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, PA 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: 08/31/14
Date of Reporting Period: Six months ended 02/28/14
Item 1. Reports to Stockholders
Semi-Annual Shareholder Report
February 28, 2014
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 Semi-Annual Shareholder Report for your fund covering the period from September 1, 2013 through February 28, 2014. This report includes 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
Portfolio of Investments Summary Table (unaudited)
At February 28, 2014, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 30.7% |
| Hospital | 18.5% |
| Water Sewer | 10.9% |
| Education | 9.2% |
| Transportation | 8.4% |
| Special Tax | 8.1% |
| Industrial Development Bond/Pollution Control Revenue | 3.6% |
| General Obligation—State | 3.5% |
| Public Power | 2.9% |
| Electric & Gas | 2.0% |
| Other2 | 1.2% |
| 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. |
| 2 | For purposes of this table, sector classifications constitute 97.8% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2014 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.9% | |
| | | Michigan—97.9% | |
| $1,000,000 | | Anchor Bay, MI School District, Refunding UT GO Bonds (Series 2012), 5.00% (Q-SBLF GTD), 5/1/2020 | $1,183,020 |
| 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 | 1,405,638 |
| 955,000 | | Ann Arbor, MI, Court and Police Facilities LT GO Capital Improvement Bonds, 4.75%, 5/1/2025 | 1,050,987 |
| 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 | 1,135,160 |
| 1,000,000 | | Battle Creek, MI School District, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,102,730 |
| 725,000 | | Berkley, MI School District, Refunding UT GO Bonds (Series 2009), 5.00% (Q-SBLF GTD)/(Assured Guaranty Corp. INS), 5/1/2019 | 852,607 |
| 1,690,000 | | Bishop, MI International Airport Authority, Refunding LT GO (Series 2010A), 4.50% (Assured Guaranty Municipal Corp. INS), 12/1/2023 | 1,786,752 |
| 1,000,000 | | Brandon School District, MI, UT GO School Building and Site Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 1,075,660 |
| 450,000 | | Byron Center, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Q-SBLF GTD), 5/1/2021 | 531,144 |
| 100,000 | | Canton Charter Township, MI, LT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 4/1/2014 | 100,422 |
| 1,000,000 | | Central Michigan University Board of Trustees, General Revenue Refunding Bonds (Series 2009), 5.00%, 10/1/2023 | 1,091,730 |
| 1,000,000 | | Chippewa Valley, MI Schools, Refunding UT GO Bonds (Series 2013), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,155,300 |
| 500,000 | | Chippewa Valley, MI Schools, UT GO Refunding Bonds, 5.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2014 | 504,205 |
| 1,250,000 | | Coopersville, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,337,987 |
| 2,000,000 | | Dearborn, MI School District, UT GO School Building & Site Bonds (Series 2014A), 5.00% (Q-SBLF GTD), 5/1/2025 | 2,258,960 |
| 1,500,000 | 1 | Detroit, MI Sewage Disposal System, Revenue Refunding Bonds, 5.50% (National Public Finance Guarantee Corporation INS), 7/1/2016 | 1,509,165 |
| 1,000,000 | 1 | Detroit, MI Water Supply System, Revenue Bonds Series A, 5.00% (Assured Guaranty Municipal Corp. INS), 7/1/2015 | 1,005,110 |
| 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 | 1,046,200 |
Semi-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 | $2,005,120 |
| 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 | 1,104,120 |
| 2,000,000 | | Dickinson County, MI EDC, Refunding PCRBs (Series 2004A), 4.80% (International Paper Co.), 11/1/2018 | 2,040,440 |
| 1,000,000 | | Eastern Michigan University Board of Regents, General Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Corp. INS), 2/15/2023 | 1,081,770 |
| 250,000 | | Essexville-Hampton, MI Public Schools, Refunding UT GO Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2014 | 251,560 |
| 1,000,000 | | Ferris State University, MI, General Revenue Bonds (Series 2009), 5.00% (Assured Guaranty Corp. INS), 10/1/2020 | 1,131,620 |
| 500,000 | | Grand Rapids, MI Community College, LT GO Community College Bonds (Series 2012), 5.00%, 5/1/2024 | 570,970 |
| 1,000,000 | | Grand Rapids, MI Sanitary Sewer System, Revenue Refunding Bonds (Series 2013), 5.00%, 1/1/2024 | 1,172,930 |
| 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 | 2,151,300 |
| 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 | 2,481,599 |
| 1,000,000 | | Kalamazoo, MI Public Schools, Refunding Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2018 | 1,075,660 |
| 1,000,000 | | Kalamazoo, MI Regional Educational Services Agency, UT GO School Building and Site Bonds, 5.00%, 5/1/2019 | 1,132,310 |
| 450,000 | | Kalamazoo, MI Water Revenue, Revenue Refunding Bonds, 5.00% (AMBAC INS), 9/1/2014 | 460,386 |
| 510,000 | | Kalamazoo, MI Water Revenue, Revenue Refunding Bonds, 5.00% (AMBAC INS), 9/1/2015 | 544,308 |
| 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 | 1,971,282 |
| 1,345,000 | | Kent County, MI, Capital Improvement LT GO Bonds (Series 2004A), 5.00%, 12/1/2020 | 1,390,959 |
| 1,750,000 | | Kent County, MI, LT GO Bonds (Series 2009), 5.00%, 1/1/2025 | 1,905,750 |
| 1,500,000 | | Kent Hospital Finance Authority, MI, Revenue Refunding Bonds (Series 2011A), 5.00% (Spectrum Health), 11/15/2022 | 1,704,060 |
| 1,000,000 | | Kentwood, MI Public Schools, Refunding UT GO Bonds (Series 2012), 4.00%, 5/1/2022 | 1,098,660 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,010,000 | | Lake Superior State University, MI, General Revenue Refunding Bonds (Series 2012), 4.00% (Assured Guaranty Municipal Corp. INS), 11/15/2020 | $1,086,659 |
| 1,900,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2011A), 5.00%, 7/1/2024 | 2,156,044 |
| 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 | 1,323,276 |
| 400,000 | | Michigan Finance Authority, Hospital Revenue Bonds (Series 2012), 5.00% (Sparrow Obligated Group, MI), 11/15/2026 | 428,364 |
| 1,500,000 | | Michigan Finance Authority, Revenue Bonds (Series 2012B), 5.00% (Michigan Finance Authority Unemployment Obligation Assessment), 1/1/2021 | 1,759,665 |
| 1,000,000 | | Michigan Finance Authority, State Revolving Fund Revenue Bonds (Series 2012), 5.00% (Clean Water Revolving Fund), 10/1/2025 | 1,155,790 |
| 1,525,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.00% (Clean Water Revolving Fund), 10/1/2017 | 1,763,922 |
| 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 | 1,122,840 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue & Refunding Bonds (Series 2013 1-A), 5.00%, 10/15/2022 | 576,070 |
| 1,000,000 | | Michigan State Building Authority, Facilities Program Revenue Bonds (2009 Series II), 5.00% (Assured Guaranty Corp. INS), 10/15/2022 | 1,109,060 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2009I), 5.25% (Assured Guaranty Corp. INS), 10/15/2024 | 1,136,000 |
| 2,000,000 | | Michigan State Comprehensive Transportation Fund, Refunding Bonds (Series 2009), 5.25%, 5/15/2019 | 2,343,080 |
| 2,485,000 | | Michigan State Department of Transportation, Grant Anticipation Bonds, 5.25% (Assured Guaranty Municipal Corp. INS), 9/15/2021 | 2,790,854 |
| 1,970,000 | | Michigan State Financial Authority, Revenue Bonds (Series 2006A), 5.00% (Trinity Healthcare Credit Group), 12/1/2026 | 2,142,178 |
| 1,275,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2007A), 5.00% (Oakwood Obligated Group), 7/15/2018 | 1,397,655 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2012A), 5.00% (Crittenton Hospital Medical Center), 6/1/2027 | 1,018,330 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2006A), 5.00% (Henry Ford Health System, MI), 11/15/2021 | 1,051,810 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2006A), 5.00% (MidMichigan Obligated Group), 4/15/2026 | 1,019,390 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series 2010 F-3), 2.625% TOBs (Ascension Health Alliance Senior Credit Group), Mandatory Tender 6/30/2014 | $1,007,770 |
| 750,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 5.00% (Sparrow Obligated Group, MI), 11/15/2022 | 791,235 |
| 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 | 158,743 |
| 1,790,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2005C), 5.00% (McLaren Health Care Corp.), 8/1/2020 | 1,874,130 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2010B), 5.00% (Ascension Health Alliance Senior Credit Group), 11/15/2024 | 2,233,080 |
| 250,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Henry Ford Health System, MI), 11/15/2014 | 256,415 |
| 500,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Henry Ford Health System, MI), 11/15/2025 | 513,910 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Oakwood Obligated Group), 7/15/2025 | 1,032,540 |
| 1,000,000 | | Michigan State Strategic Fund, LO Revenue Refunding Bonds, 7.00% (Detroit Edison Co.)/(AMBAC INS), 5/1/2021 | 1,244,310 |
| 2,000,000 | | Michigan State Strategic Fund, Revenue Bonds , 4.25% TOBs (Republic Services, Inc.), Mandatory Tender 4/1/2014 | 2,003,660 |
| 2,600,000 | | Michigan State Trunk Line, Revenue Refunding Bonds (Series 2009), 5.00%, 11/1/2020 | 3,012,802 |
| 1,000,000 | | Michigan State Trunk Line, Revenue Bonds, 5.00% (FGIC and National Public Finance Guarantee Corporation INS), 11/1/2014 | 1,032,270 |
| 1,000,000 | | Michigan State Trunk Line, Revenue Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 9/1/2014 | 1,024,340 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2022 | 581,050 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2023 | 573,025 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Bonds (Series 2011), 5.25% (Michigan State), 10/15/2022 | 1,133,670 |
