Community Hospital)/(Original Issue Yield: 5.07%), 5/15/2037
| | | 513,175 | |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035
|
|
| 1,576,530
|
|
| | | TOTAL
|
|
| 6,473,094
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Minnesota--4.5% | | | | |
| $ | 4,000,000 | | Becker, MN, PCRBs (Series 2000-A), 8.50% (Northern States Power Co., MN), 4/1/2030
| | $ | 4,888,640 | |
| 3,000,000 | | Duluth, MN EDA, Health Care Facilities Revenue Bonds (Series 2004), 5.25% (Benedictine Health System-St. Mary's Duluth Clinic Health System Obligated Group), 2/15/2028
| | | 3,171,750 | |
| 550,000 | | Glencoe, MN Health Care Facilities, Revenue Bonds (Series 2005), 5.00% (Glencoe Regional Health Services), 4/1/2031
| | | 567,704 | |
| 2,000,000 | | Minneapolis, MN Health Care System, Revenue Bonds (Series 2002A), 5.75% (Allina Health System, MN), 11/15/2014
| | | 2,165,700 | |
| 1,000,000 | | Pine City, MN Lease Revenue, Lease Revenue Bonds (Series 2006A), 6.25% (Lakes International Language Academy), 5/1/2035
| | | 1,023,000 | |
| 500,000 | | Ramsey, MN, Lease Revenue Bonds (Series 2004A), 6.75% (Pact Charter School), 12/1/2033
| | | 540,240 | |
| 3,000,000 | | St. Paul, MN Housing & Redevelopment Authority, Health Care Facility Revenue Bonds (Series 2006), 5.25% (HealthPartners Obligated Group), 5/15/2036
| | | 3,177,690 | |
| 4,000,000 | | St. Paul, MN Housing & Redevelopment Authority, Hospital Facility Revenue Bonds (Series 2005), 6.00% (Health East, Inc.), 11/15/2035
| | | 4,440,120 | |
| 1,000,000 | | St. Paul, MN Housing & Redevelopment Authority, Refunding Revenue Bonds (Series 2003A), 7.00% (Achieve Language Academy), 12/1/2032
| | | 1,075,210 | |
| 2,000,000 | | St. Paul, MN Housing & Redevelopment Authority, Revenue Bonds (Series 2002B), 7.00% (Upper Landing Project)/(Original Issue Yield: 7.05%), 3/1/2029
| | | 2,169,520 | |
| 1,500,000 | | St. Paul, MN Port Authority, Hotel Facility Revenue Bonds (Series 2), 7.375% (Radisson Kellogg Project)/(United States Treasury PRF 8/1/2008@103)/ (Original Issue Yield: 7.50%), 8/1/2029
| | | 1,618,260 | |
| 1,500,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 1999A), 8.00% (Bluffview Montessori School Project), 12/1/2024
|
|
| 1,601,685
|
|
| | | TOTAL
|
|
| 26,439,519
|
|
| | | Mississippi--0.4% | | | | |
| 2,500,000 | | Mississippi Business Finance Corp., PCRBs, 5.875% (System Energy Resources, Inc.)/(Original Issue Yield: 5.934%), 4/1/2022
|
|
| 2,527,125
|
|
| | | Missouri--0.8% | | | | |
| 2,445,000 | 2 | Kansas City, MO IDA, MFH Revenue Bonds, 6.90% (Woodbridge Apartments Project), 8/1/2030
| | | 2,445,733 | |
| 1,000,000 | | Missouri Development Finance Board, Infrastructure Facilities Revenue Bonds (Series 2005A), 5.00% (Branson, MO), 6/1/2035
| | | 1,040,400 | |
| 1,000,000 | | St. Joseph, MO IDA, Healthcare Revenue Bonds, 7.00% (Living Community St. Joseph Project), 8/15/2032
| | | 1,017,240 | |
| 500,000 | | West Plains, MO IDA, Hospital Revenue Bonds, 6.75% (Ozarks Medical Center)/(Original Issue Yield: 6.78%), 11/15/2024
|
|
| 523,035
|
|
| | | TOTAL
|
|
| 5,026,408
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Nebraska--1.4% | | | | |
| $ | 8,000,000 | 1 | Nebraska Investment Finance Authority, Single Family Housing Revenue Bonds (Series 2006E), 5.050%, 9/1/2028
|
| $
| 8,316,800
|
|
| | | Nevada--2.2% | | | | |
| 1,000,000 | | Clark County, NV Improvement District, Special Assessment Revenue Refunding Bonds (Series 2006B), 5.30% (Southern Highlands SID No.121-B)/ (Original Issue Yield: 5.33%), 12/1/2029
| | | 1,024,920 | |
| 1,860,000 | 1 | Clark County, NV, (Southern Highlands SID No. 121), Revenue Bonds, 7.500%, 12/1/2019
| | | 1,974,055 | |
| 1,000,000 | | Clark County, NV, LO Improvement Bonds (Series 2003), 6.375% (Mountains Edge SID No. 142)/(Original Issue Yield: 6.40%), 8/1/2023
| | | 1,035,670 | |
| 960,000 | | Clark County, NV, Local Improvement Bonds (Series 2001), 6.875% (Summerlin-South SID No. 132)/(Original Issue Yield: 6.92%), 2/1/2021
| | | 998,160 | |
| 500,000 | | Clark County, NV, Special Assessment Revenue Bonds (Series 2005), 5.00% (Summerlin-Mesa SID No. 151), 8/1/2025
| | | 505,525 | |
| 1,800,000 | | Director of the State of Nevada Department of Business and Industry, 2nd Tier Revenue Bonds (Series 2000), 7.375% (Las Vegas Monorail Project)/ (Original Issue Yield: 7.75%), 1/1/2040
| | | 1,897,398 | |
| 1,300,000 | 2 | Director of the State of Nevada Department of Business and Industry, Revenue Bonds (Series 2004A), 7.00% (Las Ventanas Retirement Community)/ (Original Issue Yield: 7.125%), 11/15/2034
| | | 1,380,821 | |
| 1,000,000 | 2 | Director of the State of Nevada Department of Business and Industry, Revenue Bonds (Series 2004B), 6.75% (Las Ventanas Retirement Community)/ (Original Issue Yield: 6.875%), 11/15/2023
| | | 1,053,850 | |
| 1,275,000 | | Henderson, NV, LO Improvement Bonds, 5.30% (Inspirada Local Improvement District No. T-18)/(Original Issue Yield: 5.33%), 9/1/2035
| | | 1,296,611 | |
| 500,000 | | Las Vegas, NV, Local Improvement Special Assessment Bonds (Series 2004), 6.00% (Providence SID No. 607), 6/1/2019
| | | 516,340 | |
| 1,080,000 | | North Las Vegas, NV Special Improvement District No. 60, Subordinate LT Obligation Refunding Bonds (Series 2006B), 5.10% (Aliante SID No. 60), 12/1/2022
|
|
| 1,108,296
|
|
| | | TOTAL
|
|
| 12,791,646
|
|
| | | New Hampshire--0.2% | | | | |
| 345,000 | | New Hampshire HEFA, Revenue Bonds (Series 2006A), 5.35% (Havenwood-Heritage Heights), 1/1/2026
| | | 350,906 | |
| 750,000 | | New Hampshire HEFA, Revenue Bonds (Series 2006A), 5.40% (Havenwood-Heritage Heights), 1/1/2030
|
|
| 761,318
|
|
| | | TOTAL
|
|
| 1,112,224
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | New Jersey--4.8% | | | | |
| $ | 310,000 | | New Jersey EDA, First Mortgage Refunding Revenue Bonds (Series 2006), 5.30% (Seashore Gardens Living Center), 11/1/2026
| | $ | 317,282 | |
| 400,000 | | New Jersey EDA, First Mortgage Refunding Revenue Bonds (Series 2006), 5.375% (Seashore Gardens Living Center)/(Original Issue Yield: 5.40%), 11/1/2036
| | | 409,824 | |
| | | Nebraska--1.4% | | | | |
| 2,100,000 | 1 | New Jersey EDA, (New Jersey Metromall Urban Renewal, Inc.) Kapkowski Road Landfill Revenue Bonds, 6.500%, (Original Issue Yield: 6.55%), 4/1/2018
| | | 2,228,772 | |
| 2,000,000 | | New Jersey EDA, Retirement Community Revenue Bonds (Series 2001A), 7.25% (Cedar Crest Village, Inc.)/(United States Treasury PRF 11/15/2011@101)/ (Original Issue Yield: 7.625%), 11/15/2031
| | | 2,309,000 | |
| 300,000 | | New Jersey EDA, Retirement Community Revenue Bonds (Series A), 8.125% (Seabrook Village)/(United States Treasury PRF 11/15/2008@100)/(Original Issue Yield: 8.30%), 11/15/2018
| | | 319,950 | |
| 1,250,000 | | New Jersey EDA, Retirement Community Revenue Bonds (Series A), 8.25% (Seabrook Village)/(United States Treasury PRF 11/15/2010@101)/(Original Issue Yield: 8.50%), 11/15/2030
| | | 1,450,087 | |
| 1,550,000 | | New Jersey EDA, Revenue Bonds (Series 1997A), 5.875% (Host Marriott Corp.), 12/1/2027
| | | 1,576,614 | |
| 2,000,000 | | New Jersey EDA, Revenue Bonds, 6.25% (Continental Airlines, Inc.), 9/15/2019
| | | 2,073,420 | |
| 3,000,000 | | New Jersey EDA, Revenue Bonds, Series 2004, 5.50% (NJ Dedicated Cigarette Excise Tax), 6/15/2016
| | | 3,283,170 | |
| 1,000,000 | | New Jersey EDA, Revenue Bonds, Series 2004, 5.75% (NJ Dedicated Cigarette Excise Tax)/(Original Issue Yield: 5.93%), 6/15/2034
| | | 1,078,430 | |
| 1,000,000 | | New Jersey EDA, Special Facilities Revenue Bonds (Series 2000), 7.20% (Continental Airlines, Inc.)/(Original Issue Yield: 7.25%), 11/15/2030
| | | 1,089,220 | |
| 400,000 | | New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 6.50% (Pascack Valley Hospital Association)/(Original Issue Yield: 6.72%), 7/1/2023
| | | 437,452 | |
| 2,000,000 | | New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 6.625% (Palisades Medical Center)/(Original Issue Yield: 6.67%), 7/1/2031
| | | 2,226,500 | |
| 5,000,000 | | Tobacco Settlement Financing Corp., NJ, Revenue Bonds, 6.75% (United States Treasury PRF 6/1/2013@100)/(Original Issue Yield: 7.05%), 6/1/2039
| | | 5,844,650 | |
| 4,000,000 | | Tobacco Settlement Financing Corp., NJ, Tobacco Settlement Asset-Backed Bonds (Series 2007-1), 5.00% (Original Issue Yield: 5.015%), 6/1/2041
|
|
| 3,909,880
|
|
| | | TOTAL
|
|
| 28,554,251
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | New Mexico--2.4% | | | | |
| $ | 850,000 | | Bernalillo County, NM Multifamily, Refunding Housing Revenue Bonds (Series 2001C), 7.50% (Valencia Retirement)/(SunAmerica, Inc. GTD), 12/1/2021
| | $ | 902,080 | |
| 2,465,000 | | Dona Ana County, NM, MFH Revenue Bonds (Series 2001A), 7.00% (Montana Meadows Apartments), 12/1/2030
| | | 2,639,423 | |
| 2,000,000 | | Farmington, NM, PCR Refunding Bonds (Series 1997), 6.375% (Public Service Co., NM), 4/1/2022
| | | 2,044,380 | |
| 1,000,000 | | Mariposa East Public Improvement District, NM, UT GO Bonds, Series 2006, 6.00%, 9/1/2032
| | | 1,046,430 | |
| 7,500,000 | 1 | New Mexico Mortgage Finance Authority, SFM Revenue Bonds, 5.00%, 7/1/2037
|
|
| 7,736,760
|
|
| | | TOTAL
|
|
| 14,369,073
|
|
| | | New York--8.7% | | | | |
| 935,000 | | Amherst, NY IDA, Civic Facility Revenue Bonds (Series 2006A), 5.20% (Beechwood Health Care Center, Inc.), 1/1/2040
| | | 949,820 | |
| 2,500,000 | | Brookhaven, NY IDA, Senior Residential Housing Revenue Bonds, 6.25% (Woodcrest Estates), 12/1/2023
| | | 2,592,425 | |
| 115,000 | | Dutchess County, NY IDA, Civic Facility Revenue Bonds (Series 2004B), 7.50% (St. Francis Hospital and Health Centers), 3/1/2029
| | | 128,465 | |
| 955,000 | | Dutchess County, NY IDA, Refunding Revenue Bonds (Series 2004A), 7.50% (St. Francis Hospital and Health Centers), 3/1/2029
| | | 1,066,821 | |
| 1,365,000 | | East Rochester, NY Housing Authority, Senior Living Revenue Bonds (Series 2006), 5.50% (Woodland Village, Inc.), 8/1/2033
| | | 1,412,379 | |
| 430,000 | | Nassau County, NY IDA, Civic Facility Refunding Revenue Bonds (Series 2001B), 5.875% (North Shore-Long Island Jewish Obligated Group)/(Original Issue Yield: 5.92%), 11/1/2011
| | | 450,124 | |
| 6,000,000 | 2 | New York City, NY IDA, Liberty Revenue Bonds (Series A), 6.50% (7 World Trade Center LLC), 3/1/2035
| | | 6,399,180 | |
| 2,000,000 | 2 | New York City, NY IDA, Liberty Revenue Bonds (Series B), 6.75% (7 World Trade Center LLC), 3/1/2015
| | | 2,148,600 | |
| 1,000,000 | | New York City, NY IDA, Special Facilities Revenue Bonds (Series 2006), 5.125% (Jet Blue Airways Corp.)/(Original Issue Yield: 5.35%), 5/15/2030
| | | 998,710 | |
| 400,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.50% (Terminal One Group Association), 1/1/2024
| | | 437,744 | |
| 1,500,000 | | New York City, NY IDA, Special Facility Revenue Bonds (Series 2002), 7.625% (British Airways)/(Original Issue Yield: 7.976%), 12/1/2032
| | | 1,693,995 | |
| 5,500,000 | | New York City, NY IDA, Special Facility Revenue Bonds (Series 2005), 8.00% (American Airlines, Inc.)/(Original Issue Yield: 8.095%), 8/1/2028
| | | 6,785,735 | |
| 2,000,000 | | New York City, NY, UT GO Bonds (Fiscal 2002 Series B), 5.375% (Original Issue Yield: 5.48%), 12/1/2020
| | | 2,119,740 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | New York--continued | | | | |
| $ | 5,000,000 | | New York City, NY, UT GO Bonds (Fiscal 2004 Series A), 5.50%, 8/1/2022
| | $ | 5,465,500 | |
| 1,000,000 | | New York City, NY, UT GO Bonds (Fiscal 2004 Series I), 5.00%, 8/1/2022
| | | 1,062,340 | |
| 1,700,000 | 2 | New York Liberty Development Corp., Revenue Bonds (Series 2006A), 6.125% (National Sports Museum), 2/15/2019
| | | 1,795,404 | |
| 3,000,000 | 2,3 | New York State Dormitory Authority, Municipal Securities Trust Certificates (Series 7041), 8.22% (New York Hospital Medical Center of Queens)/ (FHA INS), 8/15/2037
| | | 3,176,010 | |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2005), 5.00% (Rochester General Hospital)/(Radian Asset Assurance INS), 12/1/2035
| | | 316,740 | |
| 1,075,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2005C), 5.50% (Mt. Sinai NYU Health Obligated Group), 7/1/2026
| | | 1,093,404 | |
| 10,500,000 | | Tobacco Settlement Financing Corp., NY, Revenue Bonds (Series 2003C-1), 5.50% (New York State), 6/1/2016
|
|
| 11,216,310
|
|
| | | TOTAL
|
|
| 51,309,446
|
|
| | | North Carolina--1.6% | | | | |
| 2,500,000 | | Gaston County, NC Industrial Facilities and PCFA, Exempt Facilities Revenue Bonds, 5.75% (National Gypsum Co.), 8/1/2035
| | | 2,694,125 | |
| 1,500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds (Series 2005A), 6.125% (Pennybyrn at Maryfield), 10/1/2035
| | | 1,598,280 | |
| 500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds, 6.375% (Arbor Acres Community)/(Original Issue Yield: 6.55%), 3/1/2032
| | | 536,785 | |
| 1,875,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds, 7.625% (Depaul Community Facilities)/ (Original Issue Yield: 7.625%), 11/1/2029
| | | 1,973,437 | |
| 630,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Refunding Bonds (Series 2006), 5.10% (Moravian Homes, Inc.), 10/1/2030
| | | 644,364 | |
| 1,200,000 | | North Carolina Medical Care Commission, Health Care Housing Revenue Bonds (Series 2004A), 5.80% (Arc of North Carolina Projects), 10/1/2034
| | | 1,300,632 | |
| 500,000 | | North Carolina Medical Care Commission, Healthcare Facilities Revenue Bonds (Series 2005A), 5.65% (Pennybyrn at Maryfield)/(Original Issue Yield: 5.85%), 10/1/2025
|
|
| 516,525
|
|
| | | TOTAL
|
|
| 9,264,148
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Ohio--2.1% | | | | |
| $ | 1,000,000 | | Cleveland-Cuyahoga County, OH Port Authority, Senior Housing Revenue Bonds (Series 2006A), 6.25% (St. Clarence-GEAC LLC), 5/1/2038
| | $ | 1,035,790 | |
| 1,500,000 | | Cleveland-Cuyahoga County, OH Port Authority, Special Assessment Tax-Increment Revenue Bonds, 7.35% (University Heights, OH Public Parking Garage), 12/1/2031
| | | 1,657,470 | |
| 500,000 | | Franklin County, OH Health Care Facilities, Revenue Bonds (Series 2001A), 7.125% (Ohio Presbyterian Retirement Services)/(United States Treasury PRF 7/1/2011@101)/(Original Issue Yield: 7.35%), 7/1/2029
| | | 570,070 | |
| 5,000,000 | 1 | Lorain County, OH, (Catholic Healthcare Partners), Hospital Revenue Refunding & Improvement Bonds, 5.625%, 10/1/2013
| | | 5,392,350 | |
| 1,500,000 | | Ohio State Air Quality Development Authority, PCR Refunding Revenue Bonds (Series 1997A), 6.10% (Cleveland Electric Illuminating Co.), 8/1/2020
| | | 1,537,095 | |
| 1,500,000 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2004A), 7.25% (Apex Environmental LLC)/(Original Issue Yield: 7.30%), 8/1/2034
| | | 1,545,135 | |
| 375,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds (Series 2004C), 6.375% (Northwest Ohio Bond Fund), 11/15/2032
|
|
| 411,026
|
|
| | | TOTAL
|
|
| 12,148,936
|
|
| | | Oklahoma--1.0% | | | | |
| 3,995,000 | | Jackson County, OK Hospital Authority, Hospital Revenue Refunding Bonds, 7.30% (Jackson County Memorial Hospital, OK)/(Original Issue Yield: 7.40%), 8/1/2015
| | | 4,017,891 | |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.00% (Concordia Life Care Community)/(Original Issue Yield: 6.15%), 11/15/2038
| | | 1,022,830 | |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.125% (Concordia Life Care Community), 11/15/2025
|
|
| 1,032,580
|
|
| | | TOTAL
|
|
| 6,073,301
|
|
| | | Oregon--0.5% | | | | |
| 1,000,000 | | Clackamas County, OR Hospital Facilities Authority, Refunding Gross Revenue Bonds (Series 2005), 5.125% (Willamette Falls Hospital), 4/1/2026
| | | 1,020,860 | |
| 1,000,000 | 2 | Cow Creek Band of Umpqua Tribe of Indians, Tax-Exempt Tax Revenue Bonds (Series 2006C), 5.625%, 10/1/2026
| | | 1,024,740 | |
| 1,000,000 | | Yamhill County, OR Hospital Authority, Revenue Bonds, 7.00% (Friendsview Retirement Community)/(Original Issue Yield: 7.125%), 12/1/2034
|
|
| 1,110,850
|
|
| | | TOTAL
|
|
| 3,156,450
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--8.6% | | | | |
| $ | 1,330,000 | | Allegheny County, PA HDA, Health Care Facilities Revenue Bonds (Series 1998), 5.875% (Villa St. Joseph of Baden, Inc.)/(Original Issue Yield: 6.02%), 8/15/2018
| | $ | 1,345,508 | |
| 4,500,000 | | Allegheny County, PA HDA, Health System Revenue Bonds (Series 2000B), 9.25% (West Penn Allegheny Health System)/(Original Issue Yield: 9.70%), 11/15/2030
| | | 5,328,270 | |
| 2,000,000 | 2 | Allegheny County, PA IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.625% (AFCO Cargo PIT LLC Project)/(Original Issue Yield: 6.75%), 9/1/2024
| | | 2,072,560 | |
| 1,120,000 | | Allegheny County, PA IDA, Charter School Revenue Bonds (Series 2004A), 7.50% (Propel Schools)/(Original Issue Yield: 7.75%), 12/15/2029
| | | 1,221,080 | |
| 865,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016
| | | 921,286 | |
| 600,000 | | Bucks County, PA IDA, Retirement Community Revenue Bonds (Series 2005A), 6.25% (Ann's Choice, Inc.), 1/1/2035
| | | 639,528 | |
| 2,000,000 | 1 | Carbon County, PA IDA, (Panther Creek Partners Project), Refunding Revenue Bonds, 6.700%, 5/1/2012
| | | 2,122,640 | |
| 1,500,000 | | Chartiers Valley, PA Industrial & Commercial Development Authority, First Mortgage Revenue Refunding Bonds (Series 1999), 6.375% (Asbury Health Center)/(Original Issue Yield: 6.52%), 12/1/2024
| | | 1,562,715 | |
| 555,000 | | Cumberland County, PA Municipal Authority, Retirement Community Revenue Bonds (Series 2002A), 7.25% (Wesley Affiliated Services, Inc. Obligated Group)/(United States Treasury PRF 1/1/2013@101)/(Original Issue Yield: 7.50%), 1/1/2035
| | | 649,655 | |
| 1,445,000 | | Cumberland County, PA Municipal Authority, Retirement Community Revenue Bonds (Series 2002A), 7.25% (Wesley Affiliated Services, Inc. Obligated Group)/(United States Treasury PRF 1/1/2013@101)/(Original Issue Yield: 7.50%), 1/1/2035
| | | 1,717,137 | |
| 2,000,000 | 2 | Harrisburg, PA Authority, University Revenue Bonds (Series 2006B), 6.00% (Harrisburg University of Science & Technology), 9/1/2036
| | | 2,062,880 | |
| 1,000,000 | | Lancaster, PA IDA, Revenue Bonds (Series 2000A), 7.625% (Garden Spot Village Project)/(United States Treasury PRF 5/1/2010@101)/(Original Issue Yield: 7.84%), 5/1/2031
| | | 1,124,740 | |
| 1,000,000 | | Lawrence County, PA IDA, Senior Health and Housing Facilities Revenue Bonds, 7.50% (Shenango Presbyterian SeniorCare Obligated Group)/ (Original Issue Yield: 7.75%), 11/15/2031
| | | 1,083,310 | |
| 2,000,000 | 2,3 | Lehigh County, PA General Purpose Authority, RITES (PA-1458), 6.317% (St. Lukes Hospital of Bethlehem), 8/15/2042
| | | 2,002,000 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 2,000,000 | | Montgomery County, PA Higher Education & Health Authority Hospital, Revenue Bonds, 7.375% (Philadelphia Geriatric Center)/(United States Treasury PRF 12/1/2009@102)/ (Original Issue Yield: 7.50%), 12/1/2030
| | $ | 2,208,660 | |
| 1,000,000 | | Montgomery County, PA IDA, Fixed Rate Mortgage Revenue Bonds (Series 2005), 6.25% (Whitemarsh Continuing Care Retirement Community)/ (Original Issue Yield: 6.375%), 2/1/2035
| | | 1,062,110 | |
| 500,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 1997B), 6.125% (National Gypsum Co.), 11/1/2027
| | | 522,520 | |
| 2,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds, 6.25% (National Gypsum Co.), 11/1/2027
| | | 2,106,920 | |
| 2,400,000 | | Pennsylvania EDFA, Resource Recovery Revenue Bonds (Series A), 6.40% (Northampton Generating), 1/1/2009
| | | 2,400,288 | |
| 900,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/ Morrisville), 7/1/2035
| | | 943,479 | |
| 1,000,000 | | Philadelphia, PA Airport System, Revenue Bonds (Series 2005A), 5.00% (MBIA Insurance Corp. INS), 6/15/2024
| | | 1,053,350 | |
| 10,995,000 | | Philadelphia, PA Gas Works, Revenue Bonds Series A-1, 5.00% (FSA INS), 9/1/2033
| | | 11,556,405 | |
| 1,500,000 | | Scranton, PA, UT GO Bonds (Series 2001C), 7.10% (United States Treasury PRF 9/1/2011@100)/(Original Issue Yield: 7.35%), 9/1/2031
| | | 1,700,535 | |
| 740,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035
| | | 761,763 | |
| 2,000,000 | 1 | Westmoreland Country, PA IDA, (Redstone Presbyterian Seniorcare Obligated Group), Health Care Facility Revenue Bonds (Series 2000B), 8.000%, (Original Issue Yield: 8.25%), 11/15/2023
| | | 2,122,640 | |
| 500,000 | | Westmoreland County, PA IDA, Retirement Community Revenue Bonds (Series 2005A), 5.75% (Redstone Presbyterian Seniorcare Obligated Group), 1/1/2026
|
|
| 528,695
|
|
| | | TOTAL
|
|
| 50,820,674
|
|
| | | Puerto Rico--0.1% | | | | |
| 9,000,000 | 2 | Children's Trust, PR, Tobacco Settlement Asset-Backed Revenue Bonds (Series 2005A) (Original Issue Yield: 6.50%), 5/15/2050
|
|
| 619,200
|
|
| | | Rhode Island--0.8% | | | | |
| 3,500,000 | 2,3 | Rhode Island Housing & Mortgage Finance Corp., UBS Custodial Residual & Variable Securities, 6.00%, 10/1/2032
| | | 3,539,795 | |
| 1,000,000 | | Rhode Island State Health and Educational Building Corp., Hospital Financing Revenue Bonds (Series 2002), 6.50% (Lifespan Obligated Group)/(United States Treasury PRF 8/15/2012@100)/(Original Issue Yield: 6.70%), 8/15/2032
|
|
| 1,135,240
|
|
| | | TOTAL
|
|
| 4,675,035
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | South Carolina--1.7% | | | | |
| $ | 6,000,000 | | Connector 2000 Association, Inc., SC, Capital Appreciation Senior Revenue Bonds (Series 1998B) (Original Issue Yield: 5.80%), 1/1/2025
| | $ | 1,472,700 | |
| 7,750,000 | | Connector 2000 Association, Inc., SC, Toll Road Capital Appreciation Revenue Bonds (Series 1998A) (Original Issue Yield: 5.85%), 1/1/2034
| | | 961,077 | |
| 825,000 | | Lancaster County, SC, Assessment Revenue Bonds (Series 2006), 5.45% (Sun City Carolina Lakes Improvement District), 12/1/2037
| | | 841,616 | |
| 1,000,000 | | Myrtle Beach, SC, Tax Increment Bonds (Series 2006A), 5.25% (Myrtle Beach Air Force Base Redevelopment Project Area)/(Original Issue Yield: 5.27%), 11/1/2026
| | | 1,027,420 | |
| 750,000 | | Myrtle Beach, SC, Tax Increment Bonds (Series 2006A), 5.30% (Myrtle Beach Air Force Base Redevelopment Project Area)/(Original Issue Yield: 5.325%), 11/1/2035
| | | 771,098 | |
| 800,000 | | South Carolina Jobs-EDA, First Mortgage Health Facilities Refunding Revenue Bonds (Series 2006), 5.30% (Wesley Commons), 10/1/2036
| | | 818,312 | |
| 1,500,000 | | South Carolina Jobs-EDA, First Mortgage Health Facilities Revenue Refunding Bonds (Series 1998), 5.70% (The Lutheran Homes of South Carolina, Inc.)/(Original Issue Yield: 5.80%), 5/1/2026
| | | 1,499,985 | |
| 1,500,000 | | South Carolina Jobs-EDA, Hospital Facilities Improvement Revenue Bonds, Series 2000A, 7.375% (Palmetto Health Alliance)/(United States Treasury PRF 12/15/2010@102)/(Original Issue Yield: 7.55%), 12/15/2021
| | | 1,717,290 | |
| 1,000,000 | | Tobacco Settlement Revenue Management Authority, SC, Tobacco Settlement Asset-Backed Bonds (Series 2001B), 6.375% (Original Issue Yield: 6.532%), 5/15/2028
|
|
| 1,081,730
|
|
| | | TOTAL
|
|
| 10,191,228
|
|
| | | South Dakota--0.4% | | | | |
| 2,000,000 | | Minnehaha County, SD Health Facilities, Revenue Bonds (Series 2002A), 7.00% (Bethany Lutheran Home)/(Original Issue Yield: 7.198%), 12/1/2035
|
|
| 2,094,920
|
|
| | | Tennessee--1.5% | | | | |
| 3,000,000 | | Elizabethton, TN Health & Educational Facilities Board, First Mortgage Hospital Revenue Refunding & Improvement Bonds (Series 2000B), 8.00% (Mountain States Health Alliance), 7/1/2033
| | | 3,523,440 | |
| 2,000,000 | | Johnson City, TN Health & Education Facilities Board, Hospital First Mortgage Revenue Bonds (Series 2006A), 5.50% (Mountain States Health Alliance), 7/1/2036
| | | 2,152,620 | |
| 1,000,000 | | Johnson City, TN Health & Education Facilities Board, Retirement Facility Revenue Bonds (Series 2004A), 6.25% (Appalachian Christian Village)/ (Original Issue Yield: 6.43%), 2/15/2032
| | | 1,053,510 | |
| 1,000,000 | | Knox County, TN Health Education & Housing Facilities Board, Revenue Bonds, 6.375% (Baptist Health System of East Tennessee)/(Original Issue Yield: 6.50%), 4/15/2022
| | | 1,082,440 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Tennessee--continued | | | | |
| $ | 375,000 | | Sullivan County, TN Health Educational & Housing Facilities Board, Revenue Bonds, 6.25% (Wellmont Health System)/(United States Treasury PRF 9/1/2012@101)/(Original Issue Yield: 6.45%), 9/1/2022
| | $ | 421,136 | |
| 625,000 | | Sullivan County, TN Health Educational & Housing Facilities Board, Revenue Bonds, 6.25% (Wellmont Health System)/(United States Treasury PRF 9/1/2012@101)/(Original Issue Yield: 6.45%), 9/1/2022
|
|
| 701,894
|
|
| | | TOTAL
|
|
| 8,935,040
|
|
| | | Texas--7.8% | | | | |
| 2,000,000 | | ABIA Development Corp., TX, Airport Facilities Revenue Bonds (Series 1999), 7.25% (Aero Austin LP)/(Original Issue Yield: 7.50%), 1/1/2025
| | | 2,106,340 | |
| 800,000 | | Abilene, TX Health Facilities Development Corp., Retirement Facilities Revenue Bonds (Series 2003A), 7.00% (Sears Methodist Retirement)/ (Original Issue Yield: 7.25%), 11/15/2033
| | | 889,384 | |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2034
| | | 1,074,970 | |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., First Tier Hotel Revenue Bonds (Series 2001A), 6.70% (United States Treasury PRF 1/1/2011@100)/ (Original Issue Yield: 6.75%), 1/1/2032
| | | 1,105,700 | |
| 1,000,000 | | Brazos River Authority, TX, PCR Refunding Bonds (Series 1994A), 5.40% (TXU Energy Co. LLC), 5/1/2029
| | | 1,028,510 | |
| 1,000,000 | | Brazos River Authority, TX, PCR Refunding Bonds (Series 2003A), 6.75% TOBs (TXU Energy Co. LLC), Mandatory Tender 4/1/2013
| | | 1,091,420 | |
| 715,000 | | Brazos River Authority, TX, PCR Refunding Bonds (Series 2003C), 6.75% (TXU Energy Co. LLC)/(Original Issue Yield: 6.77%), 10/1/2038
| | | 790,075 | |
| 1,000,000 | | Brazos River Authority, TX, PCR Refunding Bonds, 7.70% (TXU Energy Co. LLC), 4/1/2033
| | | 1,148,190 | |
| 2,380,000 | | Brazos River Authority, TX, PCR Refunding Bonds (Series 2001C), 5.75% TOBs (TXU Energy Co. LLC), Mandatory Tender 11/1/2011
| | | 2,454,399 | |
| 1,000,000 | | Brazos River Authority, TX, Revenue Refunding Bonds (Series 1999C), 7.75% (Centerpoint Energy Houston Electric), 12/1/2018
| | | 1,054,750 | |
| 4,000,000 | | Decatur, TX Hospital Authority, Hospital Revenue Bonds (Series 2004A), 7.125% (Wise Regional Health System), 9/1/2034
| | | 4,422,600 | |
| 1,500,000 | | El Paso, TX HFDC, Senior Care Facilities Revenue Bonds, 7.75% (Bienvivir Senior Health Services), 8/15/2031
| | | 1,657,500 | |
| 500,000 | | Gulf Coast, TX Waste Disposal Authority, Waste Disposal Revenue Bonds (Series 2001), 6.65% (Valero Energy Corp.), 4/1/2032
| | | 540,985 | |
| 765,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.50% (Village at Gleannloch Farms, Inc.), 2/15/2027
| | | 792,280 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Texas--continued | | | | |
| $ | 1,265,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.50% (Village at Gleannloch Farms, Inc.), 2/15/2037
| | $ | 1,302,128 | |
| 1,000,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.75% (Legacy at Willow Bend), 11/1/2036
| | | 1,040,320 | |
| 1,000,000 | | Houston, TX Airport System, Special Facilities Revenue Bonds (Series 2001), 7.00% (Continental Airlines, Inc.), 7/1/2029
| | | 1,093,560 | |
| 1,000,000 | | Houston, TX HFDC, Retirement Facilities Revenue Bonds (Series 2004A), 7.125% (Buckingham Senior Living Community)/ (Original Issue Yield: 7.20%), 2/15/2034
| | | 1,121,780 | |
| 2,000,000 | | Kerrville, TX HFDC, Hospital Revenue Bonds, 5.375% (Sid Peterson Memorial Hospital), 8/15/2035
| | | 2,105,420 | |
| 1,125,000 | | Mesquite, TX Health Facilities Development Corp., Retirement Facility Revenue Bonds (Series 2005), 5.625% (Christian Care Centers, Inc.), 2/15/2035
| | | 1,190,261 | |
| 1,000,000 | | Mesquite, TX Health Facilities Development Corp., Retirement Facility Revenue Bonds, 7.625% (Christian Care Centers, Inc.)/(United States Treasury PRF 2/15/2010@101)/(Original Issue Yield: 7.75%), 2/15/2028
| | | 1,113,990 | |
| 2,000,000 | | North Central Texas HFDC, Retirement Facility Revenue Bonds (Series 1999), 7.50% (Northwest Senior Housing Corp. Edgemere Project)/(United States Treasury PRF 11/15/2009@102)/(Original Issue Yield: 7.75%), 11/15/2029
| | | 2,224,520 | |
| 250,000 | | Port of Corpus Christi, TX IDC, Revenue Refunding Bonds (Series C), 5.40% (Valero Energy Corp.), 4/1/2018
| | | 258,178 | |
| 2,000,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Hospital Revenue Bonds (Series 2006), 6.375% (Doctors Hospital)/(Original Issue Yield: 6.60%), 11/1/2036
| | | 1,951,660 | |
| 900,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Revenue Bonds, Series 2006A, 6.00% (Northwest Senior Housing Corp. Edgemere Project), 11/15/2036
| | | 968,364 | |
| 1,000,000 | | Tarrant County, TX HFDC, Revenue Bonds (Series 1998C), 5.75% (Bethesda Living Center)/(Original Issue Yield: 5.89%), 8/15/2018
| | | 1,014,360 | |
| 1,000,000 | | Tarrant County, TX HFDC, Revenue Bonds (Series 1998C), 5.75% (Bethesda Living Center)/(Original Issue Yield: 5.97%), 8/15/2028
| | | 1,010,580 | |
| 7,500,000 | 1 | Texas Municipal Gas Acquisition & Supply Corp. I, Senior Lien Gas Supply Revenue Bonds (Series 2006B), 4.287%, 12/15/2026
| | | 7,526,250 | |
| 2,000,000 | 2,4 | Texas State Affordable Housing Corp., MFH Revenue Bonds (Junior Series 2002B), 8.00% (American Housing Foundation)/(Original Issue Yield: 8.365%), 3/1/2032
| | | 401,180 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Texas--continued | | | | |
| $ | 1,485,000 | 2,4 | Texas State Affordable Housing Corp., MFH Revenue Bonds (Series 2001B), 7.25% (NHT/GTEX Project), 10/1/2031
| | $ | 192,159 | |
| 1,000,000 | | Tom Green County, TX HFDC, Hospital Revenue Bonds, 6.75% (Shannon Health System)/(Original Issue Yield: 6.85%), 5/15/2021
| | | 1,090,080 | |
| 535,000 | | Travis County, TX Health Facilities Development Corp., Retirement Facility Revenue Bonds, 5.65% (Querencia at Barton Creek)/(Original Issue Yield: 5.80%), 11/15/2035
|
|
| 552,029
|
|
| | | TOTAL
|
|
| 46,313,922
|
|
| | | Utah--0.4% | | | | |
| 800,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.55% (American Leadership Academy), 11/15/2026
| | | 824,888 | |
| 1,750,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.70% (American Leadership Academy), 11/15/2036
|
|
| 1,808,363
|
|
| | | TOTAL
|
|
| 2,633,251
|
|
| | | Virginia--6.7% | | | | |
| 675,000 | | Broad Street Community Development Authority, VA, Revenue Bonds, 7.10% (Original Issue Yield: 7.15%), 6/1/2016
| | | 769,136 | |
| 1,000,000 | | Broad Street Community Development Authority, VA, Revenue Bonds, 7.50% (Original Issue Yield: 7.625%), 6/1/2033
| | | 1,137,070 | |
| 1,000,000 | | Farms of New Kent, VA Community Development Authority, Special Assessment Bonds (Series 2006C), 5.80%, 3/1/2036
| | | 1,010,910 | |
| 2,000,000 | | Henrico County, VA EDA, Residential Care Facility Revenue Refunding Bonds, 6.70% (Virginia United Methodist Homes, Inc.)/(Original Issue Yield: 6.80%), 6/1/2027
| | | 2,147,680 | |
| 1,500,000 | | Peninsula Port Authority, VA, Residential Care Facility Revenue Bonds (Series 2003A), 7.375% (Virginia Baptist Homes Obligated Group)/ (United States Treasury PRF 12/1/2013@100)/(Original Issue Yield: 7.625%), 12/1/2032
| | | 1,820,850 | |
| 7,500,000 | | Pocahontas Parkway Association, VA, Toll Road Capital Appreciation Revenue Bonds (Series B) (United States Treasury PRF 8/15/2008@61.238)/ (Original Issue Yield: 5.75%), 8/15/2017
| | | 4,347,225 | |
| 16,000,000 | | Pocahontas Parkway Association, VA, Toll Road Revenue Bonds (Series 1998B) (United States Treasury PRF 8/15/2008@30.08)/(Original Issue Yield: 5.90%), 8/15/2029
| | | 4,555,520 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Virginia--continued | | | | |
| $ | 2,850,000 | | Tobacco Settlement Financing Corp., VA, Revenue Bonds, 5.625% (Original Issue Yield: 5.78%), 6/1/2037
| | $ | 3,043,572 | |
| 20,000,000 | 1 | Virginia State Housing Development Authority, Commonwealth Mortgage Revenue Bonds (Series 2006D), 4.900%, 1/1/2033
|
|
| 20,488,600
|
|
| | | TOTAL
|
|
| 39,320,563
|
|
| | | Washington--1.4% | | | | |
| 1,000,000 | | Skagit County, WA Public Hospital District No. 1, Refunding Revenue Bonds (Series 2003), 6.00% (Skagit Valley Hospital)/(Original Issue Yield: 6.25%), 12/1/2023
| | | 1,091,360 | |
| 250,000 | | Skagit County, WA Public Hospital District No. 1, Revenue Bonds (Series 2005), 5.50% (Skagit Valley Hospital), 12/1/2030
| | | 264,205 | |
