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
4000 Ericsson Drive
Warrendale, Pennsylvania 15086-7561
(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: 08/31/13
Date of Reporting Period: 08/31/13
Item 1. Reports to Stockholders
Annual Shareholder Report
August 31, 2013
| Share Class | Ticker |
| A | FMOAX |
| B | FMOBX |
| C | FMNCX |
| F | FHTFX |
| Institutional | FMYIX |
Federated Municipal High Yield Advantage Fund
Fund Established 1987
A Portfolio of Federated Municipal Securities Income Trust
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2012 through August 31, 2013. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
CONTENTS
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| 66 |
Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the 12-month reporting period ended August 31, 2013, was -5.17% for Class A Shares and Class F Shares, and -5.88% for Class B Shares and Class C Shares.1 Additionally, the Fund's total return for Institutional Shares for the period from June 11, 2013 (the inception date for the share class) to August 31, 2013 was -7.83%. The total return of the S&P 25% A and Higher/25% BBB/50% High Yield, All 3-Year Plus Sub-Index (the “Blended Index”)2 was -4.21% during the reporting period. The total return of the Morningstar High Yield Municipal Funds Category Average (MHYMFCA),3 a peer group average for the Fund, was -5.89% during the reporting period. The Fund's and the MHYMFCA's total return reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the Blended Index.
During the reporting period, the Fund's investment strategy focused on: (a) selection of lower-quality, investment-grade and noninvestment-grade securities4 (these securities typically have higher yields than high-quality, investment-grade securities available in the market); (b) security selection; (c) selection of intermediate- to long-term, tax-exempt municipal bonds that typically yield more than short-term, tax-exempt municipal bonds due to the upward sloping yield curve; (d) active adjustment of the Fund's duration (which indicates the portfolio sensitivity to changes in interest rates);5 and (e) allocation of the Fund's portfolio among securities of similar issuers (referred to as “sectors”). These were the most significant factors affecting the Fund's performance relative to the Blended Index during the reporting period.
The following discussion will focus on the performance of the Fund's Class A Shares. The Fund's Class A Shares outperformed the MHYMFCA and underperformed the Blended Index. The -5.17% total return of the Class A Shares for the reporting period consisted of 4.22% of tax-exempt dividends and reinvestments and price depreciation of 9.39% in the net asset value of the shares.6
MARKET OVERVIEW
During the 12-month reporting period, ten-year Treasury yields increased from a low of 1.55% in August, 2012 to 2.89% in August, 2013, and averaged 1.99%. Even though unemployment rates remained elevated, labor market conditions showed improvement. Inflation also remained below the Federal Reserve Board's (the “Fed”) long run objective while inflation expectations remained stable. Interest rate volatility increased as markets reacted to the Fed's discussions about tapering the amount of U.S. Treasury and mortgage-backed securities it will purchase under their quantitative easing program as the economy shows improvement. The Fed's communications had investors anticipating a less accommodative stance of monetary policy than had been expected going forward. In an attempt to support a stronger economic recovery, the Fed
Annual Shareholder Report
continued to maintain an accommodative monetary policy stance during the reporting period. Developments in Europe continued to be a focus for investors, as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties, which indirectly affected interest rate levels in the tax-exempt municipal bond market. Foreign economic growth continued to be subdued, as fiscal retrenchment in the euro area continued to weigh on economic activity in Europe and factored into the Fed's accommodative policy stance. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances and weak economic growth. Political conditions in the Middle East continued to destabilize which resulted in “flight to quality” trades into what were perceived to be safer investments by investors as volatility in the markets increased. This resulted in periods of lower U.S. Treasury yields that also pushed municipal yields lower. Also, the amount of tax-exempt municipal bonds being issued during the reporting period was muted, which created a favorable technical environment (supply/demand imbalance) within the tax-exempt municipal bond market. A significant driver of the muted issuance was that the amount of tax-exempt municipal bonds being refunded collapsed as interest rates rose over the reporting period. This reduced the amount of tax-exempt municipal bonds being issued and helped to provide a cushion for municipal bond prices, and as a result, absolute performance. However, the muted supply was offset by outflows from bond funds in general, and municipal bond funds in particular. Outflows sharply increased as investors anticipated higher interest rates and a less accommodative Fed.
The tax-exempt municipal market dealt with several policy-related issues over the course of the reporting period. These included U.S. fiscal policy decisions that resulted in increases in the top marginal tax rates, which were a positive factor for municipal bond prices and increased the value of the municipal tax exemption. The sequester (automatic spending cuts) was allowed to go into effect as a result of the inability of Congress and the President to come to a resolution over spending cuts, which had a negative impact on municipal government revenues and employment. Some positive news about the fiscal position of the states became available; in some cases, revenues rose sufficiently enough to enable increases in state government spending and employment. However, Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in a general widening in municipal credit spreads near the end of the reporting period. The headline risk from these high profile names led to relative underperformance in lower rated municipal issuers. Also, Illinois continued to be unable to come to political terms over a solution for Illinois' underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist.
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The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny. However, many state and local municipal entities took actions to control pension costs, and this issue continued to be watched.
SECTOR
During the 12-month reporting period, the Fund was overweight, as compared to the Blended Index, in hospital, senior care, industrial development and pre-refunded bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account), each of which outperformed and helped the Fund's performance. Similarly, the Fund's underweight allocation to tobacco settlement bonds, which underperformed relative to the Blended Index, was also beneficial to the Fund. Conversely, the Fund's overweight allocation to transportation bonds, which underperformed, detracted from Fund performance. Overall, the Fund's sector allocations contributed positively to Fund performance during the reporting period.
CREDIT QUALITY7
During the 12-month reporting period, lower-quality, tax-exempt bonds in the Blended Index outperformed higher-quality bonds. Noninvestment-grade (those rated less than “Baa3” or “BBB-”) and non-rated bonds produced the highest returns, followed by high-grade bonds (those rated higher than “Baa1” or “BBB+”) bonds, with “BBB”-rated bonds lagging all other ratings. The Fund was underweight in allocation to outperforming ratings (noninvestment-grade and non-rated bonds), and overweight to underperforming ratings (“BBB” and high-grade). Consequently, credit quality allocation contributed negatively to Fund performance relative to the Blended Index during the reporting period.
MATURITY AND YIELD CURVE
During the 12-month reporting period, the Fund's distribution of maturities along the yield curve, relative to the Blended Index, contributed negatively to Fund performance. In particular, the Fund had a larger concentration of long bonds (compared to the Blended Index), which underperformed as rates rose.
DURATION
As determined at the end of the 12-month reporting period, the Fund's dollar-weighted average duration was 7.99 years.8 Duration management remained a significant component of the Fund's investment strategy. During the reporting period, the Fund's duration lengthened considerably and was generally 94-103% of the Blended Index. With interest rates rising during the reporting period, the Fund's shorter duration relative to the Blended Index contributed positively to the Fund's performance. At various points during the reporting period, the
Annual Shareholder Report
Fund used future contracts as a hedge to shorten duration. The use of such instruments contributed to the outperformance of the Fund versus the Blended Index.
SECURITY SELECTION
Throughout the reporting period, the Fund held an underweight position in Puerto Rico bonds as compared to the blended index. Puerto Rico steeply underperformed the Blended Index, so the Fund's underweight position was a positive contribution to Fund performance. Additionally, over the course of the 12-month reporting period, individual securities' returns from improved credit situations outnumbered losses from deteriorating situations. Given these factors, individual security selection contributed positively to Fund performance during the reporting period.
| 1 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for information regarding the effect of the reorganization of Federated Municipal High Yield Advantage Fund, Inc., a predecessor fund, into the Fund as of the close of business on November 10, 2006. |
| 2 | The Fund's broad-based securities market index is the S&P Municipal Bond Index (Main Index), which had a total return of 9.34% during the reporting period. Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Main Index and the Blended Index. |
| 3 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the MHYMFCA. |
| 4 | Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk. |
| 5 | Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. |
| 6 | Income may be subject to state taxes, local taxes and the federal alternative minimum tax for individuals or corporations. |
| 7 | Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default. |
| 8 | Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management Discussion of Fund Performance, duration is determined using a third-party analytical system. |
Annual Shareholder Report
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Fund's Institutional Shares commenced operations on June 11, 2013. The Fund offers four other classes of shares: Class A Shares, Class B Shares, Class C Shares and Class F Shares. For the period prior to the commencement of operations of Institutional Shares, the performance information shown is for the Fund's Class F Shares, adjusted to reflect the expenses of the Fund's IS Class for each year for which the Fund's IS Class expenses would have exceeded the actual expenses paid by the Fund's Class F Shares. The Average Annual Total Return table below shows returns for each class averaged over the stated periods. The graphs below illustrate the hypothetical investment of $10,0001 in Federated Municipal High Yield Advantage Fund2 (the “Fund”) from August 31, 2003 to August 31, 2013, compared to the S&P Municipal Bond Index (Main Index),3 S&P 25% A and Higher/25% BBB/50% High Yield, All 3-Year Plus Sub-Index, a custom blended index (Blended Index),4 and the Morningstar High Yield Municipal Funds Category Average (MHYMFCA).5
Average Annual Total Returns for the Periods Ended 8/31/2013
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| A | -9.42% | 3.26% | 3.43% |
| B | -10.86% | 3.14% | 3.29% |
| C | -6.79% | 3.44% | 3.14% |
| F | -7.01% | 4.00% | 3.79% |
| IS | -5.16% | 4.16% | 3.84% |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
Annual Shareholder Report
Growth of A $10,000 Investment–Class A Shares
Growth of $10,000 as of August 31, 2013
| Federated Municipal High Yield Advantage Fund - | Class A Shares | Main Index | Blended Index | MHYMFCA |
| 8/31/2003 | 9,550 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,292 | 10,769 | 11,090 | 10,820 |
| 8/31/2005 | 11,254 | 11,435 | 12,429 | 11,832 |
| 8/31/2006 | 11,794 | 11,833 | 13,162 | 12,442 |
| 8/31/2007 | 11,851 | 12,108 | 13,310 | 12,437 |
| 8/31/2008 | 11,394 | 12,515 | 13,001 | 12,014 |
| 8/31/2009 | 10,839 | 13,101 | 12,610 | 11,274 |
| 8/31/2010 | 12,727 | 14,436 | 14,856 | 13,186 |
| 8/31/2011 | 12,891 | 14,815 | 15,219 | 13,317 |
| 8/31/2012 | 14,771 | 16,203 | 17,440 | 15,302 |
| 8/31/2013 | 14,007 | 15,597 | 16,706 | 14,447 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). |
Growth of A $10,000 Investment–Class B Shares
Growth of $10,000 as of August 31, 2013
| Federated Municipal High Yield Advantage Fund - | Class B Shares | Main Index | Blended Index | MHYMFCA |
| 8/31/2003 | 10,000 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,707 | 10,769 | 11,090 | 10,820 |
| 8/31/2005 | 11,620 | 11,435 | 12,429 | 11,832 |
| 8/31/2006 | 12,075 | 11,833 | 13,162 | 12,442 |
| 8/31/2007 | 12,043 | 12,108 | 13,310 | 12,437 |
| 8/31/2008 | 11,490 | 12,515 | 13,001 | 12,014 |
| 8/31/2009 | 10,847 | 13,101 | 12,610 | 11,274 |
| 8/31/2010 | 12,658 | 14,436 | 14,856 | 13,186 |
| 8/31/2011 | 12,821 | 14,815 | 15,219 | 13,317 |
| 8/31/2012 | 14,691 | 16,203 | 17,440 | 15,302 |
| 8/31/2013 | 13,827 | 15,597 | 16,706 | 14,447 |
41 graphic description end -->
| ■ | Total returns shown include the maximum contingent deferred sales charge of 5.50% as applicable. |
Annual Shareholder Report
Growth of A $10,000 Investment–Class C Shares
Growth of $10,000 as of August 31, 2013
| Federated Municipal High Yield Advantage Fund - | Class C Shares | Main Index | Blended Index | MHYMFCA |
| 8/31/2003 | 10,000 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,707 | 10,769 | 11,090 | 10,820 |
| 8/31/2005 | 11,619 | 11,435 | 12,429 | 11,832 |
| 8/31/2006 | 12,072 | 11,833 | 13,162 | 12,442 |
| 8/31/2007 | 12,040 | 12,108 | 13,310 | 12,437 |
| 8/31/2008 | 11,500 | 12,515 | 13,001 | 12,014 |
| 8/31/2009 | 10,846 | 13,101 | 12,610 | 11,274 |
| 8/31/2010 | 12,656 | 14,436 | 14,856 | 13,186 |
| 8/31/2011 | 12,725 | 14,815 | 15,219 | 13,317 |
| 8/31/2012 | 14,470 | 16,203 | 17,440 | 15,302 |
| 8/31/2013 | 13,620 | 15,597 | 16,706 | 14,447 |
41 graphic description end -->
| ■ | Total returns shown include the maximum contingent deferred sales charge of 1.00% as applicable. |
Growth of A $10,000 Investment–Class F Shares
Growth of $10,000 as of August 31, 2013
| Federated Municipal High Yield Advantage Fund - | Class F Shares | Main Index | Blended Index | MHYMFCA |
| 8/31/2003 | 9,900 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,669 | 10,769 | 11,090 | 10,820 |
| 8/31/2005 | 11,666 | 11,435 | 12,429 | 11,832 |
| 8/31/2006 | 12,228 | 11,833 | 13,162 | 12,442 |
| 8/31/2007 | 12,284 | 12,108 | 13,310 | 12,437 |
| 8/31/2008 | 11,811 | 12,515 | 13,001 | 12,014 |
| 8/31/2009 | 11,236 | 13,101 | 12,610 | 11,274 |
| 8/31/2010 | 13,193 | 14,436 | 14,856 | 13,186 |
| 8/31/2011 | 13,364 | 14,815 | 15,219 | 13,317 |
| 8/31/2012 | 15,312 | 16,203 | 17,440 | 15,302 |
| 8/31/2013 | 14,520 | 15,597 | 16,706 | 14,447 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900), and maximum contingent deferred sales charge of 1.00% as applicable. |
Annual Shareholder Report
Growth of A $10,000 Investment–INSTITUTIONAL SHARES
Growth of $10,000 as of August 31, 2013
| Federated Municipal High Yield Advantage Fund - | Institutional Shares | Main Index | Blended Index | MHYMFCA |
| 8/31/2003 | 10,000 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,777 | 10,769 | 11,090 | 10,820 |
| 8/31/2005 | 11,784 | 11,435 | 12,429 | 11,832 |
| 8/31/2006 | 12,349 | 11,833 | 13,162 | 12,442 |
| 8/31/2007 | 12,390 | 12,108 | 13,310 | 12,437 |
| 8/31/2008 | 11,894 | 12,515 | 13,001 | 12,014 |
| 8/31/2009 | 11,300 | 13,101 | 12,610 | 11,274 |
| 8/31/2010 | 13,248 | 14,436 | 14,856 | 13,186 |
| 8/31/2011 | 13,417 | 14,815 | 15,219 | 13,317 |
| 8/31/2012 | 15,373 | 16,203 | 17,440 | 15,302 |
| 8/31/2013 | 14,580 | 15,597 | 16,706 | 14,447 |
41 graphic description end -->
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: For Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); For Class B Shares, the maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date; For Class C Shares, the maximum contingent deferred sales charge is 1.00% on any redemption less than one year from the purchase date; For Class F Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900), and the contingent deferred sales charge is 1.00% on any redemption less than four years from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Main Index, Blended Index and MHYMFCA have been adjusted to reflect reinvestment of dividends on securities in the indexes and the average. |
| 2 | Federated Municipal High Yield Advantage Fund, Inc. (“Predecessor Fund”) was reorganized into Federated Municipal High Yield Advantage Fund (“Fund”), a series of Federated Municipal Securities Income Trust, as of the close of business on November 10, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The information presented for periods prior to the close of business on November 10, 2006, refers to the performance of the Predecessor Fund, which after the reorganization is the Fund's performance as a result of the reorganization. |
| 3 | The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to AMT. Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The Main Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The Main Index is unmanaged, and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
Annual Shareholder Report
| 4 | The Blended Index is a custom blended index that represents, by market weighting, 25% of the A-rated and higher component of the Main Index, 25% of the BBB-rated component of the Main Index and 50% of the below investment grade (bonds with ratings of less than BBB-/Baa3) component of the Main Index, all with remaining maturities of three years or more. The Blended Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The Blended Index is unmanaged, and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 5 | Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated. Funds designated within the MHYMFCA include those that invest at least 50% of assets in high-income municipal securities that are not rated or that are rated by a major agency such as Standard & Poor's or Moody's Investor Service at a level of BBB (considered part of the high-yield universe within the municipal industry) and below. They do not reflect sales charges. |
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Portfolio of Investments Summary Table (unaudited)
At August 31, 2013, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 13.2% |
| Special Tax | 12.4% |
| Industrial Development Bond/Pollution Control Revenue Bond | 12.1% |
| Senior Care | 11.7% |
| Education | 8.5% |
| Transportation | 7.8% |
| Electric & Gas | 6.5% |
| General Obligation—State | 5.7% |
| Tobacco | 4.7% |
| Water & Sewer | 4.6% |
| Derivative Contracts2,3 | 0.0% |
| Other4 | 11.0% |
| Other Assets and Liabilities—Net5 | 1.8% |
| 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, including bond insurers and banks, such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. |
| 2 | Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value, and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report. |
| 3 | Represents less than 0.1%. |
| 4 | For purposes of this table, sector classifications constitute 87.2% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 5 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
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Portfolio of Investments
August 31, 2013
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.4% | |
| | | Alabama—1.9% | |
| $2,000,000 | | Alabama State Port Authority, Docks Facilities Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.25%), 10/1/2040 | $2,177,680 |
| 2,000,000 | | Courtland, AL IDB, Solid Waste Disposal Revenue Refunding Bonds (Series 2005B), 5.20% (International Paper Co.), 6/1/2025 | 1,996,360 |
| 500,000 | | Huntsville, AL Special Care Facilities Financing Authority, Retirement Facilities Revenue Bonds (Series 2011A), 7.50% (Redstone Village)/(Original Issue Yield: 7.625%), 1/1/2047 | 515,755 |
| 1,500,000 | | Huntsville, AL Special Care Facilities Financing Authority, Retirement Facility Revenue Bonds (Series 2007), 5.50% (Redstone Village)/(Original Issue Yield: 5.60%), 1/1/2043 | 1,210,140 |
| 835,000 | | Selma, AL IDB, Gulf Opportunity Zone Bonds (Series 2010A), 5.80% (International Paper Co.), 5/1/2034 | 843,191 |
| 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 | 1,912,071 |
| | | TOTAL | 8,655,197 |
| | | Alaska—0.6% | |
| 1,000,000 | 1,2 | Alaska Industrial Development and Export Authority, Community Provider Revenue Bonds (Series 2007C), 6.00% (Boys & Girls Home & Family Services, Inc.), 12/1/2036 | 484,300 |
| 2,000,000 | 3,4 | Koyukuk, AK, Revenue Bonds (Series 2011), 7.75% (Tanana Chiefs Conference Health Care)/(Original Issue Yield: 8.125%), 10/1/2041 | 2,099,320 |
| | | TOTAL | 2,583,620 |
| | | Arizona—2.1% | |
| 4,000,000 | | Maricopa County, AZ Pollution Control Corp., Refunding PCRBs (Series 2003A), 6.25% (Public Service Co., NM), 1/1/2038 | 4,089,160 |
| 1,500,000 | | Maricopa County, AZ Pollution Control Corp., Refunding PCRBs (Series 2009A), 7.25% (El Paso Electric Co.), 2/1/2040 | 1,630,260 |
| 1,385,000 | | Pima County, AZ IDA, PCRBs (Series 2009A), 4.95% (Tucson Electric Power Co.), 10/1/2020 | 1,445,455 |
| 2,000,000 | | Pima County, AZ IDA, Revenue Bonds (Series 2008B), 5.75% (Tucson Electric Power Co.), 9/1/2029 | 2,035,840 |
| 430,000 | | Verrado Community Facilities District No. 1, AZ, District GO Refunding Bonds (Series 2013A), 6.00%, 7/15/2027 | 433,789 |
| | | TOTAL | 9,634,504 |
| | | California—7.7% | |
| 2,500,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2002B), 5.00% (Waste Management, Inc.), 7/1/2027 | 2,467,900 |
| 1,000,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025 | 1,011,230 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $2,500,000 | | California State, Various Purpose UT GO Bonds, 5.00%, 9/1/2041 | $2,481,375 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 5.25%, 10/1/2029 | 2,606,875 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 6.00% (Original Issue Yield: 6.10%), 4/1/2038 | 2,765,100 |
| 1,140,000 | 3,4 | California Statewide CDA, MFH Revenue Bonds (Series 1999X), 6.65% (Magnolia City Lights Project), 7/1/2039 | 1,062,115 |
| 2,000,000 | | Chula Vista, CA, COP, 5.50% (Original Issue Yield: 5.88%), 3/1/2033 | 2,000,000 |
| 500,000 | | Corona-Norco USD Community Facilities District No. 98-1, CA, 2013 Special Tax Refunding Bonds, 5.00%, 9/1/2032 | 472,445 |
| 2,000,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2005A), 5.00% (California State), 6/1/2045 | 1,828,160 |
| 500,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2013A), 5.00% (California State), 6/1/2029 | 501,110 |
| 530,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.75%, 6/1/2047 | 389,047 |
| 6,000,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Revenue Bonds (Series 2007A-1), 5.125% (Original Issue Yield: 5.27%), 6/1/2047 | 3,995,700 |
| 95,000 | | Irvine, CA Reassessment District No. 13-1, Limited Obligation Improvement Bonds, 5.00%, 9/2/2028 | 93,231 |
| 365,000 | | Irvine, CA Reassessment District No. 13-1, Limited Obligation Improvement Bonds, 5.00%, 9/2/2029 | 356,357 |
| 180,000 | | Irvine, CA Reassessment District No. 13-1, Limited Obligation Improvement Bonds, 5.00%, 9/2/2030 | 174,389 |
| 2,500,000 | | M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), 7.00% (Citigroup, Inc. GTD), 11/1/2034 | 2,896,400 |
| 500,000 | | Poway, CA USDT, Special Tax Bonds (Series 2012), 5.00% (Community Facilities District No. 6 (4S Ranch)), 9/1/2033 | 473,380 |
| 2,000,000 | | Riverside County, CA Redevelopment Agency, Tax Allocation Bonds (Series 2010D), 6.00% (Desert Communities Redevelopment Project Area)/(Original Issue Yield: 6.02%), 10/1/2037 | 1,826,960 |
| 1,500,000 | | Riverside County, CA Redevelopment Agency, Tax Allocation Bonds (Series 2010E), 6.50% (Interstate 215 Corridor Redevelopment Project Area)/(Original Issue Yield: 6.53%), 10/1/2040 | 1,574,400 |
| 349,000 | 1 | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042 | 164,117 |
| 1,250,000 | | San Buenaventura, CA, Revenue Bonds (Series 2011), 8.00% (Community Memorial Health System), 12/1/2031 | 1,399,887 |
| 1,000,000 | | San Francisco, CA City & County Redevelopment Finance Agency, Tax Allocation Bonds (Series 2011C), 6.75% (Mission Bay North Redevelopment)/(Original Issue Yield: 6.86%), 8/1/2041 | 1,094,350 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $2,000,000 | | San Jose, CA Airport, Airport Revenue Bonds (Series 2011A-1), 6.25%, 3/1/2034 | $2,152,220 |
| 1,250,000 | | Santa Margarita, CA Water District Community Facilities District No. 2013-1, Special Tax Bonds (Series 2013), 5.625% (Original Issue Yield: 5.70%), 9/1/2043 | 1,212,163 |
| 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 | 870,530 |
| | | TOTAL | 35,869,441 |
| | | Colorado—4.5% | |
| 2,000,000 | | Beacon Point, CO Metropolitan District, Revenue Bonds (Series 2005A), 6.25% (Original Issue Yield: 6.375%), 12/1/2035 | 1,833,900 |
| 536,000 | | Castle Oaks, CO Metropolitan District, LT GO Bonds (Series 2005), 6.125% (United States Treasury PRF 12/1/2015@100), 12/1/2035 | 598,455 |
| 740,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.70% (Windsor Charter Academy)/(Original Issue Yield: 5.70%), 5/1/2037 | 648,728 |
| 795,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.75% (Northeast Academy Charter School), 5/15/2037 | 536,005 |
| 1,000,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Monument Academy Charter School), 10/1/2037 | 945,290 |
| 800,000 | | Colorado Health Facilities Authority, Health & Residential Care Facilities Revenue Bonds (Series 2007), 5.30% (Volunteers of America Care Facilities), 7/1/2037 | 614,880 |
| 1,100,000 | | Colorado Health Facilities Authority, Revenue Bonds (Series 2010A), 6.25% (Total Long-term Care National Obligated Group), 11/15/2040 | 1,116,500 |
| 2,000,000 | | Colorado Springs Urban Renewal Authority, Tax Increment Revenue Bonds (Series 2007), 7.00% (University Village Colorado), 12/1/2029 | 1,271,800 |
| 1,540,000 | | Denver (City & County), CO, Airport System Revenue Bonds (Series 2011A), 5.25% (Denver, CO City & County Department of Aviation)/(Original Issue Yield: 5.35%), 11/15/2022 | 1,688,887 |
| 450,000 | | Eagle County, CO Air Terminal Corp., Airport Terminal Project Revenue Improvement Bonds (Series 2006B), 5.25%, 5/1/2020 | 454,874 |
| 750,000 | | Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds (Series 2011A), 6.00%, 5/1/2027 | 787,538 |
| 500,000 | | Maher Ranch, CO Metropolitan District No. 4, LT GO Bonds (Series 2006), 7.00% (United States Treasury PRF 12/1/2013@102), 12/1/2036 | 518,250 |
| 1,000,000 | | Maher Ranch, CO Metropolitan District No. 4, LT GO Bonds, 7.875% (United States Treasury PRF 12/1/2013@102), 12/1/2033 | 1,038,700 |
| 2,235,000 | | Northwest, CO Metropolitan District No. 3, LT GO Bonds (Series 2005), 6.25%, 12/1/2035 | 1,925,944 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $2,000,000 | | Public Authority for Colorado Energy, Natural Gas Purchase Revenue Bonds (Series 2008), 6.25% (Merrill Lynch & Co., Inc. GTD)/(Original Issue Yield: 6.63%), 11/15/2028 | $2,172,640 |
| 1,500,000 | | Southlands, CO Metropolitan District No. 1, LT GO Bonds (Series 2004), 7.125% (United States Treasury PRF 12/1/2014@100)/(Original Issue Yield: 7.18%), 12/1/2034 | 1,628,175 |
| 1,030,000 | | Tallyn's Reach Metropolitan District No. 3, CO, LT GO Refunding & Improvement Bonds (Series 2013), 5.125%, 11/1/2038 | 878,126 |
| 2,000,000 | | Three Springs Metropolitan District No. 3, CO, Property Tax Supported Revenue Bonds (Series 2010), 7.75%, 12/1/2039 | 2,031,680 |
| | | TOTAL | 20,690,372 |
| | | Connecticut—0.2% | |
| 1,000,000 | | Connecticut Development Authority, Airport Facility Revenue Bonds, 7.95% (Bombardier, Inc.), 4/1/2026 | 1,046,620 |
| | | Delaware—0.7% | |
| 1,905,000 | | Delaware EDA, Gas Facilities Refunding Bonds, 5.40% (Delmarva Power and Light Co.), 2/1/2031 | 1,955,520 |
| 1,375,000 | | Delaware Health Facilities Authority, Revenue Bonds (Series 2013), 5.00% (Nanticoke Memorial Hospital), 7/1/2032 | 1,188,894 |
| | | TOTAL | 3,144,414 |
| | | District of Columbia—0.6% | |
| 2,000,000 | | District of Columbia Revenue, Revenue Bonds (Series 2012A), 5.00% (Friendship Public Charter School, Inc.), 6/1/2042 | 1,724,960 |
| 1,030,000 | | District of Columbia, Revenue Bonds (Series 2013A), 6.00%
(KIPP DC), 7/1/2043 | 1,034,831 |
| | | TOTAL | 2,759,791 |
| | | Florida—5.7% | |
| 3,000,000 | | Alachua County, FL, IDRB (Series 2007A), 5.875% (North Florida Retirement Village, Inc,), 11/15/2042 | 2,353,950 |
| 285,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A), 5.35%, 5/1/2036 | 170,800 |
| 1,095,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A-2), 5.35%, 5/1/2036 | 1,001,334 |
| 109,219 | 1 | Capital Trust Agency, FL, Housing Revenue Notes, 5.95% (Atlantic Housing Foundation Properties), 1/15/2039 | 15,909 |
| 755,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2005), 5.45%, 5/1/2036 | 682,324 |
| 910,000 | | 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 | 910,610 |
| 2,000,000 | | Lee County, FL IDA, Healthcare Facilities Refunding Revenue Bonds (Series 2012), 6.50% (Cypress Cove at Healthpark), 10/1/2047 | 1,977,040 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $2,000,000 | | Martin County, FL Health Facilities Authority, Hospital Revenue Bonds (Series 2012), 5.50% (Martin Memorial Medical Center)/(Original Issue Yield: 5.53%), 11/15/2042 | $1,915,840 |
| 2,000,000 | | Martin County, FL IDA, Industrial Development Refunding Revenue Bonds (Series 2013), 4.20% (Indiantown Cogeneration, L.P.), 12/15/2025 | 1,702,440 |
| 500,000 | | Miami Beach, FL Health Facilities Authority, Hospital Revenue Refunding Bonds (Series 2012), 5.00% (Mt. Sinai Medical Center, FL), 11/15/2029 | 474,395 |
| 2,000,000 | 3,4 | Miami, FL, Special Obligation Non-Ad Valorem Revenue Refunding Bonds (Series 2012), 5.00%, 3/1/2030 | 1,884,160 |
| 1,000,000 | | Midtown Miami, FL Community Development District, Special Assessment Bonds (Series 2004A), 6.25% (Original Issue
Yield: 6.30%), 5/1/2037 | 980,530 |
| 600,000 | | Orlando, FL Urban Community Development District, Capital Improvement Revenue Bonds, 6.25%, 5/1/2034 | 555,948 |
| 2,000,000 | 3,4 | 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 | 1,843,140 |
| 1,405,000 | | Pinellas County, FL Educational Facilities Authority, Revenue Bonds (Series 2011A), 7.125% (Pinellas Preparatory Academy), 9/15/2041 | 1,423,546 |
| 690,000 | | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | 699,888 |
| 310,000 | 1,2 | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1, 7.375%, 5/1/2033 | 184,109 |
| 1,000,000 | | South Lake County, FL Hospital District, Revenue Bonds (Series 2009A), 6.25% (South Lake Hospital, Inc.)/(Original Issue Yield: 6.30%), 4/1/2039 | 1,047,820 |
| 1,200,000 | | South Lake County, FL Hospital District, Revenue Bonds, 6.625% (South Lake Hospital, Inc.), 10/1/2023 | 1,205,016 |
| 200,000 | | Tolomato Community Development District, FL, Special Assessment Refunding Revenue Bonds (Series A-1), 6.55% (Original Issue
Yield: 6.60%), 5/1/2027 | 182,420 |
| 10,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 1), 6.55%, 5/1/2027 | 9,500 |
| 465,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2), 6.55%, 5/1/2027 | 174,073 |
| 1,505,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2006), 5.40%, 5/1/2037 | 1,366,826 |
| 155,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 3), 6.55%, 5/1/2027 | 1 |
| 55,000 | 5 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-2), 0.00% (Step Coupon 5/1/2017@6.61%), 5/1/2039 | 40,485 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $135,000 | 5 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-3), 0.00% (Step Coupon 5/1/2019@6.61%), 5/1/2040 | $81,008 |
| 70,000 | 5 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-4), 0.00% (Step Coupon 5/1/2022@6.61%), 5/1/2040 | 31,098 |
| 890,000 | | Verandah East, FL Community Development District, Capital Improvement Revenue Bonds (Series 2006A), 5.40%, 5/1/2037 | 610,211 |
| 1,000,000 | | Verandah West, FL Community Development District, Capital Improvement Revenue Refunding Bonds (Series 2013), 5.00% (Original Issue Yield: 5.125%), 5/1/2033 | 857,500 |
| 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, Inc. INS), 10/15/2025 | 1,656,536 |
| 455,000 | | Winter Garden Village at Fowler Groves Community Development District, FL, Special Assessment Bonds (Series 2006), 5.65%, 5/1/2037 | 455,851 |
| | | TOTAL | 26,494,308 |
| | | Georgia—1.8% | |
| 4,000,000 | | Atlanta, GA Water & Wastewater, Revenue Bonds (Series 2009A), 6.25% (Original Issue Yield: 6.38%), 11/1/2039 | 4,526,760 |
| 770,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2005B), 5.60% (Eastside Tax Allocation District)/(Original Issue Yield: 5.65%), 1/1/2030 | 808,161 |
| 1,600,000 | | Augusta, GA HFA, MFH Refunding Revenue Bonds, 6.55% (Forest Brook Apartments), 12/1/2030 | 1,431,280 |
| 750,000 | | Fulton County, GA Residential Care Facilities, Revenue Bonds (Series 2004A), 6.00% (Canterbury Court), 2/15/2022 | 749,993 |
| 1,000,000 | | Medical Center Hospital Authority, GA, Revenue Refunding Bonds (Series 2007), 5.25% (Spring Harbor at Green Island), 7/1/2037 | 836,250 |
| | | TOTAL | 8,352,444 |
| | | Guam—0.8% | |
| 500,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.75% (Original Issue Yield: 6.00%), 12/1/2034 | 510,465 |
| 1,000,000 | | Guam Government, GO Bonds (Series 2009A), 7.00% (Original Issue Yield: 7.18%), 11/15/2039 | 1,047,390 |
| 1,000,000 | | Guam Government, UT GO Bonds (Series 2007A), 5.25% (Original Issue Yield: 5.45%), 11/15/2037 | 896,580 |
| 1,000,000 | | Guam International Airport Authority, General Revenue Bonds (Series 2013C), 6.125% (Assured Guaranty Municipal Corp. INS)/(Original Issue Yield: 6.23%), 10/1/2043 | 983,070 |
| 500,000 | | Guam Power Authority, Revenue Bonds (Series 2012A), 5.00%, 10/1/2034 | 467,815 |
| | | TOTAL | 3,905,320 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Hawaii—1.1% | |
| $3,660,000 | | Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds (Series 2009), 6.50% (Hawaiian Electric Co., Inc.), 7/1/2039 | $3,904,122 |