| 1,000,000 | | Michigan Strategic Fund, Ltd Obligation Revenue Refunding Bonds (Series 2008ET-2), 5.50% TOBs (Detroit Edison Co.), Mandatory Tender 8/1/2016 | 1,097,110 |
| 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 | 1,189,990 |
| 500,000 | | Northview Michigan Public School District, Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 572,600 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Oakland County, MI EDC, Revenue Refunding Bonds, 4.00% (Cranbrook Educational Community), 11/1/2021 | $1,044,730 |
| 1,855,000 | | Orchard View, MI Schools, UT GO Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,995,869 |
| 525,000 | | Ovid Elsie, MI Area Schools, UT GO Refunding Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2015 | 546,268 |
| 550,000 | | Rochester Hills, MI, Refunding UT GO Bonds (Series 2010), 4.50%, 4/1/2021 | 621,951 |
| 1,130,000 | | Romulus, MI Tax Increment Finance Authority, Recreation Center LT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 11/1/2022 | 1,186,726 |
| 1,100,000 | | Roseville, MI Community Schools, School Building & Site Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2021 | 1,180,124 |
| 1,670,000 | | Saginaw County, MI Water Supply System, Revenue Bonds (Series 2011A), 4.75% (Assured Guaranty Municipal Corp. INS), 7/1/2025 | 1,793,580 |
| 430,000 | | Troy, MI School District, UT GO School Building & Site Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2023 | 506,076 |
| 1,000,000 | | University of Michigan Regents, General Revenue Bonds (Series 2010C), 4.00%, 4/1/2022 | 1,100,610 |
| 250,000 | | University of Michigan Regents, General Revenue Bonds (Series 2014A), 5.00%, 4/1/2024 | 304,815 |
| 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 | 568,975 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2010C), 5.00%, 12/1/2021 | 2,211,560 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2011A-B), 5.00%, 12/1/2021 | 2,218,880 |
| 1,000,000 | | Wayne State University, MI, General Revenue Refunding Bonds (Series 2008), 5.00% (Assured Guaranty Municipal Corp. INS), 11/15/2019 | 1,125,540 |
| 1,000,000 | | Western Michigan University, General Revenue Refunding Bonds (Series 2009), 5.25% (Assured Guaranty Corp. INS), 11/15/2019 | 1,166,440 |
| 500,000 | | Western Townships MI, Utilities Authority, Sewage Disposal System Refunding LT GO Bonds (Series 2012), 5.00%, 1/1/2023 | 583,905 |
| 1,000,000 | | Ypsilanti, MI School District, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 5/1/2023 | 1,099,470 |
| | | TOTAL | 111,376,737 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $106,086,345) | 111,376,737 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPALS—1.1%2 | |
| | | Michigan—1.1% | |
| $1,300,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC), 0.030%, 3/7/2014 (AT AMORTIZED COST) | $1,300,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.0%
(AT IDENTIFIED COST $107,386,345)3 | 112,676,737 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.0%4 | 1,129,246 |
| | | TOTAL NET ASSETS—100% | $113,805,983 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.7% of the Fund's portfolio as calculated based upon total market value.
| 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 $107,328,127. |
| 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 February 28, 2014.
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 February 28, 2014, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
Semi-Annual Shareholder Report
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 |
| PCRBs | —Pollution Control Revenue Bonds |
| 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.
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value,
Beginning of Period | $10.90 | $11.59 | $11.17 | $11.27 | $10.80 | $10.84 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.17 | 0.34 | 0.36 | 0.39 | 0.40 | 0.42 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.29 | (0.67) | 0.42 | (0.10) | 0.47 | (0.04) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.46 | (0.33) | 0.78 | 0.29 | 0.87 | 0.38 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.17) | (0.33) | (0.36) | (0.39) | (0.40) | (0.42) |
| Distributions from net realized gain on investments | — | (0.03) | — | — | — | — |
| TOTAL DISTRIBUTIONS | (0.17) | (0.36) | (0.36) | (0.39) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $11.19 | $10.90 | $11.59 | $11.17 | $11.27 | $10.80 |
| Total Return1 | 4.21% | (2.89)% | 7.11% | 2.74% | 8.25% | 3.69% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.71%2 | 0.63% | 0.62% | 0.54% | 0.54% | 0.54% |
| Net investment income | 3.04%2 | 2.95% | 3.16% | 3.60% | 3.66% | 3.98% |
| Expense waiver/reimbursement3 | 0.23%2 | 0.26% | 0.35% | 0.38% | 0.35% | 0.31% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $113,806 | $121,759 | $131,357 | $124,626 | $160,614 | $164,536 |
| Portfolio turnover | 3% | 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. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis |
| 3 | This expense decrease is reflected in both net expenses and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2014 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $107,386,345) | | $112,676,737 |
| Cash | | 24,183 |
| Income receivable | | 1,387,653 |
| Receivable for shares sold | | 64,942 |
| TOTAL ASSETS | | 114,153,515 |
| Liabilities: | | |
| Payable for shares redeemed | $183,748 | |
| Income distribution payable | 97,492 | |
| Payable for portfolio accounting fees | 37,447 | |
| Payable for shareholder services fee (Note 5) | 19,081 | |
| Accrued expenses (Note 5) | 9,764 | |
| TOTAL LIABILITIES | | 347,532 |
| Net assets for 10,165,917 shares outstanding | | $113,805,983 |
| Net Assets Consist of: | | |
| Paid-in capital | | $108,865,552 |
| Net unrealized appreciation of investments | | 5,290,392 |
| Accumulated net realized loss on investments and futures contracts | | (359,483) |
| Undistributed net investment income | | 9,522 |
| TOTAL NET ASSETS | | $113,805,983 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Net asset value per share ($113,805,983 ÷ 10,165,917 shares outstanding), no par value, unlimited shares authorized | | $11.19 |
| Offering price per share (100/97.00 of 11.19) | | $11.54 |
| Redemption proceeds per share | | $11.19 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2014 (unaudited)
| Investment Income: | | |
| Interest | | $2,149,129 |
| Expenses: | | |
| Investment adviser fee (Note 5) | $228,769 | |
| Administrative fee (Note 5) | 44,667 | |
| Custodian fees | 4,791 | |
| Transfer agent fees | 26,236 | |
| Directors'/Trustees' fees (Note 5) | 897 | |
| Auditing fees | 12,646 | |
| Legal fees | 6,148 | |
| Shareholder services fee (Note 5) | 122,986 | |
| Account administration fee | 18,355 | |
| Portfolio accounting fees | 44,728 | |
| Share registration costs | 12,680 | |
| Printing and postage | 10,458 | |
| Insurance premiums (Note 5) | 2,118 | |
| Miscellaneous (Note 5) | 830 | |
| TOTAL EXPENSES | 536,309 | |
| Waiver of investment adviser fee (Note 5) | (128,622) | |
| Net expenses | | 407,687 |
| Net investment income | | 1,741,442 |
| Realized and Unrealized Gain (Loss) on Investments: | | |
| Net realized loss on investments | | (298,165) |
| Net change in unrealized appreciation of investments | | 3,384,711 |
| Net realized and unrealized gain on investments | | 3,086,546 |
| Change in net assets resulting from operations | | $4,827,988 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended
8/31/2013 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,741,442 | $3,909,334 |
| Net realized loss on investments | (298,165) | (107,004) |
| Net change in unrealized appreciation/depreciation of investments | 3,384,711 | (7,596,863) |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 4,827,988 | (3,794,533) |
| Distributions to Shareholders: | | |
| Distributions from net investment income | (1,734,608) | (3,840,570) |
| Distributions from net realized gain on investments | — | (399,669) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,734,608) | (4,240,239) |
| Share Transactions: | | |
| Proceeds from sale of shares | 9,774,043 | 24,425,523 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,056,999 | 2,507,513 |
| Cost of shares redeemed | (21,877,421) | (28,496,230) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (11,046,379) | (1,563,194) |
| Change in net assets | (7,952,999) | (9,597,966) |
| Net Assets: | | |
| Beginning of period | 121,758,982 | 131,356,948 |
| End of period (including undistributed net investment income of $9,522 and $2,688, respectively) | $113,805,983 | $121,758,982 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2014 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of 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
Semi-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 six months ended February 28, 2014, the Fund did not have a liability for any uncertain tax positions. The
Semi-Annual Shareholder Report
Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of February 28, 2014, 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:
| | Six Months
Ended
2/28/2014 | Year Ended
8/31/2013 |
| Shares sold | 882,341 | 2,120,302 |
| Shares issued to shareholders in payment of distributions declared | 95,406 | 218,492 |
| Shares redeemed | (1,982,824) | (2,505,982) |
| NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (1,005,077) | (167,188) |
4. FEDERAL TAX INFORMATION
At February 28, 2014, the cost of investments for federal tax purposes was $107,328,127. The net unrealized appreciation of investments for federal tax purposes was $5,348,610. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,610,750 and net unrealized depreciation from investments for those securities having an excess of cost over value of $262,140.