| 1,625,000 | | Washington State Housing Finance Commission, Nonprofit Revenue Bonds (Series 2007A), 5.625% (Skyline at First Hill), 1/1/2038
| | | 1,673,766 | |
| 5,000,000 | | Washington State Housing Finance Commission, SFM Revenue Bonds (2006 Series 5A), 4.90% (GNMA Home Mortgage Program COL), 6/1/2037
|
|
| 5,090,900
|
|
| | | TOTAL
|
|
| 8,120,231
|
|
| | | West Virginia--0.3% | | | | |
| 640,000 | | Ohio County, WV County Commission, Special District Excise Tax Revenue Refunding & Improvement Bonds (Series 2006A), 5.625% (Fort Henry Economic Opportunity Development District), 3/1/2036
| | | 671,328 | |
| 1,000,000 | | Ohio County, WV County Commission, Tax Increment Revenue Bonds (Series 2005A), 5.625% (Fort Henry Centre Tax Increment Financing District No. 1), 6/1/2034
|
|
| 1,059,520
|
|
| | | TOTAL
|
|
| 1,730,848
|
|
| | | Wisconsin--3.4% | | | | |
| 750,000 | | Milwaukee, WI Redevelopment Authority, Redevelopment Education Revenue Bonds (Series 2005A), 5.75% (Milwaukee Science Education Consortium, Inc.)/(Original Issue Yield: 5.93%), 8/1/2035
| | | 765,113 | |
| 2,500,000 | 2,3 | Wisconsin Housing & EDA, Residual Interest Trust Receipts (Series 2007-K15), 15.013%, 9/1/2021
| | | 2,706,200 | |
| 1,250,000 | | Wisconsin State HEFA, Revenue Bonds (Series 1998), 5.70% (United Lutheran Program For The Aging, Inc.)/(Original Issue Yield: 5.778%), 3/1/2028
| | | 1,262,863 | |
| 1,000,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2002A), 7.375% (Divine Savior Healthcare)/(United States Treasury PRF 5/1/2012@100), 5/1/2026
| | | 1,152,240 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Wisconsin--continued | | | | |
| $ | 880,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2002A), 7.50% (Divine Savior Healthcare)/(United States Treasury PRF 5/1/2012@100), 5/1/2032
| | $ | 1,019,058 | |
| 1,400,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004), 6.125% (Eastcastle Place, Inc.)/(Original Issue Yield: 6.25%), 12/1/2034
| | | 1,444,912 | |
| 750,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004A), 6.25% (Southwest Health Center)/(Original Issue Yield: 6.32%), 4/1/2034
| | | 797,220 | |
| 1,000,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004A), 6.75% (Beaver Dam Community Hospitals, Inc.)/(Original Issue Yield: 6.95%), 8/15/2034
| | | 1,097,500 | |
| 2,000,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2006A), 5.25% (Wheaton Franciscan HealthCare), 8/15/2031
| | | 2,112,960 | |
| 2,000,000 | | Wisconsin State HEFA, Revenue Bonds (Series B), 6.75% (Grant Regional Health Center, Inc.)/(Original Issue Yield: 6.90%), 10/1/2022
| | | 2,001,660 | |
| 1,250,000 | | Wisconsin State HEFA, Revenue Bonds, 5.80% (Beaver Dam Community Hospitals, Inc.), 8/15/2028
| | | 1,250,338 | |
| 500,000 | | Wisconsin State HEFA, Revenue Bonds, 6.625% (Tomah Memorial Hospital, Inc.)/(Original Issue Yield: 6.875%), 7/1/2028
| | | 531,100 | |
| 1,630,000 | | Wisconsin State HEFA, Revenue Bonds, 6.00% (Agnesian Healthcare, Inc.)/(Original Issue Yield: 6.15%), 7/1/2030
| | | 1,731,288 | |
| 1,000,000 | | Wisconsin State HEFA, Revenue Bonds, Series 1998, 5.75% (Attic Angel Obligated Group)/(United States Treasury PRF 11/17/2008@102)/(Original Issue Yield: 6.00%), 11/15/2027
| | | 1,049,380 | |
| 1,000,000 | | Wisconsin State HEFA, Revenue Bonds, Series 2006A, 5.375% (Marshfield Clinic, WI), 2/15/2034
|
|
| 1,064,320
|
|
| | | TOTAL
|
|
| 19,986,152
|
|
| | | Wyoming--0.6% | | | | |
| 2,000,000 | | Sweetwater County, WY, Solid Waste Disposal Refunding Revenue Bonds (Series 2005), 5.60% (FMC Corp.), 12/1/2035
| | | 2,135,260 | |
| 1,500,000 | | Teton County, WY Hospital District, Hospital Revenue Bonds, 6.75% (St. John's Medical Center)/(Original Issue Yield: 7.00%), 12/1/2027
|
|
| 1,605,645
|
|
| | | TOTAL
|
|
| 3,740,905
|
|
| | | TOTAL MUNICIPAL BONDS (IDENTIFIED COST $599,350,312)
|
|
| 632,550,869
|
|
| | | SHORT-TERM MUNICIPALS--0.3% 6 | | | | |
| | | Alaska--0.2% | | | | |
| 900,000 | | Valdez, AK Marine Terminal, (Series 2001) Daily VRDNs (BP Pipelines (Alaska) Inc.)/(BP PLC GTD), 3.630%, 3/1/2007
| | | 900,000 | |
| 300,000 | | Valdez, AK Marine Terminal, (Series 2003B) Daily VRDNs (BP Pipelines (Alaska) Inc.)/(BP PLC GTD), 3.630%, 3/1/2007
|
|
| 300,000
|
|
| | | TOTAL
|
|
| 1,200,000
|
|
| | | New York--0.2% | | | | |
| 800,000 | | New York City, NY, (Series 2004H-1) Daily VRDNs (Bank of New York LOC), 3.600%, 3/1/2007
|
|
| 800,000
|
|
| | | TOTAL SHORT-TERM MUNICIPALS (AMORTIZED COST $2,000,000)
|
|
| 2,000,000
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | OTHER--1.3% | | | | |
| $ | 1,500,000 | 2,3 | Charter Mac Equity Issuer Trust, Pfd., 7.60%, 11/30/2010
| | $ | 1,653,750 | |
| 2,000,000 | 2,3 | Muni Mae TE Bond Subsidiary LLC, Pfd., 7.75%, 6/30/2050
| | | 2,217,560 | |
| 4,000,000 | | Non-Profit Preferred Funding Trust I, Partnership, 9/15/2037
|
|
| 4,009,320
|
|
| | | TOTAL OTHER (IDENTIFIED COST $7,489,000)
|
|
| 7,880,630
|
|
| | | TOTAL INVESTMENTS--108.6%
(IDENTIFIED COST $608,839,312) 7
|
|
| 642,431,499
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(8.6)%
|
|
| (51,052,672
| )
|
| | | TOTAL NET ASSETS--100%
|
| $
| 591,378,827
|
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 21.5% of the Fund's portfolio as calculated based upon total market value.
Note that the Fund is the successor to Federated Municipal High Yield Advantage Fund, Inc. (Predecessor Fund). The Predecessor Fund was reorganized into the Fund as of the close of business on November 10, 2006. Prior to the reorganization, the Fund had no investment operations. Please see the Fund's Prospectus and Statement of Additional Information for further information regarding the reorganization and the Predecessor Fund.
1 Underlying security in inverse floater structure (See Notes to Financial Statements, Note 2).
2 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2007, these restricted securities amounted to $56,670,156, which represented 9.6% of total net assets.
3 Denotes a restricted security that may be resold without restriction to "qualified institutional buyers" as defined in Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Trustees. At February 28, 2007, these liquid restricted securities amounted to $19,545,315, which represented 3.3% of total net assets.
4 Non-income producing.
5 Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contract.
6 Current rate and next reset date shown for Variable Rate Demand Notes.
7 The cost of investments for federal tax purposes amounts to $550,553,723.
At February 28, 2007, the Fund had the following outstanding futures contract:
Contracts
|
| Number of
Contracts
|
| Notional
Value
|
| Expiration
Date
|
| Unrealized
Depreciation
|
4 U.S. Treasury Notes 10-Year Futures
|
| 260
|
| $28,234,388
|
| June 2007
|
| $(147,358)
|
At February 28, 2007, the Fund had the following open swap contracts:
Counterparty
|
| Reference
Entity
|
| Pay/Receive
Fixed Rate
|
| Expiration
Date
|
| Notional
Amount
|
| Unrealized
Appreciation/
(Depreciation)
|
|
Lehman Brothers
|
| Libor Swap--15 Year
|
| 5.357%
|
| 3/25/2022
|
| $14,593,000
|
| $ 245,148
|
|
Lehman Brothers
|
| BMA Swap--15 Year
|
| 3.909%
|
| 3/25/2022
|
| $20,000,000
|
| $ (285,589
| )
|
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| EDA | - --Economic Development Authority |
| EDFA | - --Economic Development Financing Authority |
| FGIC | - --Financial Guaranty Insurance Company |
| FHA | - --Federal Housing Administration |
| FLOATs | - --Puttable Floating Option Tax-Exempt Receipts |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HDA | - --Hospital Development Authority |
| HEFA | - --Health and Education Facilities Authority |
| HFA | - --Housing Finance Authority |
| HFDC | - --Health Facility Development Corporation |
| IDA | - --Industrial Development Authority |
| IDB | - --Industrial Development Bond |
| IDC | - --Industrial Development Corporation |
| IDFA | - --Industrial Development Finance Authority |
| IDRB | - --Industrial Development Revenue Bond |
| INS | - --Insured |
| LO | - --Limited Obligation |
| LOC | - --Letter of Credit |
| LT | - --Limited Tax |
| MFH | - --Multifamily Housing |
| PCR | - --Pollution Control Revenue |
| PCRBs | - --Pollution Control Revenue Bonds |
| PCFA | - --Pollution Control Finance Authority |
| PRF | - --Prerefunded |
| RITES | - --Residual Interest Tax-Exempt Securities |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | | |
Total investments in securities, at value (identified cost $608,839,312)
| | | | | | $ | 642,431,499 | |
Cash
| | | | | | | 71,592 | |
Income receivable
| | | | | | | 8,536,675 | |
Receivable for investments sold
| | | | | | | 37,638,169 | |
Receivable for shares sold
| | | | | | | 779,034 | |
Receivable for daily variation margin
| | | | | | | 64,987 | |
Other assets
|
|
|
|
|
|
| 4,007
|
|
TOTAL ASSETS
|
|
|
|
|
|
| 689,525,963
|
|
Liabilities:
| | | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 58,805,000 | | | | | |
Payable for investments purchased
| | | 18,135,805 | | | | | |
Payable for shares redeemed
| | | 922,038 | | | | | |
Payable for Directors'/Trustees' fees
| | | 3,038 | | | | | |
Payable for distribution services fee (Note 5)
| | | 88,820 | | | | | |
Payable for shareholder services fee (Note 5)
| | | 148,887 | | | | | |
Net payable for swap contracts
| | | 20,040,441 | | | | | |
Accrued expenses
|
|
| 3,107
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
|
| 98,147,136
|
|
Net assets for 58,332,672 shares outstanding
|
|
|
|
|
| $
| 591,378,827
|
|
Net Assets Consist of:
| | | | | | | | |
Paid-in capital
| | | | | | $ | 606,067,961 | |
Net unrealized appreciation of investments
| | | | | | | 33,404,388 | |
Accumulated net realized loss on investments, futures contracts and swap contracts
| | | | | | | (48,963,945 | ) |
Undistributed net investment income
|
|
|
|
|
|
| 870,423
|
|
TOTAL NET ASSETS
|
|
|
|
|
| $
| 591,378,827
|
|
Statement of Assets and Liabilities-continued
February 28, 2007 (unaudited)
Net Asset Value, Offering Price and Redemption Proceeds Per Share
| | | | | | | | |
Class A Shares:
| | | | | | | | |
Net asset value per share ($238,765,407 ÷ 23,548,835 shares outstanding), $0.001 par value, 500,000,000 shares authorized
|
|
|
|
|
|
| $10.14
|
|
Offering price per share (100/95.50 of $10.14) 1
|
|
|
|
|
|
| $10.62
|
|
Redemption proceeds per share
|
|
|
|
|
|
| $10.14
|
|
Class B Shares:
| | | | | | | | |
Net asset value per share ($96,692,843 ÷ 9,541,724 shares outstanding), $0.001 par value, 500,000,000 shares authorized
|
|
|
|
|
|
| $10.13
|
|
Offering price per share
|
|
|
|
|
|
| $10.13
|
|
Redemption proceeds per share (94.50/100 of $10.13) 1
|
|
|
|
|
|
| $9.57
|
|
Class C Shares:
| | | | | | | | |
Net asset value per share ($57,734,519 ÷ 5,695,997 shares outstanding), $0.001 par value, 500,000,000 shares authorized
|
|
|
|
|
|
| $10.14
|
|
Offering price per share
|
|
|
|
|
|
| $10.14
|
|
Redemption proceeds per share (99.00/100 of $10.14) 1
|
|
|
|
|
|
| $10.04
|
|
Class F Shares:
| | | | | | | | |
Net asset value per share ($198,186,058 ÷ 19,546,116 shares outstanding), $0.001 par value, 500,000,000 shares authorized
|
|
|
|
|
|
| $10.14
|
|
Offering price per share (100/99.00 of $10.14) 1
|
|
|
|
|
|
| $10.24
|
|
Redemption proceeds per share (99.00/100 of $10.14) 1
|
|
|
|
|
|
| $10.04
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 18,484,135
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 1,745,660 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 231,162 | | | | | |
Custodian fees
| | | | | | | 12,537 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 168,085 | | | | | |
Directors'/Trustees' fees
| | | | | | | 8,727 | | | | | |
Auditing fees
| | | | | | | 10,943 | | | | | |
Legal fees
| | | | | | | 7,747 | | | | | |
Portfolio accounting fees
| | | | | | | 89,198 | | | | | |
Distribution services fee--Class B Shares (Note 5)
| | | | | | | 376,644 | | | | | |
Distribution services fee--Class C Shares (Note 5)
| | | | | | | 206,608 | | | | | |
Shareholder services fee--Class A Shares (Note 5)
| | | | | | | 287,475 | | | | | |
Shareholder services fee--Class B Shares (Note 5)
| | | | | | | 125,548 | | | | | |
Shareholder services fee--Class C Shares (Note 5)
| | | | | | | 68,585 | | | | | |
Shareholder services fee--Class F Shares (Note 5)
| | | | | | | 234,888 | | | | | |
Share registration costs
| | | | | | | 28,308 | | | | | |
Printing and postage
| | | | | | | 36,198 | | | | | |
Insurance premiums
| | | | | | | 4,583 | | | | | |
Taxes
| | | | | | | 12,812 | | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 1,526,786 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 5,366
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 5,187,860
|
|
|
|
|
|
Waivers (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (805,040 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
|
|
| (9,464
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS
|
|
|
|
|
|
| (814,504
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 4,373,356
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 14,110,779
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Swap Contracts:
| | | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 2,619,073 | |
Net realized loss on futures contracts
| | | | | | | | | | | (34,353 | ) |
Net realized gain on swap contracts
| | | | | | | | | | | 52,300 | |
Net change in unrealized appreciation of investments
| | | | | | | | | | | 4,245,102 | |
Net change in unrealized depreciation of futures contracts
| | | | | | | | | | | (147,358 | ) |
Net change in unrealized depreciation of swap contracts
|
|
|
|
|
|
|
|
|
|
| (40,441
| )
|
Net realized and unrealized gain on investments, futures contracts and swap contracts
|
|
|
|
|
|
|
|
|
|
| 6,694,323
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 20,805,102
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
| |
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 14,110,779 | | | $ | 26,184,679 | |
Net realized gain (loss) on investments, futures contracts and swap contracts
| | | 2,637,020 | | | | (1,365,726 | ) |
Net change in unrealized appreciation/depreciation of investments, futures contracts and swap contracts
|
|
| 4,057,303
|
|
|
| (183,393
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 20,805,102
|
|
|
| 24,635,560
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | | | | | | |
Class A Shares
| | | (5,737,892 | ) | | | (10,457,499 | ) |
Class B Shares
| | | (2,090,702 | ) | | | (4,783,609 | ) |
Class C Shares
| | | (1,139,286 | ) | | | (2,004,306 | ) |
Class F Shares
|
|
| (4,692,662
| )
|
|
| (8,876,442
| )
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (13,660,542
| )
|
|
| (26,121,856
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 50,121,006 | | | | 130,837,287 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 9,401,428 | | | | 17,611,290 | |
Cost of shares redeemed
|
|
| (56,138,853
| )
|
|
| (100,681,549
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| 3,383,581
|
|
|
| 47,767,028
|
|
Change in net assets
|
|
| 10,528,141
|
|
|
| 46,280,732
|
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 580,850,686
|
|
|
| 534,569,954
|
|
End of period (including undistributed net investment income of $870,423 and $420,186, respectively)
|
| $
| 591,378,827
|
|
| $
| 580,850,686
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated Municipal High Yield Advantage Fund (the "Fund"), a non-diversified portfolio. The assets of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares and Class F Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The investment objective of the Fund is to provide a high level of current income which is generally exempt from federal regular income tax. Interest income from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations and state and local taxes. The Fund is the successor to the Federated Municipal High Yield Advantage Fund, Inc. (the "Predecessor Fund") pursuant to a reorganization on November 10, 2006. Prior to the date of the reorganization, the Fund did not have any investment operations. On the date of the reorganization, November 10, 2006, the Predecessor Fund's assets (inclusive of liabilities recorded on the Predecessor Fund's records) were transferred into the Fund and the Predecessor Fund was dissolved on or within a short period of time after the date of the reorganization.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors. Prices for interest rate swaps are furnished by an independent pricing service and are based upon a valuation model incorporating swap spreads, swap curves computations and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Gains and Losses, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
Other Taxes
Prior to the reorganization which occurred on November 10, 2006, as an open-end management investment company incorporated in the state of Maryland but domiciled in Pennsylvania, the Fund is subject to the Pennsylvania Franchise Tax. This franchise tax is assessed annually on the value of the Fund, as represented by average net assets for the tax year. Subsequent to the reorganization as a portfolio of the Trust, the Fund is no longer subject to the tax.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Swap Contracts
The Fund may enter into swap contracts. A swap is an exchange of cash payments between the Fund and another party, which is based on a specific financial index or other reference instrument. The value of the swap is adjusted daily and the change in value is recorded as unrealized appreciation or depreciation. When a swap contract is closed, the Fund recognizes a realized gain or loss. The swap contracts entered into by the Fund are on a forward settling basis. For the six months ended February 28, 2007, the Fund had realized gains on swap contracts of $52,300.
Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract, from unanticipated changes in the value of the financial index on which the swap agreement is based, or from unfavorable changes in market conditions or interest rates. The Fund uses swaps for hedging purposes to reduce its exposure to interest rate fluctuations.
Swap contracts outstanding at period end are listed after the Fund's portfolio of investments.
Inverse Floater Structures
The Fund may participate in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund, that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investments, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the Statement of Assets and Liabilities. At February 28, 2007, Fund investments with a value of $105,717,922 are held by the trusts and serve as collateral for the $58,805,000 in floating rate certificate securities outstanding at that date. The Fund recorded interest and trust expenses of $1,526,786 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund may periodically sell bond interest rate futures contracts to manage duration and to potentially reduce transaction costs. Upon entering into a bond interest rate futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had net realized losses on futures contracts of $34,353.
Futures contracts outstanding at period end are listed after the Fund's portfolio of investments.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Fund's Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Fund's Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at February 28, 2007, is as follows:
Security
|
| Acquisition Date
|
| Acquisition Cost
|
Allegheny County, PA IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.625% (AFCO Cargo PIT LLC Project)/(Original Issue Yield: 6.75%), 9/1/2024
|
| 9/23/1999
|
| $1,969,900
|
California PCFA, Solid Waste Disposal Revenue Bonds (Series 2002B), 5.00% (Waste Management, Inc.), 7/1/2027
|
| 6/24/2005
|
| $1,000,000
|
California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025
|
| 3/30/2005
|
| $1,000,000
|
California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005C), 5.125% (Waste Management, Inc.), 11/1/2023
|
| 10/28/2005
|
| $2,000,000
|
California Statewide Communities Development Authority, MFH Revenue Bonds (Series 1999X), 6.65% (Magnolia City Lights Project), 7/1/2029
|
| 6/7/1999
|
| $1,270,000
|
California Statewide Communities Development Authority, Revenue Bonds, 6.625% (Tehiyah Day School), 11/1/2031
|
| 7/13/2001
|
| $ 980,000
|
Capital Trust Agency, FL, Revenue Bonds (Series 2003A), 8.95% (Seminole Tribe of Florida Convention and Resort Hotel Facilities)/ (United States Treasury PRF 10/1/2012 @102), 10/1/2033
|
| 5/9/2003
|
| $1,000,000
|
Children's Trust, PR, Tobacco Settlement Asset-Backed Revenue Bonds (Series 2005A) (Original Issue Yield: 6.50%), 5/15/2050
|
| 7/15/2005
|
| $ 541,890
|
Security
|
| Acquisition Date
|
| Acquisition Cost
|
Cow Creek Band of Umpqua Tribe of Indians, Tax-Exempt Tax Revenue Bonds (Series 2006C), 5.625%, 10/1/2026
|
| 6/9/2006
|
| $ 1,000,000
|
Director of the State of Nevada Department of Business and Industry, Revenue Bonds (Series 2004A), 7.00% (Las Ventanas Retirement Community)/(Original Issue Yield: 7.125%), 11/15/2034
|
| 12/23/2004
|
| $ 1,279,850
|
Director of the State of Nevada Department of Business and Industry, Revenue Bonds (Series 2004B), 6.75% (Las Ventanas Retirement Community)/(Original Issue Yield: 6.875%), 11/15/2023
|
| 12/9/2004
|
| $ 986,780
|
Harrisburg, PA Authority, University Revenue Bonds (Series 2006B), 6.00% (Harrisburg University of Science & Technology), 9/1/2036
|
| 12/15/2006
|
| $ 2,000,000
|
Kansas City, MO IDA, MFH Revenue Bonds, 6.90% (Woodbridge Apartments Project), 8/1/2030
|
| 7/27/1999
|
| $ 2,445,000
|
Louisiana Public Facilities Authority Hospital Revenue, Revenue Bonds, 8.625% (Lake Charles Memorial Hospital)/(Original Issue Yield: 8.75%), 12/1/2030
|
| 8/30/2000
|
| $1,953,424
|
Miami Beach, FL Health Facilities Authority, Refunding Revenue Bonds, 6.75% (Mt. Sinai Medical Center, FL)/(Original Issue Yield: 7.05%), 11/15/2029
|
| 4/26/2004
|
| $ 675,248
|
New York City, NY IDA, Liberty Revenue Bonds (Series A), 6.50% (7 World Trade Center LLC), 3/1/2035
|
| 3/15/2005
|
| $6,000,000
|
New York City, NY IDA, Liberty Revenue Bonds (Series B), 6.75% (7 World Trade Center LLC), 3/1/2015
|
| 3/15/2005
|
| $2,000,000
|
New York Liberty Development Corp., Revenue Bonds (Series 2006A), 6.125% (National Sports Museum), 2/15/2019
|
| 8/7/2006
|
| $1,700,000
|
Palm Beach County, FL, Tax-Exempt Revenue Bonds (Series 2005A), 6.75% (G-Star School of the Arts for Motion Pictures and Broadcasting Charter School), 5/15/2035
|
| 12/5/2005
|
| $2,000,000
|
Pima County, AZ IDA, Education Facilities Revenue Bonds (Series 2006), 6.375% (Choice Education & Development Corp.), 6/1/2036
|
| 5/25/2006
|
| $1,500,000
|
Texas State Affordable Housing Corp., MFH Revenue Bonds (Junior Series 2002B), 8.00% (American Housing Foundation)/ (Original Issue Yield: 8.365%), 3/1/2032
|
| 3/25/2002
|
| $1,920,000
|
Texas State Affordable Housing Corp., MFH Revenue Bonds (Series 2001B), 7.25% (NHT/GTEX Project), 10/1/2031
|
| 10/9/2001
|
| $1,485,000
|
Watson Road Community Facilities District, AZ, Special Assessment Revenue Bonds (Series 2005), 6.00%, 7/1/2030
|
| 12/21/2005
|
| $1,000,000
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. CAPITAL STOCK
The following tables summarize capital stock activity:
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class A Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 2,323,409 | | | $ | 23,421,753 | | | 7,503,623 | | | $ | 74,337,110 | |
Shares issued to shareholders in payment of distributions declared
| |
430,957 | | | |
4,331,323 | | |
801,661 | | | |
7,919,370 | |
Shares redeemed
|
| (2,688,413
| )
|
|
| (27,061,421
| )
|
| (4,107,724
| )
|
|
| (40,663,903
| )
|
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS
|
|
65,953
|
|
| $
|
691,655
|
|
|
4,197,560
|
|
| $
|
41,592,577
|
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class B Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 321,826 | | | $ | 3,240,842 | | | 1,248,186 | | | $ | 12,353,838 | |
Shares issued to shareholders in payment of distributions declared
| |
131,273 | | | |
1,319,085 | | |
298,200 | | | |
2,946,089 | |
Shares redeemed
|
| (1,511,821
| )
|
|
| (15,223,023
| )
|
| (2,977,064
| )
|
|
| (29,456,736
| )
|
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS
|
|
(1,058,722
| )
|
| $
|
(10,663,096
| )
|
|
(1,430,678
| )
|
| $
|
(14,156,809
| )
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class C Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 807,792 | | | $ | 8,132,457 | | | 2,018,908 | | | $ | 19,982,931 | |
Shares issued to shareholders in payment of distributions declared
| |
73,649 | | | |
740,233 | | |
135,794 | | | |
1,341,438 | |
Shares redeemed
|
| (466,030
| )
|
|
| (4,697,963
| )
|
| (1,094,868
| )
|
|
| (10,837,576
| )
|
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS
|
|
415,411
|
|
| $
|
4,174,727
|
|
|
1,059,834
|
|
| $
|
10,486,793
|
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class F Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 1,521,449 | | | $ | 15,325,954 | | | 2,441,426 | | | $ | 24,163,408 | |
Shares issued to shareholders in payment of distributions declared
| |
299,554 | | | |
3,010,787 | | |
547,068 | | | |
5,404,393 | |
Shares redeemed
|
| (909,533
| )
|
|
| (9,156,446
| )
|
| (1,993,129
| )
|
|
| (19,723,334
| )
|
NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS
|
|
911,470
|
|
| $
|
9,180,295
|
|
|
995,365
|
|
| $
|
9,844,467
|
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
|
334,112
|
|
| $
|
3,383,581
|
|
|
4,822,081
|
|
| $
|
47,767,028
|
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $550,553,723. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation/depreciation resulting from futures contracts and swap contracts was $33,072,776. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $36,994,872 and net unrealized depreciation from investments for those securities having an excess of cost over value of $3,922,096.
At August 31, 2006, the Fund had a capital loss carryforward of $50,716,294 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 24,259,223
|
2009
|
| $ 4,968,940
|
2010
|
| $ 3,907,651
|
2011
|
| $ 5,101,855
|
2012
|
| $ 3,341,471
|
2013
|
| $ 7,976,021
|
2014
|
| $ 1,161,133
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.60% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $805,040 of its fee.
Pursuant to a settlement with the New York Attorney General, the Adviser has agreed to waive investment adviser fees in compliance with an Assurance of Discontinuance dated November 17, 2005. The net investment adviser fee was reduced to 0.3233% effective January 1, 2006 and may not be increased until after December 31, 2010.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.076% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC:
Share Class Name
|
| Percentage of Average Daily
Net Assets of Class
|
Class A Shares
|
| 0.25%
|
Class B Shares
|
| 0.75%
|
Class C Shares
|
| 0.75%
|
Class F Shares
|
| 0.25%
|
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC retained $72,657 of fees paid by the Fund. For the six months ended February 28, 2007, the Fund's Class A Shares and Class F Shares did not incur a distribution services fee.
Sales Charges
For the six months ended February 28, 2007, FSC retained $45,069 in sales charges from the sale of Class A Shares. FSC also retained $2,266 of contingent deferred sales charges relating to redemptions of Class A Shares, $4,359 relating to redemptions of Class C Shares and $4,375 relating to redemptions of Class F Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $85,160,000 and $81,020,000, respectively.
General
Certain of the Officers and Directors of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT RISK
Although the Fund has a diversified portfolio, the Fund has 42.4% of its portfolio invested in lower rated and comparable quality unrated high-yield securities. Investments in higher yield securities may be subject to a greater degree of credit risk and the risk tends to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and often subordinated to other creditors of the issuer.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 103,460,824
|
Sales
|
| $
| 103,269,403
|
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to authorize the creation and offering of this new investment portfolio, as proposed by, the Federated organization, and based on Federated's recommendation to go forward with establishment of the Fund.
Federated proposed the creation of the Fund in connection with the proposed tax-free reorganization of Federated Municipal High Yield Advantage Fund, Inc. (the "Predecessor Fund") from a Maryland corporation to a Massachusetts Business Trust, pursuant to which shareholders of the Predecessor Fund would become shareholders of the Fund. Except for changes to certain fundamental investment limitations, there were no other changes proposed to the investment objectives, policies or portfolio manager(s), and the proposed investment advisory contract for Fund would contain substantially identical terms and conditions to the advisory contract of the Predecessor Fund.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Predecessor Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the Predecessor 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Predecessor Fund and working with Federated on matters relating to the Federated Funds, and was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Predecessor Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Predecessor Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Predecessor Fund by the Adviser and its affiliates; the preferences and expectations of Predecessor Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For the periods ending December 31, 2005, the Predecessor Fund's performance for the three year period was above the median of the relevant peer group, and the Predecessor Fund's performance fell below the median of the relevant peer group for the one year period. The Board discussed the Predecessor Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Predecessor Fund's investment advisory fee after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Predecessor Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the approval of the proposed advisory contract containing terms and provisions substantially identical to those applicable to the Predecessor Fund, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Predecessor Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Predecessor Fund by the Adviser and its affiliates was satisfactory.
In its decision to approve the proposed investment advisory contract for the Fund, the Board was 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 not approve an advisory contract. In particular, the Board recognized that most shareholders have invested in the Predecessor 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Predecessor Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923864
Cusip 313923856
Cusip 313923849
Cusip 313923831
8040407 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated Michigan Intermediate Municipal Trust
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $11.03 | | | $11.23 | | | $11.36 | | | $11.17 | | | $11.22 | | | $11.06 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.23 | | | 0.45 | | | 0.44 | | | 0.43 | | | 0.45 | | | 0.50 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.01
|
|
| (0.20
| )
|
| (0.13
| )
|
| 0.19
|
|
| (0.05)
|
|
| 0.16
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.24
|
|
| 0.25
|
|
| 0.31
|
|
| 0.62
|
|
| 0.40
|
|
| 0.66
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.23
| )
|
| (0.45
| )
|
| (0.44
| )
|
| (0.43
| )
|
| (0.45
| )
|
| (0.50
| )
|
Net Asset Value, End of Period
|
| $11.04
|
|
| $11.03
|
|
| $11.23
|
|
| $11.36
|
|
| $11.17
|
|
| $11.22
|
|
Total Return 2
|
| 2.21
| %
|
| 2.33
| %
|
| 2.78
| %
|
| 5.60
| %
|
| 3.58
| %
|
| 6.15
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.50
| % 3
|
| 0.50
| %
|
| 0.50
| %
|
| 0.50
| %
|
| 0.50
| %
|
| 0.50
| %
|
Net investment income
|
| 4.25
| % 3
|
| 4.10
| %
|
| 3.91
| %
|
| 3.76
| %
|
| 3.96
| %
|
| 4.53
| %
|
Expense waiver 4
|
| (0.35
| )% 3
|
| 0.32
| %
|
| 0.32
| %
|
| 0.36
| %
|
| 0.36
| %
|
| 0.39
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $162,192
|
| $167,329
|
| $213,304
|
| $164,213
|
| $147,959
|
| $134,718
|
|
Portfolio turnover
|
| 9
| %
|
| 22
| %
|
| 21
| %
|
| 20
| %
|
| 15
| %
|
| 19
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Computed on an annualized basis.