| 1,000,000 | | Hawaii State Department of Budget & Finance, Special Purpose Senior Living Revenue Bonds (Series A), 9.00% (15 Craigside)/
(Original Issue Yield: 9.15%), 11/15/2044 | 1,108,670 |
| | | TOTAL | 5,012,792 |
| | | Illinois—4.9% | |
| 1,750,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011A), 5.75% (Original Issue
Yield: 5.94%), 1/1/2039 | 1,787,607 |
| 2,500,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011C), 6.50%, 1/1/2041 | 2,886,400 |
| 415,000 | | DuPage County, IL, Special Tax Bonds (Series 2006), 5.625% (Naperville Campus LLC), 3/1/2036 | 387,730 |
| 1,500,000 | | Illinois Finance Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2011A), 7.125% (Uno Charter School
Network, Inc.), 10/1/2041 | 1,632,030 |
| 1,000,000 | | Illinois Finance Authority, MFH Revenue Bonds (Series 2007), 6.10% (Dekalb Supportive Living Facility), 12/1/2041 | 850,880 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 5.625% (Friendship Village of Schaumburg)/(Original Issue
Yield: 5.70%), 2/15/2037 | 879,590 |
| 1,250,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.00% (Landing at Plymouth Place)/(Original Issue Yield: 6.04%), 5/15/2037 | 1,016,400 |
| 1,500,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.25% (Smith Village), 11/15/2035 | 1,366,905 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2010), 7.25% (Friendship Village of Schaumburg)/(Original Issue
Yield: 7.375%), 2/15/2045 | 1,027,620 |
| 485,785 | 1,2 | Illinois Finance Authority, Revenue Bonds (Series 2010B) (Clare at Water Tower)/(Original Issue Yield: 5.00%), 5/15/2050 | 5 |
| 2,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2012), 5.625% (Lutheran Home and Services Obligated Group), 5/15/2042 | 1,760,560 |
| 1,251,520 | 1,2 | Illinois Finance Authority, Revenue Bonds {Series 2010A}, 6.125% (Clare at Water Tower), 5/15/2041 | 13 |
| 1,000,000 | | Illinois Finance Authority, Solid Waste Disposal Revenue Bonds, 5.05% (Waste Management, Inc.), 8/1/2029 | 975,400 |
| 2,250,000 | | Illinois State, UT GO Bonds (Series 2006), 5.00%, 1/1/2027 | 2,261,160 |
| 625,000 | | Illinois State, UT GO Bonds (Series June 2013), 5.50% (Original Issue Yield: 5.65%), 7/1/2038 | 590,244 |
| 1,410,000 | | Illinois State, UT GO Refunding Bonds (Series May 2012), 5.00%, 8/1/2025 | 1,415,161 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $1,000,000 | | Quad Cities, IL Regional EDA, MFH Revenue Bonds (Series 2006), 6.00% (Heritage Woods of Moline SLF), 12/1/2041 | $818,870 |
| 1,600,000 | | Railsplitter Tobacco Settlement Authority, IL, Tobacco Settlement Revenue Bonds (Series 2010), 6.00% (Original Issue
Yield: 6.10%), 6/1/2028 | 1,720,800 |
| 1,500,000 | | Will-Kankakee, IL Regional Development Authority, MFH Revenue Bonds (Series 2007), 7.00% (Senior Estates Supportive Living), 12/1/2042 | 1,406,325 |
| | | TOTAL | 22,783,700 |
| | | Indiana—3.1% | |
| 1,250,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.20%), 11/15/2042 | 1,213,263 |
| 1,000,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.30%), 11/15/2047 | 962,180 |
| 1,000,000 | | Goshen, IN, Revenue Bonds (Series 1998), 5.75% (Greencroft Obligated Group)/(Original Issue Yield: 5.87%), 8/15/2028 | 921,270 |
| 1,305,000 | | Indiana State Finance Authority (Environmental Improvement Bonds), Revenue Refunding Bonds (Series 2010), 6.00% (United States Steel Corp.), 12/1/2026 | 1,225,421 |
| 1,335,000 | | Indiana State Finance Authority, Midwestern Disaster Relief Revenue Bonds (Series 2012A), 5.00% (Ohio Valley Electric Corp.)/(Original Issue Yield: 5.05%), 6/1/2039 | 1,194,611 |
| 4,000,000 | | Indiana State Finance Authority, Tax-Exempt Private Activity Bonds (Series 2013), 5.25% (Ohio River Bridges East End Crossing), 1/1/2051 | 3,403,760 |
| 1,000,000 | | Jasper County, IN, PCR Refunding Bonds (Series 2003), 5.70% (Northern Indiana Public Service Company)/(AMBAC INS), 7/1/2017 | 1,110,740 |
| 2,000,000 | | Rockport, IN, Revenue Refunding Bonds (Series 2012-A), 7.00%
(AK Steel Corp.), 6/1/2028 | 1,611,160 |
| 1,000,000 | | South Bend, IN, EDRBs (Series 1999A), 6.25% (Southfield Village)/(Original Issue Yield: 6.375%), 11/15/2029 | 918,510 |
| 1,153,630 | 1,2 | St. Joseph County, IN Hospital Authority, Health Facilities Revenue Bonds (Series 2005), 5.375% (Madison Center Obligated Group), 2/15/2034 | 124,557 |
| 2,000,000 | | Vigo County, IN Hospital Authority, Hospital Revenue Bond (Series 2007), 5.80% (Union Hospital)/(Original Issue
Yield: 5.82%), 9/1/2047 | 1,950,140 |
| | | TOTAL | 14,635,612 |
| | | Iowa—1.0% | |
| 3,000,000 | | Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.25% (Iowa Fertilizer Co.)/(Original Issue
Yield: 5.30%), 12/1/2025 | 2,605,950 |
| 1,000,000 | | Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.50% (Iowa Fertilizer Co.), 12/1/2022 | 914,250 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Iowa—continued | |
| $1,715,000 | | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2007A), 5.50% (Deerfield Retirement Community, Inc.), 11/15/2037 | $1,082,045 |
| | | TOTAL | 4,602,245 |
| | | Kansas—1.5% | |
| 2,000,000 | | Kansas State Development Finance Authority, Revenue Bonds, 5.75% (Adventist Health System/Sunbelt Obligated Group)/(Original Issue Yield: 5.95%), 11/15/2038 | 2,150,420 |
| 280,000 | | Manhattan, KS IDRB, Industrial Revenue Bonds (Series 1999), 7.00% (Farrar Corp. Project), 8/1/2014 | 279,622 |
| 1,000,000 | | Manhattan, KS IDRB, Industrial Revenue Bonds (Series 2007), 5.50% (Farrar Corp. Project)/(Original Issue Yield: 5.55%), 8/1/2021 | 904,550 |
| 2,015,000 | | Norwich, KS, Industrial Revenue Bonds (Series 2006), 5.90% (Farrar Corp. Project), 8/1/2021 | 1,870,867 |
| 2,000,000 | | Olathe, KS, Senior Living Facility Revenue Bonds (Series 2006A), 6.00% (Catholic Care Campus, Inc.), 11/15/2038 | 1,853,320 |
| 50,000 | | Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1), 6.95% (GNMA Home Mortgage Program COL), 6/1/2029 | 52,780 |
| | | TOTAL | 7,111,559 |
| | | Kentucky—0.3% | |
| 1,250,000 | | Kentucky EDFA, Revenue Bonds (Series 2011A), 7.375% (Miralea)/(Original Issue Yield: 7.40%), 5/15/2046 | 1,307,363 |
| | | Louisiana—2.3% | |
| 1,000,000 | | DeSoto Parish, LA Environmental Improvement Authority, Revenue Bonds, Series A, 5.00% (International Paper Co.), 11/1/2018 | 986,830 |
| 1,500,000 | | Jefferson Parish, LA Hospital Service District No. 1, Hospital Revenue Refunding Bonds (Series 2011A), 6.00% (West Jefferson Medical Center)/(Original Issue Yield: 6.05%), 1/1/2039 | 1,546,470 |
| 981,000 | 1,2 | Lakeshore Villages Master Community Development District, LA, Special Assessment Bonds (Series 2007), 5.25% (Original Issue
Yield: 5.378%), 7/1/2017 | 386,808 |
| 1,000,000 | | Louisiana Public Facilities Authority, 6.50% (Ochsner Clinic Foundation)/(Original Issue Yield: 6.65%), 5/15/2037 | 1,078,310 |
| 3,000,000 | | Louisiana Public Facilities Authority, Revenue Bonds (Series 2010A), 5.00% (Entergy Gulf States Louisiana LLC), 9/1/2028 | 3,047,580 |
| 2,000,000 | | Louisiana State Citizens Property Insurance Corp., Assessment Revenue Bonds (Series 2006C), 6.125% (Assured Guaranty Corp. INS)/(Original Issue Yield: 6.33%), 6/1/2025 | 2,214,720 |
| 1,500,000 | | Tobacco Settlement Financing Corp., LA, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2013A), 5.25%, 5/15/2035 | 1,409,295 |
| | | TOTAL | 10,670,013 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Maine—0.3% | |
| $1,335,000 | | Maine Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2011), 7.50% (MaineGeneral Medical Center), 7/1/2032 | $1,563,232 |
| | | Maryland—1.8% | |
| 2,000,000 | | Frederick County, MD, Tax Increment & Special Tax B Limited Obligation Bonds (Series 2013B), 7.125% (Jefferson Technology Park)/(Original Issue Yield: 7.30%), 7/1/2043 | 1,965,160 |
| 1,060,000 | | Maryland State EDC., Port Facilities Refunding Revenue Bonds (Series 2010), 5.75% (CONSOL Energy, Inc.), 9/1/2025 | 1,087,910 |
| 2,385,000 | | Maryland State EDC., Revenue Bonds (Series B), 5.75% (Ports America Chesapeake, Inc.)/(Original Issue Yield: 5.875%), 6/1/2035 | 2,382,710 |
| 395,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2007A), 5.25% (King Farm Presbyterian Retirement Community), 1/1/2027 | 357,586 |
| 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 | 912,450 |
| 1,000,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2012), 5.00% (Mercy Medical Center), 7/1/2031 | 951,190 |
| 500,000 | | Maryland State IDFA, EDRBs (Series 2005A), 6.00% (Our Lady of Good Counsel High School), 5/1/2035 | 513,680 |
| | | TOTAL | 8,170,686 |
| | | Massachusetts—0.9% | |
| 1,063,562 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011 A-1), 6.25% (Linden Ponds, Inc.), 11/15/2046 | 820,751 |
| 56,460 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011 A-2), 5.50% (Linden Ponds, Inc.), 11/15/2046 | 38,800 |
| 280,825 | 5 | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011B) (Linden Ponds, Inc.), 11/15/2056 | 1,570 |
| 2,000,000 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011I), 7.25% (Tufts Medical Center), 1/1/2032 | 2,245,920 |
| 3320,733 | 1,2,3,4 | Massachusetts Development Finance Agency, Senior Living Facility Revenue Bonds (Series 2009A), 7.75% (The Groves in Lincoln)/(Original Issue Yield: 7.90%), 6/1/2039 | 22,131 |
| 641,545 | 1,2,3,4 | Massachusetts Development Finance Agency, Senior Living Facility Revenue Bonds (Series 2009A), 7.875% (The Groves in Lincoln)/(Original Issue Yield: 8.00%), 6/1/2044 | 44,266 |
| 1,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2003E), 6.75% (Jordan Hospital)/(Original Issue Yield: 7.00%), 10/1/2033 | 1,000,360 |
| | | TOTAL | 4,173,798 |
| | | Michigan—4.3% | |
| 1,000,000 | | Dearborn, MI EDC., Revenue Refunding Bonds, 7.125% (Henry Ford Village)/(Original Issue Yield: 7.25%), 11/15/2043 | 931,960 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2028 | $996,840 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2031 | 963,560 |
| 1,500,000 | 6 | Detroit, MI Sewage Disposal System, Revenue Refunding Senior Lien Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.30%), 7/1/2039 | 1,291,695 |
| 4,000,000 | 6 | Detroit, MI Water Supply System, Second Lien Refunding Revenue Bonds (Series 2006C), 5.00% (Assured Guaranty Municipal Corp. INS), 7/1/2033 | 3,535,120 |
| 1,000,000 | | Iron River, MI Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2008), 6.50% (Iron County Community Hospitals, Inc.)/(Original Issue Yield: 6.61%), 5/15/2033 | 968,610 |
| 2,500,000 | | Kent Hospital Finance Authority, MI, Revenue Bonds (Series 2005A), 6.25% (Metropolitan Hospital), 7/1/2040 | 2,405,525 |
| 1,250,000 | | Kentwood, MI Public EDC., LT Refunding Revenue Bonds (Series 2012), 5.625% (Holland Home Obligated Group)/(Original Issue Yield: 5.65%), 11/15/2041 | 1,081,263 |
| 3,165,000 | | Michigan State HFA, Refunding Revenue Bonds, 5.75% (Henry Ford Health System, MI)/(Original Issue Yield: 6.00%), 11/15/2039 | 3,195,922 |
| 5,000,000 | | Michigan Tobacco Settlement Finance Authority, Tobacco Settlement Asset-Backed Bonds (Series 2007A), 6.00% (Original Issue
Yield: 6.25%), 6/1/2048 | 3,624,850 |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035 | 1,108,080 |
| | | TOTAL | 20,103,425 |
| | | Minnesota—2.8% | |
| 1,000,000 | | Baytown Township, MN, Lease Revenue Bonds (Series 2008A),
7.00% (St. Croix Preparatory Academy)/(Original Issue
Yield: 7.05%), 8/1/2038 | 1,020,270 |
| 2,000,000 | | Duluth, MN EDA, Health Care Facilities Revenue Bonds (Series 2012), 6.00% (St. Luke's Hospital of Duluth Obligated Group), 6/15/2039 | 1,921,300 |
| 1,300,000 | | Meeker County, MN, Gross Revenue Hospital Facilities Bonds (Series 2007), 5.75% (Meeker County Memorial Hospital), 11/1/2037 | 1,324,193 |
| 1,000,000 | | Pine City, MN Lease Revenue, Lease Revenue Bonds (Series 2006A), 6.25% (Lakes International Language Academy), 5/1/2035 | 947,730 |
| 500,000 | | Ramsey, MN, Lease Revenue Bonds (Series 2004A), 6.75% (Pact Charter School), 12/1/2033 | 482,575 |
| 800,000 | | St. Paul, MN Housing & Redevelopment Authority, Refunding Revenue Bonds (Series 2003A), 6.75% (Achieve Language Academy), 12/1/2022 | 801,200 |
| 1,000,000 | | St. Paul, MN Housing & Redevelopment Authority, Refunding Revenue Bonds (Series 2003A), 7.00% (Achieve Language Academy), 12/1/2032 | 1,000,480 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Minnesota—continued | |
| $500,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2026 | $474,765 |
| 930,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2029 | 868,108 |
| 1,815,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.00% (Bluffview Montessori School Project), 11/1/2027 | 1,698,132 |
| 2,920,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.15% (Bluffview Montessori School Project), 11/1/2037 | 2,613,634 |
| | | TOTAL | 13,152,387 |
| | | Mississippi—0.2% | |
| 945,000 | | Warren County, MS Gulf Opportunity Zone, Gulf Opportunity Zone Bonds (Series 2011A), 5.375% (International Paper Co.), 12/1/2035 | 925,108 |
| | | Missouri—1.8% | |
| 1,000,000 | | Kirkwood, MO IDA, Retirement Community Revenue Bonds (Series 2010A), 8.25% (Aberdeen Heights Project)/(Original Issue Yield: 8.40%), 5/15/2039 | 1,103,190 |
| 3,000,000 | | Kirkwood, MO IDA, Retirement Community Revenue Bonds (Series 2010A), 8.25% (Aberdeen Heights Project)/(Original Issue Yield: 8.50%), 5/15/2045 | 3,304,410 |
| 3,000,000 | | Missouri Development Finance Board, Infrastructure Facilities Revenue Bonds (Series 2005A), 5.00% (Branson, MO), 6/1/2035 | 2,933,610 |
| 1,000,000 | | St. Joseph, MO IDA, Healthcare Revenue Bonds, 7.00% (Living Community St. Joseph Project), 8/15/2032 | 978,430 |
| | | TOTAL | 8,319,640 |
| | | Nebraska—0.5% | |
| 2,500,000 | | Central Plains Energy Project, Gas Project Revenue Bonds (Project No. 3) (Series 2012), 5.25% (Goldman Sachs & Co. GTD), 9/1/2037 | 2,369,375 |
| | | Nevada—1.3% | |
| 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 | 804,830 |
| 4,000,000 | | Clark County, NV School District, LT GO Building Bonds (Series 2008A), 5.00%, 6/15/2025 | 4,191,400 |
| 455,000 | | Clark County, NV, Special Assessment Revenue Bonds (Series 2005), 5.00% (Summerlin-Mesa SID No. 151), 8/1/2025 | 364,824 |
| 880,000 | | North Las Vegas, NV SID No. 60, Subordinate LT Obligation Refunding Bonds (Series 2006B), 5.10% (Aliante SID No. 60), 12/1/2022 | 846,639 |
| | | TOTAL | 6,207,693 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New Jersey—2.1% | |
| $1,315,000 | | New Jersey EDA, Kapkowski Road Landfill Revenue Bonds, 6.50% (New Jersey Metromall Urban Renewal, Inc.)/(Original Issue
Yield: 6.55%), 4/1/2018 | $1,393,769 |
| 1,550,000 | | New Jersey EDA, Revenue Bonds (Series 1997A), 5.875% (Host Marriott Corp.), 12/1/2027 | 1,433,889 |
| 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 | 994,970 |
| 1,500,000 | | New Jersey EDA, Special Facilities Revenue Bonds (Series 2003), 5.50% (Continental Airlines, Inc.), 6/1/2033 | 1,326,690 |
| 2,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 1999), 5.25% (Continental Airlines, Inc.), 9/15/2029 | 2,225,725 |
| 1,000,000 | | New Jersey State EDA, Energy Facility Revenue Bonds (Series 2012A), 5.125% (UMM Energy Partners LLC)/(Original Issue
Yield: 5.19%), 6/15/2043 | 887,960 |
| 1,200,000 | | New Jersey State Transportation Trust Fund Authority, Transportation System Bonds (Series 2011A), 6.00% (New Jersey State), 6/15/2035 | 1,295,832 |
| | | TOTAL | 9,558,835 |
| | | New Mexico—0.6% | |
| 2,185,000 | | Dona Ana County, NM, MFH Revenue Bonds (Series 2001A), 7.00% (Montana Meadows Apartments), 12/1/2030 | 2,146,107 |
| 1,000,000 | | New Mexico State Hospital Equipment Loan Council, Hospital Improvement and Refunding Revenue Bonds (Series 2012A), 5.50% (Gerald Champion Regional Medical Center)/(Original Issue
Yield: 5.70%), 7/1/2042 | 832,160 |
| | | TOTAL | 2,978,267 |
| | | New York—5.4% | |
| 1,495,000 | | Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 | 1,579,213 |
| 1,285,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 1,320,338 |
| 2,000,000 | | Nassau County, NY IDA, Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2007A), 6.70% (Amsterdam at Harborside), 1/1/2043 | 1,109,200 |
| 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 | 845,660 |
| 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 | 1,504,620 |
| 5,500,000 | 6 | New York City, NY IDA, Special Facility Revenue Bonds
(Series 2005), 8.00% (American Airlines, Inc.)/(Original Issue
Yield: 8.095%), 8/1/2028 | 6,189,810 |
| 5,000,000 | | New York City, NY Municipal Water Finance Authority, Water and Sewer System Second General Resolution Revenue Bonds (Series 2012AA), 5.00%, 6/15/2034 | 5,109,650 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $1,820,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Series 2011C), 5.50%, 11/1/2035 | $1,970,914 |
| 1,120,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.40%), 6/15/2029 | 1,013,712 |
| 1,185,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.50%, 6/15/2030 | 1,092,120 |
| 1,000,000 | | Niagara Area Development Corporation, NY, Solid Waste Disposal Facility Refunding Revenue Bonds (Series 2012A), 5.25% (Covanta Energy Corp.), 11/1/2042 | 816,230 |
| 2,500,000 | | Port Authority of New York and New Jersey, Special Project Bonds (Series 8), 6.00% (JFK International Air Terminal LLC)/(Original Issue Yield: 6.15%), 12/1/2042 | 2,726,450 |
| | | TOTAL | 25,277,917 |
| | | North Carolina—0.9% | |
| 2,335,000 | | North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series 2009C), 5.00%, 1/1/2026 | 2,455,252 |
| 500,000 | | North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds (Series 2005A), 5.65% (Pennybyrn at Maryfield)/(Original Issue Yield: 5.85%), 10/1/2025 | 453,360 |
| 1,000,000 | | North Carolina Medical Care Commission, Retirement Facilities First Mortgage Revenue Bonds (Series 2011A), 7.75% (Whitestone Project)/(Original Issue Yield: 8.00%), 3/1/2041 | 1,044,380 |
| | | TOTAL | 3,952,992 |
| | | Ohio—3.6% | |
| 2,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District, Hospital Facilities Revenue Bonds (Series 2012), 5.00% (Akron General Health System), 1/1/2031 | 1,876,260 |
| 2,000,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series 2007A-2), 5.875% (Original Issue Yield: 5.95%), 6/1/2030 | 1,443,740 |
| 3,655,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series A-2), 6.50%, 6/1/2047 | 2,691,067 |
| 1,500,000 | | Hamilton County, OH, Healthcare Revenue Bonds (Series 2011A), 6.625% (Life Enriching Communities)/(Original Issue
Yield: 6.75%), 1/1/2046 | 1,564,755 |
| 2,000,000 | | Muskingum County, OH, Hospital Facilities Revenue Bonds (Series 2013), 5.00% (Genesis Healthcare Corp.)/(Original Issue
Yield: 5.08%), 2/15/2044 | 1,558,520 |
| 2,910,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 3,262,343 |
| 2,355,000 | | Ohio State Higher Educational Facility Commission, Hospital Facilities Revenue Bonds (Series 2010), 5.75% (Summa Health System)/(Original Issue Yield: 5.92%), 11/15/2040 | 2,401,982 |
| 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 | 1,018,395 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $40,781 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | $29,677 |
| 750,000 | | Southeastern Ohio Port Authority, OH, Hospital Facilities Revenue Refunding & Improvement Bonds (Series 2012), 6.00% (Memorial Health System, OH)/(Original Issue Yield: 6.02%), 12/1/2042 | 753,615 |
| | | TOTAL | 16,600,354 |
| | | Oklahoma—1.4% | |
| 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 | 904,030 |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.125% (Concordia Life Care Community), 11/15/2025 | 993,950 |
| 3,000,000 | 6 | Tulsa, OK Airport Improvement Trust, Refunding Revenue Bonds (Series 2000B), 5.50% (American Airlines, Inc.), 6/1/2035 | 2,554,020 |
| 2,000,000 | | Tulsa, OK Industrial Authority, Senior Living Community Revenue Bonds (Series 2010A), 7.25% (Montereau, Inc.)/(Original Issue
Yield: 7.50%), 11/1/2045 | 2,083,720 |
| | | TOTAL | 6,535,720 |
| | | Oregon—0.4% | |
| 1,000,000 | 3,4 | Cow Creek Band of Umpqua Tribe of Indians, Tax-Exempt Tax Revenue Bonds (Series 2006C), 5.625%, 10/1/2026 | 888,440 |
| 1,000,000 | | Yamhill County, OR Hospital Authority, Revenue Bonds, 7.00% (Friendsview Retirement Community)/(United States Treasury PRF 12/1/2013@101)/(Original Issue Yield: 7.125%), 12/1/2034 | 1,026,770 |
| | | TOTAL | 1,915,210 |
| | | Pennsylvania—6.6% | |
| 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 | 1,128,826 |
| 865,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | 859,230 |
| 2,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.875% (United States Steel Corp.), 5/1/2030 | 2,025,240 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,831,105 |
| 3,715,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2042 | 3,344,726 |
| 1,500,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds, 6.25% (Mount Nittany Medical Center)/(United States Treasury PRF 11/15/2014@100)/(Original Issue Yield: 6.30%), 11/15/2044 | 1,608,420 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,500,000 | | Chester County, PA IDA, Revenue Bonds (Series 2007A), 6.375% (Avon Grove Charter School)/(Original Issue Yield: 6.45%), 12/15/2037 | $1,507,620 |
| 2,000,000 | | Chester County, PA IDA, Revenue Bonds (Series 2012A), 5.375% (Collegium Charter School)/(Original Issue Yield: 5.50%), 10/15/2042 | 1,675,660 |
| 1,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00% (Original Issue Yield: 5.05%), 12/1/2042 | 898,220 |
| 3,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | 2,484,990 |
| 1,500,000 | | Monroe County, PA Hospital Authority, Hospital Revenue Bonds (Series 2007), 5.125% (Pocono Medical Center)/(Original Issue
Yield: 5.20%), 1/1/2037 | 1,420,785 |
| 4,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2009), 7.00% (Allegheny Energy Supply Company LLC), 7/15/2039 | 4,032,400 |
| 900,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 802,971 |
| 1,000,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2010), 6.375% (Global Leadership Academy Charter School), 11/15/2040 | 1,012,540 |
| 705,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 706,241 |
| 1,665,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 2012A), 5.625% (Temple
University Health System Obligated Group)/(Original Issue
Yield: 5.875%), 7/1/2042 | 1,391,657 |
| 2,000,000 | | Philadelphia, PA, GO Bonds (Series 2011), 6.50%, 8/1/2041 | 2,166,280 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,501,860 |
| 560,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035 | 519,523 |
| | | TOTAL | 30,918,294 |
| | | Puerto Rico—1.1% | |
| 1,470,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00%, 7/1/2020 | 1,320,398 |
| 2,500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00% (Original Issue Yield: 7.12%), 7/1/2043 | 2,204,475 |
| 2,500,000 | | Puerto Rico Public Building Authority, Government Facilities Revenue Refunding Bonds (Series 2012U), 5.25% (Commonwealth of Puerto Rico GTD)/(Original Issue Yield: 5.375%), 7/1/2042 | 1,711,250 |
| | | TOTAL | 5,236,123 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Rhode Island—0.9% | |
| $4,000,000 | | Rhode Island State Health and Educational Building Corp., Hospital Financing Revenue Bonds (Series 2009A), 7.00% (Lifespan Obligated Group)/(Assured Guaranty Corp. INS), 5/15/2039 | $4,369,080 |
| | | South Carolina—1.2% | |
| 1,390,000 | | Lancaster County, SC, Assessment Revenue Bonds (Series 2006), 5.45% (Sun City Carolina Lakes Improvement District), 12/1/2037 | 1,197,791 |
| 800,000 | | Myrtle Beach, SC, Tax Increment Bonds (Series 2006A), 5.25% (Myrtle Beach Air Force Base Redevelopment Project Area)/(Original Issue Yield: 5.27%), 10/1/2026 | 684,912 |
| 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%), 10/1/2035 | 584,602 |
| 500,000 | | South Carolina Jobs-EDA, Health Facilities Revenue Bonds (Series 2013), 5.00% (Lutheran Homes of South Carolina, Inc.)/(Original Issue Yield: 5.09%), 5/1/2043 | 399,115 |
| 1,000,000 | | South Carolina Jobs-EDA, Health Facilities Revenue Bonds (Series 2013), 5.125% (Lutheran Homes of South Carolina, Inc.)/(Original Issue Yield: 5.14%), 5/1/2048 | 797,880 |
| 2,000,000 | | South Carolina Jobs-EDA, Refunding & Improvement Revenue Bonds (Series 2009), 5.75% (Palmetto Health Alliance)/(Original Issue
Yield: 5.90%), 8/1/2039 | 2,039,020 |
| | | TOTAL | 5,703,320 |
| | | South Dakota—0.2% | |
| 800,000 | | Educational Enhancement Funding Corp., SD, Tobacco Settlement Revenue Bonds (Series 2013B), 5.00%, 6/1/2025 | 849,320 |
| | | Tennessee—1.2% | |
| 1,000,000 | | Johnson City, TN Health & Education Facilities Board, Hospital Refunding Bonds (Series 2010A), 5.625% (Mountain States Health Alliance)/(Original Issue Yield: 5.90%), 7/1/2030 | 1,035,150 |
| 1,500,000 | | Johnson City, TN Health & Education Facilities Board, Hospital Revenue Bonds (Series 2010), 6.50% (Mountain States Health Alliance), 7/1/2038 | 1,616,205 |
| 2,725,000 | | Tennessee Energy Acquisition Corp., Gas Revenue Bonds (Series 2006A), 5.25% (Goldman Sachs & Co. GTD), 9/1/2023 | 2,865,937 |
| | | TOTAL | 5,517,292 |
| | | Texas—9.0% | |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2024 | 1,009,860 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2034 | 957,190 |
| 2,000,000 | | Austin, TX Water and Wastewater System, Revenue Refunding Bonds (Series 2012), 5.00%, 11/15/2042 | 2,016,000 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $755,000 | | Bexar County, Health Facilities Development Corp., Revenue Bonds (Series 2010), 6.20% (Army Retirement Residence Foundation), 7/1/2045 | $776,487 |
| 2,000,000 | | Cass County, TX IDC., Environmental Improvement Revenue Bonds (Series 2009A), 9.50% (International Paper Co.), 3/1/2033 | 2,409,860 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.00% (Original Issue Yield: 6.13%), 1/1/2041 | 985,370 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.25% (Original Issue Yield: 6.30%), 1/1/2046 | 1,005,140 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Refunding Bonds (Series 2013A), 5.00%, 1/1/2043 | 850,530 |
| 750,000 | | Clifton Higher Education Finance Corporation, TX, Education Revenue Bonds (Series 2011), 5.75% (Idea Public Schools)/(Original Issue Yield: 6.00%), 8/15/2041 | 711,120 |
| 500,000 | | Clifton Higher Education Finance Corporation, TX, Education Revenue Bonds (Series 2012), 5.00% (Idea Public Schools), 8/15/2042 | 420,310 |
| 2,000,000 | | Dallas-Fort Worth, TX International Airport, Joint Revenue Improvement Bonds (Series 2012D), 5.00%, 11/1/2038 | 1,821,360 |
| 1,500,000 | | Dallas-Fort Worth, TX International Airport, Joint Revenue Improvement Bonds (Series 2013A), 5.00%, 11/1/2038 | 1,366,020 |
| 2,000,000 | | Decatur, TX Hospital Authority, Hospital Revenue Bonds (Series 2004A), 7.125% (Wise Regional Health System), 9/1/2034 | 2,039,100 |
| 515,000 | | Decatur, TX Hospital Authority, Revenue Bonds, 6.375% (Wise Regional Health System), 9/1/2042 | 490,687 |
| 1,665,000 | | Grand Parkway Transportation Corp., TX, Subordinate Tier Toll Revenue Bonds (Series 2013B TELA Supported), 5.25%, 10/1/2051 | 1,611,703 |
| 765,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.50% (Village at Gleannloch Farms, Inc.), 2/15/2027 | 691,315 |
| 1,265,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.50% (Village at Gleannloch Farms, Inc.), 2/15/2037 | 1,041,576 |
| 1,000,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.75% (Legacy at Willow Bend), 11/1/2036 | 942,620 |
| 1,500,000 | | Houston, TX Airport System, Special Facilities Revenue & Refunding Bonds (Series 2011), 6.625% (Continental Airlines, Inc.)/(Original Issue Yield: 6.875%), 7/15/2038 | 1,451,115 |
| 1,000,000 | | Houston, TX Airport System, Special Facilities Revenue Bonds (Series 2001), 7.00% (Continental Airlines, Inc.), 7/1/2029 | 1,000,130 |
| 1,000,000 | | Houston, TX Airport System, Subordinate Lien Revenue Refunding Bonds (Series 2012A), 5.00%, 7/1/2032 | 937,270 |
| 535,000 | | Houston, TX Higher Education Finance Corp., Education Revenue Bonds (Series 2011A), 6.875% (Cosmos Foundation, Inc.), 5/15/2041 | 588,762 |
| 2,000,000 | | Kerrville, TX HFDC, Hospital Revenue Bonds, 5.375% (Sid Peterson Memorial Hospital), 8/15/2035 | 1,907,080 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $2,000,000 | | Love Field Airport Modernization Corporation, TX, Special Facilities Revenue Bonds (Series 2012), 5.00% (Southwest Airlines Co.), 11/1/2028 | $1,890,000 |
| 2,000,000 | | Lufkin, TX HFDC, Revenue Refunding and Improvement Bonds (Series 2009), 6.25% (Memorial Health System of East Texas)/(Original Issue Yield: 6.50%), 2/15/2037 | 2,054,680 |
| 1,000,000 | | Matagorda County, TX Navigation District No. 1, PCRBs (Series 2001A), 6.30% (AEP Texas Central Co.), 11/1/2029 | 1,085,850 |
| 2,000,000 | | North Texas Education Finance Corp., Education Revenue Bonds (Series 2012A), 5.25% (Uplift Education), 12/1/2047 | 1,711,220 |
| 1,500,000 | | North Texas Tollway Authority, Special Projects System Revenue Bonds (Series 2011), 6.00% (North Texas Toll Authority Special Projects System), 9/1/2041 | 1,631,940 |
| 1,000,000 | | San Juan Higher Education Finance Authority, TX, Education Revenue Bonds (Series 2010A), 6.70% (Idea Public Schools), 8/15/2040 | 1,037,010 |
| 2,000,000 | 1,2 | 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 | 20 |
| 200,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Revenue Bonds, Series 2006A, 6.00% (Northwest Senior Housing Corp. Edgemere Project), 11/15/2026 | 200,210 |
| 1,150,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Revenue Bonds, Series 2006A, 6.00% (Northwest Senior Housing Corp. Edgemere Project), 11/15/2036 | 1,120,388 |
| 2,000,000 | | Texas State Public Finance Authority Charter School Finance Corporation, Education Revenue Bonds (Series 2010A), 6.20% (Cosmos Foundation, Inc.), 2/15/2040 | 2,064,220 |
| 2,000,000 | | Travis County, TX HFDC., First Mortgage Revenue Refunding Bonds (Series 2012A), 7.125% (Longhorn Village)/(Original Issue
Yield: 7.40%), 1/1/2046 | 1,891,060 |
| | | TOTAL | 41,717,203 |
| | | Utah—0.7% | |
| 800,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.55% (American Leadership Academy), 11/15/2026 | 716,944 |
| 1,750,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.70% (American Leadership Academy), 11/15/2036 | 1,476,545 |
| 1,315,000 | 3,4 | Utah State Charter School Finance Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Channing Hall), 7/15/2037 | 1,134,858 |
| | | TOTAL | 3,328,347 |
| | | Virginia—3.1% | |
| 1,000,000 | | Chesapeake, VA, Senior Toll Road Revenue Bonds (Series 2012A), 5.00% (Chesapeake, VA Transportation System), 7/15/2047 | 860,690 |
| 1,500,000 | | Chesterfield County, VA EDA, Refunding PCRBs (Series 2009A), 5.00% (Virginia Electric & Power Co.), 5/1/2023 | 1,620,360 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Virginia—continued | |
| $1,000,000 | | Dulles Town Center Community Development Authority, VA, Special Assessment Refunding Bonds (Series 2012), 4.25% (Original Issue Yield: 4.28%), 3/1/2026 | $876,490 |
| 1,380,000 | | Mosaic District CDA, VA, Revenue Bonds (Series 2011A), 6.875% (Original Issue Yield: 6.93%), 3/1/2036 | 1,506,877 |
| 1,500,000 | | Peninsula Town Center CDA, VA, Special Obligation Bonds (Series 2007), 6.35%, 9/1/2028 | 1,543,620 |
| 1,000,000 | | Peninsula Town Center CDA, VA, Special Obligation Bonds (Series 2007), 6.45%, 9/1/2037 | 1,023,640 |
| 2,535,000 | | Route 460 Funding Corporation of Virginia, Toll Road Senior Lien Revenue Bonds (Series 2012), 5.00%, 7/1/2052 | 1,963,865 |
| 4,250,000 | | Tobacco Settlement Financing Corp., VA, Tobacco Settlement Asset-Backed Bonds (Series 2007B-1), 5.00% (Original Issue
Yield: 5.12%), 6/1/2047 | 2,704,317 |
| 3,000,000 | | Virginia Small Business Financing Authority, Senior Lien Revenue Bonds (Series 2012), 5.00% (95 Express Lanes LLC), 1/1/2040 | 2,372,730 |
| | | TOTAL | 14,472,589 |
| | | Washington—1.6% | |
| 1,000,000 | | Port of Seattle, WA IDC, Special Facilities Revenue Refunding Bonds (Series 2012), 5.00% (Delta Air Lines, Inc.)/(Original Issue Yield: 5.31%), 4/1/2030 | 870,140 |
| 1,250,000 | | Tacoma, WA Consolidated Local Improvement District No. 65, Bonds, 5.75%, 4/1/2043 | 1,111,287 |
| 3,000,000 | | Tobacco Settlement Authority, WA, Tobacco Settlement Asset-Backed Revenue Bonds, 6.625% (Original Issue Yield: 6.875%), 6/1/2032 | 3,017,970 |
| 1,500,000 | 3,4 | Washington State Health Care Facilities Authority, Revenue Bonds (Series 2007A), 6.25% (Virginia Mason Medical Center)/(Original Issue Yield: 6.375%), 8/15/2042 | 1,541,085 |
| 1,270,000 | | Washington State Health Care Facilities Authority, Revenue Bonds (Series 2012), 5.00% (Kadlec Regional Medical Center), 12/1/2042 | 1,072,769 |
| | | TOTAL | 7,613,251 |
| | | West Virginia—0.6% | |
| 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 | 644,218 |
| 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 | 1,000,220 |
| 1,000,000 | | Ohio County, WV County Commission, Tax Increment Revenue Bonds (Series 2007A), 5.85% (Fort Henry Centre Tax Increment Financing District No. 1), 6/1/2034 | 1,006,240 |
| | | TOTAL | 2,650,678 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Wisconsin—2.1% | |
| $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 | $667,905 |
| 5,335,000 | | Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 5.75% (Wisconsin State)/(Original Issue
Yield: 5.950%), 5/1/2033 | 5,775,884 |
| 1,400,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004), 6.125% (Eastcastle Place, Inc.)/(Original Issue Yield: 6.25%), 12/1/2034 | 970,606 |
| 1,000,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004A), 6.75% (Beaver Dam Community Hospitals, Inc.)/(United States Treasury PRF 8/15/2014@100)/(Original Issue Yield: 6.95%), 8/15/2034 | 1,061,930 |
| 1,500,000 | | Wisconsin State Public Finance Authority, Senior Airport Facilities Revenue Refunding Bonds (Series 2012B), 5.00% (TrIPs Obligated Group)/(Original Issue Yield: 5.15%), 7/1/2042 | 1,264,755 |
| | | TOTAL | 9,741,080 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $481,598,842) | 453,180,531 |
| | | CORPORATE BOND—0.5% | |
| | | Multi State—0.5% | |
| 4,000,000 | 3 | Non-Profit Preferred Funding Trust I, Partnership, 9/15/2037
(IDENTIFIED COST $3,989,000) | 2,163,040 |
| | | SHORT-TERM MUNICIPAL—0.3%7 | |
| | | Michigan—0.3% | |
| 1,400,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC),
0.060%, 9/5/2013
(AT AMORTIZED COST) | 1,400,000 |
| | | TOTAL INVESTMENTS—98.2%
(IDENTIFIED COST $486,987,841)8 | 456,743,571 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.8%9 | 8,338,772 |
| | | TOTAL NET ASSETS—100% | $465,082,343 |
At August 31, 2013, the Fund had the following open futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Unrealized
Appreciation |
| 1U.S. Treasury Note, 10-Year Short Futures | 100 | $12,428,125 | December 2013 | $28,102 |
Unrealized Appreciation on Futures Contracts is included in “Other Assets and
Liabilities–Net.”