At August 31, 2013, the Fund had a net 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) |
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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 six months ended February 28, 2014, the Adviser voluntarily waived $128,622 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2014, the annualized 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 six months ended February 28, 2014, Service Fees for the Fund were as follows:
| | Service Fees
Incurred |
| Class A Shares | $122,986 |
For the six months ended February 28, 2014, FSSC received $987 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.
Semi-Annual Shareholder Report
Interfund Transactions
During the six months ended February 28, 2014, 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 $16,550,000 and $15,550,000, 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.
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 six months ended February 28, 2014 were as follows:
| Purchases | $3,027,860 |
| Sales | $14,572,379 |
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 February 28, 2014, 49.5% of the securities in the Portfolio of Investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported by (backed) by a letter of credit from any one institution or agency, Assured Guaranty Municipal Corp., was 26.3% of total investments.
Semi-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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, the program was not utilized.
Semi-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 September 1, 2013 to February 28, 2014.
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.
Semi-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
9/1/2013 | Ending
Account Value
2/28/2014 | Expenses Paid
During Period1 |
| Actual | $1,000 | $1,042.10 | $3.59 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,021.27 | $3.56 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.71%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). |
Semi-Annual Shareholder Report
Shareholder Meeting Results (unaudited)
A Special Meeting of Shareholders of Federated Municipal Securities Income Trust (the “Trust”), of which the Fund is a portfolio, was held on October 28, 2013. On August 29, 2013, the record date for shareholders voting at the meeting, there were 109,844,139.999 total outstanding shares of the Trust.
The following item was considered by shareholders of the Trust and the results of their voting were as follows:
AGENDA ITEM
Proposal to elect certain Trustees of the Trust:1
| Name | For | Withheld |
| John T. Collins | 91,507,128.403 | 2,809,854.606 |
| Maureen Lally-Green | 92,819,244.677 | 1,497,738.332 |
| Thomas M. O'Neill | 92,644,697.917 | 1,672,285.092 |
| P. Jerome Richey | 92,746,737.657 | 1,570,245.352 |
| 1 | The following Trustees continued their terms:
John F. Donahue, J. Christopher Donahue, Maureen Lally-Green (having been previously appointed by the Board), Peter E. Madden, Charles F. Mansfield, Jr., Thomas M. O'Neill (having been previously appointed by the Board), and John S. Walsh. |
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.
Semi-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.
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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.
Semi-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,
Semi-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.
Semi-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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.Federatedinvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.Federatedinvestors.com/FundInformation.
Semi-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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
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
3032602 (4/14)
Federated is a registered trademark of Federated Investors, Inc.
2014 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2014
| 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 Semi-Annual Shareholder Report for your fund covering the period from September 1, 2013 through February 28, 2014. This report includes 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
Portfolio of Investments Summary Table (unaudited)
At February 28, 2014, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Special Tax | 15.0% |
| General Obligation—Local | 14.7% |
| Transportation | 14.1% |
| General Obligation—State | 13.5% |
| Education | 11.7% |
| Industrial Development Bond/Pollution Control | 6.0% |
| Water and Sewer | 5.3% |
| Resource Recovery | 4.7% |
| Hospital | 4.1% |
| Pre-refunded | 3.7% |
| Other2 | 9.9% |
| Other Assets and Liabilities—Net3 | (2.7)% |
| 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 92.8% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2014 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.7% | |
| | | New York—95.7% | |
| $1,000,000 | | Babylon, NY IDA, Resource Recovery Bonds (Series 2009A), 5.00% (Covanta Babylon, Inc.), 1/1/2019 | $1,159,290 |
| 250,000 | | Battery Park, NY City Authority, Senior Revenue Bonds (Series 2013A), 5.00%, 11/1/2025 | 297,680 |
| 480,000 | | Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.38% (Original Issue Yield: 6.48%), 7/15/2043 | 515,760 |
| 215,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 234,591 |
| 220,000 | | Islip, NY Resource Recovery Agency, Resource Recovery Revenue Bonds (Series 2001E), 5.75% (Assured Guaranty Municipal Corp. INS), 7/1/2023 | 225,700 |
| 500,000 | | Livingston County, NY IDA, Civic Facility Revenue Bonds (Series 2005), 6.00% (Nicholas H. Noyes Memorial Hospital Civic Facility), 7/1/2030 | 499,995 |
| 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 | 531,850 |
| 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 | 268,893 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2006A), 5.00% (MTA Transportation Revenue), 11/15/2035 | 513,875 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2012E), 5.00% (MTA Transportation Revenue), 11/15/2025 | 568,410 |
| 475,000 | | Monroe County, NY IDC, Revenue Bonds (Series 2011A), 5.00% (University of Rochester, NY), 7/1/2041 | 497,239 |
| 500,000 | | Nassau County, NY IDA, IDRBs (Series 2003A), 5.25% (Keyspan-Glenwood Energy Center LLC)/(KeySpan Corp. GTD), 6/1/2027 | 501,860 |
| 1,000,000 | | Nassau County, NY, UT GO Bonds (Series 2009A), 5.00% (Assured Guaranty Corp. INS), 5/1/2021 | 1,132,590 |
| 500,000 | | New York City Liberty Development Corp., Revenue Bonds (Series 2005), 5.25% (Goldman Sachs Group, Inc.), 10/1/2035 | 547,780 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2028 | 562,385 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2031 | 550,815 |
| 500,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British Airways), 12/1/2032 | 473,685 |
| 300,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.50% (Terminal One Group Association), 1/1/2024 | 321,087 |
Semi-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 | $580,950 |
| 455,000 | | New York City, NY TFA , Future Tax Secured Subordinate Bonds (Series 2011C), 5.50%, 11/1/2035 | 505,296 |
| 500,000 | | New York City, NY, UT GO Bonds (Series 2009E-1), 6.25% (Original Issue Yield: 6.40%), 10/15/2028 | 592,455 |
| 400,000 | | New York City, NY, UT GO Bonds (Series 2012B), 5.00%, 8/1/2027 | 449,336 |
| 500,000 | | New York Liberty Development Corporation, Liberty Revenue Bonds (Series 2011), 5.75% (4 World Trade Center), 11/15/2051 | 544,055 |
| 400,000 | | New York Liberty Development Corporation, Revenue Refunding Bonds (Series 2012 Class 3), 5.00% (7 World Trade Center LLC), 3/15/2044 | 403,684 |
| 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 | 567,575 |
| 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 | 1,156,130 |
| 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 | 531,770 |
| 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 | 609,370 |
| 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 | 589,706 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2009C), 5.00% (School District Financing Program)/(Assured Guaranty Corp. INS), 10/1/2023 | 566,240 |
| 350,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Miriam Osborn Memorial Home Association), 7/1/2042 | 359,040 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Rochester, NY Institute of Technology), 7/1/2038 | 421,436 |
| 100,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (Catholic Health System Obligated Group), 7/1/2032 | 101,424 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (St. John's University), 7/1/2026 | 557,090 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012B), 5.00% (St. John's University), 7/1/2030 | 270,520 |