4 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchases or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual
|
| $1,000
|
| $1,022.10
|
| $2.51
|
Hypothetical (assuming a 5% return before expenses)
|
| $1,000
|
| $1,022.32
|
| $2.51
|
1 Expenses are equal to the Fund's annualized net expense ratio of 0.50%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 44.2%
|
Prerefunded
|
| 21.9%
|
Hospital
|
| 14.8%
|
General Obligation--Local
|
| 10.5%
|
Resource Recovery
|
| 2.5%
|
Other 2
|
| 5.0%
|
Other Assets and Liabilities--Net 3
|
| 1.1%
|
TOTAL
|
| 100.0%
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Prerefunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2 For purposes of this table, sector classifications which constitute less than 2.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--98.5% | | | |
| | | Michigan--98.5% | | | |
| $ | 500,000 | | Anchor Bay, MI School District, Refunding UT GO Bonds (Series III), 5.50% (Q-SBLF GTD), 5/1/2014
| | $ | 539,810 |
| 1,000,000 | | Anchor Bay, MI School District, Refunding UT GO Bonds (Series III), 5.50% (Q-SBLF GTD), 5/1/2017
| | | 1,077,670 |
| 365,000 | | Anchor Bay, MI School District, School Building & Site UT GO Bonds (Series II), 6.125% (FGIC INS), 5/1/2011
| | | 399,076 |
| 1,070,000 | | Anchor Bay, MI School District, UT GO Bonds (Series 1999I), 5.75% (United States Treasury PRF 5/1/2009@100)/(Original Issue Yield: 5.80%), 5/1/2014
| | | 1,116,737 |
| 1,300,000 | | Ann Arbor, MI Public School District, School Building & Site UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2019
| | | 1,414,257 |
| 1,125,000 | | Armada, MI Area Schools, School Building & Site UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2021
| | | 1,211,670 |
| 1,060,000 | | Armada, MI Area Schools, School Building & Site UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2023
| | | 1,138,588 |
| 2,000,000 | | Bay City, MI School District, School Building & Site UT GO Bonds (Series 2006), 5.00% (FSA INS), 5/1/2014
| | | 2,162,420 |
| 1,090,000 | | Boyne City, MI Public School District, UT GO Bonds, 5.60% (United States Treasury PRF 5/1/2009@100)/(Original Issue Yield: 5.70%), 5/1/2014
| | | 1,134,221 |
| 1,000,000 | | Brandon School District, MI, UT GO School Building and Site Bonds, 5.00% (FSA INS), 5/1/2019
| | | 1,087,890 |
| 1,215,000 | | Bridgeport Spaulding, MI Community School District, UT GO Bonds, 5.50% (Q-SBLF GTD), 5/1/2015
| | | 1,314,702 |
| 1,125,000 | | Brighton Township, MI, LT GO Sanitary Sewer Drainage District, 5.25% (FSA INS)/(Original Issue Yield: 5.68%), 10/1/2020
| | | 1,161,123 |
| 1,245,000 | | Charlevoix, MI Public School District, Refunding UT GO Bonds, 5.25% (Q-SBLF GTD), 5/1/2016
| | | 1,321,592 |
| 1,905,000 | | Chippewa Valley, MI Schools, UT GO School Building & Site Bonds, 5.00% (FSA INS), 5/1/2019
| | | 2,056,886 |
| 1,400,000 | | Coopersville, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2021
| | | 1,518,874 |
| 1,250,000 | | Coopersville, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2022
| | | 1,355,138 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 1,000,000 | | Cornell Township MI, Economic Development Corp., Refunding Revenue Bonds, 5.875% (MeadWestvaco Corp.)/(United States Treasury PRF 5/1/2012@100), 5/1/2018
| | $ | 1,103,010 |
| 1,000,000 | | Detroit, MI Water Supply System, Senior Lien Revenue Bonds (Series 1999A), 5.75% (United States Treasury PRF 1/1/2010@101)/(Original Issue Yield: 5.84%), 7/1/2019
| | | 1,065,450 |
| 2,000,000 | | Detroit, MI Water Supply System, Senior Lien Revenue Bonds (Series 2006A), 5.00% (FSA INS), 7/1/2018
| | | 2,171,580 |
| 1,335,000 | | Detroit, MI, Refunding UT GO Bonds, 5.75% (FSA INS), 4/1/2010
| | | 1,410,414 |
| 1,000,000 | | Detroit, MI, UT GO Bonds (Series 1999A), 5.00% (FSA INS)/(Original Issue Yield: 5.16%), 4/1/2019
| | | 1,032,910 |
| 1,000,000 | | Detroit, MI, UT GO Bonds, (Series A-1), 5.375% (MBIA Insurance Corp. INS), 4/1/2017
| | | 1,065,750 |
| 1,120,000 | | Detroit, MI, UT GO Bonds, (Series B), 5.00% (FSA INS), 4/1/2015
| | | 1,210,810 |
| 1,200,000 | | Detroit, MI, UT GO Bonds, (Series B), 5.00% (FSA INS), 4/1/2016
| | | 1,304,496 |
| 1,000,000 | | Detroit, MI, UT GO Refunding Bonds, 5.25% (AMBAC INS)/(Original Issue Yield: 5.29%), 5/1/2008
| | | 1,017,610 |
| 1,000,000 | | Detroit/Wayne County, MI Stadium Authority, Revenue Bonds, 5.25% (FGIC INS)/(Original Issue Yield: 5.55%), 2/1/2011
| | | 1,021,230 |
| 1,000,000 | | Dickinson County, MI Economic Development Corp., Refunding Environmental Improvement Revenue Bonds (Series 2002A), 5.75% (International Paper Co.), 6/1/2016
| | | 1,069,950 |
| 2,000,000 | | Dickinson County, MI Economic Development Corp., Refunding PCR Bonds (Series 2004A), 4.80% (International Paper Co.), 11/1/2018
| | | 2,061,500 |
| 1,925,000 | | East Grand Rapids, MI Public School District, Refunding UT GO Bonds (Series 2001), 5.50% (Q-SBLF GTD), 5/1/2019
| | | 2,053,186 |
| 1,000,000 | | Ecorse, MI Public School District, UT GO Bonds, 5.50% (United States Treasury PRF 5/1/2008@101)/(Original Issue Yield: 5.59%), 5/1/2017
| | | 1,030,850 |
| 675,000 | | Ferris State University, MI, Revenue Bonds, 5.40% (United States Treasury PRF 4/1/2007@101)/(Original Issue Yield: 5.45%), 10/1/2009
| | | 682,783 |
| 1,000,000 | | Grand Blanc, MI Community Schools, School Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2015
| | | 1,078,800 |
| 200,000 | | Grand Rapids, MI Downtown Development Authority, Tax Increment Revenue Bonds, 6.60% (MBIA Insurance Corp. INS)/(Original Issue Yield: 6.70%), 6/1/2008
| | | 202,694 |
| 1,000,000 | | Hartland, MI Consolidated School District, Refunding UT GO Bonds, 5.375% (Q-SBLF GTD), 5/1/2016
| | | 1,060,220 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 1,650,000 | | Hartland, MI Consolidated School District, UT GO Bonds, 5.75% (Q-SBLF GTD), 5/1/2010
| | $ | 1,753,406 |
| 1,375,000 | | Howell, MI Public Schools, Refunding UT GO Bonds (Series 2001), 5.25% (Q-SBLF GTD), 5/1/2014
| | | 1,451,230 |
| 1,575,000 | | Howell, MI Public Schools, Refunding UT GO Bonds, 5.25% (Q-SBLF GTD), 5/1/2017
| | | 1,662,318 |
| 2,000,000 | | Howell, MI Public Schools, UT GO Bonds, 5.875% (United States Treasury PRF 5/1/2009@100)/(Original Issue Yield: 5.95%), 5/1/2022
| | | 2,092,540 |
| 2,000,000 | | Jackson County, MI Public Schools, UT GO Bonds, 5.60% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.70%), 5/1/2019
| | | 2,116,420 |
| 1,575,000 | | Jenison, MI Public Schools, UT GO Refunding Bonds, 5.25% (FGIC INS), 5/1/2011
| | | 1,670,429 |
| 1,000,000 | | Kalamazoo, MI Public Schools, Refunding Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2018
| | | 1,090,310 |
| 1,000,000 | | Kalamazoo, MI Public Schools, Refunding Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2019
| | | 1,087,890 |
| 1,345,000 | | Kent County, MI, Capital Improvement LT GO Bonds (Series 2004A), 5.00%, 12/1/2020
| | | 1,451,551 |
| 1,250,000 | | Kent Hospital Finance Authority, MI, Revenue Bonds (Series 2005A), 5.50% (Metropolitan Hospital), 7/1/2020
| | | 1,342,350 |
| 1,925,000 | | Lake Fenton, MI Community Schools, UT GO Bonds, 5.50% (United States Treasury PRF 5/1/2012@100), 5/1/2017
| | | 2,089,568 |
| 1,000,000 | | Lake Orion, MI School District, UT GO Bonds (Series 2000A), 5.75% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.89%), 5/1/2015
| | | 1,062,670 |
| 1,700,000 | | Lake Superior State University, MI, General Revenue Bonds, 5.50% (AMBAC INS), 11/15/2021
| | | 1,826,582 |
| 2,275,000 | | Lakeview, MI Public School District, Refunding UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2017
| | | 2,504,093 |
| 1,000,000 | | Lanse Creuse, MI Public Schools, UT GO Bonds (Series 2000), 5.40% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.50%), 5/1/2016
| | | 1,052,270 |
| 1,000,000 | | Lansing, MI School District, Refunding School Building & Site UT GO Bonds, 5.00% (Q-SBLF GTD), 5/1/2020
| | | 1,069,510 |
| 1,000,000 | | Madison, MI District Public Schools, Refunding UT GO Bonds, 5.50% (United States Treasury PRF 5/1/2009@100), 5/1/2015
| | | 1,038,500 |
| 2,000,000 | | Mattawan, MI Consolidated School District, UT GO Bonds, 5.65% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.67%), 5/1/2018
| | | 2,119,400 |
| 1,350,000 | | Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, (Series XVII-A), 5.65% (AMBAC INS), 6/1/2010
| | | 1,369,494 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 1,000,000 | | Michigan Municipal Bond Authority Clean Water Revolving Fund, Revenue Bonds (Series 2006), 5.00%, 10/1/2022
| | $ | 1,087,280 |
| 1,000,000 | | Michigan Municipal Bond Authority, Revenue Bonds (Series 2005B), 5.00% (Detroit, MI City School District)/(FSA INS), 6/1/2015
| | | 1,080,780 |
| 2,190,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.625% (Drinking Water Revolving Fund)/(United States Treasury PRF 10/1/2009@101), 10/1/2013
| | | 2,316,451 |
| 1,000,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.75% (Clean Water Revolving Fund)/(United States Treasury PRF 10/1/2009@101), 10/1/2015
| | | 1,060,810 |
| 1,000,000 | | Michigan State Building Authority, Facilities Program Refunding Revenue Bonds (Series 2001I), 5.50%, 10/15/2019
| | | 1,072,390 |
| 2,000,000 | | Michigan State Building Authority, Revenue Bonds (Series 2006 IA)/ (FGIC INS), 10/15/2021
| | | 1,044,920 |
| 1,100,000 | | Michigan State Building Authority, Refunding Revenue Bonds, (Series 1), 4.75% (Original Issue Yield: 4.98%), 10/15/2018
| | | 1,124,772 |
| 1,500,000 | | Michigan State Hospital Finance Authority, Hospital Refunding Revenue Bonds (Series 2003A), 5.50% (Henry Ford Health System, MI)/(United States Treasury COL), 3/1/2013
| | | 1,640,880 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Refunding Revenue Bonds, 5.75% (Sparrow Obligated Group, MI), 11/15/2016
| | | 1,078,260 |
| 1,200,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2005), 5.00% (Sparrow Obligated Group, MI)/(MBIA Insurance Corp. INS), 11/15/2016
| | | 1,292,208 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2005), 5.00% (Sparrow Obligated Group, MI)/(MBIA Insurance Corp. INS), 11/15/2017
| | | 1,073,930 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2005A), 5.00% (Marquette General Hospital, MI), 5/15/2012
| | | 1,036,720 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2005A), 5.00% (Marquette General Hospital, MI), 5/15/2013
| | | 1,040,800 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2006A), 5.00% (MidMichigan Obligated Group), 4/15/2026
| | | 2,098,540 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue and Refunding Bonds (Series 2006A), 5.00% (Henry Ford Health System, MI), 11/15/2021
| | | 1,066,500 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Refunding Revenue Bonds (Series 1998A), 4.90% (St. John Hospital, MI)/(United States Treasury COL)/ (Original Issue Yield: 5.05%), 5/15/2013
| | | 1,023,510 |
| 1,300,000 | | Michigan State Hospital Finance Authority, Refunding Revenue Bonds (Series 2002A), 5.50% (Crittenton Hospital, MI), 3/1/2016
| | | 1,392,066 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 1,175,000 | | Michigan State Hospital Finance Authority, Refunding Revenue Bonds (Series A), 6.00% (Trinity Healthcare Credit Group)/(Original Issue Yield: 6.14%), 12/1/2020
| | $ | 1,267,567 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Revenue & Refunding Bonds (Series 1998A), 5.10% (McLaren Health Care Corp.)/(Original Issue Yield: 5.15%), 6/1/2013
| | | 1,026,200 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 1993P), 5.375% (Sisters of Mercy Health System)/(MBIA Insurance Corp. INS)/ (Original Issue Yield: 5.55%), 8/15/2014
| | | 2,122,140 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 1999A), 6.00% (Ascension Health Credit Group)/(MBIA Insurance Corp. INS), 11/15/2011
| | | 2,133,040 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2005C), 5.00% (McLaren Health Care Corp.), 8/1/2020
| | | 2,113,940 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2006A), 5.00% (Trinity Healthcare Credit Group), 12/1/2026
| | | 2,126,900 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Refunding Revenue Bonds, 5.00% (Chelsea Community Hospital)/(Original Issue Yield: 5.30%), 5/15/2012
| | | 1,012,740 |
| 1,400,000 | | Michigan State Hospital Finance Authority, Refunding Revenue Bonds, (Series A), 5.50% (MidMichigan Obligated Group)/(FSA INS), 6/1/2008
| | | 1,430,100 |
| 3,500,000 | | Michigan State House of Representatives, Certificates of Participation, 5.29% accrual (Capitol Outlook LLC)/(AMBAC INS)/(Original Issue Yield: 5.29%), 8/15/2022
| | | 1,834,875 |
| 565,000 | | Michigan State Housing Development Authority, LO MFH Refunding Revenue Bonds (Series 2000A), 6.30% (Oakbrook Villa Townhomes)/(GNMA Collateralized Home Mortgage Program GTD), 7/20/2019
| | | 598,832 |
| 1,000,000 | | Michigan State Housing Development Authority, SFM Revenue Bonds (Series 2001A), 5.30% (MBIA Insurance Corp. INS), 12/1/2016
| | | 1,032,430 |
| 820,000 | | Michigan State Strategic Fund, Revenue Bonds (Series 2004), 5.00% (NSF International), 8/1/2013
| | | 865,412 |
| 2,000,000 | | Michigan State Strategic Fund, Revenue Bonds, 4.25% TOBs (Republic Services, Inc.), Mandatory Tender 4/1/2014
| | | 1,972,240 |
| 175,000 | | Michigan State Strategic Fund, Revenue Bonds, 5.30% (Porter Hills Presbyterian Village, Inc.)/(Original Issue Yield: 5.422%), 7/1/2018
| | | 178,239 |
| 325,000 | | Michigan State Strategic Fund, Revenue Bonds, 5.30% (Porter Hills Presbyterian Village, Inc.)/(United States Treasury PRF 7/1/2008@101)/ (Original Issue Yield: 5.422%), 7/1/2018
| | | 334,867 |
| 1,000,000 | | Michigan State Strategic Fund, Solid Disposal LT Obligation Refunding Revenue Bonds (Series 2002), 4.625% (Waste Management, Inc.), 12/1/2012
| | | 1,017,890 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 1,000,000 | | Michigan State Strategic Fund, Solid Waste Refunding LO Revenue Bonds, 4.50% (Waste Management, Inc.), 12/1/2013
| | $ | 1,009,230 |
| 1,000,000 | | Michigan State Trunk Line, Revenue Bonds (Series 2001A), 5.50% (United States Treasury PRF 11/1/2011@100), 11/1/2018
| | | 1,075,240 |
| 2,000,000 | | Michigan State Trunk Line, Revenue Bonds, 5.00% (FGIC INS), 11/1/2014
| | | 2,171,260 |
| 1,250,000 | | Milan, MI Area Schools, UT GO Bonds (Series 2000A), 5.75% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.86%), 5/1/2020
| | | 1,328,338 |
| 1,350,000 | | North Branch, MI Area Schools, UT GO School Building and Site Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2017
| | | 1,463,157 |
| 500,000 | | Portage, MI Public Schools, UT GO Refunding Bonds, 4.45% (FSA INS)/ (Original Issue Yield: 4.57%), 5/1/2012
| | | 507,955 |
| 1,170,000 | | Romulus, MI Community Schools, UT GO Bonds, 6.00% (United States Treasury PRF 5/1/2009@100), 5/1/2011
| | | 1,227,166 |
| 1,130,000 | | Romulus, MI Tax Increment Finance Authority, Recreation Center LT GO Bonds, 5.00% (FSA INS), 11/1/2022
| | | 1,229,316 |
| 1,100,000 | | Roseville, MI Community Schools, School Building & Site Refunding UT GO Bonds, 5.00% (FSA INS), 5/1/2021
| | | 1,193,401 |
| 1,400,000 | | Saginaw, MI City School District, School Building and Site UT GO Bonds, 5.00% (FSA INS), 5/1/2018
| | | 1,526,434 |
| 1,000,000 | | Saginaw, MI Hospital Finance Authority, Hospital Refunding Revenue Bonds (Series 2004G), 5.00% (Covenant Medical Center, Inc.), 7/1/2017
| | | 1,048,110 |
| 1,500,000 | | Saginaw, MI Hospital Finance Authority, Refunding Revenue Bonds (Series 1999E), 5.625% (Covenant Medical Center, Inc.)/(MBIA Insurance Corp. INS), 7/1/2013
| | | 1,569,960 |
| 5,000,000 | | Saginaw, MI Hospital Finance Authority, Revenue Bonds, (Series F), 6.50% (Covenant Medical Center, Inc.)/(Original Issue Yield: 6.645%), 7/1/2030
| | | 5,419,400 |
| 1,000,000 | | Sault Ste Marie, MI Area Public Schools, UT GO Bonds, 5.375% (United States Treasury PRF 5/1/2009@100)/(Original Issue Yield: 5.65%), 5/1/2019
| | | 1,035,910 |
| 675,000 | | South Lyon, MI Community School District, UT GO Bonds, (Series A), 5.75% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.85%), 5/1/2019
| | | 717,302 |
| 1,675,000 | | Southfield, MI Public Schools, UT GO School Building and Site Bonds (Series B), 5.00% (FSA INS), 5/1/2012
| | | 1,778,230 |
| 1,700,000 | | Spring Lake, MI Public School District No. 41, UT GO School Building and Site Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2018
| | | 1,853,527 |
| 1,130,000 | | Taylor, MI Building Authority, Refunding LT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 12/1/2015
| | | 1,234,728 |
| 1,250,000 | | Trenton, MI Building Authority, LT GO Bonds, 5.625% (AMBAC INS)/(Original Issue Yield: 5.73%), 10/1/2021
| | | 1,343,763 |
| 170,000 | | Troy, MI City School District, Refunding UT GO Bonds, 4.75% (Q-SBLF GTD)/ (Original Issue Yield: 4.80%), 5/1/2008
| | | 170,275 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Michigan--continued | | | |
| $ | 2,000,000 | | Troy, MI City School District, School Building & Site UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2020
| | $ | 2,171,420 |
| 1,000,000 | | University of Michigan, Refunding Revenue Bonds, (Series A-1), 5.25% (University of Michigan Health System), 12/1/2009
| | | 1,028,130 |
| 500,000 | | Utica, MI Community Schools, School Building and Site Refunding UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 5/1/2017
| | | 548,135 |
| 1,000,000 | | Utica, MI Community Schools, UT GO Bonds, 5.00% (Q-SBLF GTD), 5/1/2016
| | | 1,071,940 |
| 1,000,000 | | Utica, MI Community Schools, UT GO School Building & Site Refunding Bonds, 5.50% (United States Treasury PRF 5/1/2012@100), 5/1/2016
| | | 1,085,490 |
| 1,625,000 | | Warren Woods, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (FSA INS), 5/1/2018
| | | 1,771,754 |
| 1,000,000 | | Waverly, MI Community Schools, School Building and Site UT GO Bonds (Series 2000), 5.75% (United States Treasury PRF 5/1/2010@100), 5/1/2015
| | | 1,062,670 |
| 1,000,000 | | Wayne County, MI Building Authority, LT GO Capital Improvement Bonds, 5.35% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.40%), 6/1/2009
| | | 1,019,920 |
| 1,775,000 | | West Bloomfield, MI School District, Refunding UT GO Bonds, 5.50% (United States Treasury PRF 5/1/2011@100), 5/1/2015
| | | 1,900,297 |
| 900,000 | | West Bloomfield, MI School District, UT GO Bonds, 5.70% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.75%), 5/1/2014
| | | 955,062 |
| 1,000,000 | | West Branch Rose City, MI Area School District, UT GO Bonds, 5.50% (United States Treasury PRF 5/1/2009@100)/(Original Issue Yield: 5.60%), 5/1/2017
| | | 1,038,500 |
| 1,025,000 | | Whitehall, MI District Schools, UT GO Bonds, 5.50% (Q-SBLF GTD), 5/1/2016
| | | 1,105,309 |
| 1,250,000 | | Willow Run, MI Community School District, UT GO Bonds, 5.00% (FSA INS), 5/1/2015
| | | 1,360,263 |
| 740,000 | | Wyandotte, MI Electric Authority, Refunding Revenue Bonds, 6.25% (MBIA Insurance Corp. INS)/(Original Issue Yield: 6.55%), 10/1/2008
|
|
| 756,665
|
| | | TOTAL MUNICIPAL BONDS (IDENTIFIED COST $154,014,500)
|
|
| 159,880,914
|
| | | SHORT-TERM MUNICIPALS--0.4% 1 | | | |
| | | Michigan--0.4% | | | |
| 600,000 | | Michigan State Hospital Finance Authority, (Series 1999 A) Weekly VRDNs (Covenant Retirement Communities, Inc.)/(LaSalle Bank, N.A. LOC), 3.650%, 3/1/2007 (AT AMORTIZED COST)
|
|
| 600,000
|
| | | TOTAL MUNICIPAL INVESTMENTS--98.9%
(IDENTIFIED COST $154,614,500) 2
|
|
| 160,480,914
|
| | | OTHER ASSETS AND LIABILITIES - NET--1.1%
|
|
| 1,711,031
|
| | | TOTAL NET ASSETS--100%
|
| $
| 162,191,945
|
Securities that are subject to the federal alternative minimum tax (AMT) represents 5.2% of the Fund's portfolio as calculated based upon total market value.
1 Current rate and next reset date shown for Variable Rate Demand Notes.
2 The cost of investments for federal tax purposes amounts to $154,585,507.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| FGIC | - --Financial Guaranty Insurance Company |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| INS | - --Insured |
| LO | - --Limited Obligation |
| LOC | - --Letter of Credit |
| LT | - --Limited Tax |
| MFH | - --Multifamily Housing |
| PCR | - --Pollution Control Revenue |
| PRF | - --Prerefunded |
| Q-SBLF | - --Qualified State Bond Loan Fund |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $154,614,500)
| | | | | $ | 160,480,914 | |
Cash
| | | | | | 41,340 | |
Income receivable
| | | | | | 2,389,582 | |
Receivable for shares sold
| | | | | | 163,013 | |
Other assets
|
|
|
|
|
| 11,129
|
|
TOTAL ASSETS
|
|
|
|
|
| 163,085,978
|
|
Liabilities:
| | | | | | | |
Payable for shares redeemed
| | $ | 605,388 | | | | |
Income distribution payable
| | | 216,709 | | | | |
Payable for shareholder services fee (Note 5)
| | | 48,983 | | | | |
Accrued expenses
|
|
| 22,953
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 894,033
|
|
Net assets for 14,688,290 shares outstanding
|
|
|
|
| $
| 162,191,945
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 157,864,104 | |
Net unrealized appreciation of investments
| | | | | | 5,866,414 | |
Accumulated net realized loss on investments, futures contracts and swap contracts
| | | | | | (1,544,971 | ) |
Undistributed net investment income
|
|
|
|
|
| 6,398
|
|
TOTAL NET ASSETS
|
|
|
|
| $
| 162,191,945
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
| | | | | | | |
Net asset value per share ($162,191,945 ÷ 14,688,290 shares outstanding) no par value, unlimited shares authorized
|
|
|
|
|
| $11.04
|
|
Offering price per share (100/97.00 of $11.04) 1
|
|
|
|
|
| $11.38
|
|
Redemption proceeds per share
|
|
|
|
|
| $11.04
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 3,888,635
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 326,969 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 74,384 | | | | | |
Custodian fees
| | | | | | | 4,613 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 26,206 | | | | | |
Directors'/Trustees' fees
| | | | | | | 1,930 | | | | | |
Auditing fees
| | | | | | | 9,781 | | | | | |
Legal fees
| | | | | | | 4,377 | | | | | |
Portfolio accounting fees
| | | | | | | 31,836 | | | | | |
Shareholder services fee (Note 5)
| | | | | | | 191,090 | | | | | |
Share registration costs
| | | | | | | 9,620 | | | | | |
Printing and postage
| | | | | | | 9,140 | | | | | |
Insurance premiums
| | | | | | | 3,621 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 1,364
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 694,931
|
|
|
|
|
|
Waivers (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (270,178 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
|
|
| (12,096
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS
|
|
|
|
|
|
| (282,274
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 412,657
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 3,475,978
|
|
Realized and Unrealized Gain (Loss) on Investments:
| | | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 671,435 | |
Net change in unrealized appreciation of investments
|
|
|
|
|
|
|
|
|
|
| (467,810
| )
|
Net realized and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
| 203,625
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 3,679,603
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
| Year Ended
8/31/2006
|
|
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 3,475,978 | | | $ | 8,073,846 | |
Net realized gain (loss) on investments
| | | 671,435 | | | | (126,788 | ) |
Net change in unrealized appreciation/depreciation of investments
|
|
| (467,810
| )
|
|
| (4,006,299
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 3,679,603
|
|
|
| 3,940,759
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
|
|
| (3,469,545
| )
|
|
| (8,057,150
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 11,286,812 | | | | 36,330,803 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 2,159,305 | | | | 5,051,002 | |
Cost of shares redeemed
|
|
| (18,793,523
| )
|
|
| (83,240,243
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| (5,347,406
| )
|
|
| (41,858,438
| )
|
Change in net assets
|
|
| (5,137,348
| )
|
|
| (45,974,829
| )
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 167,329,293
|
|
|
| 213,304,122
|
|
End of period (including undistributed (distributions in excess) of net investment income of $6,398 and $(35), respectively)
|
| $
| 162,191,945
|
|
| $
| 167,329,293
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated Michigan Intermediate Municipal Trust (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers one class of shares: Class A Shares. The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of Michigan and Michigan municipalities. Interest income from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
|
| Six Months
Ended
2/28/2007
|
|
| Year Ended
8/31/2006
|
|
Shares sold
| | 1,022,153 | | | 3,293,231 | |
Shares issued to shareholders in payment of distributions declared
| | 195,618 | | | 458,779 | |
Shares redeemed
|
| (1,705,132
| )
|
| (7,570,742
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| (487,361
| )
|
| (3,818,732
| )
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $154,585,507. The net unrealized appreciation of investments for federal tax purposes was $5,895,407. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,918,944 and net unrealized depreciation from investments for those securities having an excess of cost over value of $23,537.
At August 31, 2006, the Fund had a capital loss carryforward of $2,134,604 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 804,301
|
2009
|
| $ 2,481
|
2011
|
| $ 100,968
|
2012
|
| $ 16,083
|
2013
|
| $ 1,204,477
|
2014
|
| $ 6,294
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $270,178 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007 the net fee paid to FAS was 0.076% of average aggregate daily net assets of the Fund.
Sales Charges
For the six months ended February 28, 2007, Federated Securities Corp., the principal distributor, retained $67 in sales charges from the sale of the Fund's Shares. FSC also retained $131 of contingent deferred sales charges relating to redemptions of the Fund's Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $13,200,000 and $14,200,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 14,168,538
|
Sales
|
| $
| 19,348,817
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 44.7% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported backed by a letter of credit from any one institution or agency was 19.7% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods ending December 31, 2005. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated Funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates was satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923302
3032602 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated North Carolina Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.85 | | | $11.07 | | | $11.05 | | | $10.92 | | | $11.07 | | | $10.99 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.24 | | | 0.48 | | | 0.47 | | | 0.48 | | | 0.48 | | | 0.50 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.04
|
|
| (0.22
| )
|
| 0.02
|
|
| 0.13
|
|
| (0.15
| )
|
| 0.08
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.28
|
|
| 0.26
|
|
| 0.49
|
|
| 0.61
|
|
| 0.33
|
|
| 0.58
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.24
| )
|
| (0.48
| )
|
| (0.47
| )
|
| (0.48
| )
|
| (0.48
| )
|
| (0.50
| )
|
Net Asset Value, End of Period
|
| $10.89
|
|
| $10.85
|
|
| $11.07
|
|
| $11.05
|
|
| $10.92
|
|
| $11.07
|
|
Total Return 2
|
| 2.58
| %
|
| 2.48
| % 3
|
| 4.57
| %
|
| 5.61
| %
|
| 2.93
| %
|
| 5.48
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.86
| % 4,5
|
| 0.74
| %
|
| 0.78
| %
|
| 0.79
| %
|
| 0.79
| %
|
| 0.79
| %
|
Net investment income
|
| 4.41
| % 4
|
| 4.45
| %
|
| 4.29
| %
|
| 4.26
| %
|
| 4.22
| %
|
| 4.62
| %
|
Expense waiver/reimbursement 6
|
| 0.78
| % 4
|
| 0.76
| %
|
| 0.63
| %
|
| 0.56
| %
|
| 0.49
| %
|
| 0.61
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $47,544
|
| $47,174
|
| $62,000
|
| $56,289
|
| $82,430
|
| $55,261
|
|
Portfolio turnover
|
| 11
| %
|
| 13
| %
|
| 12
| %
|
| 16
| %
|
| 16
| %
|
| 21
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 During the period, the Fund was reimbursed by the shareholder service provider, which had an impact of 0.06% on the total return. See Notes to Financial Statements (Note 5).
4 Computed on an annualized basis.
5 Includes 0.07% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
6 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual
|
| $1,000
|
| $1,025.80
|
| $4.32
|
Hypothetical (assuming a 5% return before expenses)
|
| $1,000
|
| $1,020.53
|
| $4.31
|
1 Expenses are equal to the Fund's annualized net expense ratio of 0.86%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition was as follows: 1
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 45.6
| %
|
Senior Care
|
| 12.1
| %
|
Refunded
|
| 8.7
| %
|
Hospital
|
| 8.2
| %
|
Special Tax
|
| 6.5
| %
|
Public Power
|
| 4.5
| %
|
Industrial Development Bond/Pollution Control Revenue
|
| 4.4
| %
|
Education
|
| 3.8
| %
|
Single Family Housing
|
| 2.6
| %
|
General Obligation--Local
|
| 2.2
| %
|
Other 2
|
| 2.2
| %
|
Other Assets and Liabilities--Net 3
|
| (0.8
| )%
|
TOTAL
|
| 100.0
| %
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector.