Securities that are subject to the federal alternative minimum tax (AMT) represent 16.1% of the Fund's portfolio as calculated based upon total market value (percentage is unaudited).
Annual Shareholder Report
| 1 | Non-income producing security. |
| 2 | Security in default. |
| 3 | 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 August 31, 2013, these liquid restricted securities amounted to $16,161,685, which represented 3.5% of total net assets. |
| 4 | 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 (the “Trustees”). At August 31, 2013, these liquid restricted securities amounted to $13,998,645, which represented 3.1% of total net assets. |
| 5 | Zero coupon bond. |
| 6 | Obligor has filed for bankruptcy protection. |
| 7 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 8 | The cost of investments for federal tax purposes amounts to $487,888,302. |
| 9 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
| Valuation Inputs | | | | |
| | Level 1—
Quoted
Prices and
Investments in
Investment
Companies | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | Total |
| Debt Securities | | | | |
| Municipal Bonds | $— | $453,180,531 | $— | $453,180,531 |
| Corporate Bond | — | 2,163,040 | — | 2,163,040 |
| Short-Term Municipal | — | 1,400,000 | — | 1,400,000 |
| TOTAL SECURITIES | $— | $456,743,571 | $— | $456,743,571 |
| OTHER FINANCIAL INSTRUMENTS1 | $28,102 | $— | $— | $28,102 |
| 1 | Other financial instruments include futures contracts.
|
Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| AMT | —Alternative Minimum Tax |
| CDA | —Community Development Authority |
| COL | —Collateralized |
| COP | —Certificate of Participation |
| EDA | —Economic Development Authority |
| EDC | —Economic Development Corporation |
| EDFA | —Economic Development Finance Authority |
| EDRBs | —Economic Development Revenue Bonds |
| GNMA | —Government National Mortgage Association |
| GO | —General Obligation |
| GTD | —Guaranteed |
| 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 | —Multi-Family Housing |
| PCFA | —Pollution Control Finance Authority |
| PCR | —Pollution Control Revenue |
| PCRBs | —Pollution Control Revenue Bonds |
| PRF | —Pre-refunded |
| Q-SBLF | —Qualified School Bond Loan Fund |
| SFM | —Single Family Mortgage |
| SID | —Special Improvement District |
| TELA | —Toll Equity Loan Agreement |
| TFA | —Transitional Finance Authority |
| USDT | —Unified School District |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value, Beginning of Period | $8.95 | $8.21 | $8.59 | $7.76 | $8.72 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.40 | 0.42 | 0.45 | 0.49 | 0.49 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.84) | 0.74 | (0.36) | 0.83 | (0.96) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.44) | 1.16 | 0.09 | 1.32 | (0.47) |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.40) | (0.42) | (0.47) | (0.49) | (0.49) |
| Net Asset Value, End of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 |
| Total Return2 | (5.17)% | 14.58% | 1.29% | 17.42% | (4.87)% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.89% | 0.89% | 0.85% | 0.77% | 0.79%3 |
| Net investment income | 4.53% | 4.88% | 5.57% | 5.93% | 6.65% |
| Expense waiver/reimbursement4 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $215,101 | $239,911 | $190,003 | $229,217 | $180,422 |
| Portfolio turnover | 17% | 14% | 28% | 18% | 24% |
| 1 | Beginning with the year ended August 31, 2010, the Fund was audited by KPMG LLP. The previous year was 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. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.79% for the year ended August 31, 2009, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value Beginning of Period | $8.95 | $8.21 | $8.59 | $7.75 | $8.71 |
| Income from Investment Operations: | | | | | |
| Net investment income | 0.36 | 0.36 | 0.41 | 0.44 | 0.45 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.86) | 0.74 | (0.38) | 0.82 | (0.97) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.50) | 1.10 | 0.03 | 1.26 | (0.52) |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.34) | (0.36) | (0.41) | (0.42) | (0.44) |
| Net Asset Value, End of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Total Return2 | (5.88)% | 13.72% | 0.55% | 16.69% | (5.59)% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 1.64% | 1.64% | 1.60% | 1.53% | 1.54%3 |
| Net investment income | 3.76% | 4.15% | 4.82% | 5.19% | 5.90% |
| Expense waiver/reimbursement4 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $15,620 | $22,783 | $24,122 | $36,952 | $41,094 |
| Portfolio turnover | 17% | 14% | 28% | 18% | 24% |
| 1 | Beginning with the year ended August 31, 2010, the Fund was audited by KPMG LLP. The previous year was 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. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 1.54% for the year ended August 31, 2009, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class C Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value Beginning of Period | $8.95 | $8.21 | $8.59 | $7.75 | $8.72 |
| Income from Investment Operations: | | | | | |
| Net investment income | 0.34 | 0.36 | 0.39 | 0.43 | 0.44 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.84) | 0.74 | (0.36) | 0.83 | (0.97) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.50) | 1.10 | 0.03 | 1.26 | (0.53) |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.34) | (0.36) | (0.41) | (0.42) | (0.44) |
| Net Asset Value, End of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Total Return2 | (5.88)% | 13.72% | 0.54% | 16.69% | (5.69)% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 1.64% | 1.64% | 1.60% | 1.53% | 1.54%3 |
| Net investment income | 3.78% | 4.13% | 4.82% | 5.18% | 5.91% |
| Expense waiver/reimbursement4 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $53,002 | $61,295 | $46,925 | $52,785 | $40,630 |
| Portfolio turnover | 17% | 14% | 28% | 18% | 24% |
| 1 | Beginning with the year ended August 31, 2010, the Fund was audited by KPMG LLP. The previous year was 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. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 1.54% for the year ended August 31, 2009, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value Beginning of Period | $8.95 | $8.21 | $8.59 | $7.76 | $8.72 |
| Income from Investment Operations: | | | | | |
| Net investment income | 0.40 | 0.42 | 0.45 | 0.49 | 0.49 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.84) | 0.74 | (0.36) | 0.83 | (0.96) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.44) | 1.16 | 0.09 | 1.32 | (0.47) |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.40) | (0.42) | (0.47) | (0.49) | (0.49) |
| Net Asset Value, End of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 |
| Total Return2 | (5.17)% | 14.58% | 1.29% | 17.42% | (4.87)% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.89% | 0.89% | 0.85% | 0.77% | 0.79%3 |
| Net investment income | 4.53% | 4.89% | 5.57% | 5.93% | 6.66% |
| Expense waiver/reimbursement4 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $178,932 | $203,396 | $177,290 | $200,948 | $162,315 |
| Portfolio turnover | 17% | 14% | 28% | 18% | 24% |
| 1 | Beginning with the year ended August 31, 2010, the Fund was audited by KPMG LLP. The previous year was 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. |
| 3 | The net expense ratio is calculated without reduction for fees paid indirectly for expense offset arrangements. The net expense ratio is 0.79% for the year ended August 31, 2009, after taking into account these reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout the Period)
| Period Ended August 31 | 20131 |
| Net Asset Value, Beginning of Period | $8.88 |
| Income from Investment Operations: | |
| Net investment income | 0.09 |
| Net realized and unrealized loss on investments and futures contracts | (0.78) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.69) |
| Less Distributions: | |
| Distributions from net investment income | (0.08) |
| Net Asset Value, End of Period | $8.11 |
| Total Return2 | (7.83)% |
| Ratios to Average Net Assets: | |
| Net expenses | 0.64%3 |
| Net investment income | 6.05%3 |
| Expense waiver/reimbursement4 | 0.21%3 |
| Supplemental Data: | |
| Net assets, end of period (000 omitted) | $2,426 |
| Portfolio turnover | 17%5 |
| 1 | Reflects operations for the period from June 11, 2013 (date of initial investment) to August 31, 2013. |
| 2 | Based on net asset value. 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 net investment income ratios shown above. |
| 5 | Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended August 31, 2013. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Assets and Liabilities
August 31, 2013
| Assets: | | |
| Total investment in securities, at value (identified cost $486,987,841) | | $456,743,571 |
| Cash | | 17,379 |
| Restricted cash (Note 2) | | 147,500 |
| Income receivable | | 7,415,322 |
| Receivable for investments sold | | 3,002,595 |
| Receivable for shares sold | | 270,200 |
| Receivable for daily variation margin | | 9,375 |
| TOTAL ASSETS | | 467,605,942 |
| Liabilities: | | |
| Payable for investments purchased | $985,760 | |
| Payable for shares redeemed | 1,280,616 | |
| Payable for shareholder services fee (Note 5) | 102,085 | |
| Payable for distribution services fee (Note 5) | 45,250 | |
| Payable for Directors'/Trustees' fees (Note 5) | 67 | |
| Accrued expenses (Note 5) | 109,821 | |
| TOTAL LIABILITIES | | 2,523,599 |
| Net assets for 57,326,089 shares outstanding | | $465,082,343 |
| Net Assets Consist of: | | |
| Paid-in capital | | $564,176,302 |
| Net unrealized depreciation of investments and futures contracts | | (30,216,168) |
| Accumulated net realized loss on investments and futures contracts | | (69,397,902) |
| Undistributed net investment income | | 520,111 |
| TOTAL NET ASSETS | | $465,082,343 |
Annual Shareholder Report
Statement of Assets and Liabilities–continued
| Net Asset Value, Offering Price and Redemption Proceeds Per Share | | |
| Class A Shares: | | |
| Net asset value per share ($215,101,180 ÷ 26,510,008 shares outstanding), no par value, unlimited shares authorized | | $8.11 |
| Offering price per share (100/95.50 of $8.11) | | $8.49 |
| Redemption proceeds per share | | $8.11 |
| Class B Shares: | | |
| Net asset value per share ($15,620,364 ÷ 1,926,477 shares outstanding), no par value, unlimited shares authorized | | $8.11 |
| Offering price per share | | $8.11 |
| Redemption proceeds per share (94.50/100 of $8.11) | | $7.66 |
| Class C Shares: | | |
| Net asset value per share ($53,002,475 ÷ 6,536,333 shares outstanding), no par value unlimited shares authorized | | $8.11 |
| Offering price per share | | $8.11 |
| Redemption proceeds per share (99.00/100 of $8.11) | | $8.03 |
| Class F Shares: | | |
| Net asset value per share ($178,931,911 ÷ 22,054,088 shares outstanding), no par value, unlimited shares authorized | | $8.11 |
| Offering price per share (100/99.00 of $8.11) | | $8.19 |
| Redemption proceeds per share (99.00/100 of $8.11) | | $8.03 |
| Institutional Shares: | | |
| Net asset value per share ($2,426,413 ÷ 299,183 shares outstanding), no par value, unlimited shares authorized | | $8.11 |
| Offering price per share | | $8.11 |
| Redemption proceeds per share | | $8.11 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Operations
Year Ended August 31, 2013
| Investment Income: | | | |
| Interest | | | $29,282,050 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $3,239,505 | |
| Administrative fee (Note 5) | | 421,353 | |
| Custodian fees | | 28,205 | |
| Transfer agent fee | | 282,320 | |
| Directors'/Trustees' fees (Note 5) | | 3,444 | |
| Auditing fees | | 33,000 | |
| Legal fees | | 7,098 | |
| Distribution services fee (Note 5) | | 633,806 | |
| Shareholder services fee (Note 5) | | 1,345,220 | |
| Account administration fee (Note 2) | | 2,560 | |
| Portfolio accounting fees | | 123,400 | |
| Share registration costs | | 76,430 | |
| Printing and postage | | 42,751 | |
| Insurance premiums (Note 5) | | 4,913 | |
| Miscellaneous (Note 5) | | 6,218 | |
| TOTAL EXPENSES | | 6,250,223 | |
| Waivers and Reimbursement (Note 5): | | | |
| Waiver of investment adviser fee | $(786,709) | | |
| Waiver of distribution services fee | (80) | | |
| Reimbursement of shareholder services fee | (275) | | |
| TOTAL WAIVERS AND REIMBURSEMENT | | (787,064) | |
| Net expenses | | | 5,463,159 |
| Net investment income | | | 23,818,891 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized loss on investments | | | (2,566,469) |
| Net realized gain on futures contracts | | | 128,211 |
| Net change in unrealized appreciation of investments | | | (48,238,132) |
| Net change in unrealized depreciation of future contracts | | | 148,355 |
| Net realized and unrealized loss on investments and futures contracts | | | (50,528,035) |
| Change in net assets resulting from operations | | | $(26,709,144) |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Changes in Net Assets
| Year Ended August 31 | 2013 | 2012 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $23,818,891 | $22,707,490 |
| Net realized loss on investments and futures contracts | (2,438,258) | (1,959,671) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (48,089,777) | 43,462,720 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (26,709,144) | 64,210,539 |
| Distribution to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (11,372,294) | (10,503,812) |
| Class B Shares | (791,649) | (961,202) |
| Class C Shares | (2,406,363) | (2,188,010) |
| Class F Shares | (9,299,876) | (9,291,231) |
| Institutional Shares | (187) | — |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (23,870,369) | (22,944,255) |
| Share Transactions: | | |
| Proceeds from sale of shares | 103,323,478 | 96,940,087 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 20,623,079 | 19,279,367 |
| Cost of shares redeemed | (135,670,001) | (68,439,954) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (11,723,444) | 47,779,500 |
| Change in net assets | (62,302,957) | 89,045,784 |
| Net Assets: | | |
| Beginning of period | 527,385,300 | 438,339,516 |
| End of period (including undistributed net investment income of $520,111 and $444,254, respectively) | $465,082,343 | $527,385,300 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Notes to Financial Statements
August 31, 2013
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 five portfolios. The financial statements included herein are only those of the Federated Municipal High Yield Advantage 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. Each portfolio pays its own expenses. The Fund offers five classes of shares: Class A Shares, Class B Shares, Class C Shares, Class F Shares and Institutional 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 AMT for individuals and corporations and state and local taxes.
Effective June 11, 2013, the Fund began offering Institutional Shares.
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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | Fixed-income securities and repurchase agreements acquired with remaining maturities of 60 days or less are valued at their amortized cost (adjusted for the accretion of any discount or amortization of any premium) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security. |
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
| ■ | Derivative contracts listed on exchanges are valued at their reported settlement or closing price. |
| ■ | Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers. |
Annual Shareholder Report
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation Procedures
The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to determine fair value of securities and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and 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 Class A Shares, Class B Shares, Class C Shares and Class F Shares may bear account administration fees, distribution services fees and shareholder services fees unique to those classes.
Annual Shareholder Report
For the year ended August 31, 2013, account administration fees for the Fund were as follows:
| | Account
Administration
Fees Incurred |
| Class A Shares | $1,039 |
| Class F Shares | 1,521 |
| TOTAL | $2,560 |
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 using the effective-interest-rate method.
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. As of and during the year ended August 31, 2013, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2013, tax years 2010 through 2013 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Restricted Securities
The Fund may purchase securities which are considered restricted. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Annual Shareholder Report
Additional information on restricted securities, excluding securities purchased under Rule 144A, that have been deemed liquid by the Trustees, held at August 31, 2013 is as follows:
| Security | Acquisition
Date | Cost | Market
Value |
| Non-Profit Preferred Funding Trust I, Partnership, 9/15/2037 | 10/26/2006-2/16/2007 | $3,989,000 | $2,163,040 |
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk. 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 which is shown as Restricted Cash in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures, guarantees the futures against default.
The average notional value of futures contracts held by the Fund throughout the period was $7,699,786. This is based on amounts held as of each month-end throughout the fiscal period.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments |
| | Asset |
| | Statement of
Assets and
Liabilities
Location | Fair
Value |
Derivatives not accounted for as hedging instruments
Under ASC Topic 815 | | |
| Interest rate contracts | Receivable for daily
variation margin | $28,102* |
| * | Includes cumulative appreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities. |
Annual Shareholder Report
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended August 31, 2013
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $128,211 |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $148,355 |
Other
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.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended August 31 | 2013 | 2012 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 6,959,731 | $62,555,415 | 6,416,505 | $55,095,880 |
| Shares issued to shareholders in payment of distributions declared | 1,111,256 | 9,885,188 | 1,044,647 | 8,908,430 |
| Shares redeemed | (8,355,249) | (73,574,560) | (3,799,592) | (32,605,875) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (284,262) | $(1,133,957) | 3,661,560 | $31,398,435 |
| Year Ended August 31 | 2013 | 2012 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 270,193 | $2,437,019 | 436,458 | $3,772,171 |
| Shares issued to shareholders in payment of distributions declared | 79,356 | 706,506 | 99,573 | 846,420 |
| Shares redeemed | (969,325) | (8,553,078) | (928,649) | (7,913,179) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (619,776) | $(5,409,553) | (392,618) | $(3,294,588) |
| Year Ended August 31 | 2013 | 2012 |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,474,483 | $13,261,170 | 1,680,226 | $14,520,436 |
| Shares issued to shareholders in payment of distributions declared | 235,625 | 2,095,408 | 217,368 | 1,852,059 |
| Shares redeemed | (2,023,629) | (17,748,118) | (764,450) | (6,523,195) |
| NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (313,521) | (2,391,540) | 1,133,144 | $9,849,300 |
Annual Shareholder Report
| Year Ended August 31 | 2013 | 2012 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 2,514,553 | $22,487,400 | 2,727,252 | $23,551,600 |
| Shares issued to shareholders in payment of distributions declared | 892,320 | 7,935,790 | 900,685 | 7,672,458 |
| Shares redeemed | (4,070,464) | (35,651,626) | (2,497,013) | (21,397,705) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | (663,591) | $(5,228,436) | 1,130,924 | $9,826,353 |
| | Period Ended
8/31/20131 | Year Ended
8/31/2012 |
| Institutional Shares: | Shares | Amount | | |
| Shares sold | 316,724 | $2,582,474 | — | $— |
| Shares issued to shareholders in payment of distributions declared | 23 | 187 | — | — |
| Shares redeemed | (17,564) | (142,619) | — | — |
| NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 299,183 | $2,440,042 | — | $— |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (1,581,967) | $(11,723,444) | 5,533,010 | $47,779,500 |
| 1 | Reflects operations for the period from June 11, 2013 (date of initial investment) to August 31, 2013. |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for partnership income and gains, defaulted securities, discount accretion/premium amortization on debt securities and expiration of capital loss carryforwards.
For the year ended August 31, 2013, permanent differences identified and reclassified among the components of net assets were as follows:
| Increase (Decrease) |
| Paid-In Capital | Undistributed
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss) |
| $(7,976,021) | $127,335 | $7,848,686 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2013 and 2012, was as follows:
| | 2013 | 2012 |
| Tax-exempt income | $23,795,280 | $22,941,250 |
| Ordinary income | $75,089 | $3,005 |
Annual Shareholder Report
As of August 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed tax-exempt income | $779,335 |
| Net unrealized depreciation | $(31,403,954) |
| Capital loss carryforwards | $(68,469,340) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales, discount accretion/premium amortization on debt securities, open defaulted bonds and partnership adjustments.
At August 31, 2013, the cost of investments for federal tax purposes was $487,888,302. The net unrealized depreciation of investments for federal tax purposes, excluding any unrealized appreciation resulting from futures contracts, was $31,144,731. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $11,439,772 and net unrealized depreciation from investments for those securities having an excess of cost over value of $42,584,503.
At August 31, 2013, the Fund had a capital loss carryforward of $68,469,340 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, thereby reducing 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, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| No expiration | $5,106,953 | 19,573,487 | $24,680,440 |
| 2014 | $1,161,133 | N/A | $1,161,133 |
| 2017 | $20,198,309 | N/A | $20,198,309 |
| 2018 | $19,483,511 | N/A | $19,483,511 |
| 2019 | $2,945,947 | N/A | $2,945,947 |
Capital loss carryforwards of $7,976,021 expired during the year ended August 31, 2013.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.60% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the Adviser voluntarily waived $786,709 of its fee.
Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the net fee paid to FAS was 0.078% of average 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 at 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 | 0.05% |
| Class B Shares | 0.75% |
| Class C Shares | 0.75% |
| Class F Shares | 0.05% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred | Distribution
Services Fees
Waived |
| Class B Shares | $157,208 | $— |
| Class C Shares | 476,598 | (80) |
| TOTAL | $633,806 | $(80) |
Annual Shareholder Report
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2013, FSC retained $164,340 of fees paid by the Fund. For the year ended August 31, 2013, the Fund's Class A Shares and Class F Shares did not incur a distribution services fee; however, they may begin to incur this fee upon approval by the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2013, FSC retained $69,049 in sales charges from the sale of Class A Shares. FSC also retained $4,722 of CDSC relating to redemptions of Class A Shares, $29,363 related to redemptions of Class B Shares, $17,599 related to redemptions of Class C Shares and $65,770 related to redemptions of Class F Shares.
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. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended August 31, 2013, Service Fees for the Fund were as follows:
| | Service Fees
Incurred | Service Fees
Reimbursed |
| Class A Shares | $624,764 | $(275) |
| Class B Shares | 52,403 | — |
| Class C Shares | 158,866 | — |
| Class F Shares | 509,187 | — |
| TOTAL | $1,345,220 | $(275) |
For the year ended August 31, 2013, FSCC received $47,933 of fees paid by the Fund.
Interfund Transactions
During the year ended August 31, 2013, 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 $96,100,000 and $92,850,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their respective fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights, excluding extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares, Class B Shares, Class C Shares, Class F Shares and Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 0.89%, 1.64%, 1.64%, 0.89% and 0.64% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”):
Annual Shareholder Report
(a) November 1, 2014; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2013 were as follows:
| Purchases | $90,179,060 |
| Sales | $96,362,372 |
7. INVESTMENT RISK
Although the Fund has a diversified portfolio, the Fund has 46.4% 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 higher for the holders of high yielding securities because such securities are generally unsecured and often subordinated to other creditors of the issuer.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 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 offered to the Fund by PNC Bank at the time of the borrowing. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2013, 99.69% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated municipal securities income trust and shareholders of federated municipal High yield advantage FUND:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Municipal High Yield Advantage Fund (the “Fund”), a portfolio of Federated Municipal Securities Income Trust, as of August 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the period presented prior to September 1, 2009 were audited by other independent registered public accountants whose report thereon dated October 20, 2009, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Municipal High Yield Advantage Fund as of August 31, 2013, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the four-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 24, 2013
Annual Shareholder Report
Shareholder Expense Example (unaudited)
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 and 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 March 1, 2013 to August 31, 2013.
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.
Annual Shareholder Report
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
3/1/2013 | Ending
Account Value
8/31/2013 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $913.60 | $4.29 |
| Class B Shares | $1,000 | $911.20 | $7.90 |
| Class C Shares | $1,000 | $911.20 | $7.90 |
| Class F Shares | $1,000 | $913.60 | $4.29 |
| Institutional Shares | $1,000 | $921.70 | $1.38 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,020.72 | $4.53 |
| Class B Shares | $1,000 | $1,016.94 | $8.34 |
| Class C Shares | $1,000 | $1,016.94 | $8.34 |
| Class F Shares | $1,000 | $1,020.72 | $4.53 |
| Institutional Shares | $1,000 | $1,021.98 | $3.26 |
| 1 | “Actual” expense information for Class A Shares, Class B Shares, Class C Shares, Class F Shares are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). ”Actual” expense information for the Institutional Shares is for the period from June 11, 2013 (date of initial investment) to August 31, 2013 and are equal to the Fund's annualized net expense ratio for Institutional Shares multiplied by 82/365 (to reflect the period from initial investment to August 31, 2013. “Hypothetical” expense information for Class A Shares, Class B Shares, Class C Shares, Class F Shares and Institutional Shares is presented on the basis of the full one-half-year period to enable comparison to other funds. It is based on assuming the same net expense ratio and average account value over the period but it is multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| Class A Shares | 0.89% |
| Class B Shares | 1.64% |
| Class C Shares | 1.64% |
| Class F Shares | 0.89% |
| Institutional Shares | 0.64% |
Annual Shareholder Report
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2012, the Trust comprised 5 portfolio(s), and the Federated Fund Family consisted of 42 investment companies (comprising 137 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
In Memoriam - John F. Cunningham, Independent Trustee
With deep sadness, Federated announces the passing of John F. Cunningham, who served as an independent member of the Board of the Federated Fund Family since 1999. Mr. Cunningham's savvy business acumen and incisive intellect made him a powerful force on the Federated Fund Board. He was an advocate for shareholders and a respected colleague within the Federated family. Mr. Cunningham enjoyed an outstanding career in technology, having served as President and in other Senior Executive positions with leading companies in the industry. Federated expresses gratitude to Mr. Cunningham for his fine contributions as a Board member, colleague and friend. He will be greatly missed.
Interested TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
John F. Donahue*
Birth Date: July 28, 1924
Trustee
Began serving: August 1990 | Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Began serving: August 1990 | Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, and Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, Auberle; Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director, Ireland Institute of Pittsburgh; Chair and Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County; Director, Our Campaign for the Church Alive, Inc.
Previous Position: Pennsylvania Superior Court Judge.
Qualifications: Legal and director experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Peter E. Madden
Birth Date: March 16, 1942
Trustee
Began serving: August 1991 | Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family.
Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.
Qualifications: Business management, mutual fund services and director experience. |
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Began serving: January 1999 | Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology).
Qualifications: Banking, business management, education and director experience. |
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee
Began serving: October 2006 | Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida.
Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber).
Qualifications: Business management, mutual fund, director and investment experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
John S. Walsh
Birth Date: November 28, 1957
Trustee
Began serving: June 1999 | Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh & Kelly, Inc.
Qualifications: Business management and director experience. |
OFFICERS
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT AND SECRETARY
Officer since: August 1990 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc.
Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
Lori A. Hensler, CPA
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. |
Richard B. Fisher
Birth Date: May 17, 1923
Vice Chairman
Officer since: August 2002 | Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 | Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc. |
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
Previous Positions: Served in Senior Management positions with a large regional banking organization. |
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: May 2004 | Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
Lee R. Cunningham II
Birth Date: August 26, 1964
Vice President
Officer since: June 2012
Portfolio Manager since: April 2009 | Principal Occupations: Lee R. Cunningham II has been the Fund's Portfolio Manager since April 2009. He is Vice President of the Trust with respect to the Fund. He joined Federated in 1995 as an Investment Analyst and has been a Portfolio Manager since 1998. He was named an Assistant Vice President of the Fund's Adviser in January 1998 and became a Vice President of the Fund's Adviser in July 2000. From 1986 through 1994, Mr. Cunningham was a Project Engineer with Pennsylvania Power and Light Company. He received his M.B.A. with concentrations in Finance and Operations from the University of Pittsburgh. |
R. J. Gallo
Birth Date: June 10, 1969
Vice President
Officer since: June 2012
Portfolio Manager since: April 2010 | Principal Occupations: R.J. Gallo, Senior Portfolio Manager and Head of the Municipal Bond Investment Group has been the Fund's Portfolio Manager since April 2010. He is Vice President of the Trust with respect to the Fund. Mr. Gallo joined Federated in 2000 as an Investment Analyst. He became a Senior Vice President of the Fund's Adviser in 2011. From 2005 to 2010 Mr. Gallo served as Vice President and from January 2002 through 2004 and as an Assistant Vice President of the Fund's Adviser. He has been a Portfolio Manager since December 2002. From 1996 to 2000, Mr. Gallo was a Financial Analyst and Trader at the Federal Reserve Bank of New York. Mr. Gallo has received the Chartered Financial Analyst designation and a Master's in Public Affairs with a concentration in Economics and Public Policy from Princeton University. |
Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2013
Federated Municipal High Yield Advantage Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board reviewed and approved at its May 2013 meetings the Fund's investment advisory contract for an additional one-year term. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed 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 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 (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
The Board is also familiar with and considered 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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent to which the Board members are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. Consistent with these judicial decisions, the Board also considered management fees charged to institutional and other clients of the Adviser for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Annual Shareholder Report
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 independent legal counsel. Throughout the year, and in connection with its May meetings, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also 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 information 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); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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.
Annual Shareholder Report
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, 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, noting that the overall expense structure of the Fund, after waivers and expense reimbursements, was above the median of the relevant peer group, but the Board still 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.
By contrast, 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 include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as 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.
Annual Shareholder Report
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant, though not conclusive in judging the reasonableness of proposed fees.
For the periods covered by the Evaluation, the Fund's performance for the one-year and three-year periods was at the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the five-year period. 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 information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, 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, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in arbitrarily allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate can dramatically alter the resulting estimate of cost and/or profitability of a fund. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive. The Board agreed with this assessment.
Annual Shareholder Report
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 and long-term investments in areas that support all of the Federated family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund family as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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 necessarily relevant to the 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.
Annual Shareholder Report
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 from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at 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. From the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder Report
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.
Federated Municipal High Yield Advantage Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923864
CUSIP 313923856
CUSIP 313923849
CUSIP 313923831
CUSIP 313923815
G01091-01 (10/13)
Federated is a registered trademark of Federated Investors, Inc.
2013 ©Federated Investors, Inc.
Annual Shareholder Report
August 31, 2013
Federated Michigan Intermediate Municipal Trust
Fund Established 1991
A Portfolio of Federated Municipal Securities Income Trust
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2012 through August 31, 2013. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
CONTENTS
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Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the 12-month reporting period ended August 31, 2013, was -2.89% for its Class A Shares. The total return of the S&P Municipal Bond Intermediate Index (the “Intermediate Index”)1 was -2.26% during the same period. The total return of the Morningstar Municipal Single State Intermediate Funds Category Average (MMSSIFA),2 a peer group average for the Fund, was -4.08% during the same period. The Fund's and the MMSSIFA's total return reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the Intermediate Index.
During the reporting period, the Fund's investment strategy focused on: (a) the effective duration of the portfolio (which indicates the portfolio's sensitivity to changes in interest rates);3,4 (b) the selection of securities with different maturities (expressed by a yield curve showing the relative yield of similar securities with different maturities); (c) the allocation of the Fund's portfolio among securities of similar issuers (referred to as “sectors”); (d) the credit quality of portfolio securities (which indicates the risk that the securities may default);5 and (e) security selection. These were the most significant factors affecting the Fund's performance relative to the Intermediate Index during the reporting period.