| 200,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2013A), 5.00% (New York University), 7/1/2037 | 216,588 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2014), 5.00% (Fordham University), 7/1/2030 | 442,604 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $240,000 | | New York State Dormitory Authority, Revenue Bonds (Series A), 5.63% (City University of New York)/(Original Issue Yield: 5.95%), 7/1/2016 | $255,746 |
| 300,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolving Funds Revenue Bonds (Series 2008A), 5.00%, 6/15/2029 | 335,253 |
| 500,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolvong Funds Revenue Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.26%), 6/15/2034 | 552,790 |
| 500,000 | | New York State Local Government Assistance Corp., Senior Lien Revenue Refunding Bonds (Series 2008 A-5/6), 5.00%, 4/1/2020 | 589,035 |
| 500,000 | | New York State Local Government Assistance Corp., Subordinate Lien Refunding Revenue Bonds (Series 2010A), 5.00%, 4/1/2023 | 588,050 |
| 500,000 | | New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series 183 AMT), 3.75%, 10/1/2023 | 504,405 |
| 220,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2012I), 5.00% (New York State Thruway Authority - General Revenue ), 1/1/2028 | 241,974 |
| 500,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2014J), 5.00% (New York State Thruway Authority - General Revenue ), 1/1/2027 | 565,080 |
| 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 | 292,887 |
| 500,000 | | New York State Urban Development Corp., Service Contract Revenue Refunding Bonds (Series 2008C), 5.00% (New York State), 1/1/2027 | 550,865 |
| 500,000 | | New York State Urban Development Corp., Subordinated Lien Revenue Bonds (Series 2004A), 5.13% (New York State), 1/1/2022 | 508,190 |
| 500,000 | | New York State, UT GO Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.24%), 2/15/2039 | 551,615 |
| 500,000 | | New York State, UT GO Bonds (Series 2011A), 5.00%, 2/15/2020 | 600,635 |
| 335,000 | | Niagara Area Development Corporation, NY, Solid Waste Disposal Facility Refunding Revenue Bonds (Series 2012B), 4.00% (Covanta Energy Corp.), 11/1/2024 | 324,498 |
| 500,000 | | Niagara Area Development Corporation, NY, Tax Exempt Revenue Bonds (Series 2012A), 5.00% (Niagara University), 5/1/2030 | 521,780 |
| 500,000 | | Port Authority of New York and New Jersey, 5.00%, 12/1/2029 | 529,715 |
| 450,000 | | Syracuse, NY IDA, School Facility Revenue Bonds (Series 2008A), 5.00% (Syracuse CSD, NY)/(Assured Guaranty Municipal Corp. INS), 5/1/2028 | 497,277 |
| 500,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (Original Issue Yield: 5.10%), 11/15/2037 | 545,410 |
| 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 | 201,731 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $290,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00%, 11/15/2023 | $332,830 |
| 400,000 | | TSASC, Inc. NY, Tobacco Settlement Asset-Backed Bonds (Series 2006-1), 5.13% (Original Issue Yield: 5.35%), 6/1/2042 | 313,420 |
| | | TOTAL | 28,271,940 |
| | | Puerto Rico—3.0% | |
| 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 | 640,496 |
| 200,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 151,106 |
| 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 | 101,604 |
| | | TOTAL | 893,206 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $27,740,296) | 29,165,146 |
| | | SHORT-TERM MUNICIPALS—4.0%1 | |
| | | New York—4.0% | |
| 100,000 | | New York City, NY Municipal Water Finance Authority, (Series A-1) Daily VRDNs (Mizuho Bank Ltd. LOC), 0.03%, 3/3/2014 | 100,000 |
| 1,100,000 | | New York City, NY, (Fiscal 1994 Series E-4) Daily VRDNs (BNP Paribas SA LOC), 0.04%, 3/3/2014 | 1,100,000 |
| | | TOTAL | 1,200,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST) | |
| | | TOTAL MUNICIPAL INVESTMENTS—102.7%
(IDENTIFIED COST $28,940,296)2 | 30,365,146 |
| | | OTHER ASSETS AND LIABILITIES - NET—(2.7)%3 | (808,878) |
| | | TOTAL NET ASSETS—100% | $29,556,268 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 6.7% 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 $28,921,396. |
| 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 February 28, 2014.
Semi-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 February 28, 2014, 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 |
| GO | —General Obligation |
| GTD | —Guaranteed |
| IDA | —Industrial Development Authority |
| IDC | —Industrial Development Corporation |
| IDRBs | —Industrial Development Revenue Bonds |
| INS | —Insured |
| LOC | —Letter of Credit |
| PRF | —Pre-refunded |
| TFA | —Transitional Finance Authority |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 | $9.98 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.34 | 0.36 | 0.38 | 0.38 | 0.41 |
| Net realized and unrealized gain (loss) on investments, futures and swap contracts | 0.38 | (0.80) | 0.52 | (0.19) | 0.61 | (0.27) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.54 | (0.46) | 0.88 | 0.19 | 0.99 | 0.14 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.33) | (0.36) | (0.38) | (0.38) | (0.41) |
| Net Asset Value, End of Period | $10.24 | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Total Return1 | 5.56% | (4.50)% | 8.88% | 2.00% | 10.41% | 1.68% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2 | 0.76% | 0.62% | 0.76% | 0.76% | 0.76% |
| Net investment income | 3.33%2 | 3.15% | 3.49% | 3.88% | 3.82% | 4.40% |
| Expense waiver/reimbursement3 | 0.69%2 | 0.53% | 1.18% | 1.12% | 0.98% | 1.02% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $26,909 | $27,534 | $33,073 | $29,108 | $31,644 | $29,334 |
| Portfolio turnover | 15% | 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 | Computed on an annualized basis. |
| 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
Semi-Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 | $9.98 |
| Income from Investment Operations: | | | | | | |
| Net Investment Income | 0.13 | 0.25 | 0.28 | 0.31 | 0.31 | 0.34 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.38 | (0.79) | 0.53 | (0.19) | 0.61 | (0.27) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.51 | (0.54) | 0.81 | 0.12 | 0.92 | 0.07 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.25) | (0.29) | (0.31) | (0.31) | (0.34) |
| Net Asset Value, End of Period | $10.24 | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Total Return1 | 5.17% | (5.21)% | 8.07% | 1.23% | 9.58% | 0.91% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.52%2 | 1.52% | 1.38% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.57%2 | 2.37% | 2.72% | 3.10% | 3.07% | 3.65% |
| Expense waiver/reimbursement3 | 0.68%2 | 0.52% | 1.17% | 1.10% | 0.92% | 0.96% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $2,647 | $2,661 | $3,022 | $3,471 | $9,362 | $10,511 |
| Portfolio turnover | 15% | 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 | Computed on an annualized basis. |
| 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
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2014 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $28,940,296) | | $30,365,146 |
| Cash | | 24,402 |
| Income receivable | | 326,871 |
| Receivable for shares sold | | 2,189 |
| TOTAL ASSETS | | 30,718,608 |
| Liabilities: | | |
| Payable for investments purchased | $939,680 | |
| Payable for shares redeemed | 164,730 | |
| Income distribution payable | 14,667 | |
| Payable for shareholder services fee (Note 5) | 5,610 | |
| Payable for distribution services fee (Note 5) | 1,584 | |
| Payable to adviser (Note 5) | 824 | |
| Payable for Directors'/Trustees' fees (Note 5) | 15 | |
| Accrued expenses (Note 5) | 35,230 | |
| TOTAL LIABILITIES | | 1,162,340 |
| Net assets for 2,886,274 shares outstanding | | $29,556,268 |
| Net Assets Consists of: | | |
| Paid-in capital | | $31,290,498 |
| Net unrealized appreciation of investments | | 1,424,850 |
| Accumulated net realized loss on investments | | (3,164,599) |
| Undistributed net investment income | | 5,519 |
| TOTAL NET ASSETS | | $29,556,268 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($26,909,274 ÷ 2,627,765 shares outstanding), no par value, unlimited shares authorized | | $10.24 |
| Offering price per share (100/95.50 of $10.24) | | $10.72 |
| Redemption proceeds per share | | $10.24 |
| Class B Shares: | | |
| Net asset value per share ($2,646,994 ÷ 258,509 shares outstanding), no par value, unlimited shares authorized | | $10.24 |
| Offering price per share | | $10.24 |
| Redemption proceeds per share (94.50/100 of $10.24) | | $9.68 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2014 (unaudited)
| Investment Income: | | | |