2 For purposes of this table, sector classifications constitute 98.6% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--96.0% | | | | |
| | | North Carolina--85.2% | | | | |
| $ | 1,190,000 | | Appalachian State University, NC, Parking System Revenue Bonds, 5.625% (FSA INS)/ (Original Issue Yield: 5.65%), 7/15/2025
| | $ | 1,275,763 | |
| 880,000 | | Asheville, NC Housing Authority, MFH Revenue Bonds, 5.625% TOBs (Oak Knoll Apartments Project)/(FNMA GTD) 9/1/2021
| | | 929,562 | |
| 500,000 | | Broad River, NC Water Authority, Water System Revenue Bonds (Series 2000), 5.375% (United States Treasury PRF 6/1/2010@101)/(Original Issue Yield: 5.55%), 6/1/2026
| | | 531,160 | |
| 2,000,000 | | Charlotte, NC Airport, Revenue Bonds, (Series B), 5.875% (MBIA Insurance Corp. INS)/ (Original Issue Yield: 5.95%), 7/1/2019
| | | 2,101,360 | |
| 500,000 | | Columbus County, NC Industrial Facilities & PCFA, Revenue Bonds (Series 1996A), 5.85% (International Paper Co.), 12/1/2020
| | | 514,870 | |
| 1,000,000 | | Fayetteville, NC Public Works Commission, Revenue Bonds (Series 1999), 5.70% (United States Treasury PRF 3/1/2010@101)/(Original Issue Yield: 5.79%), 3/1/2019
| | | 1,067,760 | |
| 500,000 | | Gaston County, NC Industrial Facilities and PCFA, Exempt Facilities Revenue Bonds, 5.75% (National Gypsum Co.), 8/1/2035
| | | 538,825 | |
| 750,000 | | Harnett County, NC, COPs, 5.50% (FSA INS), 12/1/2015
| | | 800,452 | |
| 1,000,000 | | Haywood County, NC Industrial Facilities & PCFA, Revenue Refunding Bonds, 6.40% (Champion International Corp.)/(Original Issue Yield: 6.42%), 11/1/2024
| | | 1,055,660 | |
| 1,000,000 | | High Point, NC, Public Improvement UT GO Bonds (Series 2000B), 5.50% (Original Issue Yield: 5.67%), 6/1/2018
| | | 1,075,030 | |
| 500,000 | | North Carolina Capital Facilities Finance Agency, Revenue Bonds (Series 2005A), 5.00% (Duke University), 10/1/2041
| | | 531,175 | |
| 500,000 | | North Carolina Eastern Municipal Power Agency, Power System Refunding Revenue Bonds (Series 2003C), 5.375% (Original Issue Yield: 5.57%), 1/1/2017
| | | 533,860 | |
| 500,000 | | North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series 1999D), 6.70%, 1/1/2019
| | | 539,095 | |
| 645,000 | | North Carolina HFA, Home Ownership Revenue Bonds (Series 5-A), 5.55%, 1/1/2019
| | | 662,015 | |
| 550,000 | | North Carolina HFA, Home Ownership Revenue Bonds (Series 6-A), 6.10%, 1/1/2018
| | | 566,770 | |
| 300,000 | | North Carolina Medical Care Commission, FHA Insured Mortgage Revenue Bonds (Series 2003), 5.375% (Betsy Johnson Regional Hospital)/(FSA INS), 10/1/2024
| | | 323,862 | |
| 500,000 | 1 | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds (Series 2001), 6.625% (Moravian Homes, Inc.)/(United States Treasury LOC 4/1/2011@101)/(Original Issue Yield: 7.00%), 4/1/2031
| | | 552,915 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | North Carolina--continued | | | | |
| $ | 250,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds (Series 2005A), 6.00% (Pennybyrn at Maryfield), 10/1/2023
| | $ | 265,482 | |
| 1,500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds (Series 2006A), 5.00% (The Pines at Davidson), 1/1/2036
| | | 1,564,125 | |
| 500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds, 6.25% (Arbor Acres Community)/(Original Issue Yield: 6.40%), 3/1/2027
| | | 535,185 | |
| 500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Bonds, 6.875% (Presbyterian Homes, Inc.)/(Original Issue Yield: 7.00%), 10/1/2021
| | | 552,050 | |
| 500,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Refunding Bonds (Series 2004A), 5.00% (Deerfield Episcopal Retirement Community), 11/1/2023
| | | 519,660 | |
| 470,000 | | North Carolina Medical Care Commission, Health Care Facilities First Mortgage Revenue Refunding Bonds (Series 2006), 5.10% (Moravian Homes, Inc.), 10/1/2030
| | | 480,716 | |
| 1,000,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds (Series 1999), 6.25% (Stanly Memorial Hospital Project)/(Original Issue Yield: 6.40%), 10/1/2019
| | | 1,060,800 | |
| 250,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds (Series 2002A), 5.25% (Union Regional Medical Center)/(Original Issue Yield: 5.33%), 1/1/2021
| | | 260,933 | |
| 200,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds (Series 2002A), 5.25% (Union Regional Medical Center)/(Original Issue Yield: 5.38%), 1/1/2022
| | | 208,658 | |
| 1,205,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds (Series 2004A), 5.25% (Cleveland Community Healthcare)/(AMBAC INS), 7/1/2021
| | | 1,305,521 | |
| 1,230,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds, 5.50% (Hugh Chatham Memorial Hospital)/(Radian Asset Assurance INS), 10/1/2019
| | | 1,334,673 | |
| 625,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds, 5.50% (Scotland Memorial Hospital)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.593%), 10/1/2019
| | | 650,931 | |
| 400,000 | | North Carolina Medical Care Commission, Health Care Housing Revenue Bonds (Series 2004A), 5.80% (Arc of North Carolina Projects), 10/1/2034
| | | 433,544 | |
| 1,000,000 | | North Carolina Medical Care Commission, Hospital Revenue Bonds (Series 2000), 5.50% (Northeast Medical Center)/(AMBAC INS)/(Original Issue Yield: 5.74%), 11/1/2025
| | | 1,064,680 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | North Carolina--continued | | | | |
| $ | 500,000 | | North Carolina Medical Care Commission, Hospital Revenue Bonds (Series 2002A), 5.375% (Southeastern Regional Medical Center)/(Original Issue Yield: 5.48%), 6/1/2032
| | $ | 526,520 | |
| 1,000,000 | | North Carolina Medical Care Commission, Hospital Revenue Bonds, 6.125% (Southeastern Regional Medical Center)/(Original Issue Yield: 6.25%), 6/1/2019
| | | 1,060,760 | |
| 685,000 | | North Carolina Medical Care Commission, Hospital Revenue Bonds, 5.50% (Maria Parham Medical Center)/(Radian Asset Assurance INS), 10/1/2018
| | | 740,821 | |
| 250,000 | | North Carolina Medical Care Commission, Retirement Facilities First Mortgage Revenue Bonds (Series 2002), 6.25% (Forest at Duke)/(Original Issue Yield: 6.35%), 9/1/2021
| | | 266,120 | |
| 500,000 | | North Carolina Medical Care Commission, Retirement Facilities First Mortgage Revenue Bonds (Series 2003A), 6.375% (Givens Estates)/(Original Issue Yield: 6.50%), 7/1/2023
| | | 543,140 | |
| 550,000 | | North Carolina Medical Care Commission, Retirement Facilities First Mortgage Revenue Bonds (Series 2004C), 6.00% (Cypress Glen)/(Original Issue Yield: 6.092%), 10/1/2033
| | | 586,509 | |
| 500,000 | | North Carolina Medical Care Commission, Retirement Facilities First Mortgage Revenue Bonds (Series 2005A), 5.50% (United Methodist Retirement Homes)/(Original Issue Yield: 5.55%), 10/1/2035
| | | 517,205 | |
| 500,000 | | North Carolina Medical Care Commission, Revenue Refunding Bonds (Series 2006B), 5.20% (Presbyterian Homes, Inc.), 10/1/2021
| | | 516,995 | |
| 1,000,000 | | North Carolina Municipal Power Agency No. 1, Electric Revenue Bonds (Series 1999B), 6.50% (Original Issue Yield: 6.73%), 1/1/2020
| | | 1,077,070 | |
| 1,000,000 | | Northern Hospital District of Surry County, NC, Health Care Facilities Revenue Refunding Bonds (Series 2001), 5.10% (Northern Hospital of Surry County)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.242%), 10/1/2021
| | | 1,048,460 | |
| 1,000,000 | | Onslow County, NC Hospital Authority, FHA Insured Mortgage Revenue Bonds, 5.00% (Onslow Memorial Hospital)/(FHA GTD)/(MBIA Insurance Corp. INS), 10/1/2034
| | | 1,064,210 | |
| 1,080,000 | | Onslow, NC Water & Sewer Authority, Revenue Bonds, 5.00% (XL Capital Assurance Inc. INS), 6/1/2025
| | | 1,146,690 | |
| 1,200,000 | | Piedmont Triad Airport Authority, NC, Airport Revenue Bonds (Series 1999A), 5.875% (FSA INS)/(Original Issue Yield: 6.02%), 7/1/2019
| | | 1,271,196 | |
| 1,000,000 | | Pitt County, NC, COPs (Series 2000B), 5.50% (FSA INS)/(Original Issue Yield: 5.63%), 4/1/2025
| | | 1,056,510 | |
| 500,000 | | Pitt County, NC, Refunding Bonds, 5.25% (Pitt County Memorial Hospital)/(Escrowed In Treasuries COL)/(Original Issue Yield: 5.85%), 12/1/2021
| | | 534,095 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | North Carolina--continued | | | | |
| $ | 500,000 | | Raleigh & Durham, NC Airport Authority, Revenue Bonds (Series 2005A), 5.00% (AMBAC INS), 5/1/2030
| | $ | 531,320 | |
| 1,000,000 | | Raleigh, NC Combined Enterprise System, Revenue Bonds (Series 2006A), 5.00%, 3/1/2036
| | | 1,070,330 | |
| 1,000,000 | | Randolph County, NC, COPs (Series 2000), 5.60% (FSA INS)/(Original Issue Yield: 5.77%), 6/1/2018
| | | 1,051,730 | |
| 1,000,000 | | Sampson County, NC, COPs, 4.50% (FSA INS), 6/1/2036
| | | 1,006,480 | |
| 500,000 | | University of North Carolina System Pool, Revenue Bonds (Series 2006B), 4.25% (MBIA Insurance Corp. INS)/(Original Issue Yield: 4.38%), 10/1/2033
| | | 493,700 | |
| 500,000 | | Wilmington, NC, Water & Sewer System, Revenue Bonds (Series 1999), 5.625% (FSA INS)/(Original Issue Yield: 5.76%), 6/1/2018
|
|
| 534,970
|
|
| | | TOTAL
|
|
| 40,481,923
|
|
| | | Puerto Rico--9.7% | | | | |
| 1,000,000 | | Puerto Rico Convention Center District Authority, Hotel Occupancy Tax Revenue Bonds (Series 2006A), 4.50% (CDC IXIS Financial Guaranty N.A. INS), 7/1/2036
| | | 1,015,970 | |
| 500,000 | | Puerto Rico Highway and Transportation Authority, Transportation Revenue Bonds (Series G), 5.00% (Original Issue Yield: 5.10%), 7/1/2033
| | | 521,190 | |
| 395,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Cogeneration Facility Revenue Bonds (Series 2000A), 6.625% (AES Puerto Rico Project)/(Original Issue Yield: 6.65%), 6/1/2026
| | | 428,283 | |
| 500,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2036
| | | 527,440 | |
| 2,000,000 | 2 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds (Series 2006), 5.00%, 7/1/2046
|
|
| 2,108,080
|
|
| | | TOTAL
|
|
| 4,600,963
|
|
| | | Virgin Islands--1.1% | | | | |
| 500,000 | | University of the Virgin Islands, UT GO Bonds (Series A), 5.375% (Original Issue Yield: 5.43%), 6/1/2034
|
|
| 535,785
|
|
| | | TOTAL MUNICIPAL BONDS (IDENTIFIED COST $43,091,654)
|
|
| 45,618,671
|
|
| | | SHORT-TERM MUNICIPALS--4.8% 3 | | | | |
| | | North Carolina--2.7% | | | | |
| 1,300,000 | | North Carolina Medical Care Commission, (Series 2001A) Weekly VRDNs (Moses H. Cone Memorial), 3.660%, 3/1/2007
|
|
| 1,300,000
|
|
Principal
Amount
|
|
|
|
| Value
|
| | | SHORT-TERM MUNICIPALS--continued | | | | |
| | | Puerto Rico--2.1% | | | | |
| $ | 1,000,000 | | Puerto Rico (GDB) Weekly VRDNs (MBIA Insurance Corp. INS)/(Credit Suisse, Zurich LIQ), 3.340%, 3/7/2007
|
| $
| 1,000,000
|
|
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST)
|
|
| 2,300,000
|
|
| | | TOTAL MUNICIPAL INVESTMENTS--100.8%
(IDENTIFIED COST $45,391,654) 4
|
|
| 47,918,671
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(0.8)%
|
|
| (374,425
| )
|
| | | TOTAL NET ASSETS--100%
|
| $
| 47,544,246
|
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 14.5% of the Fund's portfolio as calculated based upon total market value.
1 Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts.
2 Underlying security in inverse floater structure.
3 Current rate and next reset date shown for Variable Rate Demand Notes.
4 The cost of investments for federal tax purposes amounts to $44,392,310.
At February 28, 2007, the Fund had the following outstanding futures contracts:
Description
|
| Number of
Contracts
|
| Notional
Value
|
| Expiration
Date
|
| Unrealized
Depreciation
|
5 U.S. Treasury Notes 10 Year Futures
|
| (7)
|
| $(760,157)
|
| June 2007
|
| $(3,967)
|
5 Non-income producing securities.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| COPs | - --Certificates of Participation |
| FHA | - --Federal Housing Administration |
| FNMA | - --Federal National Mortgage Association |
| FSA | - --Financial Security Assurance |
| GDB | - --Government Development Bank |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HFA | - --Housing Finance Authority |
| INS | - --Insured |
| LIQ | - --Liquidity Agreement |
| LOC | - --Letter of Credit |
| MFH | - --Multifamily Housing |
| PCFA | - --Pollution Control Financing Authority |
| PRF | - --Prerefunded |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $45,391,654)
| | | | | $ | 47,918,671 | |
Cash
| | | | | | 46,944 | |
Income receivable
| | | | | | 692,407 | |
Receivable for investments sold
| | | | | | 10,000 | |
Receivable for shares sold
| | | | | | 5,244 | |
Receivable for daily variation margin
|
|
|
|
|
| 1,750
|
|
TOTAL ASSETS
|
|
|
|
|
| 48,675,016
|
|
Liabilities:
| | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 1,000,000 | | | | |
Payable for shares redeemed
| | | 48,440 | | | | |
Income distribution payable
| | | 52,053 | | | | |
Payable for transfer and dividend disbursing agent fees and expenses
| | | 10,746 | | | | |
Payable for legal fees
| | | 1,684 | | | | |
Payable for shareholder services fee (Note 5)
| | | 12,649 | | | | |
Accrued expenses
|
|
| 5,198
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 1,130,770
|
|
Net assets for 4,364,976 shares outstanding
|
|
|
|
| $
| 47,544,246
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 45,729,875 | |
Net unrealized appreciation of investments and futures contracts
| | | | | | 2,523,050 | |
Accumulated net realized loss on investments, futures contracts and swap contracts
| | | | | | (708,781 | ) |
Undistributed net investment income
|
|
|
|
|
| 102
|
|
TOTAL NET ASSETS
|
|
|
|
| $
| 47,544,246
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
| | | | | | | |
Net asset value per share ($47,544,246 ÷ 4,364,976 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $10.89
|
|
Offering price per share (100/95.50 of $10.89) 1
|
|
|
|
|
| $11.40
|
|
Redemption proceeds per share
|
|
|
|
|
| $10.89
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 1,223,581
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 92,680 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 74,384 | | | | | |
Custodian fees
| | | | | | | 1,200 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 18,517 | | | | | |
Directors'/Trustees' fees
| | | | | | | 1,063 | | | | | |
Auditing fees
| | | | | | | 9,780 | | | | | |
Legal fees
| | | | | | | 4,355 | | | | | |
Portfolio accounting fees
| | | | | | | 24,800 | | | | | |
Distribution services fee (Note 5)
| | | | | | | 57,925 | | | | | |
Shareholder services fee (Note 5)
| | | | | | | 56,877 | | | | | |
Share registration costs
| | | | | | | 9,125 | | | | | |
Printing and postage
| | | | | | | 9,130 | | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 16,834 | | | | | |
Insurance premiums
| | | | | | | 3,262 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 479
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 380,411
|
|
|
|
|
|
Waivers and Reimbursement (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (92,680 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
| | | (12,165 | ) | | | | | | | | |
Waiver of distribution services fee
| | | (57,925 | ) | | | | | | | | |
Reimbursement of other operating expenses
|
|
| (16,685
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS AND REIMBURSEMENT
|
|
|
|
|
|
| (179,455
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 200,956
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 1,022,625
|
|
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
| | | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 325,239 | |
Net realized gain on futures contracts
| | | | | | | | | | | 822 | |
Net change in unrealized appreciation of investments
| | | | | | | | | | | (118,928 | ) |
Net change in unrealized depreciation of futures contracts
|
|
|
|
|
|
|
|
|
|
| (3,967
| )
|
Net realized and unrealized gain on investments and futures contracts
|
|
|
|
|
|
|
|
|
|
| 203,166
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 1,225,791
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
|
|
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 1,022,625 | | | $ | 2,285,527 | |
Net realized gain on investments and futures contracts
| | | 326,061 | | | | 378,550 | |
Net change in unrealized appreciation/depreciation of investments and futures contracts
|
|
| (122,895
| )
|
|
| (1,603,087
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 1,225,791
|
|
|
| 1,060,990
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
|
|
| (1,023,251
| )
|
|
| (2,287,662
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 4,364,191 | | | | 11,305,161 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 729,704 | | | | 1,696,439 | |
Cost of shares redeemed
|
|
| (4,926,482
| )
|
|
| (26,600,211
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| 167,413
|
|
|
| (13,598,611
| )
|
Change in net assets
|
|
| 369,953
|
|
|
| (14,825,283
| )
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 47,174,293
|
|
|
| 61,999,576
|
|
End of period (including undistributed net investment income of $102 and $728, respectively)
|
| $
| 47,544,246
|
|
| $
| 47,174,293
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated North Carolina Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers one class of shares: Class A Shares. The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of North Carolina. Interest from the Fund's investments may be subject to the federal AMT for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors. Prices for interest rate swaps are furnished by an independent pricing service and are based upon a valuation model incorporating swap spreads, swap curve computations and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Inverse Floater Structures
The Fund participates in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the "Statement of Assets and Liabilities". At February 28, 2007, Fund investments with a value of $2,108,080 are held by the trust and serve as collateral for the $1,000,000 in floating rate certificate securities outstanding at that date. The Fund recorded interest and trust expenses of $16,834 for these investments for the six months ended February 28, 2007.
While these inverse floater securities are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation or borrowings that may be applicable to the Fund.
Futures Contracts
The Fund may periodically purchase or sell financial futures contracts to manage duration, enhance yield and to potentially reduce transaction costs. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had net realized gains on futures contracts of $822.
Futures contracts outstanding at period end are listed after the Fund's portfolio of investments.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
|
| Six Months
Ended
2/28/2007
|
|
| Year Ended
8/31/2006
|
|
Shares sold
| | 401,700 | | | 1,041,103 | |
Shares issued to shareholders in payment of distributions declared
| | 67,047 | | | 156,545 | |
Shares redeemed
|
| (453,321
| )
|
| (2,449,181
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| 15,426
|
|
| (1,251,533
| )
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $44,392,310. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized depreciation resulting from futures contracts was $2,526,361. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,526,361.
At August 31, 2006, the Fund had a capital loss carryforward of $1,036,641 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 90,641
|
2012
|
| $494,501
|
2013
|
| $451,499
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $92,680 of its fee and voluntarily reimbursed $16,685 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.269% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, FSC voluntarily waived $57,925 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC did not retain any fees paid by the Fund.
Sales Charges
For the six months ended February 28, 2007, FSC retained $6,367 in sales charges from the sale of the Fund's Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Commencing on August 1, 2005 and ending May 3, 2006, FSSC reimbursed daily a portion of the shareholder services fee. This reimbursement resulted from an administrative delay in the implementation of contractual terms of shareholder services fee agreements. This reimbursement amounted to $29,388 for the year ended August 31, 2006.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $8,000,000 and $6,600,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 5,063,790
|
Sales
|
| $
| 5,703,655
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 45.6% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 15.6% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the year ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one- and three-year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated Funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates was satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923500
G02671-04 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated New York Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
Class B Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $10.73 | | | $10.83 | | | $10.65 | | | $10.44 | | | $10.59 | | | $10.80 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.22 | | | 0.45 | | | 0.45 | | | 0.46 | | | 0.44 | | | 0.49 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.13
|
|
| (0.10
| )
|
| 0.18
|
|
| 0.21
|
|
| (0.15
| )
|
| (0.20
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.35
|
|
| 0.35
|
|
| 0.63
|
|
| 0.67
|
|
| 0.29
|
|
| 0.29
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.22
| )
|
| (0.45
| )
|
| (0.45
| )
|
| (0.46
| )
|
| (0.44
| )
|
| (0.50
| )
|
Net Asset Value, End of Period
|
| $10.86
|
|
| $10.73
|
|
| $10.83
|
|
| $10.65
|
|
| $10.44
|
|
| $10.59
|
|
Total Return 2
|
| 3.28
| %
|
| 3.30
| % 3
|
| 6.03
| %
|
| 6.51
| %
|
| 2.81
| %
|
| 2.79
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.84
| % 4,5
|
| 0.70
| %
|
| 0.60
| %
|
| 0.61
| %
|
| 0.76
| %
|
| 0.91
| %
|
Net investment income
|
| 4.10
| % 4
|
| 4.19
| %
|
| 4.19
| %
|
| 4.31
| %
|
| 4.19
| %
|
| 4.72
| %
|
Expense waiver/reimbursement 6
|
| 0.86
| % 4
|
| 1.06
| %
|
| 1.08
| %
|
| 1.07
| %
|
| 1.16
| %
|
| 1.10
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $39,764
|
|
| $26,962
|
|
| $26,307
|
|
| $27,600
|
|
| $26,273
|
|
| $23,466
|
|
Portfolio turnover
|
| 14
| %
|
| 37
| %
|
| 20
| %
|
| 15
| %
|
| 8
| %
|
| 35
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 During the period, the Fund's Class A Shares were reimbursed by the shareholder service provider, which had an impact of 0.03% on the total return. See Notes to Financial Statements, (Note 5).
4 Computed on an annualized basis.
5 Includes 0.07% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
6 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
| 2
|
Net Asset Value, Beginning of Period
| | $10.73 | | | $10.83 | | | $10.65 | | | $10.44 | | | $10.65 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | |
Net investment income
| | 0.18 | | | 0.36 | | | 0.37 | | | 0.38 | | | 0.36 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.13
|
|
| (0.10
| )
|
| 0.18
|
|
| 0.21
|
|
| (0.21
| )
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.31
|
|
| 0.26
|
|
| 0.55
|
|
| 0.59
|
|
| 0.15
|
|
Less Distributions:
| | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.18
| )
|
| (0.36
| )
|
| (0.37
| )
|
| (0.38
| )
|
| (0.36
| )
|
Net Asset Value, End of Period
|
| $10.86
|
|
| $10.73
|
|
| $10.83
|
|
| $10.65
|
|
| $10.44
|
|
Total Return 3
|
| 2.88
| %
|
| 2.47
| %
|
| 5.21
| %
|
| 5.72
| %
|
| 1.42
| %
|
| | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 1.61
| % 4,5
|
| 1.51
| %
|
| 1.37
| %
|
| 1.36
| %
|
| 1.51
| % 4
|
Net investment income
|
| 3.32
| % 4
|
| 3.38
| %
|
| 3.42
| %
|
| 3.56
| %
|
| 3.36
| % 4
|
Expense waiver/reimbursement 6
|
| 0.61
| % 4
|
| 0.78
| %
|
| 0.83
| %
|
| 0.82
| %
|
| 0.91
| % 4
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $19,203
|
|
| $19,512
|
|
| $22,304
|
|
| $21,802
|
|
| $19,000
|
|
Portfolio turnover
|
| 14
| %
|
| 37
| %
|
| 20
| %
|
| 15
| %
|
| 8
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
2 Reflects operations for the period from September 5, 2002 (date of initial public investment) to August 31, 2003.
3 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.
4 Computed on an annualized basis.
5 Includes 0.07% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
6 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual:
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,032.80
|
| $4.23
|
Class B Shares
|
| $1,000
|
| $1,028.80
|
| $8.10
|
Hypothetical (assuming a 5% return before expenses):
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,020.63
|
| $4.21
|
Class B Shares
|
| $1,000
|
| $1,016.81
|
| $8.05
|
1 Expenses are equal to the Fund's annualized net expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). The annualized net expense ratios are as follows:
Class A Shares
|
| 0.84%
|
Class B Shares
|
| 1.61%
|
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 42.9%
|
Education
|
| 10.4%
|
Hospital
|
| 10.0%
|
Refunded
|
| 8.0%
|
Transportation
|
| 4.1%
|
General Obligation--Local
|
| 3.5%
|
Senior Care
|
| 3.2%
|
Industrial Development Bonds/Pollution Control Revenue
|
| 2.6%
|
General Obligation--State
|
| 1.8%
|
Public Power
|
| 1.8%
|
Other 2
|
| 11.6%
|
Other Assets and Liabilities--Net 3
|
| 0.1%
|
TOTAL
|
| 100.0%
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured' sector. Prerefunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2 For purposes of this table, sector classifications constitute 98.6% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--99.6% | | | |
| | | New York--91.3% | | | |
| $ | 500,000 | | Albany County, NY IDA, IDRBs (Series 2004A), 5.375% (Albany College of Pharmacy), 12/1/2024
| | $ | 530,365 |
| 500,000 | | Albany, NY IDA, Civic Facility Revenue Bonds, (Series A), 5.75% (Albany Law School)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.83%), 10/1/2030
| | | 530,700 |
| 375,000 | | Amherst, NY IDA, Civic Facility Revenue Bonds (Series 2006A), 5.20% (Beechwood Health Care Center, Inc.), 1/1/2040
| | | 380,944 |
| 500,000 | 1 | Amherst, NY IDA, Civic Facility Revenue Bonds (Series 2000B), 5.75% (UBF Faculty-Student Housing Corp.)/(AMBAC INS)/(Original Issue Yield: 5.82%), 8/1/2025
| | | 540,990 |
| 500,000 | | Broome County, NY IDA, Civic Facility Revenue Bonds (Series 2004B), 5.00% (University Plaza-Phase II)/(American Capital Access INS)/(Original Issue Yield: 5.05%), 8/1/2025
| | | 523,975 |
| 400,000 | | Cattaraugus County, NY IDA, Civic Facility Revenue Bonds, 5.10% (St. Bonaventure University), 5/1/2031
| | | 416,632 |
| 285,000 | | Dutchess County, NY IDA, Refunding Revenue Bonds (Series 2004A), 7.50% (St. Francis Hospital and Health Centers), 3/1/2029
| | | 318,371 |
| 785,000 | | Dutchess County, NY IDA, Revenue Bonds, 5.00% (Marist College)/(Original Issue Yield: 5.15%), 7/1/2020
| | | 821,385 |
| 500,000 | | East Rochester, NY Housing Authority, Revenue Bonds (Series 2002A), 5.375% (Rochester St. Mary's Residence Facility LLC)/(GNMA GTD), 12/20/2022
| | | 542,850 |
| 335,000 | | East Rochester, NY Housing Authority, Senior Living Revenue Bonds (Series 2006), 5.50% (Woodland Village, Inc.), 8/1/2033
| | | 346,628 |
| 200,000 | | Essex County, NY IDA, Environmental Improvement Revenue Bonds (Series 2006A), 4.60% (International Paper Co.), 12/1/2030
| | | 199,014 |
| 500,000 | | Essex County, NY IDA, Solid Waste Disposal Refunding Revenue Bonds (Series 2005A), 5.20% (International Paper Co.), 12/1/2023
| | | 520,950 |
| 750,000 | | Hempstead Town, NY IDA, Civic Facility Revenue Bonds, 5.00% (Adelphi University), 10/1/2035
| | | 792,315 |
| 500,000 | | Hempstead Town, NY IDA, Civic Facility Revenue Bonds, 5.00% (Hofstra University)/(Original Issue Yield: 5.10%), 7/1/2033
| | | 521,755 |
| 1,000,000 | | Hudson Yards Infrastructure Corp. NY, Senior Revenue Bonds (Fiscal 2007 Series A), 4.50% (MBIA Insurance Corp. INS), 2/15/2047
| | | 1,006,290 |
| 220,000 | | Islip, NY Resource Recovery Agency, Resource Recovery Revenue Bonds (Series 2001E), 5.75% (FSA INS), 7/1/2023
| | | 245,766 |
| 330,000 | | Kiryas Joel, NY, UT GO Notes, 6.10% BANs, 5/11/2007
| | | 330,657 |
| 500,000 | | Livingston County, NY IDA, Civic Facility Revenue Bonds (Series 2005), 6.00% (Nicholas H. Noyes Memorial Hospital Civic Facility), 7/1/2030
| | | 518,595 |
| 1,000,000 | | Long Island Power Authority, NY, Electric System General Revenue Bonds (Series 2006B), 5.00%, 12/1/2035
| | | 1,063,940 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | New York--continued | | | |
| $ | 1,000,000 | | Long Island Power Authority, NY, Revenue Bonds (Series 2004A), 5.00% (AMBAC INS)/(Original Issue Yield: 5.10%), 9/1/2034
| | $ | 1,059,840 |
| 500,000 | | Madison County, NY IDA, Civic Facility Revenue Bonds (Series 2003A), 5.00% (Colgate University), 7/1/2023
| | | 528,885 |
| 320,000 | | Madison County, NY IDA, Civic Facility Revenue Bonds (Series 2005A), 5.00% (Morrisville State College Foundation)/(CDC IXIS Financial Guaranty N.A. INS), 6/1/2028
| | | 343,257 |
| 250,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 1998A), 5.00% (MTA Dedicated Tax Fund)/(United States Treasury PRF 10/1/2015@100)/(Original Issue Yield: 5.22%), 4/1/2023
| | | 274,015 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2006A), 5.00% (MTA Transportation Revenue), 11/15/2035
| | | 533,250 |
| 500,000 | | Middletown, NY Housing Authority, MFH Housing Revenue Bonds (Series 2006), 4.80% (Summitfield & Moore Heights Apartments)/(FNMA GTD), 7/1/2039
| | | 504,395 |
| 500,000 | | Monroe County, NY IDA, Civic Center Revenue Bonds, 5.25% (St. John Fisher College)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.25%), 6/1/2026
| | | 531,650 |
| 500,000 | | Monroe County, NY IDA, Civic Facility Revenue Bonds, 5.25% (Nazareth College)/(MBIA Insurance Corp. INS), 10/1/2021
| | | 536,660 |
| 510,000 | | Monroe County, NY IDA, Student Housing Revenue Bonds (Series A), 5.375% (Rochester, NY Institute of Technology)/(Original Issue Yield: 5.46%), 4/1/2029
| | | 525,330 |
| 140,000 | | Nassau County, NY IDA, Civic Facility Refunding Revenue Bonds (Series 2001B), 5.875% (North Shore-Long Island Jewish Obligated Group)/(Original Issue Yield: 5.92%), 11/1/2011
| | | 146,552 |
| 500,000 | | Nassau County, NY IDA, IDRBs (Series 2003A), 5.25% (Keyspan-Glenwood Energy Center LLC)/(KeySpan Corp. GTD), 6/1/2027
| | | 523,275 |
| 500,000 | | New York City, NY IDA, (Series 1995) Civic Facility Revenue Bonds, 6.30% (College of New Rochelle)/(Original Issue Yield: 6.45%), 9/1/2015
| | | 505,410 |
| 250,000 | | New York City, NY IDA, Civic Facilities Revenue Bonds, 5.375% (New York University)/(AMBAC INS), 7/1/2017
| | | 265,712 |
| 395,000 | | New York City, NY IDA, Civic Facility Revenue Bonds (Series 2001A), 6.375% (Staten Island University Hospital), 7/1/2031
| | | 420,153 |
| 300,000 | | New York City, NY IDA, Civic Facility Revenue Bonds (Series 2002A), 5.375% (Lycee Francais de New York Project)/(American Capital Access INS)/(Original Issue Yield: 5.43%), 6/1/2023
| | | 317,844 |
| 200,000 | | New York City, NY IDA, Civic Facility Revenue Bonds (Series 2002C), 6.45% (Staten Island University Hospital), 7/1/2032
| | | 214,968 |
| 1,000,000 | | New York City, NY IDA, Civic Facility Revenue Bonds (Series 2003), 5.00% (Roundabout Theatre Co., Inc.)/(American Capital Access INS), 10/1/2023
| | | 1,038,030 |
| 400,000 | 2 | New York City, NY IDA, Liberty Revenue Bonds (Series A), 6.25% (7 World Trade Center LLC), 3/1/2015
| | | 425,508 |
| 335,000 | | New York City, NY IDA, PILOT Revenue Bonds (Series 2006), 4.75% (Yankee Stadium LLC)/(MBIA Insurance Corp. INS), 3/1/2046
| | | 346,953 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | New York--continued | | | |
| $ | 250,000 | | New York City, NY IDA, Refunding & Improvement Civic Facility Revenue Bonds (Series 2006A), 5.25% (Mt. St. Vincent College, NY)/(Radian Asset Assurance INS), 6/1/2036
| | $ | 260,320 |
| 500,000 | | New York City, NY IDA, Special Airport Facility Revenue Bonds (Series 2001A), 5.50% (Airis JFK I LLC Project at JFK International)/(Original Issue Yield: 5.65%), 7/1/2028
| | | 519,230 |
| 500,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British Airways), 12/1/2032
| | | 502,495 |
| 300,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.50% (Terminal One Group Association), 1/1/2024
| | | 328,308 |
| 500,000 | | New York City, NY Municipal Water Finance Authority, Revenue Bonds (Series 2002B), 5.00% (Original Issue Yield: 5.14%), 6/15/2026
| | | 519,130 |
| 500,000 | | New York City, NY Transitional Finance Authority, Future Tax Secured Bonds (2003 Series C), 5.25% (AMBAC INS), 8/1/2022
| | | 534,720 |
| 75,000 | | New York City, NY, UT GO Bonds (Fiscal 2003 Series J), 5.50%, 6/1/2023
| | | 81,776 |
| 500,000 | | New York City, NY, UT GO Bonds (Fiscal 2005 Series C), 5.25%, 8/15/2025
| | | 540,315 |
| 500,000 | | New York City, NY, UT GO Bonds (Fiscal 2006 Series A), 5.00%, 8/1/2030
| | | 529,940 |
| 515,000 | | New York City, NY, UT GO Bonds (Series 2002C), 5.50%, 3/15/2015
| | | 559,537 |
| 500,000 | | New York Counties Tobacco Trust III, Revenue Bonds, 5.75% (Original Issue Yield: 5.93%), 6/1/2033
| | | 531,035 |
| 700,000 | | New York Liberty Development Corp., Revenue Bonds (Series 2005), 5.25% (Goldman Sachs Group, Inc.), 10/1/2035
| | | 821,646 |
| 300,000 | 2 | New York Liberty Development Corp., Revenue Bonds (Series 2006A), 6.125% (National Sports Museum), 2/15/2019
| | | 316,836 |
| 500,000 | | New York State Dormitory Authority, City University of New York Housing Revenue Bonds (Series 2005), 5.25% (Educational Housing Services, Inc.)/ (AMBAC INS), 7/1/2020
| | | 566,320 |
| 500,000 | | New York State Dormitory Authority, Education Facilities Revenue Bonds (Series 2002A), 5.125% (State University of New York)/(United States Treasury PRF 5/15/2012@101), 5/15/2021
| | | 540,080 |
| 500,000 | | New York State Dormitory Authority, FHA-INS Mortgage Nursing Home Revenue Bonds (Series 2001), 6.10% (Norwegian Christian Home and Health Center)/(MBIA Insurance Corp. INS), 8/1/2041
| | | 562,415 |
| 1,000,000 | | New York State Dormitory Authority, INS Revenue Bonds (Series 1999), 6.00% (Pratt Institute)/(Radian Asset Assurance INS), 7/1/2020
| | | 1,063,840 |
| 500,000 | | New York State Dormitory Authority, INS Revenue Bonds (Series 2005), 5.125% (Providence Rest Home)/(American Capital Access INS), 7/1/2030
| | | 530,070 |
| 500,000 | | New York State Dormitory Authority, Lease Revenue Bonds (Series 2006A), 5.00% (State University of New York)/(MBIA Insurance Corp. INS), 7/1/2031
| | | 537,420 |
| 665,000 | 2,3 | New York State Dormitory Authority, Municipal Securities Trust Certificates (Series 7041), 8.221% (New York Hospital Medical Center of Queens)/(FHA INS), 3/1/2007
| | | 704,015 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | New York--continued | | | |
| $ | 2,000,000 | | New York State Dormitory Authority, Pooled Loan Program INS Revenue Bonds (Series 2005A), 5.00% (Cerebral Palsy Associations of New York State)/ (Assured Guaranty Corp. INS), 7/1/2034
| | $ | 2,123,800 |
| 750,000 | | New York State Dormitory Authority, Revenue Bonds (2003 Series 1), 5.00% (Memorial Sloan-Kettering Cancer Center)/(MBIA Insurance Corp. INS), 7/1/2022
| | | 793,755 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 1998), 5.50% (Memorial Sloan-Kettering Cancer Center)/(MBIA Insurance Corp. INS), 7/1/2023
| | | 589,315 |
| 200,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2002), 5.00% (Fordham University)/(FGIC INS), 7/1/2022
| | | 210,604 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2002), 5.00% (Fordham University)/(United States Treasury PRF 7/1/2012@100), 7/1/2022
| | | 320,232 |
| 750,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2003), 5.00% (Kateri Residence)/(Allied Irish Banks PLC LOC), 7/1/2022
| | | 790,312 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2003), 5.375% (North Shore-Long Island Jewish Obligated Group)/(Original Issue Yield: 5.48%), 5/1/2023
| | | 267,783 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2003A), 5.50% (Brooklyn Law School)/(Radian Asset Assurance INS), 7/1/2018
| | | 542,345 |
| 750,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2003A), 5.50% (Winthrop-University Hospital Association)/(Original Issue Yield: 5.70%), 7/1/2023
| | | 798,593 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2004), 5.25% (New York Methodist Hospital), 7/1/2024
| | | 533,170 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2004A), 5.25% (University of Rochester, NY), 7/1/2024
| | | 270,690 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2005), 5.00% (Rochester General Hospital)/(Radian Asset Assurance INS), 12/1/2025
| | | 530,535 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2005C), 5.50% (Mt. Sinai NYU Health Obligated Group), 7/1/2026
| | | 508,560 |
| 1,000,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2005F), 5.00% (New York State Personal Income Tax Revenue Bond Fund)/(AMBAC INS), 3/15/2025
| | | 1,072,470 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2006), 5.00% (Memorial Sloan-Kettering Cancer Center), 7/1/2035
| | | 534,605 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2007A), 5.00% (NYU Hospitals Center), 7/1/2036
| | | 257,933 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series A), 5.00% (NYU Hospitals Center), 7/1/2026
| | | 259,628 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series A), 5.625% (City University of New York)/(Original Issue Yield: 5.95%), 7/1/2016
| | | 279,462 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds, 5.00% (Manhattan College)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.30%), 7/1/2020
| | | 263,193 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds, 5.10% (Catholic Health Services of Long Island)/(Original Issue Yield: 5.19%), 7/1/2034
| | | 519,500 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | New York--continued | | | |
| $ | 500,000 | | New York State Dormitory Authority, Revenue Bonds, 5.25% (Cansius College)/ (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.28%), 7/1/2030
| | $ | 531,540 |
| 900,000 | | New York State Environmental Facilities Corp., Water Facilities Refunding Revenue Bonds (Series A), 6.30% (Spring Valley Water Co., NY)/(AMBAC INS), 8/1/2024
| | | 905,652 |
| 5,000 | | New York State HFA, Service Contract Obligation Revenue Bonds (Series 1995A), 6.375%, 9/15/2015
| | | 5,061 |
| 1,000,000 | | New York State Thruway Authority, Revenue Bonds (Series 2006A), 5.00% (New York State Thruway Authority - Dedicated Highway & Bridge Trust Fund)/ (AMBAC INS), 4/1/2026
| | | 1,079,510 |
| 500,000 | | New York State Urban Development Corp., Revenue Bonds (Series 2002C-1), 5.50% (New York State Personal Income Tax Revenue Bond Fund)/(United States Treasury PRF 3/15/2013@100), 3/15/2020
| | | 550,635 |
| 250,000 | | New York State Urban Development Corp., Refunding Revenue Bonds (Series 1995), 5.70% (New York State)/(Original Issue Yield: 5.94%), 4/1/2020
| | | 289,773 |
| 500,000 | | New York State Urban Development Corp., Subordinated Lien Revenue Bonds (Series 2004A), 5.125% (New York State), 1/1/2022
| | | 536,440 |
| 500,000 | | Niagara County, NY IDA, Solid Waste Disposal Facility Refunding Revenue Bonds (Series 2001D), 5.55% TOBs (American Ref-Fuel Co. of Niagara, L.P. Facility) 11/15/2024
| | | 526,095 |
| 400,000 | | Niagara Falls, NY City School District, COPs (Series 1998), 5.375% (United States Treasury PRF 6/15/2008@101)/(Original Issue Yield: 5.42%), 6/15/2028
| | | 412,664 |
| 500,000 | | North Hempstead, NY, UT GO Bonds (Series 1999B), 6.00% (United States Treasury PRF 7/15/2009@101), 7/15/2015
| | | 531,950 |
| 500,000 | | Rensselaer County, NY IDA, Civic Facility Revenue Bonds (Series 2006), 5.00% (Emma Willard School), 1/1/2036
| | | 533,065 |
| 500,000 | | Rensselaer County, NY IDA, Civic Facility Revenue Bonds (Series 2006), 5.00% (Rensselaer Polytechnic Institute), 3/1/2036
| | | 531,670 |
| 500,000 | | Rensselaer, NY City School District, COPs (Series 2006), 5.00% (XL Capital Assurance Inc. INS), 6/1/2036
| | | 535,145 |
| 500,000 | | Suffolk County, NY IDA, Civic Facility Revenue Bonds (Series 2006A), 5.00% (Dowling College)/(American Capital Access INS), 6/1/2036
| | | 523,355 |
| 500,000 | | Suffolk County, NY IDA, Continuing Care Retirement Community Refunding Revenue Bonds (Series 2006), 5.00% (Jefferson's Ferry), 11/1/2028
| | | 515,445 |
| 500,000 | | TSASC, Inc. NY, Tobacco Settlement Asset-Backed Bonds (Series 2006-1), 5.00% (Original Issue Yield: 5.125%), 6/1/2026
| | | 511,875 |
| 440,000 | | Tompkins County, NY IDA, Continuing Care Retirement Community Revenue Bonds (Series 2003A), 5.375% (Kendal at Ithaca, Inc.)/(Original Issue Yield: 5.50%), 7/1/2018
| | | 445,562 |
| 500,000 | | United Nations, NY Development Corp., Senior Lien Refunding Revenue Bonds (Series 2004A), 5.25%, 7/1/2022
| | | 505,135 |
| 300,000 | | Utica, NY Industrial Development Agency Civic Facility, Revenue Bonds (Series 2004A), 6.875% (Utica College)/(United States Treasury PRF 6/1/2009@101), 12/1/2024
| | | 322,278 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | New York--continued | | | |
| $ | 500,000 | | Westchester County, NY IDA, Civic Facility Revenue Bonds (Series 2001), 5.20% (Windward School)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.21%), 10/1/2021
| | $ | 525,010 |
| 175,000 | | Westchester County, NY IDA, Continuing Care Retirement Mortgage Revenue Bonds (Series 2003A), 6.375% (Kendal on Hudson)/(Original Issue Yield: 6.55%), 1/1/2024
| | | 188,237 |
| 500,000 | | Yonkers, NY IDA, Civic Facility Revenue Bonds (Series 2001B), 7.125% (St. John's Riverside Hospital), 7/1/2031
| | | 539,800 |
| 500,000 | | Yonkers, NY IDA, Revenue Bonds (Series 2006A), 5.00% (Sacred Heart Association)/(New York State Mortgage Agency GTD), 10/1/2037
| | | 522,850 |
| 1,000,000 | | Yonkers, NY IDA, Revenue Bonds, 5.25% (Monastery Manor Association LP)/ (New York State Mortgage Agency GTD), 4/1/2037
|
|
| 1,067,120
|
| | | TOTAL
|
|
| 53,845,609
|
| | | Puerto Rico--8.3% | | | |
| 500,000 | | Children's Trust, PR, Tobacco Settlement Asset-Backed Revenue Bonds, 6.00% (United States Treasury PRF 7/1/2010@100)/(Original Issue Yield: 6.077%), 7/1/2026
| | | 537,925 |
| 255,000 | | Commonwealth of Puerto Rico, GO, 5.375% (United States Treasury PRF 7/1/2007@101.5)/(Original Issue Yield: 5.60%), 7/1/2021
| | | 260,324 |
| 1,000,000 | | Commonwealth of Puerto Rico, Public Improvement UT GO Bonds (Series 2004A), 5.00%, 7/1/2034
| | | 1,048,110 |
| 500,000 | | Puerto Rico Highway and Transportation Authority, Revenue Bonds (Series B), 5.75% (United States Steel Corp. PRF 7/1/2010@101)/(Original Issue Yield: 5.78%), 7/1/2016
| | | 538,465 |
| 500,000 | | Puerto Rico Highway and Transportation Authority, Transportation Revenue Bonds (Series G), 5.00% (Original Issue Yield: 5.10%), 7/1/2033
| | | 521,190 |
| 240,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2026
| | | 253,723 |
| 100,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2036
| | | 105,488 |
| 1,000,000 | 4 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds (Series 2006), 5.00%, 7/1/2046
| | | 1,054,040 |
| 135,000 | | Puerto Rico Public Building Authority, Revenue Bonds (Series 2002D), 5.25% (Commonwealth of Puerto Rico GTD)/(Original Issue Yield: 5.40%), 7/1/2027
| | | 142,903 |
| 365,000 | | Puerto Rico Public Building Authority, Revenue Bonds (Series 2002D), 5.25% (United States Treasury PRF 7/1/2012@100)/(Original Issue Yield: 5.40%), 7/1/2027
|
|
| 392,543
|
| | | TOTAL
|
|
| 4,854,711
|
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $56,165,223)
|
|
| 58,700,320
|
Principal
Amount
|
|
|
|
| Value
|
| | | SHORT-TERM MUNICIPALS--0.3% 5 | | | |
| | | Puerto Rico--0.3% | | | |
| $ | 200,000 | | Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA Insurance Corp. INS)/(Credit Suisse, Zurich LIQ), 3.340%, 3/7/2007 (AT AMORTIZED COST)
|
| $
| 200,000
|
| | | TOTAL INVESTMENTS--99.9%
(IDENTIFIED COST $56,365,223) 6
|
|
| 58,900,320
|
| | | OTHER ASSETS AND LIABILITIES - NET--0.1%
|
|
| 67,271
|
| | | TOTAL NET ASSETS--100%
|
| $
| 58,967,591
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 10.0% of the Fund's portfolio as calculated based upon total market value.