The Fund's Class A Shares outperformed the MMSSIFA and underperformed the Intermediate Index. The -2.89% total return for the reporting period consisted of 2.76% of tax-exempt dividends and price depreciation of 5.65% in the net asset value of the shares.6
MARKET OVERVIEW
During the 12-month reporting period, ten-year Treasury yields increased from a low of 1.55% in August 2012 to 2.89% in August 2013, and averaged 1.99%. Even though unemployment rates remained elevated, labor market conditions showed improvement. Inflation also remained below the Federal Reserve Board's (the “Fed”) long run objective while inflation expectations remained stable. Interest rate volatility did increase as markets reacted to the Fed's discussions about tapering the amount of U.S. Treasury and mortgage-backed securities it will purchase under its quantitative easing program as the economy shows improvement. The Fed's communications had investors anticipating a less accommodative stance of monetary policy than had been expected going forward. In an attempt to support a stronger economic recovery, the Fed continued to maintain an accommodative monetary policy stance during the reporting period. Developments in Europe continued to be a focus for investors, as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties, which indirectly affected interest rate levels in the tax-exempt municipal bond market. Foreign economic growth continued to be
Annual Shareholder Report
subdued, as fiscal retrenchment in the euro area continued to weigh on economic activity in Europe and factored into the Fed's accommodative policy stance. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances and weak economic growth. Political conditions in the Middle East continued to destabilize which resulted in “flight to quality” trades into what were perceived to be safer investments by investors as volatility in the markets increased. This resulted in periods of lower U.S. Treasury yields that also pushed municipal yields lower. Also, the amount of municipal bonds being issued during the reporting period was muted, which created a favorable technical environment (supply/demand imbalance) within the tax-exempt municipal bond market. A significant driver of the muted issuance was that the amount of municipal bonds being refunded collapsed as interest rates rose over the period. This reduces the amount of municipal bonds being issued and can help to provide a cushion for municipal bond prices, and as a result, absolute performance. However, the muted supply was offset by outflows from bond funds in general, and municipal bond funds in particular. Outflows sharply increased as investors anticipated higher interest rates and a less accommodative Fed.
The tax-exempt municipal market dealt with several policy-related issues over the course of the reporting period. These included U.S. fiscal policy decisions that resulted in increases in the top marginal tax rates, which were a positive factor for municipal bond prices and increased the value of the municipal tax exemption. The sequester (automatic spending cuts) was allowed to go into effect as a result of the inability of Congress and the President to come to a resolution over spending cuts, which had a negative impact on municipal government revenues and employment. Some positive news about the fiscal position of the states became available; in some cases, revenues rose sufficiently to enable increases in state government spending and employment. However, Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in a general widening in municipal credit spreads near the end of the period. The headline risk from these high profile names led to relative underperformance in lower rated municipal issuers. Also, Illinois continued to be unable to come to political terms over a solution for Illinois' underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist. The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny. However, many state and local municipal entities took actions to control pension costs, and this issue continued to be watched.
The major news in the Michigan municipal market was the city of Detroit filing for bankruptcy protection in July. Detroit's financial decline has been well-documented; it has lost over 60% of its population since 1950 and has seen its debt balloon over the last decade. The bankruptcy proceedings will be closely watched by the municipal market as they are likely to yield precedent-setting
Annual Shareholder Report
answers and directions to the municipal process. The impact of Detroit's bankruptcy has been felt across Michigan as the appetite of an already weak market for additional Michigan bonds receded; several large bond sales scheduled for July and August were postponed.
Despite the difficulties in Detroit, the economy elsewhere in Michigan has generally improved. The state's unemployment rate, on a seasonally adjusted basis, fell from 9.3% at the end of July 2012 to 8.8% in July 2013, well below the high of 14.2% in 2009. Real estate activity and other economic indicators also showed improvements.
Positive trends also continued at the state level. As it has the last several years, the state approved its 2013-14 budget several months early. During the reporting period, action by the rating agencies reflected improvements in the state's general obligation bonds. In March, Moody's Rating Service revised its outlook on Michigan's “Aa2” rating from stable to positive. In April, Standard & Poor's revised the outlook on its “AA-” rating from stable to positive. Also in April, Fitch Ratings upgraded its “AA-” rating to “AA” with a stable outlook. According to Municipal Market Data, spreads on Michigan State general obligation bonds tightened by up to 13 basis points compared to the “AAA” benchmark.
The Bond Buyer reported that issuance of Michigan municipal bonds for the twelve months ending August 31, 2013, was 51% lower than during the previous twelve months.
DURATION
As determined at the end of the 12-month reporting period, the Fund's dollar-weighted average duration was 4.52 years. Duration management continued to be a significant component of the Fund's investment strategy. Throughout the 12-month reporting period the Fund's duration was generally shorter than the duration of the Intermediate Index. Given that rates rose over the course of the period, the Fund's duration had a positive effect on the Fund's performance relative to the Intermediate Index.
SECTOR
Sector selection provided a positive contribution to total return relative to the Intermediate Index. The Fund was aided by overweight positions in three outperforming sectors, hospitals, higher education and industrial revenue bonds. Additionally, the Fund's underweight positions in underperforming sectors also added to performance: general obligations, transportation, and water & sewer. Detracting from return was an underweight to pre-refunded (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account) which outperformed the Intermediate Index.
Annual Shareholder Report
CREDIT QUALITY7
During the 12-month reporting period, the Fund, according to its strategy, maintained a high-quality portfolio, with over 90% of the portfolio rated in one of the three highest rating categories (“AAA,” “AA” and “A”).6 In the Intermediate Index, “A”-rated bonds had the highest return followed by “AA,” “AAA” and “BBB.” The Fund's larger allocation of “AA”-rated bonds, which underperformed, and smaller allocation of “A”-rated bonds, which outperformed, detracted from performance. The Fund's smaller allocation to “AAA”- and “BBB”-rated bonds, both of which underperformed, helped performance. Overall, the Fund's credit allocation relative to the Intermediate Index detracted from performance.
YIELD CURVE and MATURITY
During the 12-month reporting period, the bonds with longer maturity generally underperformed shorter-maturity bonds as rates rose and the yield curve steepened. The Fund's overweight position in bonds with ten or more years to maturity, which saw lower returns than shorter bonds, resulted in yield curve positioning that detracted from the Fund's performance, relative to the Intermediate Index.
SECURITY SELECTION
During the 12-month reporting period, security-specific factors included credit rating changes, calls and other idiosyncratic occurrences for individual bonds. These individual items had a negative effect on the Fund's performance versus the Intermediate Index. Additionally, since the Intermediate Index consists of national bonds while the Fund only included securities issued in Michigan, the Fund's return was influenced by conditions which were specific to the state.
Annual Shareholder Report
| 1 | Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Intermediate Index. |
| 2 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” for the definition of, and more information about, the MMSSIFA. |
| 3 | Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management Discussion of Fund Performance, duration is determined using a third-party analytical system. |
| 4 | Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. |
| 5 | Credit ratings pertain only to the securities in the portfolio and do not protect the Fund shares against market risk. |
| 6 | Income may be subject to the federal alternative minimum tax for individuals or corporations (AMT). |
| 7 | Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard & Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher rated securities and increased possibilities of default. |
Annual Shareholder Report
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Average Annual Total Return table below shows returns for Class A Shares averaged over the stated periods. The graph below illustrates the hypothetical investment of $10,0001 in Federated Michigan Intermediate Municipal Trust (Class A Shares) (the “Fund”) from August 31, 2003 to August 31, 2013, compared to the S&P Municipal Bond Intermediate Index (Intermediate Index),2 and the Morningstar Municipal Single State Intermediate Funds Category Average (MMSSIFA).3
Average Annual Total Returns for the Period Ended 8/31/2013
(returns reflect all applicable sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| A | -5.82% | 3.06% | 3.27% |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
Annual Shareholder Report
Growth of a $10,000 Investment–CLASS A SHARES
Growth of $10,000 as of August 31, 2013
| Federated Michigan Intermediate Municipal Trust - | Class A Shares | Intermediate Index | MMSSIFA |
| 8/31/2003 | 9,700 | 10,000 | 10,000 |
| 8/31/2004 | 10,244 | 10,689 | 10,536 |
| 8/31/2005 | 10,529 | 11,106 | 10,878 |
| 8/31/2006 | 10,775 | 11,424 | 11,122 |
| 8/31/2007 | 11,039 | 11,780 | 11,281 |
| 8/31/2008 | 11,502 | 12,438 | 11,612 |
| 8/31/2009 | 11,926 | 13,252 | 12,134 |
| 8/31/2010 | 12,910 | 14,560 | 13,120 |
| 8/31/2011 | 13,264 | 15,068 | 13,370 |
| 8/31/2012 | 14,207 | 16,139 | 14,267 |
| 8/31/2013 | 13,796 | 15,775 | 13,668 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 3.00% ($10,000 investment minus $300 sales charge = $9,700). |
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 3.00% ($10,000 investment minus $300 sales charge = $9,700). The Fund's performance assumes the reinvestment of all dividends and distributions. The Intermediate Index and the MMSSIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. |
| 2 | The Intermediate Index consists of bonds in the S&P Municipal Bond Index (“Main Index”) with a minimum maturity of 3 years and a maximum maturity of up to, but not including, 15 years as measured from the Rebalancing Date of the Main Index. The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the alternative minimum tax (AMT). Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The Intermediate Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The Intermediate Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 3 | Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated. |
Annual Shareholder Report
Portfolio of Investments Summary Table (unaudited)
At August 31, 2013, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 31.2% |
| Hospital | 18.0% |
| Water Sewer | 11.0% |
| Transportation | 7.7% |
| Special Tax | 7.4% |
| Education | 7.3% |
| General Obligation—State | 4.9% |
| Industrial Development Bond/Pollution Control Revenue | 3.4% |
| Public Power | 2.6% |
| Pre-refunded | 2.0% |
| Other2 | 3.5% |
| Other Assets and Liabilities—Net3 | 1.0% |
| 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, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-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 95.5% 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. |
Annual Shareholder Report
Portfolio of Investments
August 31, 2013
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.7% | |
| | | Michigan—98.7% | |
| $1,000,000 | | Anchor Bay, MI School District, Refunding UT GO Bonds (Series 2012), 5.00% (Q-SBLF GTD), 5/1/2020 | $1,122,850 |
| 2,000,000 | | Ann Arbor, MI Public School District, Refunding UT GO Bonds (Series 2012), 4.00% (Q-SBLF GTD), 5/1/2022 | 2,102,240 |
| 1,300,000 | | Ann Arbor, MI Public School District, School Building & Site UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 5/1/2019 | 1,395,849 |
| 955,000 | | Ann Arbor, MI, Court and Police Facilities LT GO Capital Improvement Bonds, 4.75%, 5/1/2025 | 993,477 |
| 1,000,000 | | Avondale, MI School District, Refunding UT GO Bonds (Series 2009), 4.50% (Q-SBLF GTD)/(Assured Guaranty Corp. INS), 5/1/2018 | 1,117,560 |
| 1,000,000 | | Battle Creek, MI School District, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,083,300 |
| 725,000 | | Berkley, MI School District, Refunding UT GO Bonds (Series 2009), 5.00% (Q-SBLF GTD)/(Assured Guaranty Corp. INS), 5/1/2019 | 833,206 |
| 1,690,000 | | Bishop, MI International Airport Authority, Refunding LT GO (Series 2010A), 4.50% (Assured Guaranty Municipal Corp. INS), 12/1/2023 | 1,728,481 |
| 1,000,000 | | Brandon School District, MI, UT GO School Building and Site Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 1,083,070 |
| 450,000 | | Byron Center, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Q-SBLF GTD), 5/1/2021 | 500,819 |
| 100,000 | | Canton Charter Township, MI, LT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 4/1/2014 | 102,657 |
| 1,000,000 | | Central Michigan University Board of Trustees, General Revenue Refunding Bonds (Series 2009), 5.00%, 10/1/2023 | 1,064,490 |
| 1,000,000 | | Chippewa Valley, MI Schools, Refunding UT GO Bonds (Series 2013), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,109,980 |
| 500,000 | | Chippewa Valley, MI Schools, UT GO Refunding Bonds, 5.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2014 | 515,540 |
| 1,250,000 | | Coopersville, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,353,838 |
| 1,500,000 | 1 | Detroit, MI Sewage Disposal System, Revenue Refunding Bonds, 5.50% (National Public Finance Guarantee Corporation INS), 7/1/2016 | 1,509,690 |
| 1,000,000 | 1 | Detroit, MI Water Supply System, Revenue Bonds Series A, 5.00% (Assured Guaranty Municipal Corp. INS), 7/1/2015 | 1,007,550 |
| 1,000,000 | 1 | Detroit, MI Water Supply System, Senior Lien Revenue Bonds (Series 2005-B), 5.50% (Berkshire Hathaway Assurance Corp. INS), 7/1/2020 | 1,026,780 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $2,000,000 | 1 | Detroit, MI Water Supply System, Senior Lien Revenue Bonds (Series 2006A), 5.00% (Assured Guaranty Municipal Corp. INS), 7/1/2018 | $1,991,380 |
| 1,000,000 | | Detroit/Wayne County, MI Stadium Authority, Building Authority Stadium LT GO Refunding Bonds (Series 2012), 5.00% (Wayne County, MI)/(Assured Guaranty Municipal Corp. INS), 10/1/2021 | 1,057,140 |
| 2,000,000 | | Dickinson County, MI EDC, Refunding PCRBs (Series 2004A), 4.80% (International Paper Co.), 11/1/2018 | 2,057,540 |
| 1,000,000 | | Eastern Michigan University Board of Regents, General Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Corp. INS)/(Q-SBLF GTD), 2/15/2023 | 1,063,270 |
| 250,000 | | Essexville-Hampton, MI Public Schools, UT GO Refunding Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2014 | 255,670 |
| 1,000,000 | | Ferris State University, MI, General Revenue Bonds (Series 2009), 5.00% (Assured Guaranty Corp. INS), 10/1/2020 | 1,098,110 |
| 500,000 | | Grand Rapids, MI Community College, LT GO Community College Bonds (Series 2012), 5.00%, 5/1/2024 | 543,175 |
| 1,000,000 | | Grand Rapids, MI Sanitary Sewer System, Revenue Refunding Bonds (Series 2013), 5.00%, 1/1/2024 | 1,105,120 |
| 1,180,000 | | Healthsource Saginaw, Inc., MI, UT GO Refunding Bonds (Series 2013), 4.00%, 5/1/2023 | 1,196,414 |
| 2,000,000 | | Jackson County, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2006C), 5.00% (Allegiance Health)/(Assured Guaranty Corp. INS), 6/1/2026 | 2,063,320 |
| 2,130,000 | | Kalamazoo, MI Hospital Finance Authority, Hospital Revenue Bonds (Series 2006), 5.00% (Bronson Methodist Hospital)/(Assured Guaranty Municipal Corp. INS), 5/15/2019 | 2,405,388 |
| 1,000,000 | | Kalamazoo, MI Public Schools, Refunding Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2018 | 1,094,050 |
| 1,000,000 | | Kalamazoo, MI Regional Educational Services Agency, UT GO School Building and Site Bonds, 5.00%, 5/1/2019 | 1,106,590 |
| 450,000 | | Kalamazoo, MI Water Revenue, Revenue Refunding Bonds, 5.00% (AMBAC INS), 9/1/2014 | 470,151 |
| 510,000 | | Kalamazoo, MI Water Revenue, Revenue Refunding Bonds, 5.00% (AMBAC INS), 9/1/2015 | 552,468 |
| 1,785,000 | | Kent County, MI Airport Revenue, LT GO Airport Revenue Bonds (Series 2007), 5.00% (Gerald R. Ford International Airport), 1/1/2021 | 1,961,786 |
| 1,345,000 | | Kent County, MI, Capital Improvement LT GO Bonds (Series 2004A), 5.00%, 12/1/2020 | 1,419,150 |
| 1,750,000 | | Kent County, MI, LT GO Bonds (Series 2009), 5.00%, 1/1/2025 | 1,847,020 |
| 1,500,000 | | Kent Hospital Finance Authority, MI, Revenue Refunding Bonds (Series 2011A), 5.00% (Spectrum Health), 11/15/2022 | 1,625,835 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Kentwood, MI Public Schools, Refunding UT GO Bonds (Series 2012), 4.00%, 5/1/2022 | $1,050,100 |
| 1,010,000 | | Lake Superior State University, MI, General Revenue Refunding Bonds (Series 2012), 4.00% (Assured Guaranty Municipal Corp. INS), 11/15/2020 | 1,046,703 |
| 1,900,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2011A), 5.00%, 7/1/2024 | 2,047,858 |
| 1,000,000 | | Lansing, MI School District, Refunding School Building & Site UT GO Bonds, 5.00% (United States Treasury PRF 5/1/2014@100), 5/1/2020 | 1,032,020 |
| 1,200,000 | | Marysville, MI Public School District, School Building & Site UT GO Bonds (Series 2007), 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,299,960 |
| 400,000 | | Michigan Finance Authority, Hospital Revenue Bonds (Series 2012), 5.00% (Sparrow Obligated Group, MI), 11/15/2026 | 406,912 |
| 1,500,000 | | Michigan Finance Authority, Revenue Bonds (Series 2012B), 5.00% (Michigan Finance Authority Unemployment Obligation Assessment), 1/1/2021 | 1,687,155 |
| 1,000,000 | | Michigan Finance Authority, State Revolving Fund Revenue Bonds (Series 2012), 5.00% (Clean Water Revolving Fund), 10/1/2025 | 1,093,050 |
| 1,000,000 | | Michigan Finance Authority, State Revolving Fund Subordinate Refunding Bonds (Series 2013), 5.00% (Clean Water Revolving Fund), 10/1/2023 | 1,126,220 |
| 1,000,000 | | Michigan Municipal Bond Authority, Revenue Bonds (Series 2007B), 5.00% (AMBAC INS), 12/1/2013 | 1,006,550 |
| 1,525,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.00% (Clean Water Revolving Fund), 10/1/2017 | 1,747,345 |
| 1,000,000 | | Michigan Public Power Agency, Combustion Turbine No. 1 Project Revenue Refunding Bonds (Series 2011A), 5.00% (Assured Guaranty Municipal Corp. INS), 1/1/2022 | 1,088,840 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue & Refunding Bonds (Series 2013 1-A), 5.00%, 10/15/2022 | 545,460 |
| 1,000,000 | | Michigan State Building Authority, Facilities Program Revenue Bonds (Series 2009 II), 5.00% (Assured Guaranty Corp. INS), 10/15/2022 | 1,076,640 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2009I), 5.25% (Assured Guaranty Corp. INS), 10/15/2024 | 1,086,260 |
| 2,000,000 | | Michigan State Comprehensive Transportation Fund, Refunding Bonds (Series 2009), 5.25%, 5/15/2019 | 2,280,300 |
| 2,485,000 | | Michigan State Department of Transportation, Grant Anticipation Bonds, 5.25% (Assured Guaranty Municipal Corp. INS), 9/15/2021 | 2,791,276 |
| 1,970,000 | | Michigan State Financial Authority, Revenue Bonds (Series 2006A), 5.00% (Trinity Healthcare Credit Group), 12/1/2026 | 1,989,956 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2006A), 5.00% (Henry Ford Health System, MI), 11/15/2021 | 1,028,070 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,275,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2007A), 5.00% (Oakwood Obligated Group), 7/15/2018 | $1,389,049 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2012A), 5.00% (Crittenton Hospital Medical Center), 6/1/2027 | 1,001,450 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2006A), 5.00% (MidMichigan Obligated Group), 4/15/2026 | 1,005,520 |
| 155,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 1993P), 5.38% (Sisters of Mercy Health System)/(United States Treasury COL)/(Original Issue Yield: 5.55%)/(National Public Finance Guarantee Corporation INS), 8/15/2014 | 162,452 |
| 1,790,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2005C), 5.00% (McLaren Health Care Corp.), 8/1/2020 | 1,890,956 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2010B), 5.00% (Ascension Health Alliance Senior Credit Group), 11/15/2024 | 2,124,740 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series 2010 F-3), 2.63% TOBs (Ascension Health Alliance Senior Credit Group), Mandatory Tender 6/30/2014 | 1,018,070 |
| 250,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Henry Ford Health System, MI), 11/15/2014 | 260,203 |
| 500,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Henry Ford Health System, MI), 11/15/2025 | 500,000 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Oakwood Obligated Group), 7/15/2025 | 1,012,560 |
| 750,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 5.00% (Sparrow Obligated Group, MI), 11/15/2022 | 777,825 |
| 2,000,000 | | Michigan State Housing Development Authority, MFH Revenue Bonds (Series 2010A), 4.38%, 10/1/2025 | 1,922,000 |
| 210,000 | | Michigan State Housing Development Authority, MFH Revenue Bonds (Series B), 4.05% (Assured Guaranty Municipal Corp. INS), 10/1/2013 | 210,470 |
| 1,000,000 | | Michigan State Strategic Fund, LO Revenue Refunding Bonds, 7.00% (Detroit Edison Co.)/(AMBAC INS), 5/1/2021 | 1,204,020 |
| 2,000,000 | | Michigan State Strategic Fund, Revenue Bonds , 4.25% TOBs (Republic Services, Inc.), Mandatory Tender 4/1/2014 | 2,020,200 |
| 95,000 | | Michigan State Strategic Fund, Revenue Bonds, 5.30% (Porter Hills Presbyterian Village, Inc.)/(Original Issue Yield: 5.42%), 7/1/2018 | 95,053 |
| 1,000,000 | | Michigan State Trunk Line, Revenue Bonds, 5.00% (FGIC and National Public Finance Guarantee Corporation INS), 11/1/2014 | 1,052,560 |
| 1,000,000 | | Michigan State Trunk Line, Revenue Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 9/1/2014 | 1,046,890 |
| 2,600,000 | | Michigan State Trunk Line, Revenue Refunding Bonds (Series 2009), 5.00%, 11/1/2020 | 2,908,568 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2022 | $553,090 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2023 | 545,075 |
| 2,000,000 | | Michigan State, Environmental Program & Refunding UT GO Bonds (Series 2008A), 5.00%, 5/1/2016 | 2,219,160 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Bonds (Series 2011), 5.25% (Michigan State), 10/15/2022 | 1,089,070 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Refunding Bonds (Series 2008ET-2), 5.50% TOBs (Detroit Edison Co.), Mandatory Tender 8/1/2016 | 1,103,730 |
| 1,000,000 | | Michigan Technological University Board of Control, General Revenue & Revenue Refunding Bonds (Series 2008), 5.25% (United States Treasury COL), 10/1/2018 | 1,178,000 |
| 500,000 | | Northview Michigan Public School District, Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 557,260 |
| 1,000,000 | | Oakland County, MI EDC, Revenue Refunding Bonds, 4.00% (Cranbrook Educational Community), 11/1/2021 | 1,023,490 |
| 1,855,000 | | Orchard View, MI Schools, UT GO Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,904,343 |
| 525,000 | | Ovid Elsie, MI Area Schools, UT GO Refunding Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2015 | 552,594 |
| 550,000 | | Rochester Hills, MI, Refunding UT GO Bonds (Series 2010), 4.50%, 4/1/2021 | 597,047 |
| 1,130,000 | | Romulus, MI Tax Increment Finance Authority, Recreation Center LT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 11/1/2022 | 1,172,285 |
| 1,100,000 | | Roseville, MI Community Schools, School Building & Site Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2021 | 1,191,377 |
| 1,670,000 | | Saginaw County, MI Water Supply System, Revenue Bonds (Series 2011A), 4.75% (Assured Guaranty Municipal Corp. INS), 7/1/2025 | 1,722,221 |
| 1,500,000 | | Saginaw, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2010H), 5.00% (Covenant Medical Center, Inc.)/(Original Issue Yield: 5.07%), 7/1/2030 | 1,435,680 |
| 1,975,000 | | St. Clair County, MI, LT GO Refunding Bonds (Series 2012), 5.00%, 4/1/2025 | 2,092,986 |
| 1,000,000 | | University of Michigan Regents, General Revenue Bonds (Series 2010C), 4.00%, 4/1/2022 | 1,057,220 |
| 500,000 | | Utica, MI Community Schools, School Building and Site Refunding UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 5/1/2017 | 558,835 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2010C), 5.00%, 12/1/2021 | 2,099,840 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2011A-B), 5.00%, 12/1/2021 | $2,140,940 |
| 1,000,000 | | Wayne State University, MI, General Revenue Refunding Bonds (Series 2008), 5.00% (Assured Guaranty Municipal Corp. INS), 11/15/2019 | 1,095,110 |
| 1,000,000 | | Western Michigan University, General Revenue Refunding Bonds (Series 2009), 5.25% (Assured Guaranty Corp. INS), 11/15/2019 | 1,124,000 |
| 500,000 | | Western Townships MI, Utilities Authority, Sewage Disposal System Refunding LT GO Bonds (Series 2012), 5.00%, 1/1/2023 | 543,485 |
| 1,000,000 | | Ypsilanti, MI School District, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 5/1/2023 | 1,073,690 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $118,323,062) | 120,228,743 |
| | | SHORT-TERM MUNICIPAL—0.3%2 | |
| | | Michigan—0.3% | |
| 300,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC),
0.060%, 9/5/2013
(AT AMORTIZED COST) | 300,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.0%
(IDENTIFIED COST $118,623,062)3 | 120,528,743 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.0%4 | 1,230,239 |
| | | TOTAL NET ASSETS—100% | $121,758,982 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.6% of the Fund's portfolio as calculated based upon total market value (percentage is unaudited).
| 1 | Obligor has filed for bankruptcy. |
| 2 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 3 | The cost of investments for federal tax purposes amounts to $118,577,210. |
| 4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2013.
Annual Shareholder Report
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of August 31, 2013, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| COL | —Collateralized |
| EDC | —Economic Development Corporation |
| FGIC | —Financial Guaranty Insurance Company |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LO | —Limited Obligation |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| MFH | —Multi-Family Housing |
| PCRBs | —Pollution Control Revenue Bonds |
| PRF | —Pre-refunded |
| Q-SBLF | —Qualified School Bond Loan Fund |
| TOBs | —Tender Option Bonds |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements.
Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $11.59 | $11.17 | $11.27 | $10.80 | $10.84 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.34 | 0.36 | 0.39 | 0.40 | 0.42 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.67) | 0.42 | (0.10) | 0.47 | (0.04) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.33) | 0.78 | 0.29 | 0.87 | 0.38 |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.33) | (0.36) | (0.39) | (0.40) | (0.42) |
| Distributions from net realized gain on investments | (0.03) | — | — | — | — |
| TOTAL DISTRIBUTIONS | (0.36) | (0.36) | (0.39) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $10.90 | $11.59 | $11.17 | $11.27 | $10.80 |
| Total Return1 | (2.89)% | 7.11% | 2.74% | 8.25% | 3.69% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.63% | 0.62% | 0.54% | 0.54% | 0.54% |
| Net investment income | 2.95% | 3.16% | 3.60% | 3.66% | 3.98% |
| Expense waiver/reimbursement2 | 0.26% | 0.35% | 0.38% | 0.35% | 0.31% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $121,759 | $131,357 | $124,626 | $160,614 | $164,536 |
| Portfolio turnover | 8% | 13% | 16% | 21% | 12% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 2 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Assets and Liabilities
August 31, 2013
| Assets: | | |
| Total investment in securities, at value (identified cost $118,623,062) | | $120,528,743 |
| Cash | | 30,334 |
| Income receivable | | 1,618,688 |
| Receivable for shares sold | | 23,363 |
| TOTAL ASSETS | | 122,201,128 |
| Liabilities: | | |
| Payable for shares redeemed | $237,024 | |
| Income distribution payable | 131,007 | |
| Payable for portfolio accounting fees | 30,636 | |
| Payable for shareholder services fee (Note 5) | 23,186 | |
| Payable for Directors'/Trustees' fees (Note 5) | 185 | |
| Accrued expenses (Note 5) | 20,108 | |
| TOTAL LIABILITIES | | 442,146 |
| Net assets for 11,170,994 shares outstanding | | $121,758,982 |
| Net Assets Consist of: | | |
| Paid-in capital | | $119,911,931 |
| Net unrealized appreciation of investments | | 1,905,681 |
| Accumulated net realized loss on investments and futures contracts | | (61,318) |
| Undistributed net investment income | | 2,688 |
| TOTAL NET ASSETS | | $121,758,982 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share | | |
| Net asset value per share ($121,758,982 ÷ 11,170,994 shares outstanding), no par value, unlimited shares authorized | | $10.90 |
| Offering price per share (100/97.00 of 10.90) | | $11.24 |
| Redemption proceeds per share | | $10.90 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Operations
Year Ended August 31, 2013
| Investment Income: | | | |
| Interest | | | $4,750,909 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $530,210 | |
| Administrative fee (Note 5) | | 103,446 | |
| Custodian fees | | 10,635 | |
| Transfer agent fee | | 46,442 | |
| Directors'/Trustees' fees (Note 5) | | 816 | |
| Auditing fees | | 25,000 | |
| Legal fees | | 4,881 | |
| Shareholder services fee (Note 5) | | 289,430 | |
| Account administration fee (Note 2) | | 39,930 | |
| Portfolio accounting fees | | 90,000 | |
| Share registration costs | | 21,882 | |
| Printing and postage | | 15,297 | |
| Insurance premiums (Note 5) | | 4,198 | |
| Miscellaneous (Note 5) | | 1,574 | |
| TOTAL EXPENSES | | 1,183,741 | |
| Waiver (Note 5): | | | |
| Waiver of investment adviser fee | | (342,166) | |
| Net expenses | | | 841,575 |
| Net investment income | | | 3,909,334 |
| Realized and Unrealized Loss on Investments: | | | |
| Net realized loss on investments | | | (107,004) |
| Net change in unrealized appreciation of investments | | | (7,596,863) |
| Net realized and unrealized loss on investments | | | (7,703,867) |
| Change in net assets resulting from operations | | | $(3,794,533) |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Changes in Net Assets
| Year Ended August 31 | 2013 | 2012 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $3,909,334 | $3,975,274 |
| Net realized gain (loss) on investments | (107,004) | 539,451 |
| Net change in unrealized appreciation/depreciation of investments | (7,596,863) | 4,107,986 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (3,794,533) | 8,622,711 |
| Distribution to Shareholders: | | |
| Distributions from net investment income | (3,840,570) | (3,999,320) |
| Distributions from net realized gain on investments | (399,669) | — |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (4,240,239) | (3,999,320) |
| Share Transactions: | | |
| Proceeds from sale of shares | 24,425,523 | 21,215,703 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,507,513 | 2,279,814 |
| Cost of shares redeemed | (28,496,230) | (21,388,419) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (1,563,194) | 2,107,098 |
| Change in net assets | (9,597,966) | 6,730,489 |
| Net Assets: | | |
| Beginning of period | 131,356,948 | 124,626,459 |
| End of period (including undistributed net investment income of $2,688 and $(52,920), respectively) | $121,758,982 | $131,356,948 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Notes to Financial Statements
August 31, 2013
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 five 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. Each portfolio pays its own expenses. 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 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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities and repurchase agreements acquired with remaining maturities of 60 days or less are valued at their amortized cost (adjusted for the accretion of any discount or amortization of any premium) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security. |
| ■ | Derivative contracts listed on exchanges are valued at their reported settlement or closing price. |
| ■ | Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
| ■ | For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers. |
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from
Annual Shareholder Report
more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation
The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to determine fair value of securities and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. 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 using the effective-interest-rate method.
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. As of and during the year ended August 31, 2013, the Fund did not have a liability for any uncertain tax positions. The Fund
Annual Shareholder Report
recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2013, tax years 2010 through 2013 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Other
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.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
| Year Ended August 31 | 2013 | 2012 |
| Shares sold | 2,120,302 | 1,860,203 |
| Shares issued to shareholders in payment of distributions declared | 218,492 | 199,883 |
| Shares redeemed | (2,505,982) | (1,883,243) |
| NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (167,188) | 176,843 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for discount accretion/premium amortization on debt securities.
For the year ended August 31, 2013, permanent differences identified and reclassified among the components of net assets were as follows:
| Increase (Decrease) |
Undistributed
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss) |
| $(13,156) | $13,156 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2013 and 2012, was as follows:
| | 2013 | 2012 |
| Tax-exempt income | $3,840,570 | $3,999,320 |
| Long-term capital gain | $399,669 | $— |
Annual Shareholder Report
As of August 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed tax-exempt income | $2,688 |
| Net unrealized appreciation | $1,951,533 |
| Capital loss carryforward | $(107,170) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for wash sales and discount accretion/premium amortization on debt securities.
At August 31, 2013, the cost of investments for federal tax purposes was $118,577,210. The net unrealized appreciation of investments for federal tax purposes was $1,951,533. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $3,701,651 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,750,118.
At August 31, 2013, the Fund had a capital loss carryforward of $107,170 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, thereby reducing 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, a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term and does not expire. All of the Fund's capital loss carryforwards were incurred in taxable years beginning after December 22, 2010.
The following schedule summarizes the Fund's capital loss carryforwards:
| Short-Term | Long-Term | Total |
| $107,170 | $— | $107,170 |
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the Adviser waived $342,166 of its fee.
Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the net fee paid to FAS was 0.078% of average daily net assets of the Fund.
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 to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended August 31, 2013, FSCC received $2,140 of fees paid by the Fund.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable.
Interfund Transactions
During the year ended August 31, 2013, 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 $12,200,000 and $13,750,000, respectively.
Expense Limitation
Effective November 1, 2013, the Adviser and certain of its affiliates (which may include FAS and FSSC) have voluntarily agreed to waive their respective fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights, excluding extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares (after the voluntary waivers and reimbursements) will not exceed 0.75% (the “Fee Limit”) up to but not including the later of (the “Termination Date”): (a) November 1, 2014; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Annual Shareholder Report
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2013, were as follows:
| Purchases | $11,310,570 |
| Sales | $10,726,417 |
7. CONCENTRATION OF RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at August 31, 2013, 44.9% 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 by (backed) by a letter of credit from any one institution or agency, Assured Guaranty Municipal Corporation, was 21.5% of total investments.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 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 offered to the Fund by PNC Bank at the time of the borrowing. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended August 31, 2013, the amount of long-term capital gains designated by the Fund was $399,669.
For the year ended August 31, 2013, 100% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated municipal securities income trust and shareholders of federated Michigan intermediate municipal Trust:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Michigan Intermediate Municipal Trust (the “Fund”), a portfolio of Federated Municipal Securities Income Trust, as of August 31, 2013, and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Michigan Intermediate Municipal Trust as of August 31, 2013, and the results of its operations for the year then ended, and the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 24, 2013
Annual Shareholder Report
Shareholder Expense Example (unaudited)
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 and 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 March 1, 2013 to August 31, 2013.
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.
Annual Shareholder Report
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
3/1/2013 | Ending
Account Value
8/31/2013 | Expenses Paid
During Period1,2 |
| Actual | $1,000 | $951.40 | $3.10 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,022.03 | $3.21 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.63%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). |
| 2 | Actual and Hypothetical expenses paid during the period utilizing the Fund's current Fee Limit of 0.75% (as reflected in the Notes to Financial Statements, Note 5 under Expense Limitation), multiplied by the average account value over the period, multiplied by 184/365 (to reflect expenses paid as if they had been in effect throughout the most recent one-half-year period) would be $3.69 and $3.82, respectively. |
Annual Shareholder Report
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2012, the Trust comprised five portfolio(s), and the Federated Fund Family consisted of 42 investment companies (comprising 137 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
In Memoriam - John F. Cunningham, Independent Trustee
With deep sadness, Federated announces the passing of John F. Cunningham, who served as an independent member of the Board of the Federated Fund Family since 1999. Mr. Cunningham's savvy business acumen and incisive intellect made him a powerful force on the Federated Fund Board. He was an advocate for shareholders and a respected colleague within the Federated family. Mr. Cunningham enjoyed an outstanding career in technology, having served as President and in other Senior Executive positions with leading companies in the industry. Federated expresses gratitude to Mr. Cunningham for his fine contributions as a Board member, colleague and friend. He will be greatly missed.