| Interest | | | $590,390 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $57,674 | |
| Administrative fee (Note 5) | | 11,261 | |
| Custodian fees | | 3,017 | |
| Transfer agent fees | | 10,587 | |
| Directors'/Trustees' fees (Note 5) | | 613 | |
| Auditing fees | | 12,645 | |
| Legal fees | | 6,148 | |
| Distribution services fee (Note 5) | | 10,046 | |
| Shareholder services fee (Note 5) | | 35,876 | |
| Portfolio accounting fees | | 44,728 | |
| Share registration costs | | 14,495 | |
| Printing and postage | | 9,851 | |
| Insurance premiums (Note 5) | | 2,033 | |
| Miscellaneous (Note 5) | | 761 | |
| TOTAL EXPENSES | | 219,735 | |
| Waiver and Reimbursements (Note 5): | | | |
| Waiver of investment adviser fee | $(57,674) | | |
| Reimbursement of shareholder services fee | (1,138) | | |
| Reimbursement of other operating expenses | (40,457) | | |
| TOTAL WAIVER AND REIMBURSEMENTS | | (99,269) | |
| Net expenses | | | 120,466 |
| Net investment income | | | 469,924 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized loss on investments | | | (100,764) |
| Net change in unrealized appreciation (depreciation) of investments | | | 1,196,457 |
| Net realized and unrealized gain on investments | | | 1,095,693 |
| Change in net assets resulting from operations | | | $1,565,617 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended
8/31/2013 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $469,924 | $1,094,745 |
| Net realized loss on investments | (100,764) | (70,343) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | 1,196,457 | (2,535,053) |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 1,565,617 | (1,510,651) |
| Distribution to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (432,068) | (1,005,536) |
| Class B Shares | (34,153) | (69,321) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (466,221) | (1,074,857) |
| Share Transactions: | | |
| Proceeds from sale of shares | 4,835,270 | 3,512,638 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 365,297 | 857,226 |
| Cost of shares redeemed | (6,938,965) | (7,684,071) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (1,738,398) | (3,314,207) |
| Change in net assets | (639,002) | (5,899,715) |
| Net Assets: | | |
| Beginning of period | 30,195,270 | 36,094,985 |
| End of period (including undistributed net investment income of $5,519 and $1,816, respectively) | $29,556,268 | $30,195,270 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2014 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of 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. |
Semi-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, 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
Semi-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 six months ended February 28, 2014, 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 February 28, 2014, 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 February 28, 2014, the Fund had no outstanding futures contracts.
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.
Semi-Annual Shareholder Report
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 435,583 | $4,400,642 | 222,900 | $2,412,401 |
| Shares issued to shareholders in payment of distributions declared | 33,559 | 338,593 | 75,904 | 798,931 |
| Shares redeemed | (634,152) | (6,361,505) | (610,414) | (6,369,019) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | (165,010) | $(1,622,270) | (311,610) | $(3,157,687) |
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 43,344 | $434,628 | 103,602 | $1,100,237 |
| Shares issued to shareholders in payment of distributions declared | 2,647 | 26,704 | 5,539 | 58,295 |
| Shares redeemed | (57,427) | (577,460) | (122,894) | (1,315,052) |
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS | (11,436) | $(116,128) | (13,753) | $(156,520) |
NET CHANGE RESULTING FROM TOTAL
FUND SHARE TRANSACTIONS | (176,446) | $(1,738,398) | (325.363) | $(3,314.207) |
4. FEDERAL TAX INFORMATION
At February 28, 2014, the cost of investments for federal tax purposes was $28,921,396. The net unrealized appreciation of investments for federal tax purposes was $1,443,750. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $1,663,799 and net unrealized depreciation from investments for those securities having an excess of cost over value of $220,049.
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.
Semi-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 |
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 six months ended February 28, 2014, the Adviser, voluntarily waived its entire fee of $57,674 and voluntarily reimbursed $40,457 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 six months ended February 28, 2014, the annualized net fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-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 six months ended February 28, 2014, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred |
| Class B Shares | $10,046 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2014, FSC retained $4,766 of fees paid by the Fund. For the six months ended February 28, 2014, the Fund's Class A Shares did not incur a distribution service 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 six months ended February 28, 2014, FSC retained $384 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 six months ended February 28, 2014, Service Fees for the Fund were as follows:
| | Service Fees
Incurred | Service Fees
Reimbursed |
| Class A Shares | $32,527 | $(1,138) |
| Class B Shares | 3,349 | — |
| TOTAL | $35,876 | $(1,138) |
For the six months ended February 28, 2014, FSSC received $2,526 of Service Fees paid by the Fund.
Semi-Annual Shareholder Report
Interfund Transactions
During the six months ended February 28, 2014, 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 $12,000,000 and $10,150,000, 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 six months ended February 28, 2014 were as follows:
| Purchases | $4,327,026 |
| Sales | $5,517,000 |
Semi-Annual Shareholder Report
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 February 28, 2014, 23.74% 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.
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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, the program was not utilized.
Semi-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 September 1, 2013 to February 28, 2014.
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.
Semi-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
9/1/2013 | Ending
Account Value
2/28/2014 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,055.60 | $3.87 |
| Class B Shares | $1,000 | $1,051.70 | $7.73 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.03 | $3.81 |
| Class B Shares | $1,000 | $1,017.26 | $7.60 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.76% |
| Class B Shares | 1.52% |
Semi-Annual Shareholder Report
Shareholder Meeting Results (unaudited)
A Special Meeting of Shareholders of Federated Municipal Securities Income Trust (the “Trust”), of which the Fund is a portfolio, was held on October 28, 2013. On August 29, 2013, the record date for shareholders voting at the meeting, there were 109,844,139.999 total outstanding shares of the Trust.
The following item was considered by shareholders of the Trust and the results of their voting were as follows:
AGENDA ITEM
Proposal to elect certain Trustees of the Trust:1
| Name | For | Withheld |
| John T. Collins | 91,507,128.403 | 2,809,854.606 |
| Maureen Lally-Green | 92,819,244.677 | 1,497,738.332 |
| Thomas M. O'Neill | 92,644,697.917 | 1,672,285.092 |
| P. Jerome Richey | 92,746,737.657 | 1,570,245.352 |
| 1 | The following Trustees continued their terms:
John F. Donahue, J. Christopher Donahue, Maureen Lally-Green (having been previously appointed by the Board), Peter E. Madden, Charles F. Mansfield, Jr., Thomas M. O'Neill (having been previously appointed by the Board), and John S. Walsh. |
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.
Semi-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.
Semi-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.
Semi-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,
Semi-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.
Semi-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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.Federatedinvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.Federatedinvestors.com/FundInformation.
Semi-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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
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
4031009 (4/14)
Federated is a registered trademark of Federated Investors, Inc.