1 Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts.
2 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2007, these restricted securities amounted to $1,446,359, which represented 2.5% of total net assets.
3 Denotes a restricted security that may be resold without restriction to "qualified institutional buyers" as defined by Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Trustees. At February 28, 2007, these liquid restricted securities amounted to $704,015, which represented 1.2% of total net assets.
4 Underlying security in inverse floater structure.
5 Current rate and next reset date shown for Variable Rate Demand Notes.
6 The cost of investments for federal tax purposes amounts to $55,865,495.
At February 28, 2007, the Fund had the following outstanding futures contracts:
Description
|
| Number of
Contracts
|
| Notional
Value
|
| Expiration
Date
|
| Unrealized
Depreciation
|
7 United States Treasury Notes 10 Year Futures
|
| (20)
|
| $(2,171,876)
|
| June 2007
|
| $(11,335)
|
7 Non-income producing security.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| BANs | - --Bond Anticipation Notes |
| COL | - --Collateralized |
| COPs | - --Certificates of Participation |
| FGIC | - --Financial Guaranty Insurance Company |
| FHA | - --Federal Housing Administration |
| FNMA | - --Federal National Mortgage Association |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HFA | - --Housing Finance Authority |
| IDA | - --Industrial Development Authority |
| IDRBs | - --Industrial Development Revenue Bonds |
| INS | - --INS |
| LIQ | - --Liquidity Agreement |
| LOC | - --Letter of Credit |
| MFH | - --Multifamily Housing |
| PRF | - --Prerefunded |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $56,365,223)
| | | | | $ | 58,900,320 | |
Cash
| | | | | | 44,061 | |
Income receivable
| | | | | | 727,756 | |
Receivable for investments sold
| | | | | | 5,000 | |
Receivable for shares sold
| | | | | | 15,228 | |
Receivable for daily variation margin
| | | | | | 4,999 | |
Other assets
|
|
|
|
|
| 272
|
|
TOTAL ASSETS
|
|
|
|
|
| 59,697,636
|
|
Liabilities:
| | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 500,000 | | | | |
Payable for shares redeemed
| | | 110,703 | | | | |
Income distribution payable
| | | 72,034 | | | | |
Payable for transfer and dividend disbursing agent fees and expenses
| | | 18,667 | | | | |
Payable for distribution services fee (Note 5)
| | | 11,090 | | | | |
Payable for shareholder services fee (Note 5)
| | | 8,903 | | | | |
Accrued expenses
|
|
| 8,648
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 730,045
|
|
Net assets for 5,427,902 shares outstanding
|
|
|
|
| $
| 58,967,591
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 57,246,329 | |
Net unrealized appreciation of investments and futures contracts
| | | | | | 2,523,762 | |
Accumulated net realized loss on investments, futures contracts, and swap contracts
| | | | | | (803,180 | ) |
Undistributed net investment income
|
|
|
|
|
| 680
|
|
TOTAL NET ASSETS
|
|
|
|
| $
| 58,967,591
|
|
Net Asset Value, Offering Price and Redemption Proceeds per Share
| | | | | | | |
Class A Shares:
| | | | | | | |
Net asset value per share ($39,764,422 ÷ 3,660,309 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $10.86
|
|
Offering price per share (100/95.50 of $10.86) 1
|
|
|
|
|
| $11.37
|
|
Redemption proceeds per share
|
|
|
|
|
| $10.86
|
|
Class B Shares:
| | | | | | | |
Net asset value per share ($19,203,169 ÷ 1,767,593 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $10.86
|
|
Offering price per share
|
|
|
|
|
| $10.86
|
|
Redemption proceeds per share (94.50/100 of $10.86) 1
|
|
|
|
|
| $10.26
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 1,347,176
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 109,140 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 94,219 | | | | | |
Custodian fees
| | | | | | | 1,582 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 28,166 | | | | | |
Directors'/Trustees' fees
| | | | | | | 1,151 | | | | | |
Auditing fees
| | | | | | | 9,799 | | | | | |
Legal fees
| | | | | | | 4,409 | | | | | |
Portfolio accounting fees
| | | | | | | 35,671 | | | | | |
Distribution services fee--Class A Shares (Note 5)
| | | | | | | 44,181 | | | | | |
Distribution services fee--Class B Shares (Note 5)
| | | | | | | 72,093 | | | | | |
Shareholder services fee--Class A Shares (Note 5)
| | | | | | | 40,487 | | | | | |
Shareholder services fee--Class B Shares (Note 5)
| | | | | | | 24,031 | | | | | |
Share registration costs
| | | | | | | 12,951 | | | | | |
Printing and postage
| | | | | | | 10,286 | | | | | |
Insurance premiums
| | | | | | | 3,269 | | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 19,985 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 739
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 512,159
|
|
|
|
|
|
Waivers and Reimbursement (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (109,140 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
| | | (17,083 | ) | | | | | | | | |
Waiver of distribution services fee--Class A Shares
| | | (44,181 | ) | | | | | | | | |
Reimbursement of other operating expenses
|
|
| (38,968
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS AND REIMBURSEMENT
|
|
|
|
|
|
| (209,372
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 302,787
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 1,044,389
|
|
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
| | | | | | | | | | | | |
Net realized loss on investments
| | | | | | | | | | | (907 | ) |
Net realized loss on futures contracts
| | | | | | | | | | | (5,007 | ) |
Net change in unrealized appreciation of investments
| | | | | | | | | | | 719,247 | |
Net change in unrealized depreciation of futures contracts
|
|
|
|
|
|
|
|
|
|
| (11,335
| )
|
Net realized and unrealized gain on investments and futures contracts
|
|
|
|
|
|
|
|
|
|
| 701,998
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 1,746,387
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
|
|
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 1,044,389 | | | $ | 1,806,771 | |
Net realized gain (loss) on investments, futures contracts and swap contracts
| | | (5,914 | ) | | | 157,928 | |
Net change in unrealized appreciation/depreciation of investments and futures contracts
|
|
| 707,912
|
|
|
| (657,394
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 1,746,387
|
|
|
| 1,307,305
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | | | | | | |
Class A Shares
| | | (724,825 | ) | | | (1,098,010 | ) |
Class B Shares
|
|
| (318,874
| )
|
|
| (708,536
| )
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (1,043,699
| )
|
|
| (1,806,546
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 2,719,062 | | | | 6,280,020 | |
Proceeds from shares issued in connection with tax-free transfer of assets from New York Tax-Free Sentinel Fund
| | | 14,207,721 | | | | - -- | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 631,860 | | | | 1,022,314 | |
Cost of shares redeemed
|
|
| (5,767,953
| )
|
|
| (8,939,455
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| 11,790,690
|
|
|
| (1,637,121
| )
|
Change in net assets
|
|
| 12,493,378
|
|
|
| (2,136,362
| )
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 46,474,213
|
|
|
| 48,610,575
|
|
End of period (including undistributed (distributions in excess of) net investment income of $680 and $(10), respectively)
|
| $
| 58,967,591
|
|
| $
| 46,474,213
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated New York Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Class A Shares and Class B Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. 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 AMT) and the personal income taxes imposed by the state of New York and New York municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
On October 27, 2006, the Fund received assets from New York Tax-Free Sentinel Fund as the result of a tax-free reorganization, as follows:
|
| Class A
Shares of
the Fund
Issued
|
| New York
Tax-Free
Sentinel
Fund Net
Assets
Received
|
| Unrealized
Appreciation 1
|
| Net Assets
of the Fund
Prior to
Combination
|
| Net Assets of
New York
Tax-Free
Sentinel Fund
Immediately
Prior to
Combination
|
| Net Assets
of the Fund
Immediately
After
Combination
|
New York
Tax-Free
Sentinel Fund
|
| 1,317,970
|
| $14,207,721
|
| $291,721
|
| $46,559,310
|
| $14,207,721
|
| $60,767,031
|
1 Unrealized Appreciation is included in the New York Tax-Free Sentinel Fund Net Assets Received amount shown above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors. Prices for interest rate swaps are furnished by an independent pricing service and are based upon a valuation model incorporating swap spreads, swap curves computations and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Gains and Losses, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Swap Contracts
The Fund may enter into swap contracts. A swap is an exchange of cash payments between the Fund and another party, which is based on a specific financial index or other reference instrument. The value of the swap is adjusted daily and the change in value is recorded as unrealized appreciation or depreciation. When a swap contract is closed, the Fund recognizes a realized gain or loss. The swap contracts entered into by the Fund are on a forward settling basis. For the six months ended February 28, 2007, the Fund had no net realized gains or losses on swap contracts.
The Fund may utilize credit default swap contracts. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or the "par value," of the reference obligation in exchange for the reference obligation. The Fund may be either the buyer or seller in a credit default swap transaction. If the Fund is a buyer and no event of default occurs, the Fund will lose its investment and recover nothing. However, if an event of default occurs, the Fund will receive the full notional value of the reference obligation that may have little or no value. As a seller, the Fund receives a fixed rate of income throughout the term of the contract provided that there is no default event. If an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation. Credit default swap transactions involve greater risks than if the Fund had invested in a reference obligation directly. The cash paid or received on a credit default swap is recognized as realized gains or losses when such a payment is paid or received.
Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract, from unanticipated changes in the value of the financial index on which the swap agreement is based or from unfavorable changes in market conditions or interest rates.
Swap contracts outstanding at period end, if any, are listed after the Fund's portfolio of investments.
Inverse Floater Structures
The Fund participates in Secondary Inverse Floater Structures in which fixed-rate tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the Statement of Assets and Liabilities. At February 28, 2007, Fund investments with a value of $1,054,040 are held by the trust and serve as collateral for the $500,000 in floating rate certificates securities outstanding at that date. The Fund recorded interest and trust expenses of $19,985 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund may periodically purchase or sell financial futures contracts to manage duration, enhance yield and to potentially reduce transaction costs. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had net realized losses on futures contracts of $5,007.
Futures contracts outstanding at period end are listed after the Fund's portfolio of investments.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at February 28, 2007, is as follows:
Security
|
| Acquisition
Date
|
| Acquisition
Cost
|
New York City, NY IDA, Liberty Revenue Bonds (Series A), 6.25% (7 World Trade Center LLC), 3/1/2015
|
| 3/15/2005
|
| $400,000
|
New York Liberty Development Corp., Revenue Bonds (Series 2006A), 6.125% (National Sports Museum), 2/15/2019
|
| 8/7/2006
|
| $300,000
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class A Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 202,608 | | | $ | 2,187,527 | | | 469,189 | | | $ | 5,008,389 | |
Shares issued in connection with tax-free transfer of assets from New York Tax-Free Sentinel Fund
| | 1,317,970 | | | | 14,207,721 | | | | | | | | |
Shares issued to shareholders in payment of distributions declared
| | 38,229 | | | | 413,964 | | | 51,778 | | | | 551,502 | |
Shares redeemed
|
| (412,308
| )
|
|
| (4,461,606
| )
|
| (435,107
| )
|
|
| (4,638,982
| )
|
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS
|
| 1,146,499
|
|
| $
| 12,347,606
|
|
| 85,860
|
|
| $
| 920,909
|
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Class B Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 49,239 | | | $ | 531,535 | | | 119,262 | | | $ | 1,271,631 | |
Shares issued to shareholders in payment of distributions declared
| | 20,130 | | | | 217,896 | | | 44,192 | | | | 470,812 | |
Shares redeemed
|
| (121,019
| )
|
|
| (1,306,347
| )
|
| (402,764
| )
|
|
| (4,300,473
| )
|
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS
|
| (51,650
| )
|
| $
| (556,916
| )
|
| (239,310
| )
|
| $
| (2,558,030
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| 1,094,849
|
|
| $
| 11,790,690
|
|
| (153,450
| )
|
| $
| (1,637,121
| )
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $55,865,495. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized depreciation from futures contracts was $2,534,825. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,537,932 and net unrealized depreciation from investments for those securities having an excess of cost over value of $3,107.
At August 31, 2006, the Fund had a capital loss carryforward of $797,284 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $102,606
|
2011
|
| $371,903
|
2012
|
| $ 4,752
|
2013
|
| $318,023
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $109,140 of its fee and voluntarily reimbursed $38,968 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.283% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class B Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name
|
| Percentage of Average Daily
Net Assets of Class
|
Class A Shares
|
| 0.25%
|
Class B Shares
|
| 0.75%
|
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, FSC voluntarily waived $44,181 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC did not retain any fees paid by the Fund.
Sales Charges
For the six months ended February 28, 2007, FSC retained $4,902 in sales charges from the sale of Class A Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class B Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Commencing on August 1, 2005, and continuing through May 3, 2006, FSSC reimbursed daily a portion of the shareholder services fee of the Class A Shares. This reimbursement resulted from an administrative delay in the implementation of contractual terms of shareholder service fee agreements. This reimbursement amounted to $8,753 for the Class A Shares for the year ended August 31, 2006.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $7,300,000 and $7,200,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 6,885,135
|
Sales
|
| $
| 7,862,957
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 39.8% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 10.3% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED NEW YORK MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one and three year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated Funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923401
Cusip 313923880
4031009 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated Ohio Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class F Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $11.47 | | | $11.65 | | | $11.51 | | | $11.31 | | | $11.47 | | | $11.45 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.22 | | | 0.48 | | | 0.49 | | | 0.51 | | | 0.52 | | | 0.53 | |
Net realized and unrealized gain (loss) on investments, futures and swap contracts
|
| 0.11
|
|
| (0.18
| )
|
| 0.15
|
|
| 0.20
|
|
| (0.16
| )
|
| 0.02
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.33
|
|
| 0.30
|
|
| 0.64
|
|
| 0.71
|
|
| 0.36
|
|
| 0.55
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.23
| )
|
| (0.48
| )
|
| (0.50
| )
|
| (0.51
| )
|
| (0.52
| )
|
| (0.53
| )
|
Net Asset Value, End of Period
|
| $11.57
|
|
| $11.47
|
|
| $11.65
|
|
| $11.51
|
|
| $11.31
|
|
| $11.47
|
|
Total Return 2
|
| 2.93
| %
|
| 2.63
| %
|
| 5.66
| %
|
| 6.36
| %
|
| 3.17
| %
|
| 4.97
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.93
| % 3,4
|
| 0.90
| %
|
| 0.90
| %
|
| 0.90
| %
|
| 0.90
| %
|
| 0.90
| %
|
Net investment income
|
| 4.05
| % 3
|
| 4.11
| %
|
| 4.21
| %
|
| 4.44
| %
|
| 4.51
| %
|
| 4.75
| %
|
Expense waiver/reimbursement 5
|
| 0.43
| % 3
|
| 0.45
| %
|
| 0.49
| %
|
| 0.48
| %
|
| 0.45
| %
|
| 0.49
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $124,648
|
| $118,063
|
| $100,753
|
| $94,744
|
| $96,374
|
| $89,772
|
|
Portfolio turnover
|
| 8
| %
|
| 32
| %
|
| 16
| %
|
| 19
| %
|
| 12
| %
|
| 21
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Computed on an annualized basis.
4 Includes 0.03% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual
|
| $1,000
|
| $1,029.30
|
| $4.68
|
Hypothetical (assuming a 5% return before expenses)
|
| $1,000
|
| $1,020.18
|
| $4.66
|
1 Expenses are equal to the Fund's annualized net expense ratio of 0.93%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 35.1%
|
Refunded
|
| 13.9%
|
Education
|
| 13.2%
|
Senior Care
|
| 7.1%
|
Hospital
|
| 5.9%
|
General Obligation--Local
|
| 4.5%
|
Special Tax
|
| 3.5%
|
Transportation
|
| 3.0%
|
Electric and Gas
|
| 2.9%
|
Industrial Development Bond/Pollution Control Revenue
|
| 2.8%
|
Other 2
|
| 7.8%
|
Other Assets and Liabilities--Net 3
|
| 0.3%
|
TOTAL
|
| 100.0%
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2 For purposes of this table, sector classifications constitute 91.9% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--95.7% | | | |
| | | Ohio--91.5% | | | |
| $ | 1,000,000 | | Akron, Bath & Copley, OH Joint Township, Hospital District Revenue Bonds (Series 2004A), 5.125% (Summa Health System)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.38%), 11/15/2024
| | $ | 1,056,300 |
| 1,750,000 | | Akron, Bath & Copley, OH Joint Township, Hospital Facilities Revenue Bonds (Series 2004A), 5.25% (Summa Health System)/(Radian Asset Assurance INS)/ (Original Issue Yield: 5.47%), 11/15/2031
| | | 1,861,597 |
| 1,000,000 | | Akron, OH, LT GO Bonds, 5.80% (Original Issue Yield: 5.95%), 11/1/2020
| | | 1,083,450 |
| 300,000 | | Alliance, OH City School District, UT GO Bonds, 5.50% (AMBAC INS)/(Original Issue Yield: 5.85%), 12/1/2022
| | | 325,653 |
| 395,000 | | Alliance, OH Waterworks, Revenue Refunding Bonds, 5.00% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.20%), 11/15/2020
| | | 406,542 |
| 1,000,000 | | Bay Village, OH City School District, School Improvement UT GO Bonds, 5.125% (Original Issue Yield: 5.16%), 12/1/2021
| | | 1,045,940 |
| 2,870,000 | | Butler County, OH, MFH Revenue Bonds (Series 2006), 5.10% (Trinity Manor Senior Housing)/(GNMA Home Mortgage Program COL), 7/20/2036
| | | 3,011,577 |
| 250,000 | | Clearview, OH Local School District, UT GO Bonds, 6.00% (Original Issue Yield: 6.17%), 12/1/2024
| | | 271,612 |
| 530,000 | | Cleveland-Cuyahoga County, OH Port Authority, Bond Fund Program Development Revenue Bonds (Series 2004E), 5.60% (Port of Cleveland Bond Fund), 5/15/2025
| | | 561,084 |
| 390,000 | | Cleveland-Cuyahoga County, OH Port Authority, Development Revenue Bonds (Series 2001B), 6.50% (Port of Cleveland Bond Fund), 11/15/2021
| | | 421,898 |
| 500,000 | | Cleveland-Cuyahoga County, OH Port Authority, Development Revenue Bonds (Series 2002C), 5.95% (Port of Cleveland Bond Fund), 5/15/2022
| | | 533,655 |
| 500,000 | | Cleveland-Cuyahoga County, OH Port Authority, Development Revenue Bonds (Series 2005B), 5.125% (Port of Cleveland Bond Fund), 5/15/2025
| | | 515,735 |
| 500,000 | | Cleveland-Cuyahoga County, OH Port Authority, Senior Housing Revenue Bonds (Series 2006A), 6.25% (St. Clarence-GEAC LLC), 5/1/2038
| | | 517,895 |
| 1,000,000 | | Cleveland-Cuyahoga County, OH Port Authority, Special Assessment Tax-Increment Revenue Bonds, 7.00% (University Heights, OH Public Parking Garage)/(Original Issue Yield: 7.20%), 12/1/2018
| | | 1,098,580 |
| 1,000,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.25% (FSA INS), 12/1/2024
| | | 1,104,500 |
| 1,610,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00% (United States Treasury PRF 6/1/2013@100)/(Original Issue Yield: 4.70%, 12/1/2024
| | | 1,727,739 |
| 1,000,000 | | Delaware County, OH, Capital Facilities LT GO Bonds, 6.25%, 12/1/2020
| | | 1,100,680 |
| 1,000,000 | | Erie County, OH, Hospital Facilities Revenue Bonds (Series 2002A), 5.50% (Firelands Regional Medical Center)/(Original Issue Yield: 5.66%), 8/15/2022
| | | 1,065,290 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Ohio--continued | | | |
| $ | 1,000,000 | | Erie County, OH, Revenue Bonds (Series 2006A), 5.00% (Firelands Regional Medical Center), 8/15/2036
| | $ | 1,047,600 |
| 1,500,000 | | Fairfield, OH Hospital Facilities, Revenue Bonds, 5.00% (Radian Asset Assurance INS)/(Original Issue Yield: 5.05%), 6/15/2028
| | | 1,551,330 |
| 500,000 | | Franklin County, OH Health Care Facilities, Improvement Revenue Bonds (Series 2005A), 5.125% (Ohio Presbyterian Retirement Services)/(Original Issue Yield: 5.25%), 7/1/2035
| | | 519,740 |
| 1,500,000 | | Franklin County, OH Health Care Facilities, Revenue Refunding Bonds, 5.50% (Ohio Presbyterian Retirement Services)/(Original Issue Yield: 5.69%), 7/1/2021
| | | 1,533,750 |
| 1,610,000 | | Franklin County, OH Hospital Facility Authority, Hospital Improvement Revenue Bonds (Series 2005C), 5.00% (Children's Hospital)/(FGIC INS), 5/1/2035
| | | 1,705,103 |
| 750,000 | | Franklin County, OH, Revenue Refunding Bonds, 5.75% (Capitol South Community Urban Redevelopment Corp.), 6/1/2011
| | | 763,500 |
| 1,000,000 | | Gallipolis, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 12/1/2030
| | | 1,074,280 |
| 250,000 | | Greene County, OH Sewer Systems, Revenue Bonds, 5.25% (United States Treasury PRF 12/1/2008@102)/(Original Issue Yield: 5.42%), 12/1/2025
| | | 261,517 |
| 1,000,000 | | Greene County, OH, University Housing Revenue Bonds (Series 2002A), 5.50% (Marauder Development LLC at Central State University)/(American Capital Access INS)/(Original Issue Yield: 5.65%), 9/1/2027
| | | 1,073,840 |
| 1,000,000 | | Greene County, OH, University Housing Revenue Bonds (Series 2002A), 5.375% (Marauder Development LLC at Central State University)/(American Capital Access INS)/(Original Issue Yield: 5.55%), 9/1/2022
| | | 1,065,710 |
| 1,530,000 | | Hamilton County, OH Hospital Facilities Authority, Revenue Bonds (Series 2004J), 5.25% (Cincinnati Children's Hospital Medical Center)/ (FGIC INS), 5/15/2023
| | | 1,652,706 |
| 2,400,000 | | Hamilton County, OH Sewer System, Improvement Revenue Bonds (Series 2000A), 5.75% (Metropolitan Sewer District of Greater Cincinnati)/(United States Treasury PRF 6/1/2010@101)/(Original Issue Yield: 5.78%), 12/1/2025
| | | 2,577,000 |
| 1,000,000 | | Hamilton County, OH, EDRBs (Series 2006A), 5.00% (King Highland Community Urban Redevelopment Corp.)/(MBIA Insurance Corp. INS), 6/1/2033
| | | 1,071,080 |
| 3,000,000 | | Hamilton County, OH, Healthcare Refunding Revenue Bonds (Series 2006A), 5.00% (Life Enriching Communities), 1/1/2037
| | | 3,086,760 |
| 1,595,000 | | Hamilton County, OH, Subordinated Sales Tax Revenue Bonds (Series B), 5.60% (United States Treasury PRF 12/1/2010@100)/(Original Issue Yield: 5.62%), 12/1/2032
| | | 1,686,074 |
| 405,000 | | Hamilton County, OH, Subordinated Sales Tax Revenue Bonds (Series B), 5.60% (AMBAC INS)/(Original Issue Yield: 5.62%), 12/1/2032
| | | 423,772 |
| 1,310,000 | | Hamilton, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00% (FSA INS), 12/1/2029
| | | 1,408,355 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Ohio--continued | | | |
| $ | 2,000,000 | | Hamilton, OH City School District, School Improvement UT GO Bonds (Series 1999A), 5.50% (Original Issue Yield: 5.75%), 12/1/2024
| | $ | 2,115,320 |
| 1,000,000 | | Heath, OH City School District, School Improvement UT GO Bonds, (Series A), 5.50% (FGIC INS)/(Original Issue Yield: 5.635%), 12/1/2027
| | | 1,065,810 |
| 2,000,000 | | Hilliard, OH School District, UT GO Bonds (Series 2006A), 5.00% (MBIA Insurance Corp. INS), 12/1/2027
| | | 2,163,520 |
| 1,010,000 | | Kent State University, OH, General Receipts Revenue Bonds, 6.00% (AMBAC INS)/(Original Issue Yield: 6.09%), 5/1/2024
| | | 1,086,023 |
| 1,500,000 | | Lake, OH Local School District, Stark County, UT GO Bonds, 5.75% (FGIC INS)/ (Original Issue Yield: 5.90%), 12/1/2021
| | | 1,611,780 |
| 2,000,000 | | Licking Heights, OH Local School District, School Facilities Construction & Improvement UT GO Bonds (Series 2000A), 5.50% (United States Treasury PRF 12/1/2010@100)/(Original Issue Yield: 5.58%), 12/1/2024
| | | 2,131,620 |
| 2,070,000 | | Little Miami, OH Local School District, LT GO School Improvement Bonds (Series 2006), 5.25% (FSA INS), 12/1/2030
| | | 2,323,471 |
| 1,500,000 | | Lorain County, OH, Health Care Facilities Revenue Refunding Bonds (Series 1998A), 5.25% (Kendal at Oberlin)/(Original Issue Yield: 5.53%), 2/1/2021
| | | 1,510,845 |
| 1,000,000 | | Lorain County, OH, Hospital Revenue Refunding & Improvement Bonds, 5.25% (Catholic Healthcare Partners)/(Original Issue Yield: 5.52%), 10/1/2033
| | | 1,052,090 |
| 1,500,000 | | Lucas County, OH, Health Care Facilities Refunding & Improvement Revenue Bonds (Series 2000A), 6.625% (Sunset Retirement Community, Inc.)/(Original Issue Yield: 6.75%), 8/15/2030
| | | 1,610,520 |
| 355,000 | | Mansfield City School District, OH, UT GO Bonds, 5.75% (United States Treasury PRF 6/1/2010@100)/(Original Issue Yield: 5.75%), 12/1/2021
| | | 378,022 |
| 1,000,000 | | Medina County, OH Library District, UT GO Bonds, 5.25% (FGIC INS), 12/1/2023
| | | 1,079,470 |
| 1,000,000 | | Miami County, OH, Hospital Facilities Revenue & Refunding Bonds (Series 2006), 5.25% (Upper Valley Medical Center, OH), 5/15/2021
| | | 1,068,440 |
| 400,000 | | Montgomery County, OH Health Care Facilities, Revenue Refunding Bonds, 5.50% (Franciscan Health Care)/(United States Treasury PRF 1/1/2010@100)/ (Original Issue Yield: 5.551%), 7/1/2018
| | | 415,468 |
| 1,000,000 | | Montgomery County, OH, MFH Revenue Bonds (Series 2005), 4.95% (Chevy Chase Apartments)/(FHLMC GTD), 11/1/2035
| | | 1,027,410 |
| 1,415,000 | | Oak Hills, OH Local School District, UT GO Bonds, 5.00% (FSA INS), 12/1/2025
| | | 1,520,757 |
| 1,035,000 | | Ohio HFA, Residential Mortgage Revenue Bonds (Series 2002 A-1), 5.30% (GNMA Home Mortgage Program COL GTD), 9/1/2022
| | | 1,039,740 |
| 2,500,000 | | Ohio State Air Quality Development Authority, PCR Refunding Bonds (Series 2002A), 6.00% (Cleveland Electric Illuminating Co.), 12/1/2013
| | | 2,558,575 |
| 2,000,000 | | Ohio State Higher Educational Facilities Commission, Higher Education Facility Revenue Bonds (Series 2006), 5.00% (Kenyon College, OH), 7/1/2041
| | | 2,101,940 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Ohio--continued | | | |
| $ | 1,000,000 | | Ohio State Higher Educational Facilities Commission, Higher Educational Facility Revenue Bonds, 5.125% (Oberlin College), 10/1/2024
| | $ | 1,063,450 |
| 1,875,000 | | Ohio State Higher Educational Facilities Commission, Hospital Revenue Bonds (Series 2007A), 5.25% (University Hospitals Health System, Inc.), 1/15/2046
| | | 2,003,044 |
| 1,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds (Series 2002B), 5.50% (Case Western Reserve University, OH), 10/1/2022
| | | 1,090,400 |
| 1,510,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds (Series 2006), 5.00% (University of Dayton)/(AMBAC INS), 12/1/2030
| | | 1,625,862 |
| 1,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds (Series 2006A), 4.60% (Franciscan University of Steubenville)/(Radian Asset Assurance INS), 5/1/2031
| | | 1,002,170 |
| 2,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.00% (College of Wooster), 9/1/2020
| | | 2,119,340 |
| 1,500,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.00% (John Carroll University, OH), 4/1/2032
| | | 1,591,020 |
| 1,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.00% (Otterbein College)/(CDC IXIS Financial Guaranty N.A. INS), 12/1/2035
| | | 1,067,120 |
| 1,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.00% (University of Dayton)/(AMBAC INS), 12/1/2027
| | | 1,062,650 |
| 500,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.50% (Baldwin-Wallace College), 12/1/2021
| | | 539,295 |
| 1,070,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.50% (Baldwin-Wallace College)/(Original Issue Yield: 5.53%), 12/1/2023
| | | 1,153,406 |
| 610,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.50% (Baldwin-Wallace College)/(Original Issue Yield: 5.61%), 12/1/2024
| | | 657,550 |
| 2,000,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.85% (John Carroll University, OH)/(Original Issue Yield: 6.05%), 4/1/2020
| | | 2,124,000 |
| 750,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.00% (Mount Union College), 10/1/2031
| | | 792,090 |
| 100,000 | | Ohio State Higher Educational Facilities Commission, Revenue Bonds, 5.75% (John Carroll University, OH), 4/1/2019
| | | 102,179 |
| 2,000,000 | | Ohio State University, General Receipts Revenue Bonds (Series 2003B), 5.25%, 6/1/2023
| | | 2,150,840 |
| 2,000,000 | | Ohio State Water Development Authority, PCRBs, 5.10%, 12/1/2022
| | | 2,137,800 |
| 250,000 | | Ohio State, UT GO Bonds (Series B), 5.25% (United States Treasury PRF 2/1/2008@101)/(Original Issue Yield: 4.94%, 2/1/2012
| | | 256,063 |
| 250,000 | | Ohio State, UT GO Bonds (Series C), 5.00%, 5/1/2007
| | | 250,588 |
| 250,000 | | Ohio State, UT GO Bonds, 5.00% (United States Treasury PRF 8/1/2007@101)/ (Original Issue Yield: 5.00%), 8/1/2008
| | | 253,893 |
| 1,000,000 | | Ohio Waste Development Authority Solid Waste, Revenue Bonds (Series 2002), 4.85% TOBs (Waste Management, Inc.), Mandatory Tender 11/1/2007
| | | 1,003,490 |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Ohio--continued | | | |
| $ | 1,835,000 | | Otsego, OH Local School District, Construction & Improvement UT GO Bonds, 5.00% (United States Treasury PRF 12/1/2014@100)/(Original Issue Yield: 5.15%), 12/1/2028
| | $ | 1,996,058 |
| 1,000,000 | | Parma, OH, Hospital Improvement and Refunding Revenue Bonds, 5.375% (Parma Community General Hospital Association)/(United States Treasury PRF 11/1/2008@101)/(Original Issue Yield: 5.45%), 11/1/2029
| | | 1,036,480 |
| 500,000 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2004A), 7.25% (Apex Environmental LLC)/(Original Issue Yield: 7.30%), 8/1/2034
| | | 515,045 |
| 1,000,000 | | Portage County, OH Board of County Hospital Trustees, Hospital Revenue Bonds (Series 1999), 5.75% (Robinson Memorial Hospital)/(AMBAC INS)/ (Original Issue Yield: 5.90%), 11/15/2019
| | | 1,057,470 |
| 1,000,000 | | Ravenna, OH City School District, UT GO Bonds (Series 2006), 5.00% (FSA INS), 1/15/2031
| | | 1,073,490 |
| 1,500,000 | | Rickenbacker, OH Port Authority, Capital Funding Revenue Bonds (Series 2002A), 5.375% (OASBO Expanded Asset Pooled Financing Program)/(Original Issue Yield: 5.60%), 1/1/2032
| | | 1,695,015 |
| 2,000,000 | | Springboro, OH Community School District, School Improvement UT GO Bonds, 5.00% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.03%), 12/1/2032
| | | 2,120,920 |
| 1,000,000 | | Steubenville, OH, Hospital Facilities Revenue Refunding & Improvement Bonds, 6.375% (Trinity Health System Obligated Group)/(Original Issue Yield: 6.55%), 10/1/2020
| | | 1,074,530 |
| 500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds (Series 2004C), 6.375% (Northwest Ohio Bond Fund), 11/15/2032
| | | 548,035 |
| 860,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds (Series 2005C), 5.125% (Northwest Ohio Bond Fund), 11/15/2025
| | | 881,500 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds, 6.45% (CSX Corp.), 12/15/2021
| | | 1,828,035 |
| 1,375,000 | | Toledo-Lucas County, OH Port Authority, Special Assessment Revenue Bonds, 5.25% (Crocker Park Public Improvement Project)/(Original Issue Yield: 5.37%), 12/1/2023
| | | 1,468,363 |
| 2,000,000 | | Tuscarawas County, OH, Hospital Facilities Revenue Bonds, 5.75% (Union Hospital)/(Radian Asset Assurance INS), 10/1/2026
| | | 2,170,840 |
| 100,000 | | University of Cincinnati, OH, General Receipts Revenue Bond (Series AO), 5.75% (United States Treasury PRF 12/1/2009@101)/(Original Issue Yield: 5.90%), 6/1/2019
| | | 106,416 |
| 1,025,000 | | University of Cincinnati, OH, General Receipts Revenue Bonds (Series 2004D), 5.00% (AMBAC INS), 6/1/2026
| | | 1,089,626 |
| 1,000,000 | | Warrensville Heights, OH School District, UT GO Bonds, 5.75% (FGIC INS)/ (Original Issue Yield: 5.83%), 12/1/2024
| | | 1,077,410 |
| 1,995,000 | | Waynesville, OH Health Care Facilities, Revenue Bonds (Series 2001A), 5.70% (Quaker Heights Project)/(GNMA Home Mortgage Program COL GTD), 2/20/2043
|
|
| 2,156,256
|
| | | TOTAL
|
|
| 114,014,404
|
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | |
| | | Puerto Rico--4.0% | | | |
| $ | 1,000,000 | | Puerto Rico Government Development Bank (GDB), Senior Notes (Series 2006B), 5.00%, 12/1/2017
| | $ | 1,079,410 |
| 990,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Cogeneration Facility Revenue Bonds (Series 2000A), 6.625% (AES Puerto Rico Project)/(Original Issue Yield: 6.65%), 6/1/2026
| | | 1,073,417 |
| 470,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2026
| | | 496,875 |
| 200,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2036
| | | 210,976 |
| 2,000,000 | 1 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds (Series 2006), 5.00%, 7/1/2046
|
|
| 2,108,080
|
| | | TOTAL
|
|
| 4,968,758
|
| | | Virgin Islands--0.2% | | | |
| 305,000 | | Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A), 6.50%, (GNMA COL)/(Original Issue Yield: 6.522%), 3/1/2025
|
|
| 305,351
|
| | | TOTAL MUNICIPAL BONDS (IDENTIFIED COST $112,819,453)
|
|
| 119,288,513
|
| | | SHORT-TERM MUNICIPALS--4.0% 2 | | | |
| | | Ohio--2.6% | | | |
| 3,300,000 | | Hamilton County, OH Hospital Facilities Authority, (Series 1999A) Weekly VRDNs (Drake Center, Inc.)/(U.S. Bank, N.A. LOC), 3.670%, 3/1/2007
|
|
| 3,300,000
|
| | | Puerto Rico--1.4% | | | |
| 1,700,000 | | Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA Insurance Corp. INS)/(Credit Suisse, Zurich LIQ), 3.340%, 3/7/2007
|
|
| 1,700,000
|
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST)
|
|
| 5,000,000
|
| | | TOTAL MUNICIPAL INVESTMENTS--99.7%
(IDENTIFIED COST $117,819,453) 3
|
|
| 124,288,513
|
| | | OTHER ASSETS AND LIABILITIES - NET--0.3%
|
|
| 359,696
|
| | | TOTAL NET ASSETS--100%
|
| $
| 124,648,209
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 7.9% of the Fund's portfolio as calculated based upon total market value.