Interested TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
John F. Donahue*
Birth Date: July 28, 1924
Trustee
Began serving: August 1990 | Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Began serving: August 1990 | Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, and Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, Auberle; Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director, Ireland Institute of Pittsburgh; Chair and Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County; Director, Our Campaign for the Church Alive, Inc.
Previous Position: Pennsylvania Superior Court Judge.
Qualifications: Legal and director experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Peter E. Madden
Birth Date: March 16, 1942
Trustee
Began serving: August 1991 | Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family.
Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.
Qualifications: Business management, mutual fund services and director experience. |
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Began serving: January 1999 | Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology).
Qualifications: Banking, business management, education and director experience. |
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee
Began serving: October 2006 | Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida.
Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber).
Qualifications: Business management, mutual fund, director and investment experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
John S. Walsh
Birth Date: November 28, 1957
Trustee
Began serving: July 1999 | Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh & Kelly, Inc.
Qualifications: Business management and director experience. |
OFFICERS
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT AND SECRETARY
Officer since: August 1990 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc.
Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
Lori A. Hensler, CPA
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. |
Richard B. Fisher
Birth Date: May 17, 1923
VICE CHAIRMAN
Officer since: August 2002 | Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 | Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc. |
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
Previous Positions: Served in Senior Management positions with a large regional banking organization. |
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Officer since: February 2010 | Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
Lee R. Cunningham II
Birth Date: August 26, 1964
Vice President
Officer since: June 2012
Portfolio Manager since: May 1998 | Principal Occupations: Lee R. Cunningham II has been the Fund's Portfolio Manager since May 1998. He is Vice President of the Trust with respect to the Fund. He joined Federated in 1995 as an Investment Analyst and has been a Portfolio Manager since 1998. He was named an Assistant Vice President of the Fund's Adviser in January 1998 and became a Vice President of the Fund's Adviser in July 2000. From 1986 through 1994, Mr. Cunningham was a Project Engineer with Pennsylvania Power and Light Company. He received his M.B.A. with concentrations in Finance and Operations from the University of Pittsburgh. |
Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2013
Federated Michigan Intermediate Municipal Trust (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board reviewed and approved at its May 2013 meetings the Fund's investment advisory contract for an additional one-year term. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed 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 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 (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
The Board is also familiar with and considered 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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent to which the Board members are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. Consistent with these judicial decisions, the Board also considered management fees charged to institutional and other clients of the Adviser for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Annual Shareholder Report
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 independent legal counsel. Throughout the year, and in connection with its May meetings, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also 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 information 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); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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.
Annual Shareholder Report
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, 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, noting that the overall expense structure of the Fund, after waivers and expense reimbursements, was below the median of the relevant peer group, and was satisfied that the overall expense structure of the Fund remained competitive.
By contrast, 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 include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as 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.
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant, though not conclusive in judging the reasonableness of proposed fees.
Annual Shareholder Report
For the one-year, three-year and five-year periods covered by the Evaluation, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, 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, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in arbitrarily allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate can dramatically alter the resulting estimate of cost and/or profitability of a fund. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive. The Board agreed with this assessment.
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 and long-term investments in areas that support all of the Federated family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund family as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject,
Annual Shareholder Report
which (as discussed in the Senior Officer's Evaluation) 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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 necessarily relevant to the 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.
Annual Shareholder Report
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 from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at 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. From the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder Report
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 Trust's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Michigan Intermediate Municipal Trust
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923302
G01106-03 (10/13)
Federated is a registered trademark of Federated Investors, Inc.
2013 ©Federated Investors, Inc.
Annual Shareholder Report
August 31, 2013
| Share Class | Ticker |
| A | NYIFX |
| B | NYIBX |
Federated New York Municipal Income Fund
Fund Established 1992
A Portfolio of Federated Municipal Securities Income Trust
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2012 through August 31, 2013. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
CONTENTS
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| 15 |
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| 18 |
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| 29 |
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| 37 |
| 42 |
| 42 |
Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the 12-month reporting period ended August 31, 2013 was -4.50% for Class A Shares and -5.21% for Class B Shares. The total return of the S&P Municipal Bond New York Index (the “NY Index”),1 the Fund's broad-based securities market index, was -3.38% during the same period. The total return of the Morningstar Municipal New York Funds Category Average (MMNYFCA),2 a peer group average for the Fund, was -6.21% during the same period. The Fund's total return for the most recently completed fiscal year, and the MMNYFCA's total return during that same period, reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the NY Index.
During the reporting period, the Fund's investment strategy focused on: (a) the effective duration of its portfolio (which indicates the portfolio's sensitivity to changes in interest rates);3,4 (b) the allocation of the Fund's portfolio among securities of similar issuers (referred to as “sectors”); and (c) the credit ratings of portfolio securities (which indicates the risk that securities will default).5 These were the most significant factors affecting the Fund's performance relative to the NY Index.
The following discussion focuses on the performance of the Fund's Class A Shares. The Fund's Class A Shares outperformed the MMNYFCA and underperformed the NY Index. The -4.50% total return of the Class A Shares for the reporting period consisted of 2.92% of tax-exempt dividends and reinvestments and price depreciation of 7.42% in the net asset value of the shares.6
MARKET OVERVIEW
During the 12-month reporting period, ten-year Treasury yields increased from a low of 1.55% in August, 2012 to 2.89% in August, 2013, and averaged 1.99%. Even though unemployment rates remained elevated, labor market conditions showed improvement. Inflation also remained below the Federal Reserve Board's (the “Fed”) long run objective while inflation expectations remained stable. Interest rate volatility increased as markets reacted to the Fed's discussions about tapering the amount of U.S. Treasury and mortgage-backed securities it will purchase under their quantitative easing program as the economy shows improvement. The Fed's communications had investors anticipating a less accommodative stance of monetary policy than had been expected going forward. In an attempt to support a stronger economic recovery, the Fed continued to maintain an accommodative monetary policy stance during the reporting period. Developments in Europe continued to be a focus for investors, as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties, which indirectly affected interest rate levels in the tax-exempt municipal bond market. Foreign economic growth continued to be
Annual Shareholder Report
subdued, as fiscal retrenchment in the euro area continued to weigh on economic activity in Europe and factored into the Fed's accommodative policy stance. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances and weak economic growth. Political conditions in the Middle East continued to destabilize which resulted in “flight to quality” trades into what were perceived to be safer investments by investors as volatility in the markets increased. This resulted in periods of lower U.S. Treasury yields that also pushed municipal yields lower. Also, the amount of tax-exempt municipal bonds being issued during the reporting period was muted, which created a favorable technical environment (supply/demand imbalance) within the tax-exempt municipal bond market. A significant driver of the muted issuance was that the amount of tax-exempt municipal bonds being refunded collapsed as interest rates rose over the reporting period. This reduced the amount of tax-exempt municipal bonds being issued and helped to provide a cushion for municipal bond prices, and as a result, absolute performance. However, the muted supply was offset by outflows from bond funds in general, and municipal bond funds in particular. Outflows sharply increased as investors anticipated higher interest rates and a less accommodative Fed.
The tax-exempt municipal market dealt with several policy-related issues over the course of the reporting period. These included U.S. fiscal policy decisions that resulted in increases in the top marginal tax rates, which were a positive factor for municipal bond prices and increased the value of the municipal tax exemption. The sequester (automatic spending cuts) was allowed to go into effect as a result of the inability of Congress and the President to come to a resolution over spending cuts, which had a negative impact on municipal government revenues and employment. Some positive news about the fiscal position of the states became available; in some cases, revenues rose sufficiently enough to enable increases in state government spending and employment. However, Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in a general widening in municipal credit spreads near the end of the reporting period. The headline risk from these high profile names led to relative underperformance in lower rated municipal issuers. Also, Illinois continued to be unable to come to political terms over a solution for Illinois' underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist. The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny. However, many state and local municipal entities took actions to control pension costs, and this issue continued to be watched.
New York maintained a mature and wealthy state economy that has historically attracted a highly educated and global work force. The state continued to have a long track record of closing budget gaps and maintaining structural balance. They accumulated a rainy day reserve fund over 10 years that
Annual Shareholder Report
provides cash flow flexibility. The state pension system was well-funded compared to other states, and the unfunded liability was modest. Improvements in the state's political process were reflected by timely budgets, balanced budgets and strong spending controls. The state depended upon the financial services sector and income taxes for a large part of its revenue which has a history of volatility. The state had a high debt position which was the second highest of the states. However, the state economy recovered and surpassed its pre-recession employment peak.
DURATION
As determined at the end of the 12-month reporting period, the Fund's dollar-weighted average duration for the reporting period was 5.77 years. Duration management continued to be a significant component of the Fund's investment strategy. The Fund adjusted duration, relative to the NY Index, several times during the reporting period. Tax-exempt municipal bond yields increased significantly during the reporting period and increased more for bonds with longer maturities as the yield curve significantly steepened during the period. Bonds with a longer duration underperformed bonds with a shorter duration due to their differences in interest rate volatility. As a result of the Fund's underweight to bonds with longer durations than those included in the NY Index, (especially in the six to eight-plus year duration range) duration provided positive outperformance for the Fund relative to the NY Index. The Fund entered into contracts to sell U.S. Treasury futures near the end of the reporting period, which resulted in the Fund holding a short position in U.S. Treasuries. This had a positive impact on performance as yields increased, and the futures position that was held short went down in price.
Annual Shareholder Report
SECTOR
During the 12-month reporting period, the Fund maintained a higher portfolio allocation to health care, higher education and resource recovery bonds. These allocations helped the Fund's performance due to the outperformance of these sectors relative to the NY Index. The Fund also had less of an allocation to state and local general obligation bonds than the NY Index. These sectors outperformed the NY Index during the reporting period and the Fund's lesser allocation detracted from Fund performance relative to the NY Index. The Fund also maintained an overweight allocation to pre-refunded, tax-exempt municipal bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The overweight exposure to pre-refunded bonds positively affected Fund performance due to lower price volatility exhibited by pre-refunded bonds as compared to other sectors. The Fund maintained a higher portfolio allocation to tobacco settlement, public power and water and sewer financing bonds. These allocations detracted from the Fund's performance due to the underperformance of these sectors relative to the NY Index.
CREDIT QUALITY
During the 12-month reporting period, headline risk concerning municipal credit quality increased and municipal bond fund outflows increased significantly. This resulted in underperformance of bonds rated “A” or “BBB” (or unrated bonds of comparable quality) relative to bonds rated in the higher rating categories (or unrated bonds of comparable quality). With the increase in credit spreads during the reporting period, and the widening of credit spreads to a lesser extent for “AAA” and “AA”-rated (or unrated comparable quality) debt, the Fund's overweight position, relative to the NY Index, in “A”-rated (or unrated comparable quality) debt during the reporting period had a negative impact on the Fund's performance, as the yield on “A”-rated (or unrated comparable quality) debt increased to a greater extent than for other investment-grade securities.7 The Fund's exposure to noninvestment-grade debt (an out of index position) added positive excess return as these securities provided a large yield cushion to the fund over the period. Noninvestment-grade, tax-exempt municipal securities (debt rated below “BBB”) were not included in the NY Index.
Annual Shareholder Report
| 1 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the NY Index. |
| 2 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the MMNYFCA. |
| 3 | Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management's Discussion of Fund Performance, duration is determined using a third-party analytical system. |
| 4 | Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. |
| 5 | Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk. |
| 6 | Income may be subject to the federal alternative minimum tax for individuals and corporations (AMT). |
| 7 | Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default. |
Annual Shareholder Report
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Average Annual Total Return table below shows returns for each class averaged over the stated periods. The graphs below illustrate the hypothetical investment of $10,0001 in Federated New York Municipal Income Fund (the “Fund”) from August 31, 2003 to August 31, 2013, compared to the S&P Municipal Bond New York Index (NY Index),2 S&P Municipal Bond NY, Investment Grade, 3-Year Plus Sub-Index (NYIG Index)3 and the Morningstar Municipal New York Funds Category Average (MMNYFCA).4
Average Annual Total Returns for the Period Ended 8/31/2013
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| A | -8.78% | 2.60% | 2.98% |
| B | -10.30% | 2.42% | 2.82% |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
Annual Shareholder Report
Growth of A $10,000 Investment–Class A Shares
Growth of $10,000 as of August 31, 2013
| Federated New York Municipal Income Fund - | Class A Shares | NY Index | NYIG Index | MMNYFCA |
| 8/31/2003 | 9,550 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,172 | 10,732 | 10,767 | 10,647 |
| 8/31/2005 | 10,785 | 11,357 | 11,414 | 11,202 |
| 8/31/2006 | 11,141 | 11,759 | 11,785 | 11,510 |
| 8/31/2007 | 11,204 | 12,051 | 12,053 | 11,638 |
| 8/31/2008 | 11,264 | 12,561 | 12,602 | 11,914 |
| 8/31/2009 | 11,453 | 13,229 | 13,376 | 12,291 |
| 8/31/2010 | 12,645 | 14,503 | 14,727 | 13,621 |
| 8/31/2011 | 12,898 | 14,879 | 15,128 | 13,767 |
| 8/31/2012 | 14,043 | 16,099 | 16,523 | 15,197 |
| 8/31/2013 | 13,410 | 15,555 | 15,836 | 14,253 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550) |
Growth of A $10,000 Investment–Class B shares
Growth of $10,000 as of August 31, 2013
| Federated New York Municipal Income Fund - | Class B Shares | NY Index | NYIG Index | MMNYFCA |
| 8/31/2003 | 10,000 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,572 | 10,732 | 10,767 | 10,647 |
| 8/31/2005 | 11,123 | 11,357 | 11,414 | 11,202 |
| 8/31/2006 | 11,398 | 11,759 | 11,785 | 11,510 |
| 8/31/2007 | 11,376 | 12,051 | 12,053 | 11,638 |
| 8/31/2008 | 11,350 | 12,561 | 12,602 | 11,914 |
| 8/31/2009 | 11,454 | 13,229 | 13,376 | 12,291 |
| 8/31/2010 | 12,552 | 14,503 | 14,727 | 13,621 |
| 8/31/2011 | 12,805 | 14,879 | 15,128 | 13,767 |
| 8/31/2012 | 13,944 | 16,099 | 16,523 | 15,197 |
| 8/31/2013 | 13,220 | 15,555 | 15,836 | 14,253 |
41 graphic description end -->
| ■ | Total returns shown include the maximum contingent deferred sales charge of 5.50% as applicable. |
Annual Shareholder Report
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: For Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); For Class B Shares, the maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The NY Index, NYIG Index MMNYFCA have been adjusted to reflect reinvestment of dividends on securities in the indexes and average. |
| 2 | The NY Index consists of bonds in the S&P Municipal Bond Index (Main Index) that have been issued by the state of New York or local governments or state or local government entities within New York. The Main Index is a broad, comprehensive, market value-weighted index comprised of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the alternative minimum tax (AMT). Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or agency where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The NY Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The NY Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 3 | The NYIG Index represents the portion of the NY Index composed solely of bonds that are rated BBB-/Baa3 or higher with remaining maturities of more than 3 years that are not subject to AMT. The NYIG Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The NYIG Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 4 | Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated. Funds designated within the MMNYFCA include those that invest at least 80% of assets in New York municipal debt and have durations of more than seven years (or, if duration is unavailable, average maturities of more than 12 years). They do not reflect sales charges. |
Annual Shareholder Report
Portfolio of Investments Summary Table (unaudited)
At August 31, 2013, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 14.3% |
| Special Tax | 13.2% |
| General Obligation—State | 13.0% |
| Transportation | 11.4% |
| Education | 11.0% |
| Water and Sewer | 8.3% |
| Hospital | 5.5% |
| Resource Recovery | 4.4% |
| Industrial Development Bond/Pollution Control | 4.2% |
| Pre-refunded | 3.7% |
| Other2 | 10.1% |
| Other Assets and Liabilities—Net3 | 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, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-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 89.0% 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. |
Annual Shareholder Report
Portfolio of Investments
August 31, 2013
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.1% | |
| | | New York—93.0% | |
| $1,000,000 | | Babylon, NY IDA, Resource Recovery Bonds (Series 2009A), 5.00% (Covanta Babylon, Inc. ), 1/1/2019 | $1,112,500 |
| 480,000 | | Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 | 507,038 |
| 500,000 | | Build NYC Resource Corporation, Revenue Bonds (Series 2012), 5.00% (YMCA of Greater NY), 8/1/2042 | 475,785 |
| 1,000,000 | | Erie County, NY IDA, School Facility Revenue Bonds (Series 2009A), 5.25% (Buffalo, NY City School District), 5/1/2025 | 1,098,300 |
| 200,000 | | Essex County, NY IDA, Environmental Improvement Revenue Bonds (Series 2006A), 4.60% (International Paper Co.), 12/1/2030 | 184,070 |
| 215,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 220,913 |
| 220,000 | | Islip, NY Resource Recovery Agency, Resource Recovery Revenue Bonds (Series 2001E), 5.75% (Assured Guaranty Municipal Corp. INS), 7/1/2023 | 230,267 |
| 500,000 | | Livingston County, NY IDA, Civic Facility Revenue Bonds (Series 2005), 6.00% (Nicholas H. Noyes Memorial Hospital Civic Facility), 7/1/2030 | 486,035 |
| 500,000 | | Long Island Power Authority, NY, General Revenue Bonds (Series 2011A), 5.00%, 5/1/2038 | 486,155 |
| 500,000 | | Metropolitan Transportation Authority, NY, Dedicated Tax Fund Bonds (Series 2009B), 5.00% (MTA Dedicated Tax Fund)/(Original Issue Yield: 5.10%), 11/15/2034 | 504,475 |
| 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 | 273,618 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2006A), 5.00% (MTA Transportation Revenue), 11/15/2035 | 500,550 |
| 500,000 | | Nassau County, NY IDA, IDRBs (Series 2003A), 5.25% (KeySpan-Glenwood Energy Center LLC)/(KeySpan Corp. GTD), 6/1/2027 | 501,245 |
| 1,000,000 | | Nassau County, NY, UT GO Bonds (Series 2009A), 5.00% (Assured Guaranty Corp. INS), 5/1/2021 | 1,105,390 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2028 | 532,580 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2031 | 530,135 |
| 500,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British Airways), 12/1/2032 | 423,595 |
| 300,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.50% (Terminal One Group Association), 1/1/2024 | 322,413 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $500,000 | | New York City, NY Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (Series 2009AA), 5.00%, 6/15/2022 | $560,555 |
| 500,000 | | New York City, NY Municipal Water Finance Authority, Water and Sewer System Second General Resolution Revenue Bonds (Series 2012AA), 5.00%, 6/15/2034 | 510,965 |
| 455,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Series 2011C), 5.50%, 11/1/2035 | 492,729 |
| 500,000 | | New York City, NY, UT GO Bonds (Series 2009E-1), 6.25% (Original Issue Yield: 6.40%), 10/15/2028 | 579,215 |
| 500,000 | | New York City, NY, UT GO Bonds (Series 2011A-1), 5.00%, 8/1/2029 | 524,635 |
| 500,000 | | New York Liberty Development Corporation, Liberty Revenue Bonds (Series 2011), 5.75% (4 World Trade Center), 11/15/2051 | 524,950 |
| 400,000 | | New York Liberty Development Corporation, Revenue Refunding Bonds (Series 2012 Class 3), 5.00% (7 World Trade Center LLC), 3/15/2044 | 363,440 |
| 500,000 | | New York State Dormitory Authority, General Purpose Revenue Bonds (Series 2011C), 5.00% (New York State Personal Income Tax Revenue Bond Fund), 3/15/2026 | 539,220 |
| 1,000,000 | | New York State Dormitory Authority, Improvement Revenue Bonds (Series 2008D), 5.00% (Mental Health Services Facility)/(Assured Guaranty Municipal Corp. INS), 2/15/2018 | 1,139,510 |
| 500,000 | | New York State Dormitory Authority, Lease Revenue Bonds (Series 2006A), 5.00% (State University of New York Dormitory Facilities)/(National Public Finance Guarantee Corporation INS), 7/1/2031 | 507,655 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 1998), 5.50% (Memorial Sloan-Kettering Cancer Center)/(National Public Finance Guarantee Corporation INS), 7/1/2023 | 579,665 |
| 520,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2008C), 5.00% (New York State Personal Income Tax Revenue Bond Fund), 3/15/2026 | 557,393 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2009C), 5.00% (School District Financing Program)/(Assured Guaranty Corp. INS), 10/1/2023 | 544,205 |
| 350,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Miriam Osborn Memorial Home Association), 7/1/2042 | 338,058 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Rochester, NY Institute of Technology), 7/1/2038 | 399,408 |
| 100,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (Catholic Health System Obligated Group), 7/1/2032 | 92,844 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (St. John's University), 7/1/2026 | 525,485 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012B), 5.00% (St. John's University), 7/1/2030 | 251,938 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $240,000 | | New York State Dormitory Authority, Revenue Bonds (Series A), 5.625% (City University of New York)/(Original Issue Yield: 5.95%), 7/1/2016 | $261,518 |
| 350,000 | | New York State Dormitory Authority, Revenue Bonds, 5.00% (Teachers College), 7/1/2042 | 347,333 |
| 300,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolving Funds Revenue Bonds (Series 2008A), 5.00%, 6/15/2029 | 315,069 |
| 500,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolving Funds Revenue Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.26%), 6/15/2034 | 519,730 |
| 500,000 | | New York State Local Government Assistance Corp., Senior Lien Revenue Refunding Bonds (Series 2008 A-5/6), 5.00%, 4/1/2020 | 574,555 |
| 500,000 | | New York State Local Government Assistance Corp., Subordinate Lien Refunding Revenue Bonds (Series 2010A), 5.00%, 4/1/2023 | 568,260 |
| 220,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2012I), 5.00% (New York State Thruway Authority - General Revenue ), 1/1/2028 | 231,469 |
| 250,000 | | New York State Urban Development Corp., Revenue Refunding Bonds (Series 1995), 5.70% (New York State)/(Original Issue Yield: 5.94%), 4/1/2020 | 288,837 |
| 500,000 | | New York State Urban Development Corp., Service Contract Revenue Refunding Bonds (Series 2008C), 5.00% (New York State), 1/1/2027 | 524,325 |
| 500,000 | | New York State Urban Development Corp., Subordinated Lien Revenue Bonds (Series 2004A), 5.125% (New York State), 1/1/2022 | 518,750 |
| 500,000 | | New York State, UT GO Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.24%), 2/15/2039 | 515,340 |
| 500,000 | | New York State, UT GO Bonds (Series 2011A), 5.00%, 2/15/2020 | 581,040 |
| 335,000 | | Niagara Area Development Corporation, NY, Solid Waste Disposal Facility Refunding Revenue Bonds (Series 2012B), 4.00% (Covanta Energy Corp.), 11/1/2024 | 293,711 |
| 500,000 | | Niagara Area Development Corporation, NY, Tax Exempt Revenue Bonds (Series 2012A), 5.00% (Niagara University), 5/1/2030 | 487,815 |
| 1,000,000 | | Port Authority of New York and New Jersey, 5.00%, 12/1/2029 | 1,047,700 |
| 500,000 | | Rensselaer County, NY IDA, Civic Facility Revenue Bonds (Series 2006), 5.00% (Rensselaer Polytechnic Institute), 3/1/2036 | 492,035 |
| 500,000 | | Suffolk County, NY EDC., Revenue Bonds (Series 2011), 5.00% (Catholic Health Services of Long Island Obligated Group), 7/1/2028 | 500,610 |
| 450,000 | | Syracuse, NY IDA, School Facility Revenue Bonds (Series 2008A), 5.00% (Syracuse CSD, NY)/(Assured Guaranty Municipal Corp. INS), 5/1/2028 | 466,101 |
| 500,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (Original Issue Yield: 5.10%), 11/15/2037 | 502,045 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $170,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00% (United States Treasury PRF 11/15/2018@100), 11/15/2023 | $199,549 |
| 290,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00%, 11/15/2023 | 321,471 |
| | | TOTAL | 28,084,197 |
| | | Puerto Rico—4.1% | |
| 630,000 | | Commonwealth of Puerto Rico, Public Improvement UT GO Bonds Series (2004A), 5.00% (United States Treasury PRF 7/1/2014@100), 7/1/2034 | 655,357 |
| 200,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 182,512 |
| 300,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Refunding Bonds (Series 2012), 5.00% (Inter American University of Puerto Rico), 10/1/2020 | 305,718 |
| 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 | 105,060 |
| | | TOTAL | 1,248,647 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $29,104,451) | 29,332,844 |
| | | SHORT-TERM MUNICIPALS—2.0%1 | |
| | | New York—2.0% | |
| 600,000 | | New York City, NY Municipal Water Finance Authority, Second General Resolution (Fiscal 2008 Series BB-2) Daily VRDNs (Bank of America N.A. LIQ), 0.060%, 9/2/2013
(AT AMORTIZED COST) | 600,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.1%
(IDENTIFIED COST $29,704,451)2 | 29,932,844 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.9%3 | 262,426 |
| | | TOTAL NET ASSETS—100% | $30,195,270 |
At August 31, 2013, the Fund had no outstanding futures contracts.
Securities that are subject to the federal alternative minimum tax (AMT) represent 5.6% of the Fund's portfolio as calculated based upon total market value (percentage is unaudited).
| 1 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 2 | The cost of investments for federal tax purposes amounts to $29,952,877. |
| 3 | Assets, other than investments in securities, less liabilities. |
Annual Shareholder Report
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2013.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of August 31, 2013, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AMT | —Alternative Minimum Tax |
| CSD | —Central School District |
| EDC | —Economic Development Corporation |
| GO | —General Obligation |
| GTD | —Guaranteed |
| IDA | —Industrial Development Authority |
| IDRBs | —Industrial Development Revenue Bonds |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| PRF | —Pre-refunded |
| TFA | —Transitional Finance Authority |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31, | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $10.65 | $10.13 | $10.32 | $9.71 | $9.98 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.34 | 0.36 | 0.38 | 0.38 | 0.41 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.80) | 0.52 | (0.19) | 0.61 | (0.27) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.46) | 0.88 | 0.19 | 0.99 | 0.14 |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.33) | (0.36) | (0.38) | (0.38) | (0.41) |
| Net Asset Value, End of Period | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Total Return1 | (4.50)% | 8.88% | 2.00% | 10.41% | 1.68% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.76% | 0.62% | 0.76% | 0.76% | 0.76% |
| Net investment income | 3.15% | 3.49% | 3.88% | 3.82% | 4.40% |
| Expense waiver/reimbursement2 | 0.53% | 1.18% | 1.12% | 0.98% | 1.02% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $27,534 | $33,073 | $29,108 | $31,644 | $29,334 |
| Portfolio turnover | 7% | 19% | 11% | 26% | 12% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 2 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31, | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $10.65 | $10.13 | $10.32 | $9.71 | $9.98 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.25 | 0.28 | 0.31 | 0.31 | 0.34 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.79) | 0.53 | (0.19) | 0.61 | (0.27) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.54) | 0.81 | 0.12 | 0.92 | 0.07 |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.25) | (0.29) | (0.31) | (0.31) | (0.34) |
| Net Asset Value, End of Period | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Total Return1 | (5.21)% | 8.07% | 1.23% | 9.58% | 0.91% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 1.52% | 1.38% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.37% | 2.72% | 3.10% | 3.07% | 3.65% |
| Expense waiver/reimbursement2 | 0.52% | 1.17% | 1.10% | 0.92% | 0.96% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $2,661 | $3,022 | $3,471 | $9,362 | $10,511 |
| Portfolio turnover | 7% | 19% | 11% | 26% | 12% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 2 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Assets and Liabilities
August 31, 2013
| Assets: | | |
| Total investment in securities, at value (identified cost $29,704,451) | | $29,932,844 |
| Cash | | 62,614 |
| Income receivable | | 363,871 |
| Receivable for shares sold | | 77,741 |
| TOTAL ASSETS | | 30,437,070 |
| Liabilities: | | |
| Payable for shares redeemed | $168,838 | |
| Income distribution payable | 17,793 | |
| Payable for portfolio accounting fees | 30,636 | |
| Payable for shareholder services fee (Note 5) | 6,486 | |
| Payable for distribution services fee (Note 5) | 1,671 | |
| Payable to adviser (Note 5) | 1,517 | |
| Payable for Directors'/Trustees' fees (Note 5) | 190 | |
| Accrued expenses (Note 5) | 14,669 | |
| TOTAL LIABILITIES | | 241,800 |
| Net assets for 3,062,720 shares outstanding | | $30,195,270 |
| Net Assets Consist of: | | |
| Paid-in capital | | $33,028,896 |
| Net unrealized appreciation of investments | | 228,393 |
| Accumulated net realized loss on investments and futures contracts | | (3,063,835) |
| Undistributed net investment income | | 1,816 |
| TOTAL NET ASSETS | | $30,195,270 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share | | |
| Class A Shares: | | |
| Net asset value per share ($27,533,809 ÷ 2,792,775 shares outstanding), no par value, unlimited shares authorized | | $9.86 |
| Offering price per share (100/95.50 of $9.86) | | $10.32 |
| Redemption proceeds per share | | $9.86 |
| Class B Shares: | | |
| Net asset value per share ($2,661,461 ÷ 269,945 shares outstanding), no par value, unlimited shares authorized | | $9.86 |
| Offering price per share | | $9.86 |
| Redemption proceeds per share (94.50/100 of $9.86) | | $9.32 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Operations
Year Ended August 31, 2013
| Investment Income: | | | |
| Interest | | | $1,388,560 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $141,880 | |
| Administrative fee (Note 5) | | 27,681 | |
| Custodian fees | | 5,876 | |
| Transfer agent fee | | 23,153 | |
| Directors'/Trustees' fees (Note 5) | | 1,090 | |
| Auditing fees | | 25,000 | |
| Legal fees | | 7,098 | |
| Distribution services fee (Note 5) | | 22,236 | |
| Shareholder services fee (Note 5) | | 88,258 | |
| Portfolio accounting fees | | 90,000 | |
| Share registration costs | | 27,065 | |
| Printing and postage | | 16,432 | |
| Insurance premiums (Note 5) | | 4,028 | |
| Miscellaneous (Note 5) | | 1,221 | |
| TOTAL EXPENSES | | 481,018 | |
| Waivers and Reimbursements: (Note 5) | | | |
| Waiver of investment adviser fee | $(141,880) | | |
| Reimbursement of shareholder services fee | (2,861) | | |
| Reimbursement of other operating expenses | (42,462) | | |
| TOTAL WAIVERS AND REIMBURSEMENTS | | (187,203) | |
| Net expenses | | | 293,815 |
| Net investment income | | | 1,094,745 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized loss on investments | | | (50,351) |
| Net realized loss on futures contracts | | | (19,992) |
| Net change in unrealized appreciation of investments | | | (2,553,091) |
| Net change in unrealized appreciation of future contracts | | | 18,038 |
| Net realized and unrealized loss on investments and futures contracts | | | (2,605,396) |
| Change in net assets resulting from operations | | | $(1,510,651) |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Changes in Net Assets
| Year Ended August 31 | 2013 | 2012 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,094,745 | $1,200,710 |
| Net realized gain (loss) on investments and futures contracts | (70,343) | 229,227 |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (2,535,053) | 1,574,694 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (1,510,651) | 3,004,631 |
| Distribution to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (1,005,536) | (1,126,018) |
| Class B Shares | (69,321) | (83,962) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,074,857) | (1,209,980) |
| Share Transactions: | | |
| Proceeds from sale of shares | 3,512,638 | 7,946,870 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 857,226 | 908,925 |
| Cost of shares redeemed | (7,684,071) | (7,134,404) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,314,207) | 1,721,391 |
| Change in net assets | (5,899,715) | 3,516,042 |
| Net Assets: | | |
| Beginning of period | 36,094,985 | 32,578,943 |
| End of period (including undistributed (distributions in excess of) net investment income of $1,816 and $(14,385), respectively) | $30,195,270 | $36,094,985 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Notes to Financial Statements
August 31, 2013
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 five 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. Each portfolio pays its own expenses. 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 alternative minimum tax (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.
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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities and repurchase agreements acquired with remaining maturities of 60 days or less are valued at their amortized cost (adjusted for the accretion of any discount or amortization of any premium) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security. |
| ■ | Derivative contracts listed on exchanges are valued at their reported settlement or closing price. |
| ■ | Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
| ■ | For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers. |
Annual Shareholder Report
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation Procedures
The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to determine fair value of securities and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing - service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, 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 Class A Shares
Annual Shareholder Report
and Class B Shares may bear distribution services fees and shareholder services fees unique to those classes. 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 using the effective-interest-rate method.
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. As of and during the year ended August 31, 2013, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2013, tax years 2010 through 2013 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage cash flows and 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 which is shown as Restricted Cash in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures, guarantees the futures against default.
At August 31, 2013, the Fund had no outstanding futures contracts.
The average notional value of futures contracts held by the Fund throughout the period was $607,794. This is based on amounts held as of each month-end throughout the twelve month period.
Annual Shareholder Report
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended August 31, 2013
| Amount of Realized Gain/(Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $(19,992) |
| Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $18,038 |
Other
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.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended August 31 | 2013 | 2012 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 222,900 | $2,412,401 | 676,796 | $6,942,464 |
| Shares issued to shareholders in payment of distributions declared | 75,904 | 798,931 | 80,521 | 838,623 |
| Shares redeemed | (610,414) | (6,369,019) | (527,713) | (5,458,550) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (311,610) | $(3,157,687) | 229,604 | $2,322,537 |
| Year Ended August 31 | 2013 | 2012 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 103,602 | $1,100,237 | 96,633 | $1,004,406 |
| Shares issued to shareholders in payment of distributions declared | 5,539 | 58,295 | 6,759 | 70,302 |
| Shares redeemed | (122,894) | (1,315,052) | (162,481) | (1,675,854) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (13,753) | $(156,520) | (59,089) | $(601,146) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (325,363) | $(3,314,207) | 170,515 | $1,721,391 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for discount accretion/premium amortization on debt securities and expiration of capital loss carryforwards.
For the year ended August 31, 2013, permanent differences identified and reclassified among the components of net assets were as follows:
Annual Shareholder Report
| Increase (Decrease) |
| Paid-In Capital | Undistributed
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss) |
| $(303,358) | $(3,687) | $307,045 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2013 and 2012, was as follows:
| | 2013 | 2012 |
| Tax-exempt income | $1,074,053 | $1,203,747 |
| Ordinary income | $804 | $6,233 |
As of August 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed tax-exempt income | $1,816 |
| Net unrealized depreciation | $(20,033) |
| Capital loss carryforwards | $(2,815,409) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for defaulted securities and discount accretion/premium amortization on debt securities.