2014 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2014
| 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 Semi-Annual Shareholder Report for your fund covering the period from September 1, 2013 through February 28, 2014. This report includes 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
Portfolio of Investments Summary Table (unaudited)
At February 28, 2014, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 16.1% |
| Education | 14.7% |
| Hospital | 14.4% |
| General Obligation—State | 8.9% |
| Water and Sewer | 8.4% |
| Pre-refunded | 7.7% |
| Special Tax | 6.3% |
| Transportation | 6.0% |
| Public Power | 5.8% |
| Industrial Development Bond/Pollution Control Revenue Bond | 2.5% |
| Other2 | 8.1% |
| Other Assets and Liabilities—Net3 | 1.1% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party guarantor, such as 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 90.8% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2014 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.0% | |
| | | Guam—1.0% | |
| $1,000,000 | | Guam Government Business Privilege Tax, Business Privilege Tax Bonds (Series 2012B), 5.00%, 1/1/2037 | $1,010,270 |
| 560,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.625% (Original Issue Yield: 5.875%), 12/1/2029 | 593,645 |
| | | TOTAL | 1,603,915 |
| | | Ohio—95.7% | |
| 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 | 2,083,240 |
| 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 | 2,264,557 |
| 2,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2033 | 2,164,220 |
| 2,000,000 | | Allen County, OH, Hospital Facilities Revenue Bonds (Series 2010B), 5.25% (Catholic Healthcare Partners), 9/1/2027 | 2,180,260 |
| 500,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2016 | 542,810 |
| 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 | 2,182,480 |
| 855,000 | | Beavercreek, OH Local School District, UT GO Bonds, 6.60% (National Public Finance Guarantee Corporation INS), 12/1/2015 | 916,115 |
| 1,965,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Asset-Backed Bonds, 5.125% (Original Issue Yield: 5.44%), 6/1/2024 | 1,691,826 |
| 1,000,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.00%, 6/1/2015 | 1,045,240 |
| 1,000,000 | | Centerville, OH, Health Care Fixed Rate Revenue Bonds (Series 2007A), 6.00% (Bethany Lutheran Village), 11/1/2038 | 1,000,220 |
| 1,000,000 | | Cincinnati City School District, OH, COP, 5.00% (Assured Guaranty Municipal Corp. INS), 12/15/2024 | 1,089,530 |
| 1,000,000 | | Cincinnati City School District, OH, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 12/1/2017 | 1,159,140 |
| 2,490,000 | | Cincinnati, OH Water System, Revenue Refunding Bonds (Series A), 5.00%, 12/1/2025 | 2,856,105 |
| 1,500,000 | | Cleveland State University, OH, General Receipts Bonds (Series 2012), 5.00%, 6/1/2037 | 1,581,705 |
| 1,980,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2006A), 5.25% (Assured Guaranty Corp. INS), 1/1/2018 | 2,257,735 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,200,000 | | Cleveland, OH Airport System, Revenue Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 1/1/2022 | $2,426,336 |
| 1,550,000 | | Cleveland, OH Public Power System, Revenue Bonds (Series 2008B-1), 5.00%, 11/15/2038 | 1,603,599 |
| 2,685,000 | | Cleveland, OH Public Power System, Revenue Refunding Bonds (Series 2010), 5.00%, 11/15/2017 | 3,077,171 |
| 1,000,000 | | Cleveland, OH Water, Senior Lien Revenue Bonds (Series 2012X), 5.00%, 1/1/2042 | 1,068,080 |
| 1,000,000 | | Cleveland, OH Water, Water Revenue Bonds (Series 2007O), 5.00% (National Public Finance Guarantee Corporation INS), 1/1/2032 | 1,068,990 |
| 2,000,000 | | Cleveland, OH, LT GO Bonds, 5.50% (Assured Guaranty Municipal Corp. INS), 10/1/2019 | 2,425,680 |
| 1,000,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds (Series 2009), 5.00%, 12/1/2027 | 1,144,090 |
| 1,225,000 | | Columbus, OH Sewer System, Revenue Bonds (Series 2008A), 5.00%, 6/1/2031 | 1,345,663 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Bonds (Series A), 5.00%, 6/1/2023 | 1,145,170 |
| 1,500,000 | | Columbus, OH, Various Purpose LT GO Bonds (Series 2013B), 5.00%, 8/15/2028 | 1,742,040 |
| 2,000,000 | | Cuyahoga County, OH, LT GO Various Purpose Bonds (Series 2009A), 5.00%, 12/1/2022 | 2,318,860 |
| 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 | 2,372,920 |
| 410,000 | | Dayton-Montgomery County, OH Port Authority, Revenue Bonds (Series A), 5.00% (Dayton Regional Bond Fund), 11/15/2017 | 410,668 |
| 3,000,000 | | Franklin County, OH Convention Facilities Authority, Revenue Bonds, 5.00% (AMBAC INS), 12/1/2026 | 3,200,820 |
| 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 | 2,542,632 |
| 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 | 1,600,284 |
| 2,165,000 | | Franklin County, OH, Various Purpose LT GO Bonds, 5.00%, 12/1/2031 | 2,367,622 |
| 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 | 1,059,890 |
| 2,850,000 | | Hamilton County, OH, Sales Tax Refunding Bonds (Series 2011A), 5.00%, 12/1/2032 | 2,999,454 |
| 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 | 1,446,895 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Hilliard, OH School District, UT GO Bonds (Series 2006A), 5.00% (United States Treasury PRF 12/1/2016@100), 12/1/2027 | $2,249,260 |
| 1,555,000 | | JobsOhio Beverage System, OH, Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds (Series 2013A), 5.00%, 1/1/2038 | 1,630,775 |
| 2,000,000 | | Kent State University, OH, General Receipts Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. INS), 5/1/2028 | 2,221,560 |
| 1,860,000 | | Kettering, OH City School District, UT GO Bonds, 4.75% (Assured Guaranty Municipal Corp. INS), 12/1/2020 | 2,083,516 |
| 1,500,000 | | Lorain County, OH Port Authority, Recovery Zone Facility Revenue Bonds (Series 2010), 6.75% (United States Steel Corp.), 12/1/2040 | 1,544,790 |
| 1,000,000 | | Lorain County, OH, Hospital Revenue Bonds (Series 2006H), 5.00% (Catholic Healthcare Partners)/(Assured Guaranty Corp. INS), 2/1/2024 | 1,104,140 |
| 2,000,000 | | Lucas County, OH, Hospital Revenue Bonds (Series 2011A), 6.50% (ProMedica Healthcare Obligated Group), 11/15/2037 | 2,339,040 |
| 1,090,000 | | Marysville, OH Wastewater Treatment System, Revenue Bonds, 4.75% (Assured Guaranty Corp. INS)/(Original Issue Yield: 4.80%), 12/1/2046 | 1,093,575 |
| 1,000,000 | | Miami County, OH, Hospital Facilities Revenue & Refunding Bonds (Series 2006), 5.25% (Upper Valley Medical Center, OH), 5/15/2021 | 1,054,610 |
| 500,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.00%, 9/1/2036 | 531,485 |
| 2,000,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011, 5.00%, 9/1/2031 | 2,160,920 |
| 1,600,000 | | Miamisburg, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00%, 12/1/2024 | 1,819,120 |
| 1,000,000 | | Montgomery County, OH, Revenue Bonds (Series 2008D), 6.125% (Catholic Health Initiatives)/(Original Issue Yield: 6.30%), 10/1/2028 | 1,142,650 |
| 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 | 807,600 |
| 2,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Bonds (Series 2013), 5.00%, 11/15/2038 | 2,176,880 |
| 1,415,000 | | Oak Hills, OH Local School District, UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 12/1/2025 | 1,509,720 |
| 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 | 2,135,680 |
| 1,150,000 | | Ohio State Air Quality Development Authority, Environmental Improvement Revenue Bonds (Series 2010), 5.00% (Buckeye Power, Inc.), 12/1/2021 | 1,271,647 |
| 1,455,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 1,626,181 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission, Higher Education Facility Revenue Bonds (Series 2006), 5.00% (Kenyon College, OH), 7/1/2041 | 2,025,420 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,875,000 | | Ohio State Higher Educational Facility Commission, Hospital Revenue Bonds (Series 2007A), 5.25% (University Hospitals Health System, Inc.), 1/15/2046 | $1,903,387 |
| 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 | 1,096,780 |
| 300,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 4.75% (Mount Union College), 10/1/2016 | 328,827 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 5.00% (College of Wooster), 9/1/2020 | 2,082,920 |
| 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 | 3,430,705 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Refunding Bonds (Series 2008C), 5.00% (Case Western Reserve University, OH), 12/1/2029 | 1,084,240 |
| 1,000,000 | | Ohio State Turnpike Commission, Revenue Refunding Bonds (Series 2010A), 5.00%, 2/15/2031 | 1,077,310 |
| 2,000,000 | | Ohio State Turnpike Commission, Turnpike Revenue Refunding Bonds (Series 1998A), 5.50% (National Re Holdings Corp. INS), 2/15/2024 | 2,428,220 |
| 200,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00% (United States Treasury PRF 12/1/2018@100), 12/1/2027 | 237,232 |
| 1,800,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00%, 12/1/2027 | 2,048,490 |
| 1,000,000 | | Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.00%, 6/1/2038 | 1,081,510 |