1 Underlying security in inverse floater structure.
2 Current rate and next reset date shown for Variable Rate Demand Notes.
3 The cost of investments for federal tax purposes amounts to $116,819,221.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| EDRBs | - --Economic Development Revenue Bonds |
| FGIC | - --Financial Guaranty Insurance Company |
| FHLMC | - --Federal Home Loan Mortgage Corporation |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HFA | - --Housing Finance Authority |
| INS | - --Insured |
| LIQ | - --Liquidity Agreement |
| LOC | - --Letter of Credit |
| LT | - --Limited Tax |
| MFH | - --Multi-family Housing |
| PCR | - --Pollution Control Revenue |
| PCRBs | - --Pollution Control Revenue Bonds |
| PRF | - --Prerefunded |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $117,819,453)
| | | | | $ | 124,288,513 | |
Cash
| | | | | | 91,529 | |
Income receivable
| | | | | | 1,561,751 | |
Receivable for shares sold
|
|
|
|
|
| 173,021
|
|
TOTAL ASSETS
|
|
|
|
|
| 126,114,814
|
|
Liabilities:
| | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 1,000,000 | | | | |
Payable for shares redeemed
| | | 202,071 | | | | |
Income distribution payable
| | | 202,367 | | | | |
Payable for portfolio accounting fees
| | | 11,753 | | | | |
Payable for distribution services fee (Note 5)
| | | 14,069 | | | | |
Payable for shareholder services fee (Note 5)
| | | 29,774 | | | | |
Accrued expenses
|
|
| 6,571
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 1,466,605
|
|
Net assets for 10,769,360 shares outstanding
|
|
|
|
| $
| 124,648,209
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 120,332,982 | |
Net unrealized appreciation of investments
| | | | | | 6,469,060 | |
Accumulated net realized loss on investments
| | | | | | (2,000,143 | ) |
Distributions in excess of net investment income
|
|
|
|
|
| (153,690
| )
|
TOTAL NET ASSETS
|
|
|
|
| $
| 124,648,209
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
| | | | | | | |
Net asset value per share ($124,648,209 ÷ 10,769,360 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $11.57
|
|
Offering price per share (100/99.00 of $11.57) 1
|
|
|
|
|
| $11.69
|
|
Redemption proceeds per share (99.00/100 of $11.57) 1
|
|
|
|
|
| $11.45
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 2,960,238
|
Expenses:
| | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 237,520 | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 74,384 | | | | |
Account administration fee
| | | | | | | 3,265 | | | | |
Custodian fees
| | | | | | | 3,169 | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 30,842 | | | | |
Directors'/Trustees' fees
| | | | | | | 1,548 | | | | |
Auditing fees
| | | | | | | 9,781 | | | | |
Legal fees
| | | | | | | 4,418 | | | | |
Portfolio accounting fees
| | | | | | | 27,786 | | | | |
Distribution services fee (Note 5)
| | | | | | | 237,520 | | | | |
Shareholder services fee (Note 5)
| | | | | | | 140,237 | | | | |
Share registration costs
| | | | | | | 9,737 | | | | |
Printing and postage
| | | | | | | 9,805 | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 16,834 | | | | |
Insurance premiums
| | | | | | | 3,436 | | | | |
Miscellaneous
|
|
|
|
|
|
| 752
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 811,034
|
|
|
|
|
Waivers (Note 5):
| | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (96,674 | ) | | | | | | | |
Waiver of administrative personnel and services fee
| | | (11,803 | ) | | | | | | | |
Waiver of distribution services fee
|
|
| (148,450
| )
|
|
|
|
|
|
|
|
TOTAL WAIVERS
|
|
|
|
|
|
| (256,927
| )
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 554,107
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 2,406,131
|
Realized and Unrealized Gain on Investments:
| | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 162,829 |
Net change in unrealized appreciation of investments
|
|
|
|
|
|
|
|
|
|
| 922,327
|
Net realized and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
| 1,085,156
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 3,491,287
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
| |
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 2,406,131 | | | $ | 4,530,142 | |
Net realized gain on investments and futures contracts
| | | 162,829 | | | | 9,017 | |
Net change in unrealized appreciation/depreciation of investments and futures contracts
|
|
| 922,327
|
|
|
| (1,544,647
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 3,491,287
|
|
|
| 2,994,512
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
|
|
| (2,432,057
| )
|
|
| (4,565,880
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 13,345,864 | | | | 14,836,628 | |
Proceeds from shares issued in connection with the tax-free transfer of assets from Sky Trust Tax Exempt Ohio Fund
| | | - -- | | | | 19,681,635 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 1,231,383 | | | | 2,343,923 | |
Cost of shares redeemed
|
|
| (9,051,589
| )
|
|
| (17,980,554
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| 5,525,658
|
|
|
| 18,881,632
|
|
Change in net assets
|
|
| 6,584,888
|
|
|
| 17,310,264
|
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 118,063,321
|
|
|
| 100,753,057
|
|
End of period (including distributions in excess of net investment income of $(153,690) and $(127,764), respectively)
|
| $
| 124,648,209
|
|
| $
| 118,063,321
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of the Federated Ohio Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers one class of Shares: Class F Shares. 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. Interest income from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations.
On February 24, 2006, the Fund received assets from Sky Trust Tax-Exempt Ohio Fund as the result of a tax-free reorganization, as follows:
Shares of
the Fund
Issued
|
| Sky Trust
Tax-Exempt
Ohio Fund
Net Assets
Received
|
| Unrealized
Appreciation 1
|
| Net Assets
of the Fund
Prior to
Combination
|
| Net Assets
of Sky Trust
Tax-Exempt
Ohio Fund
Prior to
Combination
|
| Net Assets
of the Fund
Immediately
After
Combination
|
1,711,447
|
| $19,681,635
|
| $190,227
|
| $103,335,293
|
| $19,681,635
|
| $123,016,928
|
1 Unrealized appreciation is included in the Sky Trust Tax-Exempt Ohio Fund Net Assets Received amount shown above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Inverse Floater Structures
The Fund may participate in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund, that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investments, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the Statement of Assets and Liabilities. At February 28, 2007, Fund investments with a value of $2,108,080 are held by the trusts and serve as collateral for the $1,000,000 in floating rate certificate securities outstanding at that date. The Fund recorded interest and trust expenses of $16,834 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund periodically may sell bond interest rate futures contracts to manage duration and to potentially reduce transaction costs. Upon entering into a bond interest rate futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had no realized gains or losses on futures contracts.
At February 28, 2007, the Fund had no open futures contracts.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
|
| Six Months
Ended
2/28/2007
|
|
| Year Ended
8/31/2006
|
|
Shares sold
| | 1,157,597 | | | 1,296,150 | |
Shares issued in connection with the tax-free transfer of assets from Sky Trust Tax Exempt Ohio Fund
| | - -- | | | 1,711,447 | |
Shares issued to shareholders in payment of distributions declared
| | 106,877 | | | 205,289 | |
Shares redeemed
|
| (784,574
| )
|
| (1,574,047
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| 479,900
|
|
| 1,638,839
|
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $116,819,221. The net unrealized appreciation of investments for federal tax purposes was $6,469,292. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $6,469,292.
At August 31, 2006, the Fund had a capital loss carryforward of $1,958,448 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 405,145
|
2009
|
| $ 598,494
|
2010
|
| $ 69,375
|
2011
|
| $ 87,412
|
2012
|
| $ 176,880
|
2013
|
| $621,142
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $96,674 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.105% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.40% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, FSC voluntarily waived $148,450 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC retained $89,070 of fees paid by the Fund.
Sales Charges
For the six months ended February 28, 2007, FSC retained $8,740 of contingent deferred sales charges relating to redemptions of Class F Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund to financial intermediaries or to Federated Shareholder Services Company (FSSC), for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $17,100,000 and $13,200,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 11,968,117
|
Sales
|
| $
| 9,493,383
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 36.5% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 6.9% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED OHIO MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one and three year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated Fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated Funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923609
2032305 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated Pennsylvania Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
Class B Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $11.63 | | | $11.81 | | | $11.71 | | | $11.51 | | | $11.70 | | | $11.52 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.26 | | | 0.52 | | | 0.54 | | | 0.54 | | | 0.54 | | | 0.56 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.05
|
|
| (0.17
| )
|
| 0.10
|
|
| 0.19
|
|
| (0.19
| )
|
| 0.18
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.31
|
|
| 0.35
|
|
| 0.64
|
|
| 0.73
|
|
| 0.35
|
|
| 0.74
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.25
| )
|
| (0.53
| )
|
| (0.54
| )
|
| (0.53
| )
|
| (0.54
| )
|
| (0.56
| )
|
Net Asset Value, End of Period
|
| $11.69
|
|
| $11.63
|
|
| $11.81
|
|
| $11.71
|
|
| $11.51
|
|
| $11.70
|
|
Total Return 2
|
| 2.66
| %
|
| 3.03
| %
|
| 5.58
| %
|
| 6.46
| %
|
| 3.04
| %
|
| 6.70
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses 3
|
| 0.83
| % 4
|
| 0.86
| %
|
| 0.83
| %
|
| 0.80
| %
|
| 0.80
| %
|
| 0.78
| %
|
Net investment income
|
| 4.36
| % 4
|
| 4.49
| %
|
| 4.55
| %
|
| 4.63
| %
|
| 4.58
| %
|
| 4.92
| %
|
Expense waiver/reimbursement 5
|
| 0.08
| % 4
|
| 0.09
| %
|
| 0.11
| %
|
| 0.10
| %
|
| 0.09
| %
|
| 0.09
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $286,886
|
| $263,534
|
| $209,005
|
| $200,023
|
| $210,429
|
| $205,870
|
|
Portfolio turnover
|
| 7
| %
|
| 17
| %
|
| 12
| %
|
| 9
| %
|
| 17
| %
|
| 18
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Includes 0.08%, 0.11%, 0.08%, 0.05%, 0.05% and 0.03%, respectively, of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
Net Asset Value, Beginning of Period
| | $11.63 | | | $11.81 | | | $11.71 | | | $11.51 | | | $11.70 | | | $11.53 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.21 | | | 0.43 | | | 0.45 | | | 0.45 | | | 0.45 | | | 0.47 | |
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts
|
| 0.05
|
|
| (0.18
| )
|
| 0.10
|
|
| 0.19
|
|
| (0.19
| )
|
| 0.18
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.26
|
|
| 0.25
|
|
| 0.55
|
|
| 0.64
|
|
| 0.26
|
|
| 0.65
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distributions from net investment income
|
| (0.20
| )
|
| (0.43
| )
|
| (0.45
| )
|
| (0.44
| )
|
| (0.45)
|
|
| (0.48
| )
|
Net Asset Value, End of Period
|
| $11.69
|
|
| $11.63
|
|
| $11.81
|
|
| $11.71
|
|
| $11.51
|
|
| $11.70
|
|
Total Return 2
|
| 2.28
| %
|
| 2.23
| %
|
| 4.77
| %
|
| 5.65
| %
|
| 2.26
| %
|
| 5.79
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses 3
|
| 1.60
| % 4
|
| 1.63
| %
|
| 1.60
| %
|
| 1.57
| %
|
| 1.57
| %
|
| 1.55
| %
|
Net investment income
|
| 3.58
| % 4
|
| 3.73
| %
|
| 3.78
| %
|
| 3.85
| %
|
| 3.81
| %
|
| 4.15
| %
|
Expense waiver/reimbursement 5
|
| 0.07
| % 4
|
| 0.09
| %
|
| 0.09
| %
|
| 0.08
| %
|
| 0.07
| %
|
| 0.07
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $42,529
|
| $47,213
|
| $59,770
|
| $65,748
|
| $70,339
|
| $61,535
|
|
Portfolio turnover
|
| 7
| %
|
| 17
| %
|
| 12
| %
|
| 9
| %
|
| 17
| %
|
| 18
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another independent registered public accounting firm.
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 Includes 0.08%, 0.11%, 0.08%, 0.05%, 0.05% and 0.03%, respectively, of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual:
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,026.60
|
| $4.17
|
Class B Shares
|
| $1,000
|
| $1,022.80
|
| $8.02
|
Hypothetical (assuming a 5% return before expenses):
|
|
|
|
|
|
|
Class A Shares
|
| $1,000
|
| $1,020.68
|
| $4.16
|
Class B Shares
|
| $1,000
|
| $1,016.86
|
| $8.00
|
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). The annualized net expense ratios are as follows:
Class A Shares
|
| 0.83%
|
Class B Shares
|
| 1.60%
|
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 47.3
| %
|
Refunded
|
| 13.8
| %
|
Hospital
|
| 11.0
| %
|
Education
|
| 8.1
| %
|
Senior Care
|
| 6.6
| %
|
Industrial Development Bond/Pollution Control Revenue
|
| 3.6
| %
|
Single Family Housing
|
| 3.2
| %
|
Resource Recovery
|
| 1.9
| %
|
General Obligation--Local
|
| 1.2
| %
|
Multi-Family Housing
|
| 1.2
| %
|
Other 2
|
| 3.0
| %
|
Other Assets and Liabilities--Net 3
|
| (0.9
| )%
|
TOTAL
|
| 100.0
| %
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Refunded securities are those whose debt service is paid from escrowed assets, usually U.S. Government Securities.
2 For purposes of this table, sector classifications constitute 97.9% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."
3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--100.4% | | | | |
| | | Pennsylvania--99.4% | | | | |
| $ | 1,500,000 | | Allegheny County Redevelopment Authority, Tax Increment Bonds (Series 2000A), 6.30% (Waterfront Project), 12/15/2018
| | $ | 1,618,365 | |
| 4,250,000 | | Allegheny County, PA Airport Authority, Airport Revenue Refunding Bonds (Series 1999), 6.125% (Pittsburgh International Airport)/(FGIC INS), 1/1/2017
| | | 4,523,317 | |
| 2,500,000 | | Allegheny County, PA HDA, Health System Revenue Bonds (Series 2000B), 9.25% (West Penn Allegheny Health System)/(Original Issue Yield: 9.70%), 11/15/2030
| | | 2,960,150 | |
| 2,000,000 | | Allegheny County, PA HDA, Refunding Revenue Bonds (Series 1998A), 5.125% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.34%), 5/1/2023
| | | 2,009,020 | |
| 100,000 | | Allegheny County, PA HDA, Revenue Bonds (Series B), 4.90% (UPMC Health System)/(MBIA Insurance Corp. INS)/(Original Issue Yield: 4.95%), 7/1/2008
| | | 101,578 | |
| 2,000,000 | | Allegheny County, PA HDA, Revenue Bonds, 5.50% (Catholic Health East)/(Original Issue Yield: 5.60%), 11/15/2032
| | | 2,125,500 | |
| 1,500,000 | | Allegheny County, PA HDA, Revenue Bonds, 5.375% (Ohio Valley General Hospital, PA)/(Original Issue Yield: 5.50%), 1/1/2018
| | | 1,541,790 | |
| 4,000,000 | | Allegheny County, PA HDA, Revenue Bonds, (Series 1997A), 5.60% (UPMC Health System)/(MBIA Insurance Corp. INS)/(Original Issue Yield: 5.85%), 4/1/2017
| | | 4,085,480 | |
| 1,000,000 | | Allegheny County, PA Higher Education Building Authority, Revenue Bonds (Series 2002A), 5.95% (Chatham College)/(Original Issue Yield: 5.97%), 3/1/2032
| | | 1,063,450 | |
| 1,000,000 | | Allegheny County, PA Higher Education Building Authority, Revenue Bonds (Series 2002B), 5.25% (Chatham College)/(Original Issue Yield: 5.35%), 11/15/2016
| | | 1,007,900 | |
| 2,200,000 | | Allegheny County, PA Higher Education Building Authority, University Revenue Bonds (Series 2006A), 4.75% (Robert Morris University), 2/15/2026
| | | 2,246,684 | |
| 250,000 | | Allegheny County, PA Higher Education Building Authority, University Revenue Bonds, 5.125% (Carnegie Mellon University)/(Original Issue Yield: 5.39%), 3/1/2032
| | | 262,072 | |
| 370,000 | 1 | Allegheny County, PA IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.00% (AFCO Cargo PIT LLC Project), 9/1/2009
| | | 374,581 | |
| 1,000,000 | 1 | Allegheny County, PA IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.625% (AFCO Cargo PIT LLC Project)/(Original Issue Yield: 6.75%), 9/1/2024
| | | 1,036,280 | |
| 3,185,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 1998), 5.50% (Marathon Oil Corp.), 12/1/2029
| | | 3,306,348 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,250,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 1998), 5.60% (Marathon Oil Corp.), 9/1/2030
| | $ | 1,292,837 | |
| 1,385,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016
| | | 1,475,122 | |
| 1,500,000 | | Allegheny County, PA IDA, Health Care Facilities Revenue Refunding Bonds (Series 1998), 5.75% (Presbyterian SeniorCare-Westminister Place Project), 1/1/2023
| | | 1,500,855 | |
| 900,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2001), 6.60% (Residential Resources Inc. Project)/(United States Treasury PRF 9/1/2011@100)/(Original Issue Yield: 6.75%), 9/1/2031
| | | 1,005,480 | |
| 1,000,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2006), 5.125% (Residential Resources Inc. Project), 9/1/2031
| | | 1,041,630 | |
| 3,000,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Bonds (Series 1999), 6.00% (United States Treasury PRF 3/1/2009@101)/(Original Issue Yield: 6.05%), 3/1/2019
| | | 3,163,830 | |
| 455,000 | | Allegheny County, PA Residential Finance Authority, SFM Revenue Bonds (Series 2001KK-1), 5.375% (GNMA Collateralized Home Mortgage Program GTD), 5/1/2022
| | | 471,585 | |
| 350,000 | | Allegheny County, PA Residential Finance Authority, SFM Revenue Bonds (Series FF-1), 5.90% (GNMA Collateralized Home Mortgage Program COL), 5/1/2020
| | | 364,437 | |
| 100,000 | | Allegheny County, PA, UT GO Bonds (Series C-48), 4.90% (MBIA Insurance Corp. INS 10/1/2009@100)/(United States Treasury PRF 10/1/2009@100)/(Original Issue Yield: 5.03%), 10/1/2016
| | | 103,086 | |
| 2,000,000 | | Allegheny County, PA, Refunding UT GO Notes (C-59B), 4.15% (FSA INS), 11/1/2026
| | | 2,004,000 | |
| 200,000 | | Altoona, PA City Authority, Revenue Refunding Bonds, 4.85% (FGIC INS)/(Original Issue Yield: 4.95%), 11/1/2009
| | | 201,456 | |
| 2,000,000 | | Bethlehem, PA Area Vocational-Technical School Authority, Guaranteed Lease Revenue Bonds (Series 1999), 5.50% (Bethlehem Area Vocational-Technical School)/(United States Treasury PRF 9/1/2009@100)/(Original Issue Yield: 5.55%), 9/1/2020
| | | 2,088,400 | |
| 3,000,000 | | Bradford County, PA IDA, Solid Waste Disposal Refunding Revenue Bonds (Series 2005A), 4.70% (International Paper Co.), 3/1/2019
| | | 3,016,710 | |
| 1,000,000 | | Bucks County, PA Community College Authority, College Building Revenue Bonds (Series 1996), 5.50% (Original Issue Yield: 5.70%), 6/15/2017
| | | 1,004,990 | |
| 1,300,000 | | Bucks County, PA IDA, Retirement Community Revenue Bonds (Series 2005A), 6.25% (Ann's Choice, Inc.), 1/1/2035
| | | 1,385,644 | |
| 750,000 | | Bucks County, PA IDA, Revenue Bonds (Series 2002A), 6.00% (Pennswood Village)/(Original Issue Yield: 6.12%), 10/1/2027
| | | 812,820 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 500,000 | | Bucks County, PA IDA, Revenue Bonds (Series 2002A), 6.00% (Pennswood Village)/(Original Issue Yield: 6.16%), 10/1/2034
| | $ | 539,815 | |
| 1,000,000 | | Bucks County, PA IDA, Solid Waste Revenue Bonds, 4.90% TOBs (Waste Management, Inc.), Mandatory Tender 2/1/2008
| | | 1,005,010 | |
| 500,000 | | Bucks County, PA Water & Sewer Authority, Revenue Bonds, 5.25% (Neshaminy Interceptor Sewer System)/(United States Treasury PRF 6/1/2009@100)/(Original Issue Yield: 5.30%), 6/1/2011
| | | 517,270 | |
| 1,370,000 | | Carbon County, PA IDA, Refunding Revenue Bonds, 6.65% (Panther Creek Partners Project), 5/1/2010
| | | 1,428,239 | |
| 1,055,000 | | Catasauqua, PA Area School District, UT GO Bonds, 5.00% (FSA INS), 2/15/2031
| | | 1,128,882 | |
| 250,000 | | Center City District, PA, Refunding Revenue Bonds, 4.75% (AMBAC INS), 12/1/2025
| | | 260,860 | |
| 1,100,000 | | Chester County, PA HEFA, Mortgage Refunding Revenue Bonds, 5.50% (Tel Hai Obligated Group Project)/(Original Issue Yield: 5.60%), 6/1/2025
| | | 1,105,016 | |
| 2,000,000 | | Chester County, PA HEFA, Revenue Bonds (Series 2006), 5.00% (Devereux Foundation), 11/1/2031
| | | 2,093,600 | |
| 2,000,000 | | Chester County, PA IDA, 5.00% (Aqua Pennsylvania, Inc.)/(FGIC INS), 2/1/2041
| | | 2,107,120 | |
| 1,500,000 | | Clarion County, PA Hospital Authority, Revenue Refunding Bonds, (Series 1997), 5.75% (Clarion County Hospital)/(Original Issue Yield: 5.95%), 7/1/2017
| | | 1,532,430 | |
| 1,575,000 | | Commonwealth of Pennsylvania, UT GO Bonds, 6.00% (Original Issue Yield: 6.15%), 7/1/2007
| | | 1,587,364 | |
| 200,000 | | Commonwealth of Pennsylvania, UT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 6/1/2011
| | | 207,104 | |
| 350,000 | | Commonwealth of Pennsylvania, UT GO Bonds, 5.00% (United States Treasury PRF 3/1/2008@101), 3/1/2009
| | | 358,081 | |
| 330,000 | | Conneaut, PA School District, UT GO Refunding Bonds, 4.90% (FSA INS)/(Original Issue Yield: 5.00%), 5/1/2009
| | | 338,187 | |
| 1,000,000 | | Crawford County, PA Hospital Authority, Senior Living Facilities Revenue Bonds (Series 1999), 6.125% (Wesbury United Methodist Community Obligated Group)/(Original Issue Yield: 6.32%), 8/15/2019
| | | 1,031,280 | |
| 1,250,000 | | Cumberland County, PA Municipal Authority, College Revenue Bonds (Series A), 5.50% (Dickinson College)/(United States Treasury PRF 11/1/2010@100)/(Original Issue Yield: 5.70%), 11/1/2025
| | | 1,329,237 | |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Retirement Community Revenue Bonds (Series 2002A), 7.125% (Wesley Affiliated Services, Inc. Obligated Group)/(United States Treasury PRF 1/1/2013@101)/(Original Issue Yield: 7.40%), 1/1/2025
| | | 1,164,960 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 3,500,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2007A), 5.00% (Diakon Lutheran Social Ministries), 1/1/2036
| | $ | 3,629,255 | |
| 2,650,000 | | Delaware County, PA Authority, College Revenue Refunding Bonds (Series 1998A), 5.375% (Neumann College)/(Original Issue Yield: 5.48%), 10/1/2018
| | | 2,691,631 | |
| 495,000 | | Delaware County, PA Authority, Revenue Bonds (Series 1999), 5.75% (Cabrini College)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.95%), 7/1/2019
| | | 513,647 | |
| 2,305,000 | | Delaware County, PA Authority, Revenue Bonds (Series 1999), 5.75% (Cabrini College)/(United States Treasury PRF 7/1/2009@100)/(Original Issue Yield: 5.95%), 7/1/2019
| | | 2,411,514 | |
| 2,875,000 | | Delaware County, PA Authority, Revenue Bonds, 5.00% (Elwyn, Inc.)/(Radian Asset Assurance INS), 6/1/2022
| | | 3,038,041 | |
| 750,000 | | Delaware County, PA, UT GO Bonds, 5.125%, 10/1/2010
| | | 777,285 | |
| 1,000,000 | | Delaware River Joint Toll Bridge Commission, Pennsylvania-New Jersey Bridge System Revenue Bonds (Series 2003), 5.25%, 7/1/2020
| | | 1,088,030 | |
| 1,500,000 | | Delaware River Port Authority Revenue, Revenue Bonds (Series 1999), 6.00% (FSA INS), 1/1/2019
| | | 1,591,335 | |
| 2,000,000 | | Delaware River Port Authority Revenue, Revenue Bonds, 6.00% (FSA INS), 1/1/2018
| | | 2,121,780 | |
| 10,000,000 | | Delaware Valley, PA Regional Finance Authority, Local Government Revenue Bonds (Series 1997B), 5.60% (AMBAC INS), 7/1/2017
| | | 11,325,600 | |
| 1,000,000 | | Delaware Valley, PA Regional Finance Authority, Local Government Revenue Bonds (Series 1998A), 5.50% (AMBAC INS), 8/1/2028
| | | 1,190,340 | |
| 2,000,000 | 2 | Delaware Valley, PA Regional Finance Authority, Revenue Bonds, 5.75%, 7/1/2017
| | | 2,299,440 | |
| 4,100,000 | | Erie County, PA Hospital Authority, Health Facilities Revenue Bonds (Series 1999), 5.90% (St. Mary's Home of Erie)/(United States Treasury PRF 8/15/2009@100)/(Original Issue Yield: 6.05%), 8/15/2019
| | | 4,313,446 | |
| 1,500,000 | | Erie County, PA Hospital Authority, Revenue Bonds (Series 2006), 5.00% (Hamot Health Foundation)/(CDC IXIS Financial Guaranty N.A. INS), 11/1/2035
| | | 1,597,560 | |
| 570,000 | | Erie, PA Higher Education Building Authority, College Revenue Refunding Bonds (Series 2004B), 5.00% (Mercyhurst College)/(Original Issue Yield: 5.11%), 3/15/2023
| | | 588,428 | |
| 100,000 | | Gateway, PA School District, UT GO Bonds, 4.80% (FGIC INS)/(Original Issue Yield: 4.90%), 7/15/2007
| | | 100,435 | |
| 100,000 | | Gateway, PA School District, UT GO Bonds, 5.00% (FGIC INS), 7/15/2008
| | | 100,510 | |
| 500,000 | | Grove City Area Hospital Authority, Revenue Bonds, 5.25% (United Community Hospital)/(American Capital Access INS)/(Original Issue Yield: 5.30%), 7/1/2012
| | | 508,125 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,500,000 | 1 | Harrisburg, PA Authority, University Revenue Bonds (Series 2006A), 5.40% (Harrisburg University of Science & Technology), 9/1/2016
| | $ | 1,529,040 | |
| 2,000,000 | | Indiana County, PA IDA, Refunding Revenue Bonds, 5.00% (Indiana University of PA)/(AMBAC INS), 11/1/2029
| | | 2,125,780 | |
| 800,000 | | Jeannette Health Services Authority, PA, Hospital Revenue Bonds (Series A of 1996), 6.00% (Jeannette District Memorial Hospital)/(Original Issue Yield: 6.15%), 11/1/2018
| | | 802,568 | |
| 500,000 | | Jim Thorpe Area School District, PA, UT GO Bonds (Series 1997AA), 5.30% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.45%), 3/15/2016
| | | 547,625 | |
| 1,000,000 | | Lancaster County, PA Hospital Authority, Health Center Revenue Bonds (Series 2001), 5.875% (Willow Valley Retirement Communities)/(Original Issue Yield: 5.95%), 6/1/2031
| | | 1,062,630 | |
| 1,585,000 | | Lancaster County, PA Hospital Authority, Health Center Revenue Bonds, 5.00% (Masonic Homes), 11/1/2036
| | | 1,664,282 | |
| 1,000,000 | | Lancaster County, PA Hospital Authority, Revenue Bonds, 5.50% (Lancaster General Hospital)/(United States Treasury PRF 9/15/2013@100)/(Original Issue Yield: 5.63%), 3/15/2026
| | | 1,102,570 | |
| 2,000,000 | | Lancaster County, PA, UT GO Bonds, (Series A), 5.80% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.84%), 5/1/2015
| | | 2,128,320 | |
| 1,000,000 | | Lancaster, PA Higher Education Authority, College Revenue Bonds, 5.00% (Franklin & Marshall College), 4/15/2027
| | | 1,063,220 | |
| 1,000,000 | | Lancaster, PA Higher Education Authority, College Revenue Bonds, 5.00% (Franklin & Marshall College), 4/15/2019
| | | 1,074,790 | |
| 250,000 | | Lancaster, PA IDA, Revenue Bonds (Series 2000A), 7.60% (Garden Spot Village Project)/(United States Treasury PRF 5/1/2010@101)/(Original Issue Yield: 7.70%), 5/1/2022
| | | 281,000 | |
| 1,000,000 | | Lawrence County, PA IDA, Senior Health and Housing Facilities Revenue Bonds, 7.50% (Shenango Presbyterian SeniorCare Obligated Group)/(Original Issue Yield: 7.75%), 11/15/2031
| | | 1,083,310 | |
| 1,000,000 | | Lebanon County, PA Health Facilities Authority, Hospital Revenue Bonds, 5.80% (Good Samaritan Hospital)/(Original Issue Yield: 5.92%), 11/15/2022
| | | 1,083,260 | |
| 2,000,000 | | Lehigh County, PA General Purpose Authority, Hospital Revenue Bonds, 5.25% (St. Lukes Hospital of Bethlehem)/(United States Treasury PRF 8/15/2013@100)/(Original Issue Yield: 5.42%), 8/15/2023
| | | 2,160,040 | |
| 3,000,000 | | Lehigh County, PA General Purpose Authority, Revenue Bonds, 4.60857% (St. Lukes Hospital of Bethlehem), 5/15/2007
| | | 3,000,750 | |
| 1,000,000 | | Lehigh-Northampton Airport Authority, Revenue Bonds, 6.00% (Lehigh Valley Airport System)/(MBIA Insurance Corp. INS)/(Original Issue Yield: 6.02%), 5/15/2025
| | | 1,059,380 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,000,000 | | Lower Merion Township, PA School District, UT GO Bonds, 4.65% (United States Treasury PRF 5/15/2008@100)/(Original Issue Yield: 4.75%), 5/15/2010
| | $ | 1,011,960 | |
| 375,000 | | Lower Merion Township, PA School District, UT GO Bonds, 4.75% (United States Treasury PRF 5/15/2008@100)/(Original Issue Yield: 4.85%), 5/15/2011
| | | 379,924 | |
| 250,000 | | Lower Merion Township, PA School District, UT GO Bonds, 5.00% (United States Treasury COL), 5/15/2007
| | | 250,707 | |
| 250,000 | | Lower Merion Township, PA School District, UT GO Bonds, 5.00% (United States Treasury COL), 5/15/2008
| | | 254,017 | |
| 1,000,000 | | Luzerne County, PA, UT GO Bonds, 5.625% (FGIC INS)/(Original Issue Yield: 5.78%), 12/15/2021
| | | 1,015,560 | |
| 700,000 | | Lycoming County PA Authority, Hospital Lease Revenue Bonds (Series B), 6.50% (Divine Providence Hospital, PA)/(Original Issue Yield: 6.70%), 7/1/2022
| | | 703,213 | |
| 1,000,000 | | Lycoming County PA Authority, Hospital Revenue Bonds, 5.50% (Divine Providence Hospital, PA)/(AMBAC INS)/(Original Issue Yield: 5.90%), 11/15/2022
| | | 1,011,160 | |
| 1,000,000 | | McKean County, PA Hospital Authority, Hospital Revenue Bonds, 5.25% (Bradford Regional Medical Center)/(American Capital Access INS), 10/1/2030
| | | 1,066,120 | |
| 1,000,000 | | Monroe County, PA Hospital Authority, Hospital Revenue Bonds (Series 2002A), 5.50% (Pocono Medical Center)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.60%), 1/1/2022
| | | 1,065,380 | |
| 2,360,000 | | Monroe County, PA Hospital Authority, Hospital Revenue Bonds, 5.125% (Pocono Medical Center)/(United States Treasury PRF 7/1/2008@100)/(Original Issue Yield: 5.40%), 7/1/2015
| | | 2,404,746 | |
| 1,000,000 | | Monroe County, PA Hospital Authority, Revenue Bonds, 6.00% (Pocono Medical Center)/(Original Issue Yield: 6.17%), 1/1/2043
| | | 1,082,710 | |
| 1,500,000 | | Montgomery County, PA Higher Education & Health Authority Hospital, Revenue Bonds (Series 2006), 5.00% (Arcadia University)/(Radian Asset Assurance INS), 4/1/2036