At August 31, 2013, the cost of investments for federal tax purposes was $29,952,877. The net unrealized depreciation of investments for federal tax purposes was $20,033. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $773,812 and net unrealized depreciation from investments for those securities having an excess of cost over value of $793,845.
At August 31, 2013, the Fund had a capital loss carryforward of $2,753,163 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, thereby reducing 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, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
Annual Shareholder Report
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| 2016 | $249,898 | N/A | $249,898 |
| 2017 | $958,822 | N/A | $958,822 |
| 2018 | $1,218,820 | N/A | $1,218,820 |
| 2019 | $325,623 | N/A | $325,623 |
The Fund used capital loss carryforwards of $10,313 to offset capital gains realized during the year ended August 31, 2013.
Capital loss carryforwards of $303,358 expired during the year ended August 31, 2013.
Under current tax regulations, capital losses on securities transactions realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2013, for federal income tax purposes, post October losses of $62,246 were deferred to September 1, 2013.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the Adviser, voluntarily waived its entire free of $141,880 and voluntarily reimbursed $42,462 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the fee paid to FAS was 0.078% of average daily net assets of the Fund.
Annual Shareholder Report
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 at 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 | 0.05% |
| Class B Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred |
| Class B Shares | $22,236 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2013, FSC retained $8,016 of fees paid by the Fund. For the year ended August 31, 2013, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2013, FSC retained $5,305 in sales charges from the sale of Class A Shares.
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. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended August 31, 2013, Service Fees for the Fund were as follows:
| | Service Fees
Incurred | Service Fees
Reimbursed |
| Class A Shares | $80,846 | $(2,833) |
| Class B Shares | 7,412 | (28) |
| TOTAL | $88,258 | $(2,861) |
For the year ended August 31, 2013, FSSC received $4,816 of Service Fees paid by the Fund.
Annual Shareholder Report
Interfund Transactions
During the year ended August 31, 2013, 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 $11,150,000 and $8,950,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their respective fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights) (excluding extraordinary expenses, and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares and Class B Shares (after the voluntary waivers and reimbursements) will not exceed 0.76% and 1.52% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2014; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2013 were as follows:
| Purchases | $ 2,515,190 |
| Sales | $ 5,018,819 |
7. CONCENTRATION OF RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at August 31, 2013, 15.3% 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.
Annual Shareholder Report
8. LINE OF CREDIT
The Fund participates in a $100,000,000 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 offered to the Fund by PNC Bank at the time of the borrowing. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2013, 99.9% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated municipal securities income trust and shareholders of federated New york municipal income FUND:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated New York Municipal Income Fund (the “Fund”), a portfolio of Federated Municipal Securities Income Trust, as of August 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated New York Municipal Income Fund as of August 31, 2013, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 24, 2013
Annual Shareholder Report
Shareholder Expense Example (unaudited)
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 and 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 March 1, 2013 to August 31, 2013.
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.
Annual Shareholder Report
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
3/1/2013 | Ending
Account Value
8/31/2013 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $934.70 | $3.71 |
| Class B Shares | $1,000 | $931.10 | $7.40 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.37 | $3.87 |
| Class B Shares | $1,000 | $1,017.54 | $7.73 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| Class A Shares | 0.76% |
| Class B Shares | 1.52% |
Annual Shareholder Report
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2012, the Trust comprised five portfolio(s), and the Federated Fund Family consisted of 42 investment companies (comprising 137 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
In Memoriam - John F. Cunningham, Independent Trustee
With deep sadness, Federated announces the passing of John F. Cunningham, who served as an independent member of the Board of the Federated Fund Family since 1999. Mr. Cunningham's savvy business acumen and incisive intellect made him a powerful force on the Federated Fund Board. He was an advocate for shareholders and a respected colleague within the Federated family. Mr. Cunningham enjoyed an outstanding career in technology, having served as President and in other Senior Executive positions with leading companies in the industry. Federated expresses gratitude to Mr. Cunningham for his fine contributions as a Board member, colleague and friend. He will be greatly missed.
Interested TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
John F. Donahue*
Birth Date: July 28, 1924
Trustee
Began serving: August 1990 | Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Began serving: August 1990 | Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, and Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, Auberle; Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director, Ireland Institute of Pittsburgh; Chair and Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County; Director, Our Campaign for the Church Alive, Inc.
Previous Position: Pennsylvania Superior Court Judge.
Qualifications: Legal and director experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Peter E. Madden
Birth Date: March 16, 1942
Trustee
Began serving: August 1991 | Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family.
Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.
Qualifications: Business management, mutual fund services and director experience. |
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Began serving: January 1999 | Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology).
Qualifications: Banking, business management, education and director experience. |
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee
Began serving: October 2006 | Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida.
Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber).
Qualifications: Business management, mutual fund, director and investment experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
John S. Walsh
Birth Date: November 28, 1957
Trustee
Began serving: June 1999 | Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh & Kelly, Inc.
Qualifications: Business management and director experience. |
OFFICERS
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT AND SECRETARY
Officer since: August 1990 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc.
Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
Lori A. Hensler, CPA
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. |
Richard B. Fisher
Birth Date: May 17, 1923
VICE CHAIRMAN
Officer since: August 2002 | Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 | Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc. |
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
Previous Positions: Served in Senior Management positions with a large regional banking organization. |
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Officer since: May 2004 | Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
J. Scott Albrecht
Birth Date: June 1, 1960
VICE PRESIDENT
Officer since: November 1999
Portfolio Manager since: March 1995 | Principal Occupations: J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is Vice President of the Trust with respect to the Fund. Mr. Albrecht joined Federated in 1989. He became a Senior Vice President of the Fund's Adviser in January 2005 and served as a Vice President of the Fund's Adviser from 1994 through 2004. He has been a Senior Portfolio Manager since 1997 and was a Portfolio Manager from 1994 to 1996. Mr. Albrecht has received the Chartered Financial Analyst designation and holds an M.S. in Public Management from Carnegie Mellon University. |
Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2013
Federated New York Municipal Income Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board reviewed and approved at its May 2013 meetings the Fund's investment advisory contract for an additional one-year term. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed 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 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 (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
The Board is also familiar with and considered 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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent to which the Board members are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. Consistent with these judicial decisions, the Board also considered management fees charged to institutional and other clients of the Adviser for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Annual Shareholder Report
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 independent legal counsel. Throughout the year, and in connection with its May meetings, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also 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 information 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); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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.
Annual Shareholder Report
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser, noting that the overall expense structure of the Fund, after waivers and expense reimbursements, was below the median of the relevant peer group, and was satisfied that the overall expense structure of the Fund remained competitive.
By contrast, 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 include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as 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.
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant, though not conclusive in judging the reasonableness of proposed fees.
Annual Shareholder Report
The Fund's performance fell below the median for the one-year, three-year and five-year periods covered by the Evaluation. 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 information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, 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, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in arbitrarily allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate can dramatically alter the resulting estimate of cost and/or profitability of a fund. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive. The Board agreed with this assessment.
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 and long-term investments in areas that support all of the Federated family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund family as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject,
Annual Shareholder Report
which (as discussed in the Senior Officer's Evaluation) 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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 necessarily relevant to the 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.
Annual Shareholder Report
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 from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at 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. From the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder Report
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 Trust's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated New York Municipal Income Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923401
CUSIP 313923880
28992 (10/13)
Federated is a registered trademark of Federated Investors, Inc.
2013 ©Federated Investors, Inc.
Annual Shareholder Report
August 31, 2013
| Share Class | Ticker |
| A | OMIAX |
| F | OMIFX |
Federated Ohio Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Municipal Securities Income Trust
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2012 through August 31, 2013. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
CONTENTS
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Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the 12-month reporting period ended August 31, 2013, was -3.73% for Class A Shares and -3.87% for Class F Shares. The total return of the S&P Municipal Bond Ohio Index (the “OH Index”),1 the Fund's broad-based securities market index, was -4.06% during the same period. The total return of the Morningstar Municipal Ohio Funds Category Average (MMOFCA),2 a peer group average for the Fund, was -4.97% during the same period. The Fund's and the MMOFCA's total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the OH Index.
During the reporting period, the Fund's investment strategy focused on: (a) the effective duration of its portfolio (which indicates the portfolio's sensitivity to changes in interest rates);3,4 (b) the allocation of the Fund's portfolio among securities of similar issuers (referred to as “sectors”); and (c) the credit ratings of portfolio securities (which indicates the risk that securities will default).5 These were the most significant factors affecting the Fund's performance relative to the OH Index.
The following discussion focuses on the performance of the Fund's Class A Shares. The Fund's Class A Shares outperformed the OH Index and the MMOFCA. The -3.73% total return of the Class A Shares for the reporting period consisted of 2.98% of tax-exempt dividends and reinvestments and price depreciation of 6.71% in the net asset value of the shares.6
MARKET OVERVIEW
During the 12-month reporting period, ten-year Treasury yields increased from a low of 1.55% in August 2012 to 2.89% in August 2013, and averaged 1.99%. Even though unemployment rates remained elevated, labor market conditions showed improvement. Inflation also remained below the Federal Reserve Board's (the “Fed”) long run objective while inflation expectations remained stable. Interest rate volatility did increase as markets reacted to the Fed's discussions about tapering the amount of U.S. Treasury and mortgage-backed securities it will purchase under their quantitative easing program as the economy shows improvement. The Fed's communications had investors anticipating a less accommodative stance of monetary policy than had been expected going forward. In an attempt to support a stronger economic recovery, the Fed continued to maintain an accommodative monetary policy stance during the reporting period. Developments in Europe continued to be a focus for investors, as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties, which indirectly affected interest rate levels in the tax-exempt municipal bond market. Foreign economic growth continued to be subdued, as fiscal retrenchment in the euro area continued to
Annual Shareholder Report
weigh on economic activity in Europe and factored into the Fed's accommodative policy stance. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances and weak economic growth. Political conditions in the Middle East continued to destabilize which resulted in “flight to quality” trades into what were perceived to be safer investments by investors as volatility in the markets increased. This resulted in periods of lower U.S. Treasury yields that also pushed municipal yields lower. Also, the amount of municipal bonds being issued during the reporting period was muted, which created a favorable technical environment (supply/demand imbalance) within the tax-exempt municipal bond market. A significant driver of the muted issuance was that the amount of municipal bonds being refunded collapsed as interest rates rose over the period. This reduced the amount of municipal bonds being issued and helped to provide a cushion for municipal bond prices and, as a result, absolute performance. However, the muted supply was offset by outflows from bond funds in general, and municipal bond funds in particular. Outflows sharply increased as investors anticipated higher interest rates and a less accommodative Fed.
The tax-exempt municipal market dealt with several policy-related issues over the course of the reporting period. These included U.S. fiscal policy decisions that resulted in increases in the top marginal tax rates, which were a positive factor for municipal bond prices and increased the value of the municipal tax exemption. The sequester (automatic spending cuts) was allowed to go into effect as a result of the inability of Congress and the President to come to a resolution over spending cuts, which had a negative impact on municipal government revenues and employment. Some positive news about the fiscal position of the states became available; in some cases, revenues rose sufficiently enough to enable increases in state government spending and employment. However, Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in a general widening in municipal credit spreads near the end of the period. The headline risk from these high profile names led to relative underperformance in lower rated municipal issuers. Also, Illinois continued to be unable to come to political terms over a solution for Illinois' underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist. The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny. However, many state and local municipal entities took actions to control pension costs, and this issue continued to be watched.
Ohio has historically been a conservatively managed state which has helped the state to withstand the recession. Ohio established the practice of prompt action to address budgetary shortfalls and maintained high levels of liquidity outside of its general revenue fund to help bridge revenue gaps. The state also maintained moderate long term liabilities that were reasonable when compared
Annual Shareholder Report
with the state's budget. The state also maintained a budget stabilization fund which statutorily receives year-end surpluses. However, the economy was still dependent on manufacturing and the automobile industry in particular. Gas industry exploration has also been an economic boost to the state and has positioned itself to positively contribute to future economic growth.
DURATION
As determined at the end of the 12-month reporting period, the Fund's dollar-weighted average duration for the reporting period was 5.77 years. Duration management continued to be a significant component of the Fund's investment strategy. The Fund adjusted duration, relative to the PA Index, several times during the reporting period. Tax-exempt municipal bond yields increased significantly during the reporting period and increased more for bonds with longer maturities as the yield curve significantly steepened during the period. Bonds with a longer duration underperformed bonds with a shorter duration due to their differences in interest rate volatility. As a result of the Fund's allocation to bonds with shorter durations than those included in the OH Index, duration (especially in the one to four year duration range) provided positive performance for the Fund relative to the OH Index. Also, the Fund's underweight in the eight plus year duration range contributed significant excess return over the reporting period.
SECTOR
During the 12-month reporting period, the Fund maintained a higher portfolio allocation to public power bonds, higher education and industrial development authorities. These allocations helped the Fund's performance due to the outperformance of these sectors relative to the OH Index. The Fund also had less of an allocation to healthcare-related debt than the OH Index. This sector underperformed the OH Index during the reporting period, and the underweight contributed positively to Fund performance. The Fund's underweight to state and local general obligation debt and appropriation bonds, which outperformed the OH Index, had a negative impact on the performance over the period. The Fund also maintained an overweight allocation to pre-refunded, tax-exempt municipal bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The Fund's overweight exposure to pre-refunded bonds positively affected Fund performance due to lower price volatility exhibited by pre-refunded bonds as compared to other sectors.
Credit Quality
During the 12-month reporting period, headline risk concerning municipal credit quality increased, and municipal bond fund outflows increased significantly. This resulted in underperformance of bonds rated “A” (or unrated bonds of comparable quality) relative to bonds rated in the higher rating categories (or unrated bonds of comparable quality). With the increase in credit
Annual Shareholder Report
spreads during the reporting period, and the widening of credit spreads to a lesser extent for “AAA” and “AA”-rated (or unrated comparable quality) debt, the Fund's overweight position, relative to the OH Index, in “A”-rated (or unrated comparable quality) debt during the reporting period had a negative impact on the Fund's performance, as the yield on “A”-rated (or unrated comparable quality) debt increased to a greater extent than for other investment-grade securities.7 The Fund's underweight to “AAA”-rated bonds relative to the OH index was also a negative contributor to performance as this rating sector outperformed over the reporting period.
| 1 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the OH Index. |
| 2 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the MMOFCA. |
| 3 | Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management's Discussion of Fund Performance, duration is determined using a third-party analytical system. |
| 4 | Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. |
| 5 | Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk. |
| 6 | Income may be subject to the alternative minimum tax for individuals and corporations (AMT). |
| 7 | Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default. |
Annual Shareholder Report
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Average Annual Total Return table below shows returns for each class averaged over the stated periods. The graphs below illustrate the hypothetical investment of $10,0001 in Federated Ohio Municipal Income Fund (the “Fund”) from August 31, 2003 to August 31, 2013, compared to the S&P Municipal Bond Ohio Index (OH Index),2 the S&P Municipal Bond OH, Investment Grade, 3-year Plus with Tobacco 2% Constrained Sub-Index (OHIG Index)3 and Morningstar Municipal Ohio Funds Category Average (MMOFCA).4
Average Annual Total Returns for the Period Ended 8/31/2013
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| A | -8.06% | 2.40%* | 2.82%* |
| F | -5.79% | 3.00% | 3.29 |
| * | The Fund's Class A Shares commenced operations on November 18, 2008. For the period prior to the commencement of operations of the Class A Shares, the performance information shown is for the Fund's Class F Shares adjusted to reflect the sales charges and expenses of the Class A Shares. |
| | |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
Annual Shareholder Report
GROWTH OF A $10,000 INVESTMENT–CLASS A SHARES
Growth of $10,000 as of August 31, 2013
| Federated Ohio Municipal Income Fund - | Class A Shares | OH Index | OHIG Index | MMOFCA |
| 8/31/2003 | 9,550 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,124 | 10,699 | 10,749 | 10,560 |
| 8/31/2005 | 10,661 | 11,294 | 11,368 | 10,962 |
| 8/31/2006 | 10,908 | 11,665 | 11,740 | 11,191 |
| 8/31/2007 | 11,013 | 11,976 | 12,021 | 11,367 |
| 8/31/2008 | 11,206 | 12,161 | 12,216 | 11,690 |
| 8/31/2009 | 11,415 | 12,688 | 12,919 | 12,148 |
| 8/31/2010 | 12,367 | 13,827 | 14,138 | 13,178 |
| 8/31/2011 | 12,619 | 14,172 | 14,545 | 13,333 |
| 8/31/2012 | 13,719 | 15,654 | 15,989 | 14,463 |
| 8/31/2013 | 13,208 | 15,019 | 15,313 | 13,744 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). |
GROWTH OF A $10,000 INVESTMENT–CLASS F SHARES
Growth of $10,000 as of August 31, 2013
| Federated Ohio Municipal Income Fund - | Class F Shares | OH Index | OHIG Index | MMOFCA |
| 8/31/2003 | 9,900 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,530 | 10,699 | 10,749 | 10,560 |
| 8/31/2005 | 11,126 | 11,294 | 11,368 | 10,962 |
| 8/31/2006 | 11,418 | 11,665 | 11,740 | 11,191 |
| 8/31/2007 | 11,558 | 11,976 | 12,021 | 11,367 |
| 8/31/2008 | 11,796 | 12,161 | 12,216 | 11,690 |
| 8/31/2009 | 12,010 | 12,688 | 12,919 | 12,148 |
| 8/31/2010 | 12,992 | 13,827 | 14,138 | 13,178 |
| 8/31/2011 | 13,237 | 14,172 | 14,545 | 13,333 |
| 8/31/2012 | 14,371 | 15,654 | 15,989 | 14,463 |
| 8/31/2013 | 13,813 | 15,019 | 15,313 | 13,744 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900), and maximum contingent deferred sales charge of 1.00% as applicable. |
Annual Shareholder Report
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: for Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); For Class F Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900); and the maximum contingent deferred sales charge is 1.00% on any redemption less than four years from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The OH Index, OHIG Index and MMOFCA have been adjusted to reflect reinvestment of dividends on securities in the index and average. |
| 2 | The OH Index consists of bonds in the S&P Municipal Bond Index (Main Index) that have been issued by the state of Ohio or local governments or state or local government entities within Ohio. The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the alternative minimum tax (AMT). Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The Ohio Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The OH Index is unmanaged and, unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index. |
| 3 | The OHIG Index represents the portion of the OH Index composed solely of bonds that are rated BBB-/Baa3 or higher with remaining maturities of more than three years while limiting tobacco bonds to 2%, by market weighting, of the sub-index. The OHIG Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The OHIG Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 4 | Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated. Funds designated within the MMOFCA include those that invest at least 80% of assets in Ohio municipal debt and can include long-, intermediate- and short-duration portfolios. They do not reflect sales charges. |
Annual Shareholder Report
Portfolio of Investments Summary Table (unaudited)
At August 31, 2013, the Fund's sector composition1 was as follows:
| Sector Composition | | Percentage of
Total Net Assets |
| Hospital | | 16.9% |
| General Obligation—Local | | 15.9% |
| Education | | 14.3% |
| General Obligation—State | | 8.9% |
| Water and Sewer | | 8.6% |
| Pre-refunded | | 7.9% |
| Public Power | | 6.6% |
| Special Tax | | 5.6% |
| Transportation | | 5.6% |
| Industrial Development/Pollution Control | | 2.3% |
| Other2 | | 7.5% |
| Other Assets and Liabilities—Net3 | | (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, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-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 92.6% 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. |
Annual Shareholder Report
Portfolio of Investments
August 31, 2013
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.6% | |
| | | Ohio—95.2% | |
| $2,250,000 | | Akron, Bath & Copley, OH Joint Township, Hospital District, Revenue Bonds (Series 2004A), 5.25% (Summa Health System)/(Radian Asset Assurance, Inc. INS)/(Original Issue Yield: 5.47%), 11/15/2031 | $2,253,195 |
| 2,000,000 | | Akron, Bath & Copley, OH Joint Township, Hospital District, Hospital Improvement & Refunding Revenue Bonds (Series 2012), 5.00% (Children's Hospital Medical Center, Akron), 11/15/2032 | 1,951,620 |
| 2,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2033 | 2,006,880 |
| 2,000,000 | | Allen County, OH, Hospital Facilities Revenue Bonds (Series 2010B), 5.25% (Catholic Healthcare Partners), 9/1/2027 | 2,081,940 |
| 500,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2016 | 547,810 |
| 2,000,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.25% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2028 | 2,069,760 |
| 1,185,000 | | Beavercreek, OH Local School District, UT GO Bonds, 6.60% (National Public Finance Guarantee Corporation INS), 12/1/2015 | 1,268,400 |
| 1,965,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Asset-Backed Bonds, 5.125% (Original Issue Yield: 5.44%), 6/1/2024 | 1,509,081 |
| 1,000,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.00%, 6/1/2015 | 1,054,050 |
| 1,000,000 | | Centerville, OH, Health Care Fixed Rate Revenue Bonds (Series 2007A), 6.00% (Bethany Lutheran Village), 11/1/2038 | 944,240 |
| 1,000,000 | | Cincinnati City School District, OH, COP, 5.00% (Assured Guaranty Municipal Corp. INS), 12/15/2024 | 1,094,150 |
| 1,000,000 | | Cincinnati City School District, OH, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 12/1/2017 | 1,147,990 |
| 2,490,000 | | Cincinnati, OH Water System, Revenue Refunding Bonds (Series A), 5.00%, 12/1/2025 | 2,726,899 |
| 3,000,000 | | Cleveland State University, OH, General Receipts Bonds (Series 2012), 5.00%, 6/1/2037 | 2,922,450 |
| 1,980,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2006A), 5.25% (Assured Guaranty Corp. INS), 1/1/2018 | 2,234,509 |
| 2,200,000 | | Cleveland, OH Airport System, Revenue Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 1/1/2022 | 2,415,028 |
| 1,550,000 | | Cleveland, OH Public Power System, Revenue Bonds (Series 2008B-1), 5.00%, 11/15/2038 | 1,534,547 |
| 2,685,000 | | Cleveland, OH Public Power System, Revenue Refunding Bonds (Series 2010), 5.00%, 11/15/2017 | 3,025,888 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Cleveland, OH Water, Senior Lien Revenue Bonds (Series 2012X), 5.00%, 1/1/2042 | $1,009,440 |
| 1,000,000 | | Cleveland, OH Waterworks, Water Revenue Bonds (Series 2007O), 5.00% (National Public Finance Guarantee Corporation INS), 1/1/2032 | 1,008,320 |
| 2,000,000 | | Cleveland, OH, LT GO Bonds, 5.50% (Assured Guaranty Municipal Corp. INS), 10/1/2019 | 2,353,420 |
| 1,000,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds (Series 2009), 5.00%, 12/1/2027 | 1,103,190 |
| 1,600,000 | | Columbus, OH Sewer System, Revenue Bonds (Series 2008A), 5.00%, 6/1/2028 | 1,712,256 |
| 1,225,000 | | Columbus, OH Sewer System, Revenue Bonds (Series 2008A), 5.00%, 6/1/2031 | 1,293,098 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Bonds (Series A), 5.00%, 6/1/2023 | 1,133,160 |
| 1,500,000 | | Columbus, OH, Various Purpose LT GO Bonds (Series 2013B), 5.00%, 8/15/2028 | 1,620,915 |
| 1,000,000 | | Cuyahoga County, OH, LT GO Capital Improvement & Refunding Bonds (Series 2012A), 4.00%, 12/1/2037 | 862,840 |
| 2,000,000 | | Cuyahoga County, OH, LT GO Various Purpose Bonds (Series 2009A), 5.00%, 12/1/2022 | 2,212,180 |
| 665,000 | | Cuyahoga County, OH, UT GO Jail Facilities Bonds, 5.25% (National Public Finance Guarantee Corporation INS)/(Original Issue Yield: 5.50%), 10/1/2013 | 667,806 |
| 2,000,000 | | Dayton CSD, OH, School Facilities Construction & Improvement UT GO Bonds (Series 2013A), 5.00% (Ohio School District Credit Enhancement GTD), 11/1/2021 | 2,269,180 |
| 455,000 | | Dayton-Montgomery County, OH Port Authority, Revenue Bonds (Series A), 5.00% (Dayton Regional Bond Fund), 11/15/2017 | 455,783 |
| 3,000,000 | | Franklin County, OH Convention Facilities Authority, Revenue Bonds, 5.00% (AMBAC INS), 12/1/2026 | 3,115,350 |
| 2,400,000 | | Franklin County, OH Health Care Facilities, Improvement Revenue Bonds (Series 2010A), 5.625% (Ohio Presbyterian Retirement Services)/(Original Issue Yield: 5.75%), 7/1/2026 | 2,452,344 |
| 1,535,000 | | Franklin County, OH Hospital Facility Authority, Hospital Improvement Revenue Bonds (Series 2009), 5.00% (Nationwide Children's Hospital)/(Original Issue Yield: 5.11%), 11/1/2034 | 1,515,152 |
| 2,165,000 | | Franklin County, OH, Various Purpose LT GO Bonds, 5.00%, 12/1/2031 | 2,254,674 |
| 1,530,000 | | Hamilton County, OH Hospital Facilities Authority, Revenue Bonds (Series 2004J), 5.25% (Cincinnati Children's Hospital Medical Center)/(FGIC and National Public Finance Guarantee Corporation INS), 5/15/2023 | 1,540,557 |
| 1,000,000 | | Hamilton County, OH, EDRBs (Series 2006A), 5.00% (King Highland Community Urban Redevelopment Corp.- University of Cincinnati, Lessee)/(National Public Finance Guarantee Corporation INS), 6/1/2033 | 1,003,240 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Hamilton County, OH, Healthcare Facilities Revenue Bonds (Series 2012), 5.00% (Christ Hospital)/(Original Issue Yield: 5.10%), 6/1/2042 | $921,350 |
| 1,000,000 | | Hamilton County, OH, Healthcare Facilities Revenue Bonds (Series 2012), 5.25% (Christ Hospital), 6/1/2032 | 977,750 |
| 2,850,000 | | Hamilton County, OH, Sales Tax Refunding Bonds (Series 2011A), 5.00%, 12/1/2032 | 2,825,433 |
| 1,310,000 | | Hamilton, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00% (United States Treasury PRF 6/1/2016@100), 12/1/2029 | 1,461,764 |
| 2,000,000 | | Hilliard, OH School District, UT GO Bonds (Series 2006A), 5.00% (United States Treasury PRF 12/1/2016@100)/(Assured Guaranty Municipal Corp. INS), 12/1/2027 | 2,265,800 |
| 1,555,000 | | JobsOhio Beverage System, OH, Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds (Series 2013A), 5.00%, 1/1/2038 | 1,503,887 |
| 2,000,000 | | Kent State University, OH, General Receipts Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. INS), 5/1/2028 | 2,099,820 |
| 1,860,000 | | Kettering, OH City School District, UT GO Bonds, 4.75% (Assured Guaranty Municipal Corp. INS), 12/1/2020 | 2,071,649 |
| 1,500,000 | | Lorain County, OH Port Authority, Recovery Zone Facility Revenue Bonds (Series 2010), 6.75% (United States Steel Corp.), 12/1/2040 | 1,459,755 |
| 1,000,000 | | Lorain County, OH, Hospital Revenue Bonds (Series 2006H), 5.00% (Catholic Healthcare Partners)/(Assured Guaranty Corp. INS), 2/1/2024 | 1,048,390 |
| 2,000,000 | | Lucas County, OH, Hospital Revenue Bonds (Series 2011A), 6.50% (ProMedica Healthcare Obligated Group), 11/15/2037 | 2,244,100 |
| 1,090,000 | | Marysville, OH Wastewater Treatment System, Revenue Bonds, 4.75% (Assured Guaranty Corp. INS)/(Original Issue Yield: 4.80%), 12/1/2046 | 1,041,015 |
| 1,000,000 | | Miami County, OH, Hospital Facilities Revenue & Refunding Bonds (Series 2006), 5.25% (Upper Valley Medical Center, OH), 5/15/2021 | 1,042,940 |
| 2,000,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011, 5.00%, 9/1/2031 | 2,059,800 |
| 500,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.00%, 9/1/2036 | 507,245 |
| 1,600,000 | | Miamisburg, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00%, 12/1/2024 | 1,729,408 |
| 1,000,000 | | Montgomery County, OH, Revenue Bonds (Series 2008D), 6.125% (Catholic Health Initiatives)/(Original Issue Yield: 6.30%), 10/1/2028 | 1,126,750 |
| 1,000,000 | | Muskingum County, OH, Hospital Facilities Revenue Bonds (Series 2013), 5.00% (Genesis Healthcare Corp.)/(Original Issue Yield: 5.08%), 2/15/2044 | 779,260 |
| 2,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Bonds (Series 2013), 5.00%, 11/15/2038 | 2,032,160 |
| 1,415,000 | | Oak Hills, OH Local School District, UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 12/1/2025 | 1,481,547 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,885,000 | | Ohio Municipal Electric Generation Agency, Revenue Bonds, 5.00% (American Municipal Power, JV5)/(AMBAC INS), 2/15/2014 | $1,920,853 |
| 2,000,000 | | Ohio State Air Quality Development Authority, Air Quality Revenue Refunding Bonds (Series 2009B), 5.80% (Columbus Southern Power Company), 12/1/2038 | 2,049,460 |
| 1,150,000 | | Ohio State Air Quality Development Authority, Environmental Improvement Revenue Bonds (Series 2010), 5.00%
(Buckeye Power, Inc. ), 12/1/2021 | 1,225,176 |
| 1,455,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 1,631,171 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission, Higher Education Facility Revenue Bonds (Series 2006), 5.00% (Kenyon College, OH), 7/1/2041 | 1,944,220 |
| 1,875,000 | | Ohio State Higher Educational Facility Commission, Hospital Revenue Bonds (Series 2007A), 5.25% (University Hospitals Health System, Inc.), 1/15/2046 | 1,763,925 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds (Series 2011A), 5.375% (University of Dayton)/(Original Issue Yield: 5.48%), 12/1/2030 | 1,046,010 |
| 300,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 4.75% (Mount Union College), 10/1/2016 | 329,505 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 5.00% (College of Wooster), 9/1/2020 | 2,078,620 |
| 3,115,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 5.00% (Xavier University)/(United States Treasury PRF 5/1/2016 @ 100), 5/1/2019 | 3,468,615 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Refunding Bonds (Series 2008C), 5.00% (Case Western Reserve University, OH), 12/1/2029 | 1,017,790 |
| 1,000,000 | | Ohio State Turnpike Commission, Revenue Refunding Bonds (Series 2010A), 5.00%, 2/15/2031 | 1,024,920 |
| 2,000,000 | | Ohio State Turnpike Commission, Turnpike Revenue Refunding Bonds (Series 1998A), 5.50% (National Re Holdings Corp. INS), 2/15/2024 | 2,316,940 |
| 200,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00% (United States Treasury PRF 12/1/2018@100), 12/1/2027 | 234,626 |
| 1,800,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00%, 12/1/2027 | 1,985,742 |
| 1,000,000 | | Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.00%, 6/1/2038 | 1,013,800 |
| 1,000,000 | | Ohio State Water Development Authority, Drinking Water Assistance Fund Refunding Revenue Bonds (Series 2008), 5.00%, 12/1/2021 | 1,130,600 |
| 1,000,000 | | Ohio State Water Development Authority, Revenue Refunding Bonds (Series 2008), 5.00% (United States Treasury PRF 6/1/2018@100), 6/1/2028 | 1,160,510 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,500,000 | | Ohio State, Common Schools UT GO Bonds (Series 2011B), 5.00%, 9/15/2024 | $2,777,500 |
| 1,500,000 | | Ohio State, Hospital Revenue Bonds, 5.00% (Cleveland Clinic), 1/1/2031 | 1,517,235 |
| 1,200,000 | | Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033 | 1,219,428 |
| 2,585,000 | | Ohio State, Infrastructure Improvement GO Bonds (Series 2008A), 5.375% (Original Issue Yield: 5.50%), 9/1/2028 | 2,869,376 |
| 3,000,000 | | Ohio State, Infrastructure Improvement UT GO Bonds (Series 2007A), 4.75%, 9/1/2027 | 3,074,160 |
| 1,000,000 | | Ohio State, Major New State Infrastructure Project Revenue Bonds (Series 2008-1), 5.75%, 6/15/2019 | 1,156,150 |
| 2,310,000 | | Ohio State, UT GO Bonds, 4.25%, 5/1/2016 | 2,522,636 |
| 2,000,000 | | Ohio State, UT GO Highway Capital Improvements (Series 2012Q), 5.00%, 5/1/2021 | 2,312,260 |
| 2,000,000 | | Ohio University, General Receipts Bonds (Series 2013), 5.00%, 12/1/2043 | 1,936,240 |
| 2,000,000 | | Olentangy, OH Local School District, UT GO Bonds, 5.00% (United States Treasury PRF 6/1/2016@100), 12/1/2022 | 2,231,700 |
| 415,000 | | Orrville, OH CSD, UT GO Bonds, 4.50% (AMBAC INS), 12/1/2018 | 457,069 |
| 350,000 | | Orrville, OH CSD, UT GO Refunding Bonds, 5.00% (AMBAC INS), 12/1/2020 | 392,455 |
| 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 | 339,465 |
| 13,594 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 9,892 |
| 1,000,000 | | Ravenna, OH City School District, UT GO Bonds (Series 2006), 5.00% (United States Treasury PRF 7/15/2016@100), 1/15/2031 | 1,120,180 |
| 770,000 | | Richland County, OH Hospital Facilities, Revenue Bond, 5.00% (Medcentral Health System), 11/15/2015 | 829,575 |
| 1,435,000 | | 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 | 1,326,198 |
| 750,000 | | Southeastern Ohio Port Authority, OH, Hospital Facilities Revenue Refunding & Improvement Bonds (Series 2012), 6.00% (Memorial Health System, OH)/(Original Issue Yield: 6.02%), 12/1/2042 | 753,615 |
| 1,000,000 | | Toledo, OH Water System, Revenue Improvement and Refunding Bonds (Series 2013), 5.00%, 11/15/2032 | 1,021,540 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds, 6.45% (CSX Corp.), 12/15/2021 | 1,786,485 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $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 | $1,376,911 |
| 2,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2008B), 5.25% (Assured Guaranty Municipal Corp. INS), 1/1/2027 | 2,142,840 |
| 1,025,000 | | University of Cincinnati, OH, General Receipts Revenue Bonds (Series 2004D), 5.00% (United States Treasury PRF 6/1/2014@100), 6/1/2026 | 1,061,664 |
| 1,000,000 | | University of Cincinnati, OH, Receipts Revenue Bonds (Series E), 5.00%, 6/1/2022 | 1,129,880 |
| | | TOTAL | 155,758,102 |
| | | Puerto Rico—1.5% | |
| 980,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00%, 7/1/2020 | 880,265 |
| 500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 456,280 |
| 1,000,000 | | Puerto Rico Government Development Bank (GDB), Senior Notes (Series 2006B), 5.00%, 12/1/2017 | 976,770 |
| 250,000 | | Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Refunding Bonds (Series 2012), 5.00% (Inter American University of Puerto Rico), 10/1/2031 | 207,415 |
| | | TOTAL | 2,520,730 |
| | | Guam—0.9% | |
| 1,000,000 | | Guam Government Business Privilege Tax, Business Privilege Tax Bonds (Series 2012B), 5.00%, 1/1/2037 | 961,320 |
| 560,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.625% (Original Issue Yield: 5.875%), 12/1/2029 | 572,818 |
| | | TOTAL | 1,534,138 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $159,074,431) | 159,812,970 |
| | | SHORT-TERM MUNICIPALS—2.5%1 | |
| | | Ohio—2.5% | |
| 700,000 | | Allen County, OH, (Series 2010C) Daily VRDNs (Catholic Healthcare Partners)/(Union Bank, N.A. LOC), 0.050%, 9/2/2013 | 700,000 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPALS—continued1 | |
| | | Ohio—continued | |
| $3,350,000 | | Montgomery County, OH, (Series 2011B) Daily VRDNs (Miami Valley Hospital)/(JPMorgan Chase Bank, N.A. LIQ), 0.080%, 9/2/2013 | $3,350,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST) | 4,050,000 |
| | | TOTAL INVESTMENTS—100.1%
(IDENTIFIED COST $163,150,424)2 | 163,862,970 |
| | | OTHER ASSETS AND LIABILITIES - NET—(0.1%)3 | (92,647) |
| | | TOTAL NET ASSETS—100% | $163,770,323 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.8% of the Fund's portfolio as calculated based upon total market value (percentage is unaudited).
| 1 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 2 | The cost of investments for federal tax purposes amounts to $163,124,431. |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2013.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of August 31, 2013, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| COP | —Certificate of Participation |
| CSD | —Central School District |
| EDRBs | —Economic Development Revenue Bonds |
| FGIC | —Financial Guaranty Insurance Company |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LO | —Limited Obligation |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements.
Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 2010 | Period
Ended
08/31/20091 |
| Net Asset Value, Beginning of Period | $11.47 | $10.93 | $11.14 | $10.68 | $10.22 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.38 | 0.38 | 0.42 | 0.42 | 0.37 |
| Net realized and unrealized gain (loss) on investments | (0.79) | 0.56 | (0.21) | 0.45 | 0.44 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.41) | 0.94 | 0.21 | 0.87 | 0.81 |
| Distributions from net investment income | (0.36) | (0.40) | (0.42) | (0.41) | (0.35) |
| Net Asset Value, End of Period | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Total Return2 | (3.73)% | 8.72% | 2.04% | 8.34% | 8.11% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.75% | 0.75% | 0.75% | 0.75% | 0.75%3,4 |
| Net investment income | 3.28% | 3.40% | 3.87% | 3.84% | 4.09%4 |
| Expense waiver/reimbursement5 | 0.14% | 0.18% | 0.18% | 0.16% | 0.17%4 |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $45,131 | $53,165 | $50,990 | $57,338 | $61,141 |
| Portfolio turnover | 15% | 17% | 9% | 20% | 13%6 |
| 1 | Reflects operations for the period from November 18, 2008 (date of initial investment) to August 31, 2009. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.75% for the period ended August 31, 2009, after taking into account this expense reduction. |
| 4 | Computed on an annualized basis. |
| 5 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
| 6 | Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended August 31, 2009. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value Beginning of Period | $11.47 | $10.93 | $11.14 | $10.68 | $10.92 |
| Income from Investment Operations: | | | | | |
| Net Investment Income | 0.36 | 0.36 | 0.40 | 0.40 | 0.43 |
| Net realized and unrealized gain (loss) on investments | (0.79) | 0.56 | (0.21) | 0.46 | (0.25) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.43) | 0.92 | 0.19 | 0.86 | 0.18 |
| Distributions from net investment income | (0.34) | (0.38) | (0.40) | (0.40) | (0.42) |
| Net Asset Value, end of period | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Total Return1 | (3.87)% | 8.56% | 1.89% | 8.18% | 1.81% |
| Ratios to Average Net Assets: | | | | | |
| Net Expenses | 0.90% | 0.90% | 0.90% | 0.90% | 0.90%2 |
| Net Investment Income | 3.13% | 3.25% | 3.70% | 3.72% | 4.06% |
| Expense waiver/reimbursement3 | 0.39% | 0.43% | 0.43% | 0.41% | 0.44% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $118,639 | $128,005 | $117,884 | $135,096 | $124,090 |
| Portfolio turnover | 15% | 17% | 9% | 20% | 13% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 2 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.90% for the year ended August 31, 2009, after taking into account this expense reduction. |
| 3 | This expense decrease is reflected in both the net expense and net investment income (loss) ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Assets and Liabilities
August 31, 2013
| Assets: | | |
| Total investment in securities, at value (identified cost $163,150,424) | | $163,862,970 |
| Cash | | 39,495 |
| Income receivable | | 2,100,860 |
| Receivable for shares sold | | 6,580 |
| TOTAL ASSETS | | 166,009,905 |
| Liabilities: | | |
| Payable for investments purchased | $1,616,955 | |
| Payable for shares redeemed | 389,036 | |
| Income distribution payable | 120,151 | |
| Payable for shareholder services fee (Note 5) | 35,440 | |
| Payable for distribution services fee (Note 5) | 15,467 | |
| Payable for Directors'/Trustees' fees (Note 5) | 207 | |
| Accrued expenses (Note 5) | 62,326 | |
| TOTAL LIABILITIES | | 2,239,582 |
| Net assets for 15,308,428 shares outstanding | | $163,770,323 |
| Net Assets Consist of: | | |
| Paid-in capital | | $165,003,920 |
| Net unrealized appreciation of investments | | 712,546 |
| Accumulated net realized loss on investments | | (1,962,519) |
| Undistributed net investment income | | 16,376 |
| TOTAL NET ASSETS | | $163,770,323 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share | | |
| Class A Shares: | | |
| Net asset value per share ($45,131,488 ÷ 4,218,994 shares outstanding), no par value, unlimited shares authorized | | $10.70 |
| Offering price per share (100/95.50 of $10.70) | | $11.20 |
| Redemption proceeds per share | | $10.70 |
| Class F Shares: | | |
| Net asset value per share ($118,638,835 ÷ 11,089,434 shares outstanding) no par value, unlimited shares authorized | | $10.70 |
| Offering price per share (100/99.00 of 10.70) | | $10.81 |
| Redemption proceeds per share (99.00/100 of 10.70) | | $10.59 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Operations
Year Ended August 31, 2013
| Investment Income: | | | |
| Interest | | | $7,381,738 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $731,793 | |
| Administrative fee (Note 5) | | 142,775 | |
| Custodian fees | | 12,385 | |
| Transfer agent fee | | 94,491 | |
| Directors'/Trustees' fees (Note 5) | | 1,753 | |
| Auditing fees | | 24,999 | |
| Legal fees | | 7,098 | |
| Distribution services fee (Note 5) | | 521,088 | |
| Shareholder services fee (Note 5) | | 455,713 | |
| Account administration fee (Note 2) | | 554 | |
| Portfolio accounting fees | | 90,000 | |
| Share registration costs | | 34,422 | |
| Printing and postage | | 23,762 | |
| Insurance premiums (Note 5) | | 4,288 | |
| Miscellaneous (Note 5) | | 2,529 | |
| TOTAL EXPENSES | | 2,147,650 | |
| Waivers (Note 5): | | | |
| Waiver of investment adviser fee | $(246,589) | | |
| Waiver of distribution services fee | (324,952) | | |
| TOTAL WAIVERS | | (571,541) | |
| Net expenses | | | 1,576,109 |
| Net investment income | | | 5,805,629 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized gain on investments | | | 589,640 |
| Net change in unrealized appreciation of investments | | | (13,232,061) |
| Net realized and unrealized loss on investments | | | (12,642,421) |
| Change in net assets resulting from operations | | | $(6,836,792) |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Changes in Net Assets
| Year Ended August 31 | 2013 | 2012 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $5,805,629 | $5,740,990 |
| Net realized gain on investments | 589,640 | 1,208,029 |
| Net change in unrealized appreciation/depreciation of investments | (13,232,061) | 7,420,689 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (6,836,792) | 14,369,708 |
| Distribution to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (1,639,985) | (1,822,401) |
| Class F Shares | (3,874,779) | (4,178,932) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (5,514,764) | (6,001,333) |
| Share Transactions: | | |
| Proceeds from sale of shares | 21,560,165 | 21,282,223 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 3,993,450 | 4,024,631 |
| Cost of shares redeemed | (30,601,616) | (21,378,582) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (5,048,001) | 3,928,272 |
| Change in net assets | (17,399,557) | 12,296,647 |
| Net Assets: | | |
| Beginning of period | 181,169,880 | 168,873,233 |
| End of period (including undistributed (distributions in excess of) net investment income of $16,376 and $(255,725), respectively) | $163,770,323 | $181,169,880 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Notes to Financial Statements
August 31, 2013
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 five 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Class A 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 current income exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax (AMT)) 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 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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities and repurchase agreements acquired with remaining maturities of 60 days or less are valued at their amortized cost (adjusted for the accretion of any discount or amortization of any premium) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security. |
| ■ | Derivative contracts listed on exchanges are valued at their reported settlement or closing price. |
| ■ | Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
| ■ | For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers. |
Annual Shareholder Report
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation
The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to determine fair value of securities and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing - service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. 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 Class A Shares and Class F Shares may bear account administration fees, distribution services fees and shareholder services fees unique to those classes.
Annual Shareholder Report
For the year ended August 31, 2013, account administration fees for the Fund were as follows:
| | Account
Administration
Fees Incurred |
| Class F Shares | $554 |
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 using the effective-interest-rate method.
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. As of and during the year ended August 31, 2013, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2013, tax years 2010 through 2013 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Other
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.
Annual Shareholder Report
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended August 31 | 2013 | 2012 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 477,353 | $5,412,099 | 481,719 | $5,437,913 |
| Shares issued to shareholders in payment of distributions declared | 40,196 | 454,572 | 35,839 | 402,355 |
| Shares redeemed | (935,465) | (10,408,092) | (547,829) | (6,135,891) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | (417,916) | $(4,541,421) | (30,271) | $(295,623) |
| Year Ended August 31 | 2013 | 2012 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,418,767 | $16,148,066 | 1,411,702 | $15,844,310 |
| Shares issued to shareholders in payment of distributions declared | 313,089 | 3,538,878 | 322,998 | 3,622,276 |
| Shares redeemed | (1,805,955) | (20,193,524) | (1,360,680) | (15,242,691) |
NET CHANGE RESULTING FROM
CLASS F SHARE TRANSACTIONS | (74,099) | $(506,580) | 374,020 | $4,223,895 |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | (492,015) | $(5,048,001) | 343,749 | $3,928,272 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for discount accretion/premium amortization on debt securities.
For the year ended August 31, 2013, permanent differences identified and reclassified among the components of net assets were as follows:
| Increase (Decrease) |
Undistributed
Net Investment
Income (Loss) | | Accumulated
Net Realized
Gain (Loss) |
| $(18,764) | | $18,764 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2013 and 2012, was as follows:
| | 2013 | 2012 |
| Ordinary income | $11,100 | $3,420 |
| Tax-exempt income | $5,503,664 | $5,997,913 |
Annual Shareholder Report
As of August 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed tax-exempt income | $16,376 |
| Net unrealized appreciation | $738,539 |
| Capital loss carryforwards | $(1,988,512) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.
At August 31, 2013, the cost of investments for federal tax purposes was $163,124,431. The net unrealized appreciation of investments for federal tax purposes was $738,539. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,474,969 and net unrealized depreciation from investments for those securities having an excess of cost over value of $4,736,430.
At August 31, 2013, the Fund had a capital loss carryforward of $1,988,512 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, thereby reducing 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, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| 2015 | $138,316 | NA | $138,316 |
| 2016 | $641,658 | NA | $641,658 |
| 2017 | $626,069 | NA | $626,069 |
| 2018 | $560,004 | NA | $560,004 |
| 2019 | $22,465 | NA | $22,465 |
The Fund used capital loss carryforwards of $646,429 to offset taxable gains realized during the year ended August 31, 2013.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended ended August 31, 2013 the Adviser waived $246,589 of its fee.
Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the fee paid to FAS was 0.078% of average 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 F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at 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 | 0.05% |
| Class F Shares | 0.40% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred | Distribution
Services Fees
Waived |
| Class F Shares | $521,088 | $(324,952) |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2013, FSC retained $196,136 of fees paid by the Fund. For the year ended August 31, 2013, the Fund's Class A shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Annual Shareholder Report
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2013, FSC retained $8,346 in sales charges from the sale of Class A Shares and $3,046 from the sale of Class F Shares. For the year ended August 31, 2013, FSC retained $43,127 in CDSC relating to redemptions of Class F Shares.
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 F Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended August 31, 2013, Service Fees for the Fund were as follows:
| | Service Fees
Incurred |
| Class A Shares | $131,691 |
| Class F Shares | 324,022 |
| TOTAL | $455,713 |
For the year ended August 31, 2013, FSSC received $1,757 of fees paid by the Fund.
Interfund Transactions
During the year ended August 31, 2013, 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 $29,150,000 and $21,450,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their respective fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights excluding extraordinary expenses and proxy-related expenses paid by the Fund, if any), paid by the Fund's Class A Shares and Class F Shares (after the voluntary waivers and reimbursements) will not exceed 0.75% and 0.90% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2014; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund.
Annual Shareholder Report
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2013 were as follows:
| Purchases | $27,048,231 |
| Sales | $29,869,249 |
7. CONCENTRATION OF RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at August 31, 2013, 30.7% 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 by (backed) by a letter of credit from any one institution or agency was 7.7% of total investments.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 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 offered to the Fund by PNC Bank at the time of the borrowing. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2013, 99.8% of distributions from from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated municipal securities income trust and shareholders of federated ohio municipal income FUND:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Ohio Municipal Income Fund (the “Fund”), a portfolio of Federated Municipal Securities Income Trust, as of August 31, 2013, and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Ohio Municipal Income Fund as of August 31, 2013, and the results of its operations for the year then ended, and the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 24, 2013
Annual Shareholder Report
Shareholder Expense Example (unaudited)
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 and 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 March 1, 2013 to August 31, 2013.
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.
Annual Shareholder Report
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
3/1/2013 | Ending
Account Value
8/31/2013 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $943.10 | $3.67 |
| Class F Shares | $1,000 | $941.50 | $4.40 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.42 | $3.82 |
| Class F Shares | $1,000 | $1,020.67 | $4.58 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| Class A Shares | 0.75% |
| Class F Shares | 0.90% |
Annual Shareholder Report
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2012, the Trust comprised five portfolio(s), and the Federated Fund Family consisted of 42 investment companies (comprising 137 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
In Memoriam - John F. Cunningham, Independent Trustee
With deep sadness, Federated announces the passing of John F. Cunningham, who served as an independent member of the Board of the Federated Fund Family since 1999. Mr. Cunningham's savvy business acumen and incisive intellect made him a powerful force on the Federated Fund Board. He was an advocate for shareholders and a respected colleague within the Federated family. Mr. Cunningham enjoyed an outstanding career in technology, having served as President and in other Senior Executive positions with leading companies in the industry. Federated expresses gratitude to Mr. Cunningham for his fine contributions as a Board member, colleague and friend. He will be greatly missed.
Interested TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
John F. Donahue*
Birth Date: July 28, 1924
Trustee
Began serving: August 1990 | Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Began serving: August 1990 | Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, and Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, Auberle; Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director, Ireland Institute of Pittsburgh; Chair and Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County; Director, Our Campaign for the Church Alive, Inc.
Previous Position: Pennsylvania Superior Court Judge.
Qualifications: Legal and director experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Peter E. Madden
Birth Date: March 16, 1942
Trustee
Began serving: August 1991 | Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family.
Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.
Qualifications: Business management, mutual fund services and director experience. |
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Began serving: January 1999 | Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology).
Qualifications: Banking, business management, education and director experience. |
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee
Began serving: October 2006 | Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida.
Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber).
Qualifications: Business management, mutual fund, director and investment experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
John S. Walsh
Birth Date: November 28, 1957
Trustee
Began serving: June 1999 | Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh & Kelly, Inc.
Qualifications: Business management and director experience. |
OFFICERS
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT AND SECRETARY
Officer since: August 1990 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc.
Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
Lori A. Hensler, CPA
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. |
Richard B. Fisher
Birth Date: May 17, 1923
VICE CHAIRMAN
Officer since: August 2002 | Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 | Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc. |
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
Previous Positions: Served in Senior Management positions with a large regional banking organization. |
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Officer since: February 2010 | Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
J. Scott Albrecht
Birth Date: June 1, 1960
VICE PRESIDENT
Officer since: November 1999
Portfolio Manager since: March 1995 | Principal Occupations: J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is Vice President of the Trust with respect to the Fund. Mr. Albrecht joined Federated in 1989. He became a Senior Vice President of the Fund's Adviser in January 2005 and served as a Vice President of the Fund's Adviser from 1994 through 2004. He has been a Senior Portfolio Manager since 1997 and was a Portfolio Manager from 1994 to 1996. Mr. Albrecht has received the Chartered Financial Analyst designation and holds an M.S. in Public Management from Carnegie Mellon University. |
Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2013
Federated Ohio Municipal Income Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board reviewed and approved at its May 2013 meetings the Fund's investment advisory contract for an additional one-year term. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed 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 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 (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
The Board is also familiar with and considered 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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent to which the Board members are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. Consistent with these judicial decisions, the Board also considered management fees charged to institutional and other clients of the Adviser for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Annual Shareholder Report
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 independent legal counsel. Throughout the year, and in connection with its May meetings, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also 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 information 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); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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.
Annual Shareholder Report
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, 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, noting that the overall expense structure of the Fund, after waivers and expense reimbursements, was below the median of the relevant peer group, and was satisfied that the overall expense structure of the Fund remained competitive.
By contrast, 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 include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as 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.
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant, though not conclusive in judging the reasonableness of proposed fees.
Annual Shareholder Report
For the periods covered by the Evaluation, the Fund's performance for the one-year and three-year periods was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the five-year period. 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 information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, 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, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in arbitrarily allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate can dramatically alter the resulting estimate of cost and/or profitability of a fund. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive. The Board agreed with this assessment.
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 and long-term investments in areas that support all of the Federated family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were
Annual Shareholder Report
likely to be enjoyed by the fund family as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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 necessarily relevant to the 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.
Annual Shareholder Report
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 from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at 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. From the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder Report
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 Trust's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Ohio Municipal Income Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923823
CUSIP 313923609
28994 (10/13)
Federated is a registered trademark of Federated Investors, Inc.
2013 ©Federated Investors, Inc.
Annual Shareholder Report
August 31, 2013
| Share Class | Ticker |
| A | PAMFX |
| B | FPABX |
Federated Pennsylvania Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Municipal Securities Income Trust
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2012 through August 31, 2013. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
CONTENTS
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Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the 12-month reporting period ended August 31, 2013, was -4.41% for Class A Shares and -5.15% for Class B Shares. The total return of the S&P Municipal Bond Pennsylvania Index (the “PA Index”),1 the Fund's broad-based securities market index, was -3.36% during the same period. The total return of the Morningstar Municipal Pennsylvania Funds Category Average (MMPFCA),2 a peer group average for the Fund, was -5.41% during the same period. The Fund's total return for the most recently completed fiscal year and the MMPFCA's total return during that same period, reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the PA Index.
During the reporting period, the Fund's investment strategy focused on: (a) the effective duration of its portfolio (which indicates the portfolio's sensitivity to changes in interest rates);3,4 (b) the allocation of the Fund's portfolio among securities of similar issuers (referred to as “sectors”); and (c) the credit ratings of portfolio securities (which indicates the risk that securities will default).5 These were the most significant factors affecting the Fund's performance relative to the PA Index.
The following discussion focuses on the performance of the Fund's Class A Shares. The Fund's Class A Shares outperformed the MMPFCA and underperformed the PA Index. The -4.41% total return of the Class A Shares for the reporting period consisted of 3.27% of tax-exempt dividends and reinvestments and price depreciation of 7.68% in the net asset value of the shares.6
Market OVERVIEW
During the 12-month reporting period, ten-year Treasury yields increased from a low of 1.55% in August 2012 to 2.89% in August 2013, and averaged 1.99%. Even though unemployment rates remained elevated, labor market conditions showed improvement. Inflation also remained below the Federal Reserve Board's (the “Fed”) long run objective while inflation expectations remained stable. Interest rate volatility did increase as markets reacted to the Fed's discussions about tapering the amount of U.S. Treasury and mortgage-backed securities it will purchase under their quantitative easing program as the economy shows improvement. The Fed's communications had investors anticipating a less accommodative stance of monetary policy than had been expected going forward. In an attempt to support a stronger economic recovery, the Fed continued to maintain an accommodative monetary policy stance during the reporting period. Developments in Europe continued to be a focus for investors, as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties, which indirectly affected interest rate levels in the tax-exempt municipal bond market. Foreign economic growth
Annual Shareholder Report
continued to be subdued, as fiscal retrenchment in the euro area continued to weigh on economic activity in Europe and factored into the Fed's accommodative policy stance. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances and weak economic growth. Political conditions in the Middle East continued to destabilize which resulted in “flight to quality” trades into what were perceived to be safer investments by investors as volatility in the markets increased. This resulted in periods of lower U.S. Treasury yields that also pushed municipal yields lower. Also, the amount of municipal bonds being issued during the reporting period was muted, which created a favorable technical environment (supply/demand imbalance) within the tax-exempt municipal bond market. A significant driver of the muted issuance was that the amount of municipal bonds being refunded collapsed as interest rates rose over the period. This reduced the amount of municipal bonds being issued and helped to provide a cushion for municipal bond prices and, as a result, absolute performance. However, the muted supply was offset by outflows from bond funds in general, and municipal bond funds in particular. Outflows sharply increased as investors anticipated higher interest rates and a less accommodative Fed.
The tax-exempt municipal market dealt with several policy-related issues over the course of the reporting period. These included U.S. fiscal policy decisions that resulted in increases in the top marginal tax rates, which were a positive factor for municipal bond prices and increased the value of the municipal tax exemption. The sequester (automatic spending cuts) was allowed to go into effect as a result of the inability of Congress and the President to come to a resolution over spending cuts, which had a negative impact on municipal government revenues and employment. Some positive news about the fiscal position of the states became available; in some cases, revenues rose sufficiently enough to enable increases in state government spending and employment. However, Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in a general widening in municipal credit spreads near the end of the period. The headline risk from these high profile names led to relative underperformance in lower rated municipal issuers. Also, Illinois continued to be unable to come to political terms over a solution for Illinois' underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist. The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny. However, many state and local municipal entities took actions to control pension costs, and this issue continued to be watched.
Pennsylvania maintained a broad and diverse economy with wealth levels above the national average. The Commonwealth has been buttressed by its large Health Care and Higher Education sectors. Recent improvements in governance have resulted in two consecutive on-time budgets and demonstrated
Annual Shareholder Report
the willingness to balance revenue shortfalls early in the fiscal year. The Commonwealth, however, had a high combined debt position driven by growing unfunded pension liabilities and a history of significantly underfunding pension contributions. These rapidly growing pension contributions were a concern during the reporting period as they affect Pennsylvania's financial flexibility over the next several years. Below-average population growth and above-average age continued to be a challenge to long-term growth prospects for the Commonwealth. Gas industry exploration has been an economic boost to the state and has positioned itself to positively contribute to future economic growth.
Duration
As determined at the end of the 12-month reporting period, the Fund's dollar-weighted average duration for the reporting period was 6.19 years. Duration management continued to be a significant component of the Fund's investment strategy. The Fund adjusted duration, relative to the PA Index, several times during the reporting period. Tax-exempt municipal bond yields increased significantly during the reporting period and increased more for bonds with longer maturities as the yield curve significantly steepened during the period. Bonds with a longer duration underperformed bonds with a shorter duration due to their differences in interest rate volatility. As a result of the Fund's allocation to bonds with shorter durations than those included in the PA Index, duration (especially in the one to four year duration range) provided positive performance for the Fund relative to the PA Index. The Fund utilized ten-year treasury futures contract to adjust duration which provided positive excess return over the reporting period.
Sector
During the 12-month reporting period, the Fund maintained a higher portfolio allocation to Health Care and Water & Sewer Authority bonds. These allocations helped the Fund's performance due to the outperformance of these sectors relative to the PA Index. The Fund also had less of an allocation to state and local general obligation bonds than the PA Index. These sectors outperformed the PA Index during the reporting period, and the Fund's lesser allocation detracted from Fund performance relative to the PA Index. The Fund also maintained an overweight allocation to pre-refunded, tax-exempt municipal bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The overweight exposure to pre-refunded bonds positively affected Fund performance due to lower price volatility exhibited by pre-refunded bonds as compared to other sectors. The Fund's holding of Puerto Rico Electric Power Authority debt over the period had a negative impact on performance as the island's debt declined in price as their economy and financial position deteriorated.
Annual Shareholder Report
CREDIT QUALITY
During the 12-month reporting period, headline risk concerning municipal credit quality increased and municipal bond fund outflows increased significantly. This resulted in underperformance of bonds rated “A” or “BBB” (or unrated bonds of comparable quality) relative to bonds rated in the higher rating categories (or unrated bonds of comparable quality). With the increase in credit spreads during the reporting period, and the widening of credit spreads to a lesser extent for “AAA” and “AA”-rated (or unrated comparable quality) debt, the Fund's overweight position, relative to the PA Index, in “A”-rated (or unrated comparable quality) debt during the reporting period had a negative impact on the Fund's performance, as the yield on “A”-rated (or unrated comparable quality) debt increased to a greater extent than for other investment-grade securities.7 The Fund's exposure to noninvestment-grade debt (an out-of-index position) added positive excess return as these securities provided a large yield cushion to the Fund over the reporting period.