| 1,000,000 | | Ohio State Water Development Authority, Drinking Water Assistance Fund Refunding Revenue Bonds (Series 2008), 5.00%, 12/1/2021 | 1,145,670 |
| 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 | 1,173,640 |
| 2,500,000 | | Ohio State, Common Schools UT GO Bonds (Series 2011B), 5.00%, 9/15/2024 | 2,888,425 |
| 1,500,000 | | Ohio State, Hospital Revenue Bonds, 5.00% (Cleveland Clinic), 1/1/2031 | 1,626,300 |
| 1,200,000 | | Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033 | 1,303,596 |
| 2,585,000 | | Ohio State, Infrastructure Improvement GO Bonds (Series 2008A), 5.375% (Original Issue Yield: 5.50%), 9/1/2028 | 2,925,315 |
| 2,000,000 | | Ohio State, Infrastructure Improvement UT GO Bonds (Series 2007A), 4.75%, 9/1/2027 | 2,156,800 |
| 1,000,000 | | Ohio State, Major New State Infrastructure Project Revenue Bonds (Series 2008-1), 5.75%, 6/15/2019 | 1,182,600 |
| 2,310,000 | | Ohio State, UT GO Bonds, 4.25%, 5/1/2016 | 2,507,135 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Ohio State, UT GO Highway Capital Improvements (Series 2012Q), 5.00%, 5/1/2021 | $2,413,100 |
| 2,000,000 | | Ohio University, General Receipts Bonds (Series 2013), 5.00%, 12/1/2043 | 2,090,740 |
| 2,000,000 | | Olentangy, OH Local School District, UT GO Bonds, 5.00% (United States Treasury PRF 6/1/2016@100), 12/1/2022 | 2,209,000 |
| 415,000 | | Orrville, OH CSD, UT GO Bonds, 4.50% (AMBAC INS), 12/1/2018 | 465,846 |
| 350,000 | | Orrville, OH CSD, UT GO Refunding Bonds, 5.00% (AMBAC INS), 12/1/2020 | 397,481 |
| 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 | 348,645 |
| 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 | 1,109,750 |
| 770,000 | | Richland County, OH Hospital Facilities, Revenue Bond, 5.00% (Medcentral Health System), 11/15/2015 | 819,003 |
| 1,385,000 | | 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 | 1,453,280 |
| 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 | 711,638 |
| 1,000,000 | | Toledo, OH Water System, Revenue Improvement and Refunding Bonds (Series 2013), 5.00%, 11/15/2032 | 1,090,870 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds, 6.45% (CSX Corp.), 12/15/2021 | 1,844,940 |
| 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 | 1,396,918 |
| 2,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2008B), 5.25% (Assured Guaranty Municipal Corp. INS), 1/1/2027 | 2,211,800 |
| 1,000,000 | | University of Cincinnati, OH, Receipts Revenue Bonds (Series E), 5.00%, 6/1/2022 | 1,173,570 |
| | | TOTAL | 148,356,299 |
| | | Puerto Rico—1.3% | |
| 980,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00%, 7/1/2020 | 808,059 |
| 500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 377,765 |
| 1,000,000 | | Puerto Rico Government Development Bank (GDB), Senior Notes (Series 2006B), 5.00%, 12/1/2017 | 816,660 |
| | | TOTAL | 2,002,484 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $145,375,623) | 151,962,698 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPALS—0.9%1 | |
| | | Ohio—0.9% | |
| $1,000,000 | | Montgomery County, OH, (Series 2011C) Daily VRDNs (Miami Valley Hospital)/(Barclays Bank PLC LIQ), 0.030%, 3/3/2014 | $1,000,000 |
| 400,000 | | Ohio State Higher Educational Facility Commission, (Series 2013B-1) Daily VRDNs (Cleveland Clinic)/(Wells Fargo Bank, N.A. LIQ), 0.030%, 3/3/2014 | 400,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED COST) | 1,400,000 |
| | | TOTAL INVESTMENTS—98.9%
(IDENTIFIED COST $146,775,623)2 | 153,362,698 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.1%3 | 1,699,742 |
| | | TOTAL NET ASSETS—100% | $155,062,440 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 0.2% of the Fund's portfolio as calculated based upon total market value.
| 1 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 2 | The cost of investments for federal tax purposes amounts to $146,744,130. |
| 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 February 28, 2014.
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 February 28, 2014, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
Semi-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 |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LO | —Limited Obligation |
| 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
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31 | Period
Ended
8/31/20091 |
| | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 | $10.22 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.19 | 0.38 | 0.38 | 0.42 | 0.42 | 0.37 |
| Net realized and unrealized gain (loss) on investments | 0.38 | (0.79) | 0.56 | (0.21) | 0.45 | 0.44 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.57 | (0.41) | 0.94 | 0.21 | 0.87 | 0.81 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.19) | (0.36) | (0.40) | (0.42) | (0.41) | (0.35) |
| Net Asset Value, End of Period | $11.08 | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Total Return2 | 5.34% | (3.73)% | 8.72% | 2.04% | 8.34% | 8.11% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.75%3 | 0.75% | 0.75% | 0.75% | 0.75% | 0.75%3,4 |
| Net investment income | 3.42%3 | 3.28% | 3.40% | 3.87% | 3.84% | 4.09%3 |
| Expense waiver/reimbursement5 | 0.16%3 | 0.14% | 0.18% | 0.18% | 0.16% | 0.17%3 |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $42,380 | $45,131 | $53,165 | $50,990 | $57,338 | $61,141 |
| Portfolio turnover | 0% | 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. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | 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. |
| 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
Semi-Annual Shareholder Report
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value,
Beginning of Period | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 | $10.92 |
Income from
Investment Operations: | | | | | | |
| Net investment income | 0.18 | 0.36 | 0.36 | 0.40 | 0.40 | 0.43 |
| Net realized and unrealized gain (loss) on investments | 0.38 | (0.79) | 0.56 | (0.21) | 0.46 | (0.25) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.56 | (0.43) | 0.92 | 0.19 | 0.86 | 0.18 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.18) | (0.34) | (0.38) | (0.40) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $11.08 | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Total Return1 | 5.26% | (3.87)% | 8.56% | 1.89% | 8.18% | 1.81% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.90%2 | 0.90% | 0.90% | 0.90% | 0.90% | 0.90%3 |
| Net investment income | 3.27%2 | 3.13% | 3.25% | 3.70% | 3.72% | 4.06% |
| Expense waiver/reimbursement4 | 0.41%2 | 0.39% | 0.43% | 0.43% | 0.41% | 0.44% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $112,683 | $118,639 | $128,005 | $117,884 | $135,096 | $124,090 |
| Portfolio turnover | 0% | 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. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis. |
| 3 | 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. |
| 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
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2014 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $146,775,623) | | $153,362,698 |
| Cash | | 218 |
| Income receivable | | 1,853,822 |
| Receivable for shares sold | | 68,438 |
| Prepaid expenses | | 17,932 |
| TOTAL ASSETS | | 155,303,108 |
| Liabilities: | | |
| Payable for shares redeemed | $125,835 | |
| Payable for portfolio accounting fees | 37,447 | |
| Payable for shareholder services fee (Note 5) | 29,569 | |
| Payable for transfer agent fee | 14,927 | |
| Payable for share registration costs | 14,160 | |
| Payable for distribution services fee (Note 5) | 13,031 | |
| Accrued expenses (Note 5) | 5,699 | |
| TOTAL LIABILITIES | | 240,668 |
| Net assets for 13,997,625 shares outstanding | | $155,062,440 |
| Net Assets Consist of: | | |
| Paid-in capital | | $150,764,904 |
| Net unrealized appreciation of investments | | 6,587,075 |
| Accumulated net realized loss on investments | | (2,286,670) |
| Distributions in excess of net investment income | | (2,869) |
| TOTAL NET ASSETS | | $155,062,440 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($42,379,656 ÷ 3,825,979 shares outstanding), no par value, unlimited shares authorized | | $11.08 |
| Offering price per share (100/95.50 of $11.08) | | $11.60 |
| Redemption proceeds per share | | $11.08 |
| Class F Shares: | | |
| Net asset value per share ($112,682,784 ÷ 10,171,646 shares outstanding), no par value, unlimited shares authorized | | $11.08 |
| Offering price per share (100/99.00 of $11.08) | | $11.19 |
| Redemption proceeds per share (99.00/100 of $11.08) | | $10.97 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2014 (unaudited)
| Investment Income: | | | |
| Interest | | | $3,282,152 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $314,282 | |
| Administrative fee (Note 5) | | 61,364 | |
| Custodian fees | | 6,221 | |
| Transfer agent fees | | 44,184 | |
| Directors'/Trustees' fees (Note 5) | | 1,037 | |
| Auditing fees | | 12,644 | |
| Legal fees | | 6,148 | |
| Distribution services fee (Note 5) | | 228,653 | |
| Shareholder services fee (Note 5) | | 195,039 | |
| Account administration fee (Note 2) | | 276 | |
| Portfolio accounting fees | | 44,728 | |