| | | 1,582,890 | |
| 2,000,000 | | Montgomery County, PA Higher Education & Health Authority Hospital, Revenue Bonds (Series 2006FF1), 5.00% (Dickinson College)/(CDC IXIS Financial Guaranty N.A. INS), 5/1/2031
| | | 2,134,800 | |
| 1,250,000 | | Montgomery County, PA Higher Education & Health Authority Hospital, Revenue Bonds, 7.25% (Philadelphia Geriatric Center)/(United States Treasury PRF 12/1/2009@102)/(Original Issue Yield: 7.472%), 12/1/2024
| | | 1,376,362 | |
| 1,000,000 | | Montgomery County, PA IDA, Fixed Rate Mortgage Revenue Bonds (Series 2005), 6.25% (Whitemarsh Continuing Care Retirement Community)/(Original Issue Yield: 6.375%), 2/1/2035
| | | 1,062,110 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 2,500,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Bonds (Series 2006A), 4.50% (ACTS Retirement Life Communities, Inc)/(Original Issue Yield: 4.58%), 11/15/2036
| | $ | 2,431,925 | |
| 1,000,000 | | Montgomery County, PA IDA, Revenue Bonds (Series 2006A), 5.00% (Foulkeways at Gwynedd), 12/1/2030
| | | 1,039,760 | |
| 1,000,000 | | Mount Lebanon, PA Hospital Authority, Revenue Bonds (Series 2002A), 5.625% (St. Clair Memorial Hospital)/(Original Issue Yield: 5.75%), 7/1/2032
| | | 1,067,490 | |
| 500,000 | | Mt. Pleasant Borough, PA Business District Authority, Hospital Revenue Bonds (Series 1997), 5.75% (Frick Hospital)/(United States Treasury PRF 12/1/2007@102)/(Original Issue Yield: 5.85%), 12/1/2017
| | | 517,135 | |
| 2,300,000 | | Mt. Pleasant Borough, PA Business District Authority, Hospital Revenue Bonds (Series 1997), 5.75% (Frick Hospital)/(United States Treasury PRF 12/1/2007@102)/(Original Issue Yield: 5.90%), 12/1/2027
| | | 2,378,821 | |
| 1,000,000 | | North Hills, PA School District, GO Bonds, (Series 2000), 5.50% (FGIC INS)/(Original Issue Yield: 5.576%), 7/15/2024
| | | 1,060,580 | |
| 380,000 | | North Penn, PA School District, Refunding Revenue Bonds, 6.20% (Escrowed In U.S. Treasuries COL), 3/1/2007
| | | 380,076 | |
| 150,000 | | North Penn, PA School District, UT GO Bonds, 4.50% (FSA INS)/(Original Issue Yield: 4.60%), 6/15/2010
| | | 153,138 | |
| 1,000,000 | | Northumberland County PA IDA, Facilities Revenue Bonds (Series 2002B), 5.50% (NHS Youth Service, Inc.)/(American Capital Access INS)/(Original Issue Yield: 5.80%), 2/15/2033
| | | 1,075,300 | |
| 3,000,000 | | Norwin, PA School District, UT GO Bonds, 6.00% (FGIC INS)/(Original Issue Yield: 6.12%), 4/1/2024
| | | 3,200,610 | |
| 1,000,000 | | Pennsylvania Convention Center Authority, Revenue Bonds, 6.70% (Escrowed In U.S. Treasuries COL)/(Original Issue Yield: 6.843%), 9/1/2016
| | | 1,162,740 | |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 1997B), 6.125% (National Gypsum Co.), 11/1/2027
| | | 1,045,040 | |
| 1,700,000 | | Pennsylvania EDFA, Resource Recovery Revenue Bonds (Series A), 6.40% (Northampton Generating), 1/1/2009
| | | 1,700,204 | |
| 2,000,000 | | Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human Services, Inc.)/(Original Issue Yield: 5.668%), 6/1/2028
| | | 1,959,700 | |
| 1,000,000 | | Pennsylvania EDFA, Revenue Bonds (Series 2000), 5.90% (Dr. Gertrude A. Barber Center, Inc.)/(Radian Asset Assurance INS), 12/1/2030
| | | 1,063,970 | |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds (Series 2004A), 4.70% TOBs (Waste Management, Inc.), Mandatory Tender 11/1/2014
| | | 1,021,000 | |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds, Project A, 5.10% (Waste Management, Inc.), 10/1/2027
| | | 1,051,320 | |
| 1,000,000 | | Pennsylvania HFA, SFM Revenue Bonds (Series 2001-72A), 5.25%, 4/1/2021
| | | 1,041,400 | |
| 430,000 | | Pennsylvania HFA, SFM Revenue Bonds, (Series 62A), 5.50%, 10/1/2022
| | | 441,408 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 2,000,000 | | Pennsylvania HFA, SFM Revenue Bonds (Series 2006-92A), 4.75%, 4/1/2031
| | $ | 2,028,100 | |
| 3,000,000 | | Pennsylvania HFA, SFM Revenue Bonds (Series 2006-95A), 4.90%, 10/1/2037
| | | 3,066,570 | |
| 2,590,000 | | Pennsylvania State Higher Education Assistance Agency, Capital Acquisition Revenue Bonds, 6.125% (MBIA Insurance Corp. INS), 12/15/2019
| | | 2,816,159 | |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, College and University Revenue Bonds, 5.625% (University of the Arts)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.78%), 3/15/2025
| | | 2,086,480 | |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2001A), 6.00% (UPMC Health System)/(Original Issue Yield: 6.10%), 1/15/2022
| | | 1,627,515 | |
| 1,330,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2003A), 5.25% (Clarion University Foundation, Inc.)/(XL Capital Assurance Inc. INS), 7/1/2018
| | | 1,433,434 | |
| 1,490,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2003AA1), 5.25% (Dickinson College)/(Radian Asset Assurance INS), 11/1/2018
| | | 1,591,961 | |
| 1,350,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2004A), 5.25% (Philadelphia University)/(Original Issue Yield: 5.32%), 6/1/2032
| | | 1,403,527 | |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2006-FF2), 5.00% (Elizabethtown College)/(Radian Asset Assurance INS), 12/15/2027
| | | 1,056,260 | |
| 1,160,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series AA2), 5.25% (Lycoming College)/(Radian Asset Assurance INS), 11/1/2024
| | | 1,233,660 | |
| 1,250,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series EE-1), 5.00% (York College of Pennsylvania)/(XL Capital Assurance Inc. INS), 11/1/2033
| | | 1,328,550 | |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Philadelphia University)/(Original Issue Yield: 5.22%), 6/1/2035
| | | 1,039,760 | |
| 2,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Ursinus College)/(Radian Asset Assurance INS), 1/1/2036
| | | 2,634,975 | |
| 750,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Widener University), 7/15/2039
| | | 780,690 | |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.25% (Widener University)/(Original Issue Yield: 5.42%), 7/15/2024
| | | 1,060,490 | |
| 3,150,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 4.65% (Philadelphia College of Osteopathic Medicine)/(Original Issue Yield: 4.77%), 12/1/2028
| | | 3,200,243 | |
| 450,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.25% (Lycoming College)/(Radian Asset Assurance INS), 11/1/2027
| | | 481,918 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,250,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.25% (Ursinus College)/(Radian Asset Assurance INS), 1/1/2027
| | $ | 1,325,187 | |
| 2,495,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 6.25% (Philadelphia University)/(Radian Asset Assurance INS), 6/1/2024
| | | 2,663,138 | |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, (Series A), 6.00% (UPMC Health System)/(Original Issue Yield: 6.16%), 1/15/2031
| | | 1,623,570 | |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Student Housing Revenue Bonds (Series 2003A), 5.00% (California University of Pennsylvania)/(American Capital Access INS)/(Original Issue Yield: 5.08%), 7/1/2023
| | | 1,570,230 | |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Student Housing Revenue Bonds, 5.125% (Indiana University of PA)/(XL Capital Assurance Inc. INS), 7/1/2039
| | | 2,159,760 | |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, University Revenue Bonds (Series 1997), 5.45% (University of the Arts)/(Radian Asset Assurance INS 3/15/2007@100)/(Original Issue Yield: 5.58%), 3/15/2017
| | | 1,501,245 | |
| 1,500,000 | | Pennsylvania State IDA, EDRBs (Series 2002), 5.50% (AMBAC INS), 7/1/2020
| | | 1,638,225 | |
| 750,000 | | Pennsylvania State Public School Building Authority, Revenue Bonds, 5.00% (Career Institute of Technology)/(FGIC INS), 11/15/2028
| | | 799,860 | |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Revenue Refunding Bonds (Series S), 5.00% (FGIC INS), 6/1/2011
| | | 1,053,150 | |
| 7,740,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2006A), 5.00% (AMBAC INS), 12/1/2026
| | | 8,352,157 | |
| 1,500,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2029
| | | 1,603,140 | |
| 1,000,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2035
| | | 1,065,570 | |
| 1,600,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035
| | | 1,677,296 | |
| 2,120,000 | | Philadelphia, PA Authority for Industrial Development, Lease Revenue Bonds (Series 2001B), 5.50% (FSA INS), 10/1/2021
| | | 2,283,643 | |
| 3,000,000 | | Philadelphia, PA Authority for IDRBs (Series 2001B), 5.25% (Philadelphia Corp. for Aging Project)/(AMBAC INS)/(Original Issue Yield: 5.43%), 7/1/2023
| | | 3,180,600 | |
| 870,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 1997), 5.75% (Jeanes Hospital, PA)/(Escrowed In U.S. Treasuries COL)/(Original Issue Yield: 5.80%), 7/1/2008
| | | 893,551 | |
| 1,020,000 | | Philadelphia, PA Redevelopment Authority, MFH Refunding Revenue Bonds (Series 1998), 5.45% (Woodstock Mutual Homes, Inc.)/(FHA INS)/(Original Issue Yield: 5.468%), 2/1/2023
| | | 1,035,076 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,250,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.50% (Beech Student Housing Complex)/(American Capital Access INS), 7/1/2019
| | $ | 1,350,850 | |
| 1,000,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.625% (Beech Student Housing Complex)/(American Capital Access INS), 7/1/2023
| | | 1,093,790 | |
| 1,000,000 | | Philadelphia, PA School District, UT GO Bonds (Series 2002B), 5.625% (United States Treasury PRF 8/1/2012@100), 8/1/2022
| | | 1,095,350 | |
| 4,100,000 | | Philadelphia, PA Water & Wastewater System, Revenue Bonds (Series 2001A), 5.00% (FGIC INS)/(Original Issue Yield: 5.10%), 11/1/2031
| | | 4,295,488 | |
| 500,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds, 6.25% (MBIA Insurance Corp. INS), 8/1/2011
| | | 551,370 | |
| 500,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds, 6.25% (MBIA Insurance Corp. INS), 8/1/2012
| | | 561,610 | |
| 9,500,000 | | Philadelphia, PA, Airport Revenue Bonds (Series 1997B), 5.50% (Philadelphia Airport System)/(AMBAC INS)/(Original Issue Yield: 5.65%), 6/15/2017
| | | 9,726,670 | |
| 6,500,000 | | Philadelphia, PA, UT GO Bonds, 5.00% (CDC IXIS Financial Guaranty N.A. INS), 8/1/2026
| | | 6,958,575 | |
| 50,000 | | Pittsburgh, PA Auditorium Authority, Regional Asset District Sales Tax Revenue Bonds (Series 1999), 5.00% (AMBAC INS), 2/1/2010
| | | 51,870 | |
| 2,880,000 | | Pittsburgh, PA Public Parking Authority, Parking Revenue Bonds (Series 2000), 6.00% (AMBAC INS)/(Original Issue Yield: 6.02%), 12/1/2020
| | | 3,086,870 | |
| 765,000 | | Pittsburgh, PA Urban Redevelopment Authority, Mortgage Revenue Bonds (Series 1997A), 6.15%, 10/1/2016
| | | 771,885 | |
| 355,000 | | Pittsburgh, PA Urban Redevelopment Authority, Mortgage Revenue Bonds (Series 1997C), 5.35%, 10/1/2009
| | | 364,393 | |
| 1,075,000 | | Pittsburgh, PA Urban Redevelopment Authority, Mortgage Revenue Bonds (Series 1997C), 5.90%, 10/1/2022
| | | 1,103,423 | |
| 1,285,000 | | Pittsburgh, PA Urban Redevelopment Authority, MFH Revenue Bonds (Series 2006), 4.90% (West Park Court)/(GNMA COL), 11/20/2047
| | | 1,291,862 | |
| 1,000,000 | | Pittsburgh, PA Urban Redevelopment Authority, Revenue Bonds (Series 2006C), 4.80%, 4/1/2028
| | | 1,017,570 | |
| 1,885,000 | | Pittsburgh, PA Water & Sewer Authority, Water & Sewer System Revenue Bonds, 5.00% (MBIA Insurance Corp. INS), 9/1/2024
| | | 2,021,210 | |
| 2,855,000 | | Pittsburgh, PA, LT GO Bonds (Series 1999A), 5.75% (FGIC INS)/(Original Issue Yield: 5.852%), 9/1/2019
| | | 2,993,953 | |
| 10,000,000 | 2 | Pittsburgh, PA, UT GO Bonds (Series 2001A), 5.50%, 9/1/2015
| | | 10,797,000 | |
| 1,500,000 | | Pittsburgh, PA, UT GO Bonds (Series 1999A), 5.75% (FGIC INS)/(Original Issue Yield: 5.94%), 9/1/2024
| | | 1,573,005 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,000,000 | | Pittsburgh, PA, UT GO Bonds (Series A), 5.75% (United States Treasury PRF 9/1/2009@100), 9/1/2013
| | $ | 1,048,670 | |
| 2,950,000 | | Pottsville, PA Hospital Authority, Hospital Revenue Bonds, 5.625% (Pottsville Hospital and Warne Clinic)/(Original Issue Yield: 5.75%), 7/1/2024
| | | 2,960,886 | |
| 530,000 | | Radnor Township, PA School District, UT GO Bonds, 4.80% (United States Treasury COL), 11/15/2009
| | | 545,863 | |
| 2,165,000 | | Radnor Township, PA, UT GO Bonds (Series 2004AA), 5.125%, 7/15/2027
| | | 2,323,803 | |
| 2,040,000 | | Riverside, PA School District, UT GO Bonds, 5.50% (FGIC INS)/(Original Issue Yield: 5.57%), 10/15/2020
| | | 2,167,867 | |
| 310,000 | | Saucon Valley School District, PA, UT GO Bonds, 4.75% (United States Treasury PRF 4/15/2008@100)/(Original Issue Yield: 4.80%), 10/15/2010
| | | 313,801 | |
| 1,000,000 | | Saxonburg, PA Area Authority, Sewer & Water Revenue Bonds, 5.00% (Assured Guaranty Corp. INS), 3/1/2030
| | | 1,067,220 | |
| 1,500,000 | | Sayre, PA, Health Care Facilities Authority, Revenue Bonds (Series 2002A), 5.75% (Guthrie Healthcare System, PA)/(Original Issue Yield: 5.90%), 12/1/2021
| | | 1,616,250 | |
| 1,000,000 | | Sayre, PA, Health Care Facilities Authority, Revenue Bonds (Series 2002A), 5.875% (Guthrie Healthcare System, PA)/(Original Issue Yield: 6.00%), 12/1/2031
| | | 1,084,200 | |
| 1,000,000 | | Scranton, PA, UT GO Bonds (Series 2001C), 7.10% (United States Treasury PRF 9/1/2011@100)/(Original Issue Yield: 7.35%), 9/1/2031
| | | 1,133,690 | |
| 450,000 | | Shaler, PA School District Authority, GO UT Bonds, 6.25% (Escrowed In U.S. Treasuries COL), 4/15/2008
| | | 455,693 | |
| 2,000,000 | | Somerset County, PA Hospital Authority, Hospital Refunding Revenue Bonds (Series 1997B), 5.375% (Somerset Community Hospital)/(Radian Asset Assurance INS)/(Original Issue Yield: 5.68%), 3/1/2017
| | | 2,042,060 | |
| 1,295,000 | | Southcentral PA, General Authority, Hospital Revenue Bonds, 5.00% (Hanover Hospital, Inc.)/(Radian Asset Assurance INS), 12/1/2029
| | | 1,367,261 | |
| 540,000 | | Southcentral PA, General Authority, Revenue Bonds, 5.625% (Wellspan Health Obligated Group)/(Escrowed In U.S. Treasuries COL), 5/15/2026
| | | 582,617 | |
| 2,460,000 | | Southcentral PA, General Authority, Revenue Bonds, 5.625% (Wellspan Health Obligated Group)/(United States Treasury PRF 5/15/2011@101), 5/15/2026
| | | 2,664,131 | |
| 200,000 | | Southmoreland, PA School District, UT GO Bonds, 4.70% (AMBAC INS)/(Original Issue Yield: 4.80%), 10/1/2007
| | | 201,246 | |
| 500,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004A), 5.00% (Catholic Health East)/(Original Issue Yield: 5.15%), 11/15/2021
| | | 523,075 | |
| 1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.375% (Catholic Health East)/(Original Issue Yield: 5.42%), 11/15/2034
| | | 1,075,310 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.50% (Catholic Health East), 11/15/2024
| | $ | 1,093,100 | |
| 400,000 | | State Public School Building Authority, PA, Revenue Bonds, 4.90% (Garnet Valley School District Project)/(United States Treasury COL), 2/1/2010
| | | 413,852 | |
| 2,000,000 | | State Public School Building Authority, PA, School Revenue Bonds, 5.00% (Haverford Twp, PA School District)/(XL Capital Assurance Inc. INS), 3/15/2027
| | | 2,144,260 | |
| 2,000,000 | | State Public School Building Authority, PA, School Revenue Bonds, 5.00% (Haverford Twp, PA School District)/(XL Capital Assurance Inc. INS), 3/15/2029
| | | 2,137,680 | |
| 1,000,000 | 1 | Susquehanna, PA Area Regional Airport Authority, Airport Facilities Revenue Bonds (Series 1999), 5.50% (Aero Harrisburg)/(Original Issue Yield: 5.85%), 1/1/2024
| | | 989,530 | |
| 200,000 | | Titusville, PA Area School District, UT GO Bonds, 4.95% (United States Treasury COL), 7/1/2007
| | | 200,878 | |
| 1,245,000 | | Union County, PA Higher Educational Facilities Financing Authority, Revenue Bonds (Series 2002A), 5.25% (Bucknell University), 4/1/2021
| | | 1,338,101 | |
| 1,665,000 | | Union County, PA Higher Educational Facilities Financing Authority, Revenue Bonds (Series 2002A), 5.25% (Bucknell University), 4/1/2022
| | | 1,789,509 | |
| 1,250,000 | | Union County, PA Hospital Authority, Revenue Bonds, 5.25% (Evangelical Community Hospital)/(Radian Asset Assurance INS), 8/1/2024
| | | 1,337,050 | |
| 550,000 | | Unity Township, PA Municipal Authority, Sewer Revenue Bonds, 5.00% (FSA INS), 12/1/2034
| | | 582,951 | |
| 400,000 | | Washington County, PA Authority, Lease Revenue Bonds, 7.875% (Escrowed In U.S. Treasuries COL), 12/15/2018
| | | 548,252 | |
| 745,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035
| | | 766,910 | |
| 1,885,000 | | West Shore, PA Area Hospital Authority, Revenue Bonds, 6.15% (Holy Spirit Hospital), 1/1/2020
| | | 2,021,870 | |
| 1,000,000 | | West Shore, PA Area Hospital Authority, Revenue Bonds, 6.25% (Holy Spirit Hospital)/(Original Issue Yield: 6.30%), 1/1/2032
| | | 1,073,060 | |
| 920,000 | | West View, PA Municipal Authority, Special Obligation Bonds, 9.50% (Escrowed In U.S. Treasuries COL), 11/15/2014
| | | 1,134,526 | |
| 1,000,000 | | Westmoreland County, PA IDA, Health Care Facility Revenue Bonds (Series 2000B), 8.00% (Redstone Presbyterian Seniorcare Obligated Group)/(Original Issue Yield: 8.25%), 11/15/2023
| | | 1,143,080 | |
| 1,500,000 | | Westmoreland County, PA IDA, Retirement Community Revenue Bonds (Series 2005A), 5.75% (Redstone Presbyterian Seniorcare Obligated Group), 1/1/2026
| | | 1,586,085 | |
Principal
Amount
|
|
|
|
| Value
|
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Pennsylvania--continued | | | | |
| $ | 95,000 | | Westmoreland County, PA Municipal Authority, Special Obligation Bonds, 9.125% (Escrowed In U.S. Treasuries COL), 7/1/2010
| | $ | 101,712 | |
| 200,000 | | Wissahickon, PA School District, UT GO Bonds, 5.00% (United States Treasury PRF 11/15/2007@100)/(Original Issue Yield: 5.05%), 5/15/2010
| | | 201,916 | |
| 1,000,000 | | York County, PA Solid Waste & Refuse Authority, Solid Waste System Refunding Revenue Bonds, 5.50% (FGIC INS), 12/1/2014
|
|
| 1,118,370
|
|
| | | TOTAL
|
|
| 327,676,864
|
|
| | | Puerto Rico--1.0% | | | | |
| 1,000,000 | | Children's Trust, PR, Tobacco Settlement Asset-Backed Revenue Bonds, 6.00% (United States Treasury PRF 7/1/2010@100)/(Original Issue Yield: 6.077%), 7/1/2026
| | | 1,075,850 | |
| 2,000,000 | 2 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds (Series 2006), 5.00%, 7/1/2046
|
|
| 2,108,080
|
|
| | | TOTAL
|
|
| 3,183,930
|
|
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $314,677,816)
|
|
| 330,860,794
|
|
| | | SHORT-TERM MUNICIPALS--0.5% 3 | | | | |
| | | Pennsylvania--0.2% | | | | |
| 700,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, (Series 2002-B) Daily VRDNs (Children's Hospital of Philadelphia)/(JPMorgan Chase Bank, N.A. and WestLB AG (GTD) LIQs), 3.640%, 3/1/2007
|
|
| 700,000
|
|
| | | Puerto Rico--0.3% | | | | |
| 900,000 | | Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA Insurance Corp. INS)/(Credit Suisse, Zurich LIQ), 3.340%, 3/7/2007
|
|
| 900,000
|
|
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST)
|
|
| 1,600,000
|
|
| | | TOTAL INVESTMENTS--100.9%
(IDENTIFIED COST $316,277,816) 4
|
|
| 332,460,794
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(0.9)%
|
|
| (3,045,433
| )
|
| | | TOTAL NET ASSETS--100%
|
| $
| 329,415,361
|
|
Securities that are subject to the federal alternative minimum tax (AMT) represents 12.6% of the Fund's portfolio as calculated based upon total market value.
1 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2007, these restricted securities amounted to $3,929,431, which represented 1.2% of total net assets.
2 Underlying security in inverse floater structure.
3 Current rate and next reset date shown for Variable Rate Demand Notes.
4 The cost of investments for federal tax purposes amounts to $309,634,654.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COL | - --Collateralized |
| EDFA | - --Economic Development Financing Authority |
| EDRBs | - --Economic Development Revenue Bonds |
| FGIC | - --Financial Guaranty Insurance Company |
| FHA | - --Federal Housing Administration |
| FSA | - --Financial Security Assurance |
| GNMA | - --Government National Mortgage Association |
| GO | - --General Obligation |
| GTD | - --Guaranteed |
| HDA | - --Hospital Development Authority |
| HEFA | - --Health and Education Facilities Authority |
| HFA | - --Housing Finance Authority |
| IDA | - --Industrial Development Authority |
| IDRBs | - --Industrial Development Revenue Bonds |
| INS | - --Insured |
| LIQ(s) | - --Liquidity Agreement(s) |
| LT | - --Limited Tax |
| MFH | - --Multi-family Housing |
| PRF | - --Pre-refunded |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $316,277,816)
| | | | | $ | 332,460,794 | |
Cash
| | | | | | 68,522 | |
Income receivable
| | | | | | 4,629,052 | |
Receivable for investments sold
| | | | | | 2,040,000 | |
Receivable for shares sold
| | | | | | 256,741 | |
Other assets
|
|
|
|
|
| 19,097
|
|
TOTAL ASSETS
|
|
|
|
|
| 339,474,206
|
|
Liabilities:
| | | | | | | |
Payable for investments purchased
| | $ | 2,000,000 | | | | |
Payable for floating rate certificate securities (Note 2)
| | | 7,000,000 | | | | |
Payable for shares redeemed
| | | 432,179 | | | | |
Income distribution payable
| | | 491,518 | | | | |
Payable for transfer and dividend disbursing agent fees
| | | 37,437 | | | | |
Payable for distribution services fee (Note 5)
| | | 24,492 | | | | |
Payable for shareholder services fee (Note 5)
| | | 60,623 | | | | |
Accrued expenses
|
|
| 12,596
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 10,058,845
|
|
Net assets for 28,181,100 shares outstanding
|
|
|
|
| $
| 329,415,361
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 321,951,848 | |
Net unrealized appreciation of investments
| | | | | | 16,182,978 | |
Accumulated net realized loss on investments, swap contracts and futures contracts
| | | | | | (8,645,095 | ) |
Distributions in excess of net investment income
|
|
|
|
|
| (74,370
| )
|
TOTAL NET ASSETS
|
|
|
|
| $
| 329,415,361
|
|
Net Asset Value, Offering Price and Redemption Proceeds per Share
| | | | | | | |
Class A Shares:
| | | | | | | |
Net asset value per share ($286,886,378 ÷ 24,542,393 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $11.69
|
|
Offering price per share (100/95.50 of $11.69) 1
|
|
|
|
|
| $12.24
|
|
Redemption proceeds per share
|
|
|
|
|
| $11.69
|
|
Class B Shares:
| | | | | | | |
Net asset value per share ($42,528,983 ÷ 3,638,707 shares outstanding), no par value, unlimited shares authorized
|
|
|
|
|
| $11.69
|
|
Offering price per share
|
|
|
|
|
| $11.69
|
|
Redemption proceeds per share (94.50/100 of $11.69) 1
|
|
|
|
|
| $11.05
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 8,383,394
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 643,842 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 128,069 | | | | | |
Custodian fees
| | | | | | | 7,361 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 71,457 | | | | | |
Directors'/Trustees' fees
| | | | | | | 2,134 | | | | | |
Auditing fees
| | | | | | | 9,781 | | | | | |
Legal fees
| | | | | | | 3,834 | | | | | |
Portfolio accounting fees
| | | | | | | 57,155 | | | | | |
Distribution services fee--Class B Shares (Note 5)
| | | | | | | 166,487 | | | | | |
Shareholder services fee--Class A Shares (Note 5)
| | | | | | | 332,210 | | | | | |
Shareholder services fee--Class B Shares (Note 5)
| | | | | | | 55,495 | | | | | |
Share registration costs
| | | | | | | 16,040 | | | | | |
Printing and postage
| | | | | | | 16,140 | | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 132,516 | | | | | |
Insurance premiums
| | | | | | | 3,907 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 2,153
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 1,648,581
|
|
|
|
|
|
Waivers and Reimbursement (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (111,639 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
| | | (5,232 | ) | | | | | | | | |
Reimbursement of shareholder services fee - Class A Shares
|
|
| (13,241
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS AND REIMBURSEMENT
|
|
|
|
|
|
| (130,112
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 1,518,469
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 6,864,925
|
|
Realized and Unrealized Gain (Loss) on Investments:
| | | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 424,493 | |
Net change in unrealized appreciation of investments
|
|
|
|
|
|
|
|
|
|
| 1,067,646
|
|
Net realized and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
| 1,492,139
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 8,357,064
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
|
|
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 6,864,925 | | | $ | 11,897,531 | |
Net realized gain (loss) on investments and futures contracts
| | | 424,493 | | | | (730,777 | ) |
Net change in unrealized appreciation/depreciation of investments
|
|
| 1,067,646
|
|
|
| (2,730,894
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 8,357,064
|
|
|
| 8,435,860
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | | | | | | |
Class A Shares
| | | (5,914,918 | ) | | | (10,109,449 | ) |
Class B Shares
|
|
| (772,895
| )
|
|
| (1,972,200
| )
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (6,687,813
| )
|
|
| (12,081,649
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 22,040,436 | | | | 42,911,853 | |
Proceeds from shares issued in connection with the tax-free transfer of assets from the Sentinel Pennsylvania Tax-Free Fund
| | | 20,494,057 | | | | - -- | |
Proceeds from shares issued in connection with the tax-free transfer of assets from the Sky Trust Tax-Exempt Pennsylvania Fund
| | | - -- | | | | 3,452,292 | |
Proceeds from shares issued in connection with the tax-free transfer of assets from the Bryn Mawr Common Trust Fund
| | | - -- | | | | 40,602,646 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 3,747,121 | | | | 7,289,775 | |
Cost of shares redeemed
|
|
| (29,282,400
| )
|
|
| (48,639,332
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| 16,999,214
|
|
|
| 45,617,234
|
|
Change in net assets
|
|
| 18,668,465
|
|
|
| 41,971,445
|
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 310,746,896
|
|
|
| 268,775,451
|
|
End of period (including distributions in excess of net investment income of $(74,370) and $(251,482), respectively)
|
| $
| 329,415,361
|
|
| $
| 310,746,896
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated Pennsylvania Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Class A Shares and Class B Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. 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 AMT) and the personal income taxes imposed by the state of Pennsylvania and Pennsylvania municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
On October 27, 2006, the Fund received assets from Sentinel Pennsylvania Tax-Free Fund as the result of a tax-free reorganization, as follows:
Shares of the
Fund Issued
|
| Sentinel
Pennsylvania
Tax-Free Fund
Net Assets
Received
|
| Unrealized
Appreciation 1
|
| Net Assets
of The Fund
Prior to
Combination
|
| Net Assets
of Sentinel
Pennsylvania
Tax-Free Fund
Immediately
Prior to
Combination
|
| Net Assets
of the Fund
Immediately
After
Combination
|
1,759,146
|
| $20,494,057
|
| $647,075
|
| $311,714,810
|
| $20,494,057
|
| $332,208,867
|
1 Unrealized appreciation is included in the Sentinel Pennsylvania Tax-Free Fund Net Assets Received amount shown above.
On February 24, 2006, the Fund received assets from Sky Trust Tax-Exempt Pennsylvania Fund as the result of a tax-free reorganization, as follows:
Shares of the
Fund Issued
|
| Sky Trust
Tax-Exempt
Pennsylvania
Fund Net
Assets Received
|
| Unrealized
Appreciation 2
|
| Net Assets
of The Fund
Prior to
Combination
|
| Net Assets
of Sky Trust
Tax-Exempt
Pennsylvania
Fund
Immediately
Prior to
Combination
|
| Net Assets
of the Fund
Immediately
After
Combination
|
296,334
|
| $3,452,292
|
| $70,860
|
| $265,140,605
|
| $3,452,292
|
| $268,592,897
|
2 Unrealized appreciation is included in the Sky Trust Tax-Exempt Pennsylvania Fund Net Assets Received amount shown above.
On June 23, 2006, the Fund received assets from Bryan Mawr Common Trust Fund as the result of a tax-free reorganization, as follows:
Shares
of the
Fund Issued
|
| Bryn Mawr
Common Trust
Fund Net
Assets Received
|
| Unrealized
Depreciation 3
|
| Net Assets
of The Fund
Prior to
Combination
|
| Net Assets
of Bryn Mawr
Common Trust
Fund Immediately
Prior to
Combination
|
| Net Assets
of the Fund
Immediately
After
Combination
|
3,536,816
|
| $40,602,646
|
| $619,921
|
| $267,157,350
|
| $40,602,646
|
| $307,759,996
|
3 Unrealized depreciation is included in the Bryn Mawr Common Trust Fund Net Assets Received amount shown above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors. Prices for interest rate swaps are furnished by an independent pricing service and are based upon a valuation model incorporating swap spreads, swap curve computations and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost; and
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income securities in the United States are generally intended to be indicative of the mean between such bid and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Gains and Losses, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Inverse Floater Structures
The Fund participates in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the "Statement of Assets and Liabilities". At February 28, 2007, Fund investments with a value of $15,204,520 are held by the trusts and serve as collateral for the $7,000,000 in floating rate notes outstanding at that date. The Fund recorded interest and trust expenses of $132,516 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund may periodically sell bond interest rate futures contracts to manage duration and to potentially reduce transaction costs. Upon entering into a bond interest rate futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had no net realized gains or losses on futures contracts.