Annual Shareholder Report
| 1 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the PA Index. |
| 2 | Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment��� below for the definition of, and more information about, the MMPFCA. |
| 3 | Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management's Discussion of Fund Performance, duration is determined using a third-party analytical system. |
| 4 | Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. |
| 5 | Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk. |
| 6 | Income may be subject to the alternative minimum tax for individuals and corporations (AMT). |
| 7 | Investment-grade securities and noninvestment-grade securities may either: be (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default. |
Annual Shareholder Report
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Average Annual Total Return table below shows returns for each class averaged over the stated periods. The graphs below illustrate the hypothetical investment of $10,0001 in Federated Pennsylvania Municipal Income Fund (the “Fund”) from August 31, 2003 to August 31, 2013, compared to the S&P Municipal Bond Pennsylvania Index (PA Index),2 the S&P Municipal Bond PA, Investment Grade, 3-Year Plus Sub-Index (PAIG Index)3 and the Morningstar Municipal Pennsylvania Funds Category Average (MMPFCA).4
Average Annual Total Returns for the Period Ended 8/31/2013
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| A | -8.73% | 2.40% | 2.72% |
| B | -10.23% | 2.21% | 2.54% |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
Annual Shareholder Report
GROWTH OF A $10,000 INVESTMENT–CLASS A SHARES
Growth of $10,000 as of August 31, 2013
| Federated Pennsylvania Municipal Income Fund - | Class A Shares | PA Index | PAIG Index | MMPFCA |
| 8/31/2003 | 9,550 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,167 | 10,731 | 10,745 | 10,591 |
| 8/31/2005 | 10,735 | 11,359 | 11,359 | 11,080 |
| 8/31/2006 | 11,060 | 11,741 | 11,727 | 11,378 |
| 8/31/2007 | 11,137 | 12,042 | 12,019 | 11,533 |
| 8/31/2008 | 11,088 | 12,477 | 12,504 | 11,758 |
| 8/31/2009 | 11,250 | 13,122 | 13,298 | 12,184 |
| 8/31/2010 | 12,330 | 14,414 | 14,721 | 13,384 |
| 8/31/2011 | 12,567 | 14,819 | 15,162 | 13,598 |
| 8/31/2012 | 13,673 | 16,142 | 16,712 | 14,884 |
| 8/31/2013 | 13,070 | 15,599 | 16,033 | 14,079 |
41 graphic description end -->
| ■ | Total returns shown include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). |
GROWTH OF A $10,000 INVESTMENT–CLASS B SHARES
Growth of $10,000 as of August 31, 2013
| Federated Pennsylvania Municipal Income Fund - | Class B Shares | PA Index | PAIG Index | MMPFCA |
| 8/31/2003 | 10,000 | 10,000 | 10,000 | 10,000 |
| 8/31/2004 | 10,565 | 10,731 | 10,745 | 10,591 |
| 8/31/2005 | 11,069 | 11,359 | 11,359 | 11,080 |
| 8/31/2006 | 11,316 | 11,741 | 11,727 | 11,378 |
| 8/31/2007 | 11,307 | 12,042 | 12,019 | 11,533 |
| 8/31/2008 | 11,160 | 12,477 | 12,504 | 11,758 |
| 8/31/2009 | 11,246 | 13,122 | 13,298 | 12,184 |
| 8/31/2010 | 12,231 | 14,414 | 14,721 | 13,384 |
| 8/31/2011 | 12,466 | 14,819 | 15,162 | 13,598 |
| 8/31/2012 | 13,551 | 16,142 | 16,712 | 14,884 |
| 8/31/2013 | 12,853 | 15,599 | 16,033 | 14,079 |
41 graphic description end -->
| ■ | Total returns shown include the maximum contingent deferred sales charge of 5.50% as applicable. |
Annual Shareholder Report
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: For Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); For Class B Shares, the maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The PA Index, PAIG Index and MMPFCA have been adjusted to reflect reinvestment of dividends on securities in the index and average. |
| 2 | The PA Index consists of bonds in the S&P Municipal Bond Index (“Main Index”) that have been issued by the Commonwealth of Pennsylvania or local governments or state or local government entities within Pennsylvania. The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the alternative minimum tax (AMT). Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or local government or state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The PA Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The PA Index is unmanaged, and unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 3 | The PAIG Index represents the portion of the PA Index composed solely of bonds that are rated at least BBB with remaining maturities of more than three years that are not subject to AMT. The PAIG Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The PAIG Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. |
| 4 | Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated. Funds designated within the MMPFCA include those that invest at least 80% of assets in Pennsylvania municipal debt and can include long-, intermediate- and short-duration portfolios. They do not reflect sales charges. |
Annual Shareholder Report
Portfolio of Investments Summary Table (unaudited)
At August 31, 2013, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 18.9% |
| Education | 15.7% |
| General Obligation—State | 10.7% |
| General Obligation—Local | 9.7% |
| Water & Sewer | 9.5% |
| Transportation | 8.8% |
| Special Tax | 6.7% |
| Pre-refunded | 4.2% |
| Industrial Development Bond/Pollution Control Revenue Bond | 4.0% |
| Multi-Family Housing | 2.5% |
| Other2 | 8.1% |
| Other Assets and Liabilities—Net3 | 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, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-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 90.7% 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. |
Annual Shareholder Report
Portfolio of Investments
August 31, 2013
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.6% | |
| | | Pennsylvania—97.0% | |
| $1,450,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2023 | $1,552,907 |
| 1,550,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2024 | 1,631,902 |
| 3,555,000 | | Allegheny County, PA HDA, Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018 | 4,039,760 |
| 2,000,000 | | Allegheny County, PA HDA, Revenue Refunding Bonds (Series 1998A), 5.13% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.34%), 5/1/2023 | 2,000,000 |
| 2,200,000 | | Allegheny County, PA Higher Education Building Authority, University Revenue Bonds (Series 2006A), 4.75% (Robert Morris University), 2/15/2026 | 2,026,398 |
| 1,385,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | 1,375,762 |
| 3,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.75% (United States Steel Corp.), 11/1/2024 | 3,094,020 |
| 700,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2006), 5.13% (Residential Resources Inc. Project), 9/1/2031 | 612,864 |
| 2,000,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.00% (Original Issue Yield: 5.20%), 3/1/2026 | 2,093,800 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,831,105 |
| 2,250,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2035 | 2,092,252 |
| 1,845,000 | | Beaver County, PA Hospital Authority, Revenue Bonds (Series 2012), 5.00% (Heritage Valley Health System, Inc.), 5/15/2027 | 1,876,734 |
| 2,000,000 | | Berks County, PA Municipal Authority, Revenue Bonds (Series 2012A), 5.00% (Reading Hospital & Medical Center), 11/1/2040 | 1,883,820 |
| 3,000,000 | | Bradford County, PA IDA, Solid Waste Disposal Revenue Refunding Bonds (Series 2005A), 4.70% (International Paper Co.), 3/1/2019 | 2,958,570 |
| 2,000,000 | | Bucks County, PA Water & Sewer Authority, Revenue Bond, 4.20% (Assured Guaranty Municipal Corp. INS)/(Original Issue Yield: 4.21%), 6/1/2020 | 2,095,080 |
| 1,055,000 | | Catasauqua, PA Area School District, UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 2/15/2031 | 1,061,098 |
| 2,320,000 | | Central Bradford Progress Authority, PA, Revenue Bonds, 5.00% (Guthrie Healthcare System, PA)/(Original Issue Yield: 5.10%), 12/1/2031 | 2,262,882 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds (Series 2012B), 5.00% (Mount Nittany Medical Center), 11/15/2032 | $1,907,220 |
| 1,500,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds, 6.25% (Mount Nittany Medical Center)/(United States Treasury PRF 11/15/2014@100)/(Original Issue Yield: 6.30%), 11/15/2044 | 1,608,420 |
| 2,000,000 | | Chester County, PA HEFA, Revenue Bonds (Series 2006), 5.00% (Devereux Foundation), 11/1/2031 | 1,896,880 |
| 2,000,000 | | Chester County, PA, UT GO Bonds, 5.00%, 7/15/2028 | 2,124,140 |
| 2,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00%, 12/1/2037 | 1,814,620 |
| 1,500,000 | | Clarion County, PA IDA, Water Facility Revenue Refunding Bonds (Series 2009), 5.50% (Pennsylvania American Water Co.), 12/1/2039 | 1,534,875 |
| 2,000,000 | | Commonwealth Financing Authority of PA, Revenue Bonds (Series 2013B), 5.00% (Commonwealth of Pennsylvania), 6/1/2036 | 1,967,800 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2011), 5.00%, 11/15/2030 | 2,095,840 |
| 2,355,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2012), 5.00%, 6/1/2022 | 2,713,525 |
| 5,075,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Second Series 2009), 5.00%, 4/15/2023 | 5,795,853 |
| 4,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Second Series 2010A), 5.00%, 5/1/2017 | 4,549,760 |
| 6,150,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Series 2007A), 5.00%, 8/1/2023 | 6,843,720 |
| 2,000,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2007A), 5.00% (Diakon Lutheran Social Ministries), 1/1/2036 | 1,886,860 |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Revenue Refunding Bonds (Series 2012), 5.25% (Asbury Pennsylvania Obligated Group), 1/1/2041 | 850,630 |
| 3,500,000 | | Dauphin County, PA General Authority, Health System Revenue Bonds (Series 2012A), 5.00% (Pinnacle Health System), 6/1/2042 | 3,234,140 |
| 410,000 | | Delaware County, PA Authority, Revenue Bonds (Series 2012), 5.00% (Villanova University), 8/1/2020 | 464,374 |
| 2,350,000 | | Delaware River Port Authority, Revenue Bonds (Series 2010D), 5.00%, 1/1/2028 | 2,445,551 |
| 1,500,000 | | Ephrata, PA Area School District, UT GO Bonds, 4.25% (FGIC and National Public Finance Guarantee Corporation INS), 4/15/2017 | 1,604,625 |
| 1,500,000 | | Erie County, PA Hospital Authority, Revenue Bonds (Series 2006), 5.00% (UPMC Health System)/(CIFG Assurance NA INS), 11/1/2035 | 1,501,380 |
| 1,000,000 | | Erie, PA Higher Education Building Authority, Revenue Bonds (Series 2007 GG3), 5.00% (Gannon University)/(Radian Asset Assurance, Inc. INS), 5/1/2032 | 944,260 |
| 2,250,000 | | Geisinger Authority, PA Health System, Health System Revenue Bonds (Series 2009A), 5.25% (Geisinger Health System), 6/1/2039 | 2,267,572 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | $1,656,660 |
| 2,000,000 | | Indiana County, PA IDA, Revenue Refunding Bonds, 5.00% (Indiana University of PA)/(AMBAC INS), 11/1/2029 | 1,787,040 |
| 1,615,000 | | Johnstown, PA Redevelopment Authority, Revenue Bonds (Series A), 4.50% (Assured Guaranty Municipal Corp. INS), 8/15/2019 | 1,672,946 |
| 1,000,000 | | Lancaster, PA Higher Education Authority, College Revenue Bonds, 5.00% (Franklin & Marshall College), 4/15/2019 | 1,099,530 |
| 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 | 970,780 |
| 2,250,000 | | Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 2005B), 5.00% (Lehigh Valley Health Network)/(Assured Guaranty Municipal Corp. INS), 7/1/2035 | 2,171,587 |
| 550,000 | | Luzerne County, PA IDA, Lease Revenue Bonds, 3.40% (Luzerne County, PA)/(Assured Guaranty Municipal Corp. INS)/(Original Issue Yield: 3.55%), 12/15/2013 | 554,862 |
| 500,000 | | Luzerne County, PA IDA, Lease Revenue Bonds, 3.55% (Luzerne County, PA)/(Assured Guaranty Municipal Corp. INS)/(Original Issue Yield: 3.70%), 12/15/2014 | 518,375 |
| 2,250,000 | | Lycoming County PA Authority, College Revenue Bonds (Series 2008), 5.50% (Pennsylvania College of Technology)/(Assured Guaranty Corp. INS), 10/1/2032 | 2,322,450 |
| 2,200,000 | | Lycoming County PA Authority, Revenue Bonds (Series A), 5.75% (Susquehanna Health System)/(Original Issue Yield: 5.90%), 7/1/2039 | 2,219,316 |
| 1,000,000 | | Monroe County, PA Hospital Authority, Revenue Bonds, 6.00% (Pocono Medical Center)/(United States Treasury PRF 1/1/2014@100)/(Original Issue Yield: 6.17%), 1/1/2043 | 1,019,340 |
| 2,000,000 | | Montgomery County, PA Higher Education & Health Authority Hospital, Revenue Bonds (Series 2006FF1), 5.00% (Dickinson College)/(CIFG Assurance NA INS), 5/1/2031 | 2,030,440 |
| 1,100,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc), 11/15/2028 | 1,032,933 |
| 400,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc), 11/15/2029 | 372,600 |
| 1,000,000 | | New Wilmington, PA Municipal Authority, Revenue Bonds (Series 2007GG4), 5.13% (Westminster College)/(Radian Asset Assurance, Inc. INS), 5/1/2033 | 952,500 |
| 1,500,000 | | Northampton County, PA General Purpose Authority, Hospital Revenue Bonds (Series 2008A), 5.50% (St. Luke's Hospital of Bethlehem)/(Original Issue Yield: 5.60%), 8/15/2035 | 1,475,550 |
| 2,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2009), 7.00% (Allegheny Energy Supply Company LLC), 7/15/2039 | 2,016,200 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2012A), 5.00% (Amtrak), 11/1/2041 | $930,080 |
| 2,000,000 | | Pennsylvania EDFA, PCR Refunding Bonds (Series 2008), 4.00% (PPL Electric Utilities Corp.), 10/1/2023 | 1,998,300 |
| 700,000 | | Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human Services, Inc.)/(Original Issue Yield: 5.67%), 6/1/2028 | 667,450 |
| 1,000,000 | | Pennsylvania EDFA, Revenue Bonds (Series 2000), 5.90% (Dr. Gertrude A. Barber Center, Inc.)/(Radian Asset Assurance, Inc. INS), 12/1/2030 | 999,920 |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds (Series 2004A), 4.70% TOBs (Waste Management, Inc.), Mandatory Tender 11/1/2014 | 1,037,770 |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds, Project A, 5.10% (Waste Management, Inc.), 10/1/2027 | 982,220 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009B), 5.00% (Aqua Pennsylvania, Inc. ), 11/15/2040 | 1,979,300 |
| 2,000,000 | | Pennsylvania EDFA, Water Facility Revenue Bonds (Series 2009), 6.20% (Pennsylvania American Water Co.), 4/1/2039 | 2,139,100 |
| 1,850,000 | | Pennsylvania HFA, SFM Revenue Bonds (Series 114C), 3.70%, 10/1/2042 | 1,434,805 |
| 1,500,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2009), 5.00%, 6/15/2022 | 1,641,810 |
| 1,000,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2010), 5.00%, 6/15/2018 | 1,146,530 |
| 1,020,000 | | Pennsylvania State Higher Education Facilities Authority, 5.13% (Gwynedd-Mercy College)/(Radian Asset Assurance, Inc. INS), 5/1/2032 | 957,515 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, College Revenue Bonds (Series 2007), 5.00% (Bryn Mawr College)/(AMBAC INS), 12/1/2037 | 1,003,650 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (First Series of 2012), 5.00% (Temple University), 4/1/2035 | 2,001,300 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2006-FF2), 5.00% (Elizabethtown College)/(Radian Asset Assurance, Inc. INS), 12/15/2027 | 1,004,060 |
| 1,130,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2006A), 5.00% (University of Scranton)/(Syncora Guarantee, Inc. INS), 11/1/2035 | 1,126,915 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2008), 5.00% (University of the Sciences in Philadelphia)/(Assured Guaranty Corp. INS), 11/1/2032 | 2,022,060 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2008B), 5.50% (University of Pennsylvania Health System)/(Original Issue Yield: 5.65%), 8/15/2018 | 2,327,220 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009), 5.00% (Carnegie Mellon University), 8/1/2021 | $1,655,580 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009A), 5.25% (University of Pennsylvania Health System), 8/15/2022 | 1,112,860 |
| 1,100,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2010), 5.00% (Thomas Jefferson University), 3/1/2040 | 1,103,025 |
| 1,875,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2010E), 5.00% (UPMC Health System)/(Original Issue Yield: 5.10%), 5/15/2031 | 1,866,150 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012), 5.00% (LaSalle University), 5/1/2042 | 891,320 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012A), 5.00% (University of Pennsylvania Health System), 8/15/2042 | 1,457,505 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series AL), 5.00% (State System of Higher Education, Commonwealth of PA), 6/15/2020 | 1,146,060 |
| 1,250,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series EE-1), 5.00% (York College of Pennsylvania)/(Syncora Guarantee, Inc. INS), 11/1/2033 | 1,253,225 |
| 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 | 3,152,551 |
| 750,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Widener University), 7/15/2039 | 686,933 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.25% (Widener University)/(Original Issue Yield: 5.42%), 7/15/2024 | 1,003,090 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Student Housing Revenue Bonds, 5.13% (Foundation for Indiana University of Pennsylvania )/(Syncora Guarantee, Inc. INS), 7/1/2039 | 1,867,060 |
| 5,740,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2006A), 5.00% (AMBAC INS), 12/1/2026 | 5,818,351 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2011E), 5.00%, 12/1/2030 | 1,016,150 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2009B), 5.13% (Original Issue Yield: 5.30%), 12/1/2040 | 1,938,460 |
| 1,430,000 | | Pennsylvania State Turnpike Commission, Variable Rate Turnpike Revenue Bonds (Series 2013B), 1.33%, 12/1/2020 | 1,440,825 |
| 2,440,000 | | Pennsylvania State Turnpike Commission-Motor License Fund Enhanced, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), 5.50% (Original Issue Yield: 5.55%), 12/1/2041 | 2,528,255 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Pennsylvania State Turnpike Commission-Motor License Fund Enhanced, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), 6.00%, 12/1/2036 | $2,190,200 |
| 1,500,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2029 | 1,576,140 |
| 3,000,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2035 | 3,105,840 |
| 2,000,000 | | Philadelphia, PA Airport System, Airport Revenue Refunding Bonds (Series 2010D), 5.25%, 6/15/2028 | 2,013,460 |
| 710,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.63% (New Foundations Charter School), 12/15/2041 | 711,250 |
| 1,600,000 | | Philadelphia, PA Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.63% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 1,427,504 |
| 2,350,000 | | Philadelphia, PA Gas Works, Revenue Bonds (Seventh Series 1998 General Ordinance), 5.00% (AMBAC INS), 10/1/2037 | 2,170,507 |
| 2,000,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 2011D), 5.00% (Children's Hospital of Philadelphia), 7/1/2028 | 2,067,980 |
| 1,670,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 2012A), 5.63% (Temple University Health System Obligated Group)/(Original Issue Yield: 5.88%), 7/1/2042 | 1,395,836 |
| 1,250,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.50% (Beech Student Housing Complex), 7/1/2019 | 1,258,738 |
| 1,000,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.63% (Beech Student Housing Complex), 7/1/2023 | 1,002,380 |
| 3,000,000 | | Philadelphia, PA School District, UT GO Bonds (Series 2008E), 6.00% (Original Issue Yield: 6.30%), 9/1/2038 | 3,167,970 |
| 3,000,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds (Series 2012), 5.00%, 11/1/2028 | 3,095,550 |
| 750,000 | | Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2009A), 5.25% (Original Issue Yield: 5.33%), 1/1/2036 | 771,000 |
| 3,000,000 | | Philadelphia, PA, UT GO Bonds (Series 2008B), 7.13% (Assured Guaranty Corp. INS)/(Original Issue Yield: 7.25%), 7/15/2038 | 3,328,080 |
| 3,000,000 | | Philadelphia, PA, UT GO Refunding Bonds (Series 2009A), 5.13% (Assured Guaranty Corp. INS)/(Original Issue Yield: 5.20%), 8/1/2025 | 3,139,470 |
| 915,000 | | Pittsburgh, PA Urban Redevelopment Authority, Revenue Bonds (Series 2006C), 4.80% (GNMA COL), 4/1/2028 | 919,465 |
| 1,035,000 | | Pittsburgh, PA Urban Redevelopment Authority, Tax Allocation, 4.50% (Center Triangle), 5/1/2019 | 1,096,520 |
| 3,000,000 | | Pittsburgh, PA Water & Sewer Authority, Water & Sewer System Revenue Bonds (Series 2008 D-1), 5.00% (Assured Guaranty Municipal Corp. INS), 9/1/2025 | 3,116,400 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,885,000 | | Pittsburgh, PA Water & Sewer Authority, Water & Sewer System Revenue Bonds, 5.00% (United States Treasury PRF 9/1/2015@100), 9/1/2024 | $2,056,064 |
| 3,000,000 | | Pittsburgh, PA, UT GO Bonds (Series 2012B), 5.00%, 9/1/2026 | 3,131,850 |
| 2,165,000 | | Radnor Township, PA, UT GO Bonds (Series 2004AA), 5.13% (United States Treasury PRF 7/15/2014@100), 7/15/2027 | 2,257,943 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,501,860 |
| 1,000,000 | | Saxonburg, PA Area Authority, Sewer & Water Revenue Bonds, 5.00% (Assured Guaranty Corp. INS), 3/1/2030 | 1,016,900 |
| 1,000,000 | | South Fork Municipal Authority, PA, Hospital Revenue Bonds (Series 2010), 5.50% (Conemaugh Valley Memorial Hospital)/(Original Issue Yield: 5.72%), 7/1/2029 | 1,002,180 |
| 1,295,000 | | Southcentral PA, General Authority, Hospital Revenue Bonds, 5.00% (Hanover Hospital, Inc.)/(Radian Asset Assurance, Inc. INS), 12/1/2029 | 1,233,928 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2025 | 1,067,310 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2028 | 1,036,330 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Revenue Refunding Bonds (Series 2010), 5.00%, 3/1/2018 | 1,135,630 |
| 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 | 508,260 |
| 1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.38% (Catholic Health East)/(United States Treasury PRF 11/15/2014@100)/(Original Issue Yield: 5.42%), 11/15/2034 | 1,060,220 |
| 1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.50% (Catholic Health East)/(United States Treasury PRF 11/15/2014@100), 11/15/2024 | 1,061,720 |
| 2,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2012A), 5.00% (Catholic Health East), 11/15/2026 | 2,040,380 |
| 2,000,000 | | State Public School Building Authority, PA, School Revenue Bonds, 5.00% (Haverford Twp, PA School District)/(Syncora Guarantee, Inc. INS), 3/15/2027 | 2,098,460 |
| 2,000,000 | | State Public School Building Authority, PA, School Revenue Bonds, 5.00% (Haverford Twp, PA School District)/(Syncora Guarantee, Inc. INS), 3/15/2029 | 2,054,480 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority, University Revenue Bonds (Series 2012A), 5.00% (Bucknell University), 4/1/2042 | 1,013,190 |
| 1,250,000 | | Union County, PA Hospital Authority, Revenue Bonds, 5.25% (Evangelical Community Hospital)/(Radian Asset Assurance, Inc. INS), 8/1/2024 | 1,255,850 |
Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $400,000 | | Washington County, PA Authority, Lease Revenue Bonds, 7.88% (Escrowed In Treasuries COL), 12/15/2018 | $520,704 |
| 345,000 | | West View, PA Municipal Authority, SO Bonds, 9.50% (Escrowed In Treasuries COL), 11/15/2014 | 374,898 |
| | | TOTAL | 228,733,960 |
| | | Puerto Rico—1.6% | |
| 1,750,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.50%, 7/1/2039 | 1,273,493 |
| 2,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2012A), 5.00%, 7/1/2029 | 1,469,240 |
| 1,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 912,560 |
| | | TOTAL | 3,655,293 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $236,137,471) | 232,389,253 |
| | | SHORT-TERM MUNICIPALS—0.2%1 | |
| | | Pennsylvania—0.2% | |
| 550,000 | | Beaver County, PA IDA, (Series 2006-B) Daily VRDNs (FirstEnergy Solutions Corp.)/(Citibank NA, New York LOC), 0.050%, 9/2/2013
(AT AMORTIZED COST) | 550,000 |
| | | TOTAL INVESTMENTS—98.8%
(IDENTIFIED COST $236,687,471)2 | 232,939,253 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.2%3 | 2,775,196 |
| | | TOTAL NET ASSETS—100% | $235,714,449 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 4.7% 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 $236,664,958. |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2013.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
Annual Shareholder Report
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of August 31, 2013, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| COL | —Collateralized |
| EDFA | —Economic Development Finance Authority |
| FGIC | —Financial Guaranty Insurance Company |
| GNMA | —Government National Mortgage Association |
| GO | —General Obligation |
| HAD | —Hospital Development Authority |
| HEFA | —Health and Education Facilities Authority |
| HFA | —Housing Finance Authority |
| IDA | —Industrial Development Authority |
| INS | —Insured |
| LOC | —Letter of Credit |
| PCR | —Pollution Control Revenue |
| PRF | —Pre-refunded |
| SFM | —Single Family Mortgage |
| TOBs | —Tender Option Bonds |
| SO | —Special Obligation |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements.
Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $11.20 | $10.68 | $10.92 | $10.37 | $10.70 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.39 | 0.40 | 0.44 | 0.43 | 0.47 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.87) | 0.52 | (0.25) | 0.55 | (0.34) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.48) | 0.92 | 0.19 | 0.98 | 0.13 |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.38) | (0.40) | (0.43) | (0.43) | (0.46) |
| Net Asset Value, End of Period | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
| Total Return1 | (4.41)% | 8.80% | 1.92% | 9.60% | 1.46% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 3.50% | 3.63% | 4.04% | 4.04% | 4.65% |
| Expense waiver/reimbursement2 | 0.10% | 0.10% | 0.11% | 0.09% | 0.10% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $231,890 | $275,974 | $238,538 | $270,219 | $276,442 |
| Portfolio turnover | 7% | 15% | 8% | 12% | 13% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 2 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended August 31 | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $11.20 | $10.68 | $10.92 | $10.37 | $10.69 |
| Income from Investment Operations: | | | | | |
| Net investment income | 0.31 | 0.32 | 0.331 | 0.35 | 0.39 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.87) | 0.52 | (0.22) | 0.54 | (0.33) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.56) | 0.84 | 0.11 | 0.89 | 0.06 |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.30) | (0.32) | (0.35) | (0.34) | (0.38) |
| Net Asset Value, End of Period | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
| Total Return2 | (5.15)% | 7.96% | 1.13% | 8.76% | 0.77% |
| Ratios to Average Net Assets: | | | | | |
| Net Expenses | 1.52% | 1.52% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.73% | 2.87% | 3.26% | 3.27% | 3.90% |
| Expense waiver/reimbursement3 | 0.08% | 0.08% | 0.09% | 0.07% | 0.08% |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $3,824 | $5,137 | $7,401 | $16,071 | $20,671 |
| Portfolio turnover | 7% | 15% | 8% | 12% | 13% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 3 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Assets and Liabilities
August 31, 2013
| Assets: | | |
| Total investment in securities, at value (identified cost $236,687,471) | | $232,939,253 |
| Cash | | 41,562 |
| Income receivable | | 3,274,340 |
| Receivable for investments sold | | 45,000 |
| Receivable for shares sold | | 33,495 |
| TOTAL ASSETS | | 236,333,650 |
| Liabilities: | | |
| Payable for shares redeemed | $260,792 | |
| Income distribution payable | 234,828 | |
| Payable for shareholder services fee (Note 5) | 52,268 | |
| Payable for distribution services fee (Note 5) | 2,532 | |
| Payable for Directors'/Trustees' fees (Note 5) | 209 | |
| Accrued expenses (Note 5) | 68,572 | |
| TOTAL LIABILITIES | | 619,201 |
| Net assets for 22,806,999 shares outstanding | | $235,714,449 |
| Net Assets Consist of: | | |
| Paid-in capital | | $257,649,757 |
| Net unrealized depreciation of investments | | (3,748,218) |
| Accumulated net realized loss on investments and futures contracts | | (18,207,723) |
| Undistributed net investment income | | 20,633 |
| TOTAL NET ASSETS | | $235,714,449 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share | | |
| Class A Shares: | | |
| Net asset value per share ($231,890,018 ÷ 22,437,149 shares outstanding), no par value, unlimited shares authorized | | $10.34 |
| Offering price per share (100/95.50 of $10.34) | | $10.83 |
| Redemption proceeds per share | | $10.34 |
| Class B Shares: | | |
| Net asset value per share ($3,824,431 ÷ 369,850 shares outstanding), no par value, unlimited shares authorized | | $10.34 |
| Offering price per share | | $10.34 |
| Redemption proceeds per share (94.50/100 of $10.34) | | $9.77 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Operations
Year Ended August 31, 2013
| Investment Income: | | | |
| Interest | | | $11,643,520 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $1,094,577 | |
| Administrative fee (Note 5) | | 213,556 | |
| Custodian fees | | 15,963 | |
| Transfer agent fee | | 124,880 | |
| Directors'/Trustees' fees (Note 5) | | 2,256 | |
| Auditing fees | | 24,999 | |
| Legal fees | | 7,098 | |
| Distribution services fee (Note 5) | | 35,845 | |
| Shareholder services fee (Note 5) | | 678,421 | |
| Account administration fee (Note 2) | | 3,866 | |
| Portfolio accounting fees | | 90,000 | |
| Share registration costs | | 30,735 | |
| Printing and postage | | 23,588 | |
| Insurance premiums (Note 5) | | 4,468 | |
| Miscellaneous (Note 5) | | 3,194 | |
| TOTAL EXPENSES | | 2,353,446 | |
| Waiver and Reimbursement: (Note 5) | | | |
| Waiver of investment adviser fee | $(198,955) | | |
| Reimbursement of shareholder services fee | (51,950) | | |
| TOTAL WAIVER AND REIMBURSEMENT | | (250,905) | |
| Net expenses | | | 2,102,541 |
| Net investment income | | | 9,540,979 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized gain on investments | | | 593,291 |
| Net realized gain on futures contracts | | | 19,314 |
| Net change in unrealized appreciation (depreciation) of investments | | | (21,511,632) |
| Net realized and unrealized loss on investments | | | (20,899,027) |
| Change in net assets resulting from operations | | | $(11,358,048) |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Statement of Changes in Net Assets
| Year Ended August 31 | 2013 | 2012 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $9,540,979 | $9,454,198 |
| Net realized gain on investments and futures contracts | 612,605 | 533,273 |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (21,511,632) | 11,987,765 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (11,358,048) | 21,975,236 |
| Distribution to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (9,266,803) | (9,417,404) |
| Class B Shares | (127,508) | (174,023) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (9,394,311) | (9,591,427) |
| Share Transactions: | | |
| Proceeds from sale of shares | 26,708,289 | 53,138,463 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 6,351,162 | 6,412,127 |
| Cost of shares redeemed | (57,703,448) | (36,762,152) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (24,643,997) | 22,788,438 |
| Change in net assets | (45,396,356) | 35,172,247 |
| Net Assets: | | |
| Beginning of period | 281,110,805 | 245,938,558 |
| End of period (including undistributed (distributions in excess of) net investment income of $20,633 and $(117,583), respectively) | $235,714,449 | $281,110,805 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
Notes to Financial Statements
August 31, 2013
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 five 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. Each portfolio pays its own expenses. 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 alternative minimum tax (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.
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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities and repurchase agreements acquired with remaining maturities of 60 days or less are valued at their amortized cost (adjusted for the accretion of any discount or amortization of any premium) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security. |
| ■ | Derivative contracts listed on exchanges are valued at their reported settlement or closing price. |
| ■ | Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
Annual Shareholder Report
| ■ | For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers. |
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation Procedures
The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to determine fair value of securities and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing - service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Annual Shareholder Report
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and 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 Class A Shares and Class B Shares may bear account administration fees, distribution services fees and shareholder services fees unique to those classes. For the year ended August 31, 2013, account administration fees for the Fund were as follows:
| | Account
Administration
Fees Incurred |
| Class A Shares | $3,866 |
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 using the effective-interest-rate method.
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. As of and during the year ended August 31, 2013, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2013, tax years 2010 through 2013 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Restricted Securities
The Fund may purchase securities which are considered restricted. 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,
Annual Shareholder Report
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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage cash flows and 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 which is shown as Restricted Cash in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures, guarantees the futures against default.
At August 31, 2013, the Fund had no outstanding futures contracts.
The average notional value of futures contracts held by the Fund throughout the period was $1,654,423. This is based on amounts held as of each month-end throughout the twelve month period.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended August 31, 2013
| Amount of Realized Gain/(Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $19,314 |
Other
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.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended August 31 | 2013 | 2012 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 2,337,819 | $26,164,523 | 4,808,494 | $52,786,414 |
| Shares issued to shareholders in payment of distributions declared | 565,355 | 6,228,032 | 570,671 | 6,247,937 |
| Shares redeemed | (5,107,931) | (56,079,136) | (3,079,946) | (33,692,525) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (2,204,757) | $(23,686,581) | 2,299,219 | $25,341,826 |
Annual Shareholder Report
| Year Ended August 31 | 2013 | 2012 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 48,697 | $543,766 | 32,111 | $352,049 |
| Shares issued to shareholders in payment of distributions declared | 11,165 | 123,130 | 15,019 | 164,190 |
| Shares redeemed | (148,489) | (1,624,312) | (281,661) | (3,069,627) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (88,627) | $(957,416) | (234,531) | $(2,553,388) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (2,293,384) | $(24,643,997) | 2,064,688 | $22,788,438 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for discount accretion/premium amortization on debt securities and expiration of capital loss carryforwards.
For the year ended August 31, 2013, permanent differences identified and reclassified among the components of net assets were as follows:
| Increase (Decrease) |
| Paid-In Capital | Undistributed
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss) |
| $(1,984,510) | $(8,452) | $1,992,962 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2013 and 2012, was as follows:
| | 2013 | 2012 |
| Tax-exempt income | $9,394,311 | $9,591,427 |
As of August 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed tax-exempt income | $ 20,633 |
| Net unrealized depreciation | $ (3,725,705) |
| Capital loss carryforwards | $ (18,230,236) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.
At August 31, 2013, the cost of investments for federal tax purposes was $236,664,958. The net unrealized depreciation of investments for federal tax purposes was $3,725,705. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,154,493 and net unrealized depreciation from investments for those securities having an excess of cost over value of $8,880,198.
Annual Shareholder Report
At August 31, 2013, the Fund had a capital loss carryforward of $18,230,236 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, thereby reducing 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, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| No expiration | $ 161,254 | 269,831 | $ 431,085 |
| 2016 | $ 213,566 | N/A | $213,566 |
| 2017 | $ 7,730,607 | N/A | $ 7,730,607 |
| 2018 | $ 9,851,417 | N/A | $ 9,851,417 |
| 2019 | $ 3,561 | N/A | $ 3,561 |
The Fund used capital loss carryforwards of $612,690 to offset capital gains realized during the year ended August 31, 2013.
Capital loss carryforwards of $1,984,510 expired during the year ended August 31, 2013.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013 the Adviser waived $198,955 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 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 |
Annual Shareholder Report
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, the fee paid to FAS was 0.078% of average 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 at 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 | 0.05% |
| Class B Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2013, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred |
| Class B Shares | $35,845 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2013, FSC retained $13,066 of fees paid by the Fund. For the year ended August 31, 2013, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur the fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2013, FSC retained $35,380 in sales charges from the sale of Class A Shares. FSC also retained $5,185 of CDSC relating to redemptions of Class A shares.
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. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended August 31, 2013, Service Fees for the Fund were as follows:
Annual Shareholder Report
| | Service Fees
Incurred | Service Fees
Reimbursed |
| Class A Shares | $666,473 | $(51,950) |
| Class B Shares | 11,948 | — |
| TOTAL | $678,421 | $(51,950) |
For the year ended August 31, 2013, FSSC received $45,014 of Service Fees paid by the Fund.
Interfund Transactions
During the year ended August 31, 2013, 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 $32,300,000 and $32,050,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their respective fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights) (excluding extraordinary expenses, and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares and Class B Shares (after the voluntary waivers and reimbursements) will not exceed 0.75% and 1.52% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2014; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2013 were as follows:
| Purchases | $ 18,390,249 |
| Sales | $ 42,035,705 |
7. CONCENTRATION OF RISK
Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at August 31, 2013, 23.7% of the securities in the portfolio of
Annual Shareholder Report
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 5.1% of total investments.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 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 offered to the Fund by PNC Bank at the time of the borrowing. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2013, there were no outstanding loans. During the year ended August 31, 2013, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2013, 100.0% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated municipal securities income trust and shareholders of federated Pennsylvania municipal income FUND:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Pennsylvania Municipal Income Fund (the “Fund”), a portfolio of Federated Municipal Securities Income Trust, as of August 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Pennsylvania Municipal Income Fund as of August 31, 2013, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 24, 2013
Annual Shareholder Report
Shareholder Expense Example (unaudited)
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 and 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 March 1, 2013 to August 31, 2013.
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.
Annual Shareholder Report
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
3/1/2013 | Ending
Account Value
8/31/2013 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $935.80 | $3.66 |
| Class B Shares | $1,000 | $932.10 | $7.40 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.42 | $3.82 |
| Class B Shares | $1,000 | $1,017.54 | $7.73 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| Class A Shares | 0.75% |
| Class B Shares | 1.52% |
Annual Shareholder Report
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2012, the Trust comprised five portfolio(s), and the Federated Fund Family consisted of 42 investment companies (comprising 137 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
In Memoriam - John F. Cunningham, Independent Trustee
With deep sadness, Federated announces the passing of John F. Cunningham, who served as an independent member of the Board of the Federated Fund Family since 1999. Mr. Cunningham's savvy business acumen and incisive intellect made him a powerful force on the Federated Fund Board. He was an advocate for shareholders and a respected colleague within the Federated family. Mr. Cunningham enjoyed an outstanding career in technology, having served as President and in other Senior Executive positions with leading companies in the industry. Federated expresses gratitude to Mr. Cunningham for his fine contributions as a Board member, colleague and friend. He will be greatly missed.
Interested TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
John F. Donahue*
Birth Date: July 28, 1924
Trustee
Began serving: August 1990 | Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s) |
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Began serving: August 1990 | Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT TRUSTEES Background
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, and Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, Auberle; Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director, Ireland Institute of Pittsburgh; Chair and Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County; Director, Our Campaign for the Church Alive, Inc.
Previous Position: Pennsylvania Superior Court Judge.
Qualifications: Legal and director experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
Peter E. Madden
Birth Date: March 16, 1942
Trustee
Began serving: August 1991 | Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family.
Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.
Qualifications: Business management, mutual fund services and director experience. |
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Began serving: January 1999 | Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology).
Qualifications: Banking, business management, education and director experience. |
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee
Began serving: October 2006 | Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida.
Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber).
Qualifications: Business management, mutual fund, director and investment experience. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications |
John S. Walsh
Birth Date: November 28, 1957
Trustee
Began serving: June 1999 | Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh & Kelly, Inc.
Qualifications: Business management and director experience. |
OFFICERS
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT AND SECRETARY
Officer since: August 1990 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc.
Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
Lori A. Hensler, CPA
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. |
Richard B. Fisher
Birth Date: May 17, 1923
VICE CHAIRMAN
Officer since: August 2002 | Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
Annual Shareholder Report
Name
Birth Date
Positions Held with Trust
Date Service Began | Principal Occupation(s) for Past Five Years
and Previous Position(s) |
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 | Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc. |
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
Previous Positions: Served in Senior Management positions with a large regional banking organization. |
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: May 2004 | Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
J. Scott Albrecht
Birth Date: June 1, 1960
VICE PRESIDENT
Officer since: November 1999
Portfolio Manager since: March 1995 | Principal Occupations: J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is Vice President of the Trust with respect to the Fund. Mr. Albrecht joined Federated in 1989. He became a Senior Vice President of the Fund's Adviser in January 2005 and served as a Vice President of the Fund's Adviser from 1994 through 2004. He has been a Senior Portfolio Manager since 1997 and was a Portfolio Manager from 1994 to 1996. Mr. Albrecht has received the Chartered Financial Analyst designation and holds an M.S. in Public Management from Carnegie Mellon University. |
Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2013
Federated Pennsylvania Municipal Income Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board reviewed and approved at its May 2013 meetings the Fund's investment advisory contract for an additional one-year term. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed 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 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 (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
The Board is also familiar with and considered 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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent to which the Board members are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. Consistent with these judicial decisions, the Board also considered management fees charged to institutional and other clients of the Adviser for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Annual Shareholder Report
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 independent legal counsel. Throughout the year, and in connection with its May meetings, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also 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 information 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); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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.
Annual Shareholder Report
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, 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, noting that the overall expense structure of the Fund, after waivers and expense reimbursements, was below the median of the relevant peer group, and was satisfied that the overall expense structure of the Fund remained competitive.
By contrast, 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 include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as 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.
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant, though not conclusive in judging the reasonableness of proposed fees.
Annual Shareholder Report
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Evaluation. 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 information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, 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, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in arbitrarily allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate can dramatically alter the resulting estimate of cost and/or profitability of a fund. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive. The Board agreed with this assessment.
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 and long-term investments in areas that support all of the Federated family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund family as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject,
Annual Shareholder Report
which (as discussed in the Senior Officer's Evaluation) 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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 necessarily relevant to the 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.
Annual Shareholder Report
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 from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at 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. From the home page, select “All” under “Asset Class.” Select a fund name to go to the Fund Overview page, then select a share class, if applicable. On the Fund Overview page, select the “Literature and Prospectuses” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder Report
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 Trust's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Pennsylvania Municipal Income Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923708
CUSIP 313923807
28995 (10/13)
Federated is a registered trademark of Federated Investors, Inc.
2013 ©Federated Investors, Inc.
Item 2. Code of Ethics
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3. Audit Committee Financial Expert
The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item: Charles F. Mansfield, Jr., Thomas M. O'Neill and John S. Walsh.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2013 - $135,500
Fiscal year ended 2012 - $126,500
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2013 - $0
Fiscal year ended 2012 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2013 - $0
Fiscal year ended 2012 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(d) All Other Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2013 - $0
Fiscal year ended 2012 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate its responsibilities to pre-approve services performed by the independent auditor to management.
The Audit Committee has delegated pre-approval authority to its Chairman. The Chairman will report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee must approve any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.
In addition to the annual Audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other Audit Services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain Audit services, all other Audit services must be specifically pre-approved by the Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor, and has pre-approved certain Audit-related services, all other Audit-related services must be specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide Tax services to the Company such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain Tax services, all Tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of services other than audit, review or attest services the pre-approval requirement is waived if:
| (1) | The aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant to its accountant during the fiscal year in which the services are provided; |
| (2) | Such services were not recognized by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant at the time of the engagement to be non-audit services; and |
| (3) | Such services are promptly brought to the attention of the Audit Committee of the issuer and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee. |
The Audit Committee may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, and would not impair the independence of the auditor.
The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of prohibited non-audit services and the applicability of exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.
PROCEDURES
Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Principal Accounting Officer and/or Internal Auditor, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2013 – 0%
Fiscal year ended 2012 - 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2013 – 0%
Fiscal year ended 2012 – 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2013 – 0%
Fiscal year ended 2012 – 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
| (g) | Non-Audit Fees billed to the registrant, the registrant’s investment adviser, and certain entities controlling, controlled by or under common control with the investment adviser: |
Fiscal year ended 2013 - $7,863
Fiscal year ended 2012 - $19,648
(h) The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Item 10. Submission of Matters to a Vote of Security Holders
No changes to report.
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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a)(1) Code of Ethics- Not Applicable to this Report.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.
(a)(3) Not Applicable.
(b) Certifications pursuant to 18 U.S.C. Section 1350.
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 Income Securities Trust
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 22, 2013
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 October 22, 2013
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 22, 2013