At February 28, 2007, the Fund had no open futures contracts.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at February 28, 2007, is as follows:
Security
|
| Acquisition Date
|
| Acquisition Cost
|
Allegheny County, PA, IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.00% (AFCO Cargo PIT LLC Project), 9/1/2009
|
| 9/23/1999
|
| $370,000
|
Allegheny County, PA, IDA, Cargo Facilities Lease Revenue Bonds (Series 1999), 6.625% (AFCO Cargo PIT LLC Project)/(Original Issue Yield: 6.75%), 9/1/2024
|
| 9/23/1999
|
| $984,950
|
Harrisburg, PA Authority, University Revenue Bonds (Series 2006A), 5.40% (Harrisburg University of Science & Technology), 9/1/2016
|
| 12/15/2006
|
| $1,500,000
|
Susquehanna, PA Area Regional Airport Authority, Airport Facilities Revenue Bonds (Series 1999), 5.50% (Aero Harrisburg)/(Original Issue Yield: 5.85%), 1/1/2024
|
| 4/14/1999
|
| $962,854
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
| Six Months Ended
2/28/2007
|
|
| Year Ended
8/31/2006
|
|
Class A Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 1,847,022 | | | $ | 21,572,706 | | | 3,527,081 | | | $ | 40,846,850 | |
Shares issued in connection with the tax-free transfer of assets from Sentinel Pennsylvania Tax-Free Fund
| | 1,759,146 | | | | 20,494,057 | | | - -- | | | | - -- | |
Shares issued in connection with the tax-free transfer of assets from Sky Trust Tax-Exempt Pennsylvania Fund
| | - -- | | | | - -- | | | 296,334 | | | | 3,452,292 | |
Shared issued in connection with the tax-free transfer from Bryn Mawr Common Trust Fund
| | - -- | | | | - -- | | | 3,536,816 | | | | 40,602,646 | |
Shares issued to shareholders in payment of distributions declared
|
| 270,841 |
|
| | 3,156,306 |
|
| 498,222 |
|
| | 5,775,745 |
|
Shares redeemed
|
| (1,997,568
| )
|
|
| (23,310,974
| )
|
| (2,889,086
| )
|
|
| (33,542,555
| )
|
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS
|
| 1,879,441
|
|
|
$
| 21,912,095
|
|
| 4,969,367
|
|
|
$
| 57,134,978
|
|
| | | | | | | | | | | | | | |
|
| Six Months Ended
2/28/2007
|
|
| Year Ended
8/31/2006
|
|
Class B Shares:
|
| Shares
|
|
|
| Amount
|
|
| Shares
|
|
|
| Amount
|
|
Shares sold
| | 39,911 | | | $ | 467,730 | | | 170,544 | | | $ | 2,065,003 | |
Shares issued to shareholders in payment of distributions declared
|
| 50,703 |
|
| | 590,815 |
|
| 130,528 |
|
|
| 1,514,030 |
|
Shares redeemed
|
| (512,178
| )
|
|
| (5,971,426
| )
|
| (1,301,192
| )
|
|
| (15,096,777
| )
|
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS
|
| (421,564
| )
|
|
$
| (4,912,881
| )
|
| (1,000,120
| )
|
|
$
| (11,517,744
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| 1,457,877
|
|
|
$
| 16,999,214
|
|
| 3,969,247
|
|
|
$
| 45,617,234
|
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $309,634,654. The net unrealized appreciation of investments for federal tax purposes was $15,826,140. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $15,861,817 and net unrealized depreciation from investments for those securities having an excess of cost over value of $35,677.
At August 31, 2006, the Fund had a capital loss carryforward of $8,329,638 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year
|
| Expiration Amount
|
2008
|
| $ 1,132,394
|
2009
|
| $ 2,804,527
|
2010
|
| $ 2,171,230
|
2012
|
| $ 236,977
|
2013
|
| $1,984,510
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $111,639 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.076% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class B Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name
|
| Percentage of Average Daily
Net Assets of Class
|
Class A Shares
|
| 0.40%
|
Class B Shares
|
| 0.75%
|
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC did not retain any fees paid by the Fund. Class A Shares did not incur a distribution services fee for the six months ended February 28, 2007.
Sales Charges
For the six months ended February 28, 2007, FSC retained $30,984 in sales charges from the sale of Class A Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class B Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC voluntarily reimbursed $13,241 of shareholder services fees. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $41,580,000 and $37,890,000, respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 25,496,229
|
Sales
|
| $
| 21,779,225
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 44.0% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 12.6% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one and three year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923708
Cusip 313923807
2032304 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated Vermont Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
SEMI-ANNUAL SHAREHOLDER REPORT
February 28, 2007
Class A Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited) | | | Year Ended August 31,
|
|
|
| 2/28/2007
|
|
| 2006
| 1
|
| 2005
|
|
| 2004
| 2
|
| 2003
| 2
|
| 2002
| 2
|
Net Asset Value, Beginning of Period
| | $9.85 | | | $10.01 | | | $10.15 | | | $10.10 | | | $10.27 | | | $10.22 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | | | | |
Net investment income
| | 0.18 | | | 0.35 | | | 0.33 | | | 0.32 | | | 0.34 | | | 0.38 | |
Net realized and unrealized gain (loss) on investments and futures contracts
|
| 0.07
|
|
| (0.16
| )
|
| (0.10
| )
|
| 0.06
|
|
| (0.17
| )
|
| 0.05
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.25
|
|
| 0.19
|
|
| 0.23
|
|
| 0.38
|
|
| 0.17
|
|
| 0.43
|
|
Less Distributions:
| | | | | | | | | | | | | | | | | | |
Distribution from net investment income
| | (0.18 | ) | | (0.35 | ) | | (0.33 | ) | | (0.32 | ) | | (0.34 | ) | | (0.38 | ) |
Distributions from net realized gain on investments
|
| (0.00
| ) 3
|
| - --
|
|
| (0.04
| )
|
| (0.01
| )
|
| - --
|
|
| - --
|
|
TOTAL DISTRIBUTIONS
|
| (0.18
| )
|
| (0.35
| )
|
| (0.37
| )
|
| (0.33
| )
|
| (0.34
| )
|
| (0.38
| )
|
Net Asset Value, End of Period
|
| $9.92
|
|
| $9.85
|
|
| $10.01
|
|
| $10.15
|
|
| $10.10
|
|
| $10.27
|
|
Total Return 4
|
| 2.58
| %
|
| 1.93
| %
|
| 2.26
| %
|
| 3.75
| %
|
| 1.74
| %
|
| 4.33
| %
|
| | | | | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
| 0.86
| % 5,6
|
| 0.80
| %
|
| 0.80
| %
|
| 0.78
| %
|
| 0.84
| %
|
| 0.81
| %
|
Net investment income
|
| 3.59
| % 5
|
| 3.51
| %
|
| 3.26
| %
|
| 3.14
| %
|
| 3.30
| %
|
| 3.75
| %
|
Expense waiver/reimbursement 7
|
| 0.98
| % 5
|
| 0.73
| %
|
| 0.58
| %
|
| 0.43
| %
|
| 0.26
| %
|
| 0.30
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
| $31,412
|
|
| $36,091
|
|
| $57,272
|
|
| $71,015
|
|
| $80,497
|
|
| $82,132
|
|
Portfolio turnover
|
| 42
| %
|
| 18
| %
|
| 33
| %
|
| 25
| %
|
| 20
| %
|
| 7
| %
|
1 Beginning with the year ended August 31, 2006, the Fund was audited by KPMG LLP. The previous years were audited by another Independent Registered Public Accounting Firm.
2 Note that the Fund is the successor to the Banknorth Vermont Municipal Bond Fund (Former Fund). The Former Fund was reorganized into the Fund on August 27, 2004. The Fund had no investment operations prior to the date of the reorganization. The Former Fund was established on October 2, 2000. The Former Fund was the successor to a portfolio of assets of CF Vermont Tax Exempt Fund (Common Trust Fund), a common trust fund managed by the Former Fund's investment adviser, Banknorth Investment Advisors. The Common Trust Fund's portfolio of assets was transferred to the Former Fund on October 2, 2000 in exchange for the Former Fund's shares. Please see the Fund's prospectus, statement of additional information and annual report for further information regarding the reorganization, Former Fund and Common Trust Fund.
3 Represents less than $0.01.
4 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.
5 Computed on an annualized basis.
6 Includes 0.06% of interest and trust expenses related to the Fund's participation in certain inverse floater structures.
7 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2006 to February 28, 2007.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
| Beginning
Account Value
9/1/2006
|
| Ending
Account Value
2/28/2007
|
| Expenses Paid
During Period 1
|
Actual
|
| $1,000
|
| $1,025.80
|
| $4.32
|
Hypothetical (assuming a 5% return before expenses)
|
| $1,000
|
| $1,020.53
|
| $4.31
|
1 Expenses are equal to the Fund's annualized net expense ratio of 0.86%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Portfolio of Investments Summary Table
At February 28, 2007, the Fund's sector composition 1 was as follows:
Sector Composition
|
| Percentage of
Total Net Assets
|
Insured
|
| 53.6
| %
|
Education
|
| 27.7
| %
|
General Obligation--Local
|
| 3.7
| %
|
Transportation
|
| 3.4
| %
|
Senior Care
|
| 3.3
| %
|
Hospital
|
| 3.3
| %
|
Special Tax
|
| 2.1
| %
|
General Obligation--State
|
| 1.6
| %
|
Multi-Family Housing
|
| 1.1
| %
|
Lease
|
| 1.0
| %
|
Other Assets and Liabilities--Net 2
|
| (0.8
| )%
|
TOTAL
|
| 100.0
| %
|
1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's adviser. For securities that have been enhanced by a third-party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third-party as determined by the Fund's adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector.
2 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
February 28, 2007 (unaudited)
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--99.5% | | | | |
| | | Puerto Rico--14.0% | | | | |
| $ | 1,500,000 | | Commonwealth of Puerto Rico, UT GO Bonds, 5.50% (MBIA Insurance Corp. INS), 7/1/2009
| | $ | 1,563,375 | |
| 1,000,000 | | Puerto Rico Highway and Transportation Authority, Transportation Revenue Bonds, (Series 2005K), 5.00%, 7/1/2025
| | | 1,058,640 | |
| 470,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2026
| | | 496,875 | |
| 200,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2036
| | | 210,976 | |
| 1,000,000 | 1 | Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds, (Series 2006), 5.00%, 7/1/2046
|
|
| 1,054,040
|
|
| | | TOTAL
|
|
| 4,383,906
|
|
| | | Vermont--85.2% | | | | |
| 1,250,000 | | Burlington, VT Airport, Revenue Bonds, (Series A), 5.00% (MBIA Insurance Corp. INS), 7/1/2023
| | | 1,321,487 | |
| 490,000 | | Burlington, VT Electric Authority, Revenue Bonds, (Series A), 4.00% (FSA INS), 7/1/2015
| | | 496,208 | |
| 510,000 | | Burlington, VT Electric Authority, Revenue Bonds, (Series A), 4.00% (FSA INS), 7/1/2016
| | | 515,156 | |
| 300,000 | | Burlington, VT Waterworks System, Revenue Refunding Bonds, (Series A), 4.80% (FGIC INS)/(Original Issue Yield: 4.85%), 7/1/2008
| | | 301,176 | |
| 295,000 | | Burlington, VT, COPs (Series 2005), 4.25% (Original Issue Yield: 4.32%), 5/1/2020
| | | 297,215 | |
| 210,000 | | Burlington, VT, UT GO Bond, (Series A), 4.00% (Original Issue Yield: 4.13%), 11/1/2017
| | | 212,673 | |
| 185,000 | | Burlington, VT, UT GO Bonds, (Series A), 3.75% (Original Issue Yield: 3.83%), 11/1/2014
| | | 185,868 | |
| 190,000 | | Burlington, VT, UT GO Bonds, (Series A), 3.75% (Original Issue Yield: 3.93%), 11/1/2015
| | | 190,504 | |
| 200,000 | | Burlington, VT, UT GO Bonds, (Series A), 4.00% (Original Issue Yield: 4.03%), 11/1/2016
| | | 203,068 | |
| 220,000 | | Burlington, VT, UT GO Bonds, (Series A), 4.00% (Original Issue Yield: 4.22%), 11/1/2018
| | | 222,127 | |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Vermont--continued | | | | |
| $ | 125,000 | | Burlington, VT, UT GO Public Improvement Bonds, (Series A), 3.60% (Original Issue Yield: 3.72%), 11/1/2013
| | $ | 124,627 | |
| 100,000 | | Chittenden, VT Solid Waste District, UT GO Refunding Bonds, (Series A), 3.30% (AMBAC INS)/(Original Issue Yield: 3.32%), 1/1/2010
| | | 98,800 | |
| 310,000 | | Chittenden, VT Solid Waste District, UT GO Refunding Bonds, (Series A), 3.40% (AMBAC INS)/(Original Issue Yield: 3.52%), 1/1/2011
| | | 306,469 | |
| 205,000 | | Chittenden, VT Solid Waste District, UT GO Refunding Bonds, (Series A), 3.50% (AMBAC INS)/(Original Issue Yield: 3.62%), 1/1/2012
| | | 203,102 | |
| 25,000 | | Norwich, VT School District, UT GO Bonds, 4.50% (AMBAC INS), 7/15/2009
| | | 25,451 | |
| 515,000 | | St. Johnsbury, VT School District, UT GO Bonds, 4.65% (AMBAC INS), 9/1/2007
| | | 517,467 | |
| 520,000 | | St. Johnsbury, VT School District, UT GO Bonds, 4.80% (AMBAC INS), 9/1/2008
| | | 528,315 | |
| 340,000 | | Swanton Village, VT Electric System, Revenue Refunding Bonds, 5.75% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.85%), 12/1/2019
| | | 352,094 | |
| 250,000 | | University of Vermont & State Agricultural College, Revenue Bonds, 5.25% (AMBAC INS), 10/1/2021
| | | 268,098 | |
| 650,000 | | University of Vermont & State Agricultural College, Revenue Bonds, 5.25% (AMBAC INS), 10/1/2023
| | | 694,356 | |
| 1,000,000 | | Vermont EDA, Mortgage Revenue Bonds, (Series 2006A), 5.375% (Wake Robin Corp.), 5/1/2036
| | | 1,025,030 | |
| 1,000,000 | | Vermont Educational and Health Buildings Financing Agency, Hospital Revenue Bonds, (Series 2007A), 4.75% (Fletcher Allen Health Care)/(Original Issue Yield: 5.10%), 12/1/2036
| | | 1,011,620 | |
| 1,000,000 | | Vermont Educational and Health Buildings Financing Agency, Refunding Revenue Bonds, (Series 2004A), 5.00% (Fletcher Allen Health Care)/(FGIC INS), 12/1/2023
| | | 1,066,080 | |
| 50,000 | | Vermont Educational and Health Buildings Financing Agency, Refunding Revenue Bonds, 5.00% (St. Michael's College)/(AMBAC INS)/(Original Issue Yield: 5.05%), 10/1/2023
| | | 51,769 | |
| 3,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bond, 3.58% TOBs (Middlebury College), Mandatory Tender 11/1/2007
| | | 2,986 | |
| 500,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series 2002A), 5.00% (Middlebury College)/(Original Issue Yield: 5.20%), 11/1/2032
| | | 524,615 | |
| 225,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series 2004A), 4.25% (Landmark College, Inc.)/(Radian Asset Assurance INS)/(Original Issue Yield: 4.32%), 7/1/2015
| | | 228,395 | |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Vermont--continued | | | | |
| $ | 1,300,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds,(Series 2006A), 4.75% (Vermont Developmental & Mental Health Services Acquisition Pool)/(Radian Asset Assurance INS), 8/15/2036
| | $ | 1,327,222 | |
| 600,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series 2006A), 5.00% (Middlebury College), 10/31/2046
| | | 636,630 | |
| 50,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 3.25% (St. Michael's College)/(Original Issue Yield: 3.33%), 10/1/2009
| | | 49,125 | |
| 100,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 3.60% (St. Michael's College)/(Original Issue Yield: 3.68%), 10/1/2010
| | | 99,272 | |
| 140,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 3.875% (St. Michael's College)/(Original Issue Yield: 3.93%), 10/1/2011
| | | 140,406 | |
| 195,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 4.00% (St. Michael's College)/(Original Issue Yield: 4.10%), 10/1/2012
| | | 196,698 | |
| 125,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 4.125% (St. Michael's College)/(Original Issue Yield: 4.23%), 10/1/2013
| | | 126,981 | |
| 385,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 4.25% (St. Michael's College)/(Original Issue Yield: 4.35%), 10/1/2014
| | | 393,316 | |
| 370,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, 4.375% (St. Michael's College)/(Original Issue Yield: 4.45%), 10/1/2015
| | | 379,576 | |
| 65,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series A), 5.30% (Fletcher Allen Health Care)/(AMBAC INS)/(Original Issue Yield: 5.32%), 12/1/2008
| | | 66,762 | |
| 55,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series A), 5.30% (Fletcher Allen Health Care)/(AMBAC INS)/(Original Issue Yield: 5.38%), 12/1/2009
| | | 57,284 | |
| 4,070,000 | 2 | Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series1999 A), 3.57% (Marlboro College), 4/1/2019
| | | 3,843,627 | |
| 200,000 | | Vermont Educational and Health Buildings Financing Agency, Revenue Refunding Bonds, (Series 1996), 4.625% (Central Vermont Hospital & Nursing Home)/(AMBAC INS)/(Original Issue Yield: 4.75%), 11/15/2007
| | | 201,380 | |
| 90,000 | | Vermont HFA, Revenue Bonds, (Series 11A), 5.05% (Vermont HFA SFM)/(FSA INS), 11/1/2008
| | | 90,084 | |
| 100,000 | | Vermont HFA, Revenue Bonds, (Series 11A), 5.15% (Vermont HFA SFM)/(FSA INS), 11/1/2009
| | | 100,110 | |
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Vermont--continued | | | | |
| $ | 60,000 | | Vermont HFA, Revenue Bonds, (Series 12B), 5.50% (Vermont HFA SFM)/(FSA INS), 11/1/2008
| | $ | 60,113 | |
| 75,000 | | Vermont HFA, Revenue Bonds, (Series 12B), 5.60% (Vermont HFA SFM)/(FSA INS), 11/1/2009
| | | 75,154 | |
| 80,000 | | Vermont HFA, Revenue Bonds, (Series 9), 4.55% (Vermont HFA SFM)/(MBIA Insurance Corp. INS), 5/1/2008
| | | 80,542 | |
| 205,000 | | Vermont HFA, Revenue Bonds, (Series A), 4.45% (Vermont HFA MFH)/(HUD Section 8 INS), 2/15/2008
| | | 205,525 | |
| 130,000 | | Vermont HFA, Revenue Bonds, (Series A), 4.55% (Vermont HFA MFH)/(HUD Section 8 INS), 2/15/2009
| | | 130,708 | |
| 500,000 | | Vermont HFA, SFH Bonds, (Series 24A), 4.85% (Vermont HFA SFM)/(FSA INS), 11/1/2036
| | | 508,610 | |
| 600,000 | | Vermont HFA, SFH Bonds, (Series 26), 4.70% (Vermont HFA SFM)/(FSA INS), 11/1/2031
| | | 605,754 | |
| 1,000,000 | 3 | Vermont HFA, SFH Revenue Bonds, (Series 25A), 5.10% (Vermont HFA SFM)/(FSA INS), 11/1/2031
| | | 1,046,290 | |
| 860,000 | | Vermont Municipal Bond Bank, Revenue Bonds, (Series 1), 4.60% (MBIA Insurance Corp. INS)/(Original Issue Yield: 4.65%), 12/1/2007
| | | 866,330 | |
| 100,000 | | Vermont Municipal Bond Bank, Revenue Bonds, (Series 1), 4.80% (MBIA Insurance Corp. INS)/(Original Issue Yield: 4.95%), 12/1/2008
| | | 101,833 | |
| 340,000 | | Vermont Municipal Bond Bank, Revenue Bonds, (Series a), 4.80% (MBIA Insurance Corp. INS)/(Original Issue Yield: 4.85%), 12/1/2009
| | | 350,513 | |
| 665,000 | | Vermont Municipal Bond Bank, Revenue Refunding Bonds, (Series 2), 4.40% (FSA INS)/(Original Issue Yield: 4.45%), 12/1/2007
| | | 668,910 | |
| 840,000 | | Vermont Public Power Supply Authority, Revenue Refunding Bonds, (Series E), 5.00% (MBIA Insurance Corp. INS), 7/1/2011
| | | 885,108 | |
| 500,000 | | Vermont Public Power Supply Authority, Revenue Refunding Bonds, (Series E), 5.25% (MBIA Insurance Corp. INS), 7/1/2015
| | | 554,405 | |
| 665,000 | | Vermont State Student Assistance Corp., Revenue Bonds, 5.00% (Original Issue Yield: 5.03%), 3/1/2026
| | | 688,348 | |
| 745,000 | | Vermont State Student Assistance Corp., Revenue Bonds, 5.00% (Original Issue Yield: 5.08%), 3/1/2034
| | | 768,773 | |
| 500,000 | | Vermont State, UT GO Bonds, 4.00%, 3/1/2022
|
|
| 500,680
|
|
| | | TOTAL
|
|
| 26,780,825
|
|
Principal
Amount
|
|
|
|
| Value
|
| | | MUNICIPAL BONDS--continued | | | | |
| | | Virgin Islands--0.3% | | | | |
| $ | 100,000 | | Virgin Islands Public Finance Authority, Senior Lien Revenue Bonds, (Series 2004A), 5.25% (Virgin Islands Matching Fund), 10/1/2024
|
| $
| 107,434
|
|
| | | TOTAL MUNICIPAL BONDS (IDENTIFIED COST $30,899,922)
|
|
| 31,272,165
|
|
| | | SHORT-TERM MUNICIPALS--1.3% 4 | | | | |
| | | Puerto Rico--1.3% | | | | |
| 400,000 | | Puerto Rico (GDB) Weekly VRDNs (MBIA Insurance Corp. INS)/(Credit Suisse, Zurich LIQ), 3.340%, 3/7/2007 (AT AMORTIZED COST)
|
|
| 400,000
|
|
| | | TOTAL MUNICIPAL INVESTMENTS--100.8%
(IDENTIFIED COST $31,299,922) 5
|
|
| 31,672,165
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(0.8)%
|
|
| (259,924
| )
|
| | | TOTAL NET ASSETS--100%
|
| $
| 31,412,241
|
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 9.3% of the Fund's portfolio as calculated based upon total market value.
1 Underlying security in inverse floater structure.
2 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2007, this restricted security amounted to $3,843,627, which represented 12.2% of total net assets.
3 Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts.
4 Current rate and next reset date shown for Variable Rate Demand Notes.
5 The cost of investments for Federal tax purposes amounts to $30,800,666.
At February 28, 2007, the Fund had the following outstanding futures contracts:
Description
|
| Number
of Contracts
|
| Notional
Value
|
| Expiration
Date
|
| Unrealized
Depreciation
|
6 U.S. Treasury Notes 10 Year Futures
|
| (10)
|
| $(1,085,938)
|
| June 2007
|
| $(5,668)
|
6 Non-income producing security.
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2007.
The following acronyms are used throughout this portfolio:
| AMBAC | - --American Municipal Bond Assurance Corporation |
| COPs | - --Certificates of Participation |
| EDA | - --Economic Development Authority |
| FGIC | - --Financial Guaranty Insurance Company |
| FSA | - --Financial Security Assurance |
| GDB | - --Government Development Bank |
| GO | - --General Obligation |
| HFA | - --Housing Finance Authority |
| HUD | - --Housing and Urban Development |
| INS | - --Insured |
| LIQ | - --Liquidity Agreement |
| MFH | - -- Multifamily Housing |
| SFH | - --Single Family Housing |
| SFM | - --Single Family Mortgage |
| TOBs | - --Tender Option Bonds |
| UT | - --Unlimited Tax |
| VRDNs | - --Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
February 28, 2007 (unaudited)
Assets:
| | | | | | | |
Total investments in securities, at value (identified cost $31,299,922)
| | | | | $ | 31,672,165 | |
Cash
| | | | | | 1,727 | |
Income receivable
| | | | | | 346,262 | |
Receivable for daily variation margin
|
|
|
|
|
| 2,500
|
|
TOTAL ASSETS
|
|
|
|
|
| 32,022,654
|
|
Liabilities:
| | | | | | | |
Payable for floating rate certificate securities (Note 2)
| | $ | 500,000 | | | | |
Payable for shares redeemed
| | | 454 | | | | |
Income distribution payable
| | | 94,962 | | | | |
Payable for transfer and dividend disbursing agent fees and expenses
| | | 5,061 | | | | |
Payable for shareholder services fee (Note 5)
| | | 6,201 | | | | |
Accrued expenses
|
|
| 3,735
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
| 610,413
|
|
Net assets for 3,165,549 shares outstanding
|
|
|
|
| $
| 31,412,241
|
|
Net Assets Consist of:
| | | | | | | |
Paid-in capital
| | | | | $ | 31,116,727 | |
Net unrealized appreciation of investments and futures contracts
| | | | | | 366,575 | |
Accumulated net realized loss on investments and futures contracts
| | | | | | (71,039 | ) |
Distributions in excess of net investment income
|
|
|
|
|
| (22
| )
|
TOTAL NET ASSETS
|
|
|
|
| $
| 31,412,241
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
| | | | | | | |
Net asset value per share ($31,412,241 ÷ 3,165,549 shares outstanding) no par value, unlimited shares authorized
|
|
|
|
|
| $9.92
|
|
Offering price per share (100/95.50 of $9.92) 1
|
|
|
|
|
| $10.39
|
|
Redemption proceeds per share
|
|
|
|
|
| $9.92
|
|
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended February 28, 2007 (unaudited)
Investment Income:
| | | | | | | | | | | | |
Interest
|
|
|
|
|
|
|
|
|
| $
| 728,574
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 65,559 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 74,384 | | | | | |
Custodian fees
| | | | | | | 1,241 | | | | | |
Transfer and dividend disbursing agent fees and expenses
| | | | | | | 9,611 | | | | | |
Directors'/Trustees' fees
| | | | | | | 998 | | | | | |
Auditing fees
| | | | | | | 9,781 | | | | | |
Legal fees
| | | | | | | 4,467 | | | | | |
Portfolio accounting fees
| | | | | | | 26,027 | | | | | |
Distribution services fee (Note 5)
| | | | | | | 40,974 | | | | | |
Shareholder services fee (Note 5)
| | | | | | | 40,725 | | | | | |
Share registration costs
| | | | | | | 7,802 | | | | | |
Printing and postage
| | | | | | | 6,476 | | | | | |
Interest and trust expenses (Note 2)
| | | | | | | 8,417 | | | | | |
Insurance premiums
| | | | | | | 3,314 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 547
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 300,323
|
|
|
|
|
|
Waivers and Reimbursement (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (65,559 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
| | | (12,233 | ) | | | | | | | | |
Waiver of distribution services fee
| | | (40,974 | ) | | | | | | | | |
Reimbursement of other operating expenses
|
|
| (41,218
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS AND REIMBURSEMENT
|
|
|
|
|
|
| (159,984
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 140,339
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 588,235
|
|
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
| | | | | | | | | | | | |
Net realized gain on investments
| | | | | | | | | | | 80,125 | |
Net realized gain on futures contracts
| | | | | | | | | | | 11,166 | |
Net change in unrealized appreciation of investments
| | | | | | | | | | | 171,722 | |
Net change in unrealized depreciation of futures contracts
|
|
|
|
|
|
|
|
|
|
| (5,668
| )
|
Net realized and unrealized gain on investments and futures contracts
|
|
|
|
|
|
|
|
|
|
| 257,345
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 845,580
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
|
|
| Six Months
Ended
(unaudited)
2/28/2007
|
|
|
|
Year Ended
8/31/2006
|
|
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 588,235 | | | $ | 1,592,456 | |
Net realized gain (loss) on investments and futures contracts
| | | 91,291 | | | | (72,515 | ) |
Net change in unrealized appreciation/depreciation of investments and futures contracts
|
|
| 166,054
|
|
|
| (952,525
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 845,580
|
|
|
| 567,416
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | (588,251 | ) | | | (1,592,037 | ) |
Distributions from net realized gain on investments
|
|
| (18,850
| )
|
|
| - --
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (607,101
| )
|
|
| (1,592,037
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 967,041 | | | | 4,357,323 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 10,215 | | | | 22,250 | |
Cost of shares redeemed
|
|
| (5,894,924
| )
|
|
| (24,535,501
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| (4,917,668
| )
|
|
| (20,155,928
| )
|
Change in net assets
|
|
| (4,679,189
| )
|
|
| (21,180,549
| )
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 36,091,430
|
|
|
| 57,271,979
|
|
End of period (including distributions in excess of net investment income of $(22) and $(6), respectively)
|
| $
| 31,412,241
|
|
| $
| 36,091,430
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
February 28, 2007 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of eight portfolios. The financial statements included herein are only those of Federated Vermont Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers one class of shares, Class A Shares. The investment objective of the Fund is to provide current income which is exempt from federal regular income tax (federal regular income tax does not include the federal AMT) and the personal income taxes imposed by the state of Vermont and Vermont municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP) in the United States of America.
Investment Valuation
Market values of the Fund's portfolio securities are determined as follows:
- 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 of Trustees (the "Trustees") may determine in good faith that another method of valuing such investments is necessary to appraise their fair market value;
- prices for total return swaps are based upon a valuation model incorporating underlying reference indexes, interest rates, yield curves and other market data or factors. Prices for credit default swaps are furnished by an independent pricing service and are based upon a valuation model incorporating default probabilities, recovery rates and other market data or factors. Prices for interest rate swaps are furnished by an independent pricing service and are based upon a valuation model incorporating swap spreads, swap curve computations and other market data or factors;
- for investments in other open-end regulated investment companies, based on net asset value (NAV);
- for fixed-income securities, according to 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 are valued at amortized cost and;
- for all other securities at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Prices for fixed-income securities furnished by a pricing service may be based on a valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. Such prices are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. The Trustees have approved the use of such pricing services. A number of pricing services are available, and the Fund may use various pricing services or discontinue the use of any pricing service.
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.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Inverse Floater Structures
The Fund participates in Secondary Inverse Floater Structures in which fixed-rate tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust which is transferred to the Fund that is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities" in the "Statement of Assets and Liabilities". At February 28, 2007, Fund investments with a value of $1,054,040 are held by the trust and serve as collateral for the $500,000 in floating rate certificate securities outstanding at that date. The Fund recorded interest and trust expenses of $8,417 for these investments for the six months ended February 28, 2007.
While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.
Futures Contracts
The Fund may periodically purchase or sell financial futures contracts to manage duration, enhance yield and to potentially reduce transaction costs. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the six months ended February 28, 2007, the Fund had net realized gains on futures contracts of $11,166.
Futures contracts outstanding at period end are listed after the Fund's portfolio of investments.
Restricted Securities
Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at February 28, 2007, is as follows:
Security
|
| Acquisition Date
|
| Acquisition Cost
|
Vermont Educational and Health Buildings Financing Agency, Revenue Bonds, (Series 1999 A), 3.57% (Marlboro College), 4/1/2019
|
| 3/22/1999
|
| $4,070,081
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
|
| Six Months
Ended
2/28/2007
|
| Year Ended
8/31/2006
|
Shares sold
| | 97,757 | | 442,728 | |
Shares issued to shareholders in payment of distributions declared
| | 1,032 | | 2,266 | |
Shares redeemed
|
| (596,278
| )
| (2,502,946
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| (497,489
| )
| (2,057,952
| )
|
4. FEDERAL TAX INFORMATION
At February 28, 2007, the cost of investments for federal tax purposes was $30,800,666. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized depreciation resulting from futures contracts was $371,499. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $612,671 and net unrealized depreciation from investments for those securities having an excess of cost over value of $241,172.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the six months ended February 28, 2007, the Adviser voluntarily waived $65,559 of its fee and voluntarily reimbursed $41,218 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee
|
| Average Aggregate Daily Net Assets
of the Federated Funds
|
0.150%
|
| on the first $5 billion
|
0.125%
|
| on the next $5 billion
|
0.100%
|
| on the next $10 billion
|
0.075%
|
| on assets in excess of $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 choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, the net fee paid to FAS was 0.379% of average aggregate daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended February 28, 2007, FSC voluntarily waived $40,974 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2007, FSC did not retain any fees paid by the Fund.
Sales Charges
For the six months ended February 28, 2007, FSC retained $296 in sales charges from the sale of the Fund's Shares. See "What Do Shares Cost?" in the Prospectus.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. FSSC or these financial intermediaries may voluntarily choose to waive any portion of their fee. In addition, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary waiver and/or reimbursement can be modified or terminated at any time. For the six months ended February 28, 2007, FSSC did not receive any fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2007, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $5,200,000 and $4,900,000 respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2007, were as follows:
Purchases
|
| $
| 13,499,876
|
Sales
|
| $
| 16,993,071
|
7. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at February 28, 2007, 54.3% of the securities in the portfolio of investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 20.8% of total investments.
8. LINE OF CREDIT
The Trust participates in a $150,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of February 28, 2007, there were no outstanding loans. During the six months ended February 28, 2007, the Fund did not utilize the LOC.
9. LEGAL PROCEEDINGS
Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. 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. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the Securities and Exchange Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, 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.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Fund will adopt FIN 48 no later than February 29, 2008. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.
Evaluation and Approval of Advisory Contract
FEDERATED VERMONT MUNICIPAL INCOME FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2006. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
Prior to the meeting, the Adviser had recommended that the Federated Funds appoint a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated Fund. The Senior Officer appointed by the Funds has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent written evaluation that covered topics discussed below, which the Board considered, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated Fund trades, as well as advisory fees. The Board is also familiar with judicial decisions concerning allegedly excessive investment advisory fees which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for like services and costs to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates from supplying such services. The Board was aware of these considerations and was guided by them in its review of the Fund's advisory contract to the extent they are appropriate and relevant, as discussed further below.
The Board considered and weighed 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 was assisted in its deliberations by the advice of independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board has received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences included, but are not limited to targeting different investors, being subject to different laws and regulations, different legal structure, distribution costs, average account size and portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, and directed the preparation of independent reports, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups is of significance in judging the reasonableness of proposed fees.
For both the one- and three-year periods ending December 31, 2005, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated Funds. These reports covered 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 discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades as well as waivers of fees and/or reimbursements of expenses. In order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have indicated to the Board their intention to do so in the future, where appropriate.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund by fund basis and made estimates of the allocation of expenses on a fund by fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs and the lack of consensus on how to allocate those costs causes such allocation reports to be of questionable value. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board also reviewed profitability information for Federated and other publicly held fund management companies, provided by the Senior Officer, who noted the limited availability of such information, and concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant additional investments in the portfolio management and distribution efforts supporting all of the Federated funds and that the benefits of any economies, should they exist, were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
During the year ending December 31, 2005, the Fund's investment advisory fee after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
No changes were recommended to, and no objection was raised to the continuation of the Fund's advisory contracts, and the Senior Officer noted that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. For 2005, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was 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 recognized 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. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the 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 were relevant to every Federated Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
The Senior Officer also made recommendations relating to the organization and availability of data and verification of processes for purposes of implementing future evaluations which the Adviser has agreed to implement.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to FederatedInvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 313923872
32272 (4/07)
Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.
ITEM 2. CODE OF ETHICS
Not Applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not Applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not Applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not Applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Act) are effective in design and operation and are sufficient to form
the basis of the certifications required by Rule 30a-(2) under the Act, based on
their evaluation of these disclosure controls and procedures within 90 days of
the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
REGISTRANT FEDERATED MUNICIPAL SECURITIES INCOME TRUST
BY /S/ RICHARD A. NOVAK
RICHARD A. NOVAK
PRINCIPAL FINANCIAL OFFICER
DATE April 23, 2007
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE
INVESTMENT COMPANY ACT OF 1940, THIS REPORT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE
DATES INDICATED.
BY /S/ J. CHRISTOPHER DONAHUE
J. CHRISTOPHER DONAHUE
PRINCIPAL EXECUTIVE OFFICER
DATE April 23, 2007
BY /S/ RICHARD A. NOVAK
RICHARD A. NOVAK
PRINCIPAL FINANCIAL OFFICER
DATE April 23, 2007