| Share registration costs | | 15,847 | |
| Printing and postage | | 15,035 | |
| Insurance premiums (Note 5) | | 2,159 | |
| Miscellaneous (Note 5) | | 1,296 | |
| TOTAL EXPENSES | | 948,913 | |
| Waivers (Note 5): | | | |
| Waiver of investment adviser fee | $(128,243) | | |
| Waiver of distribution services fee | (141,797) | | |
| TOTAL WAIVERS | | (270,040) | |
| Net expenses | | | 678,873 |
| Net investment income | | | 2,603,279 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized loss on investments | | | (324,151) |
| Net change in unrealized appreciation of investments | | | 5,874,529 |
| Net realized and unrealized gain on investments | | | 5,550,378 |
| Change in net assets resulting from operations | | | $8,153,657 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended
8/31/2013 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $2,603,279 | $5,805,629 |
| Net realized gain (loss) on investments | (324,151) | 589,640 |
| Net change in unrealized appreciation/depreciation of investments | 5,874,529 | (13,232,061) |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 8,153,657 | (6,836,792) |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (736,560) | (1,639,985) |
| Class F Shares | (1,885,964) | (3,874,779) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (2,622,524) | (5,514,764) |
| Share Transactions: | | |
| Proceeds from sale of shares | 4,835,090 | 21,560,165 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,940,390 | 3,993,450 |
| Cost of shares redeemed | (21,014,496) | (30,601,616) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (14,239,016) | (5,048,001) |
| Change in net assets | (8,707,883) | (17,399,557) |
| Net Assets: | | |
| Beginning of period | 163,770,323 | 181,169,880 |
| End of period (including undistributed (distributions in excess of) net investment income of $(2,869) and $16,376, respectively) | $155,062,440 | $163,770,323 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2014 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of 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. |
Semi-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.
Semi-Annual Shareholder Report
For the six months ended February 28, 2014, account administration fees for the Fund were as follows:
| | Account
Administration
Fees Incurred |
| Class F Shares | $276 |
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 six months ended February 28, 2014, 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 February 28, 2014, 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.
Semi-Annual Shareholder Report
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 272,552 | $2,964,949 | 477,353 | $5,412,099 |
| Shares issued to shareholders in payment of distributions declared | 18,260 | 199,447 | 40,196 | 454,572 |
| Shares redeemed | (683,827) | (7,422,844) | (935,465) | (10,408,092) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | (393,015) | $(4,258,448) | (417,916) | $(4,541,421) |
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 171,014 | $1,870,141 | 1,418,767 | $16,148,066 |
| Shares issued to shareholders in payment of distributions declared | 159,392 | 1,740,943 | 313,089 | 3,538,878 |
| Shares redeemed | (1,248,194) | (13,591,652) | (1,805,955) | (20,193,524) |
NET CHANGE RESULTING FROM
CLASS F SHARE TRANSACTIONS | (917,788) | $(9,980,568) | (74,099) | $(506,580) |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | (1,310,803) | $(14,239,016) | (492,015) | $(5,048,001) |
4. FEDERAL TAX INFORMATION
At February 28, 2014, the cost of investments for federal tax purposes was $146,744,130. The net unrealized appreciation of investments for federal tax purposes was $6,618,568. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $8,511,886 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,893,318.
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.
Semi-Annual Shareholder Report
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 |
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 six months ended ended February 28, 2014, the Adviser voluntarily waived $128,243 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2014, the annualized net fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-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 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 six months ended February 28, 2014, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred | Distribution
Services Fees
Waived |
| Class F Shares | $228,653 | $(141,797) |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2014, FSC retained $86,856 of fees paid by the Fund. For the six months ended February 28, 2014, 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 six months ended February 28, 2014, FSC retained $1,710 in sales charges from the sale of Class A Shares. For the six months ended February 28, 2014, FSC retained $29,022 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 six months ended February 28, 2014, Service Fees for the Fund were as follows:
| | Service Fees
Incurred |
| Class A Shares | $53,518 |
| Class F Shares | 141,521 |
| TOTAL | $195,039 |
Semi-Annual Shareholder Report
For the six months ended February 28, 2014, FSSC received $820 of fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2014, 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 $16,000,000 and $20,200,000, 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.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2014, were as follows:
| Purchases | $0 |
| Sales | $12,953,702 |
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 February 28, 2014, 29.9% 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 was 10.8% of total investments.
Semi-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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, the program was not utilized.
10. SUBSEQUENT EVENT
On March 13, 2014, the Trustees approved the reorganization of Huntington Ohio Tax Free Fund, a portfolio of The Huntington Funds, into the Fund. The reorganization is expected to occur no later than the second quarter of 2014.
Management has evaluated subsequent events through the date the financial statements were issued, and determined that no additional events have occurred that require disclosure.
Semi-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 September 1, 2013 to February 28, 2014.
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.
Semi-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
9/1/2013 | Ending
Account Value
2/28/2014 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,053.40 | $3.82 |
| Class F Shares | $1,000 | $1,052.60 | $4.58 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.08 | $3.76 |
| Class F Shares | $1,000 | $1,020.33 | $4.51 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.75% |
| Class F Shares | 0.90% |
Semi-Annual Shareholder Report
Shareholder Meeting Results (unaudited)
A Special Meeting of Shareholders of Federated Municipal Securities Income Trust (the “Trust”), of which the Fund is a portfolio, was held on October 28, 2013. On August 29, 2013, the record date for shareholders voting at the meeting, there were 109,844,139.999 total outstanding shares of the Trust.
The following item was considered by shareholders of the Trust and the results of their voting were as follows:
AGENDA ITEM
Proposal to elect certain Trustees of the Trust:1
| Name | For | Withheld |
| John T. Collins | 91,507,128.403 | 2,809,854.606 |
| Maureen Lally-Green | 92,819,244.677 | 1,497,738.332 |
| Thomas M. O'Neill | 92,644,697.917 | 1,672,285.092 |
| P. Jerome Richey | 92,746,737.657 | 1,570,245.352 |
| 1 | The following Trustees continued their terms:
John F. Donahue, J. Christopher Donahue, Maureen Lally-Green (having been previously appointed by the Board), Peter E. Madden, Charles F. Mansfield, Jr., Thomas M. O'Neill (having been previously appointed by the Board), and John S. Walsh. |
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.
Semi-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.
Semi-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.
Semi-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
Semi-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.
Semi-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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.Federatedinvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.Federatedinvestors.com/FundInformation.
Semi-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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
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
2032305 (4/14)
Federated is a registered trademark of Federated Investors, Inc.
2014 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2014
| 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 Semi-Annual Shareholder Report for your fund covering the period from September 1, 2013 through February 28, 2014. This report includes 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
Portfolio of Investments Summary Table (unaudited)
At February 28, 2014, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 16.0% |
| Education | 15.8% |
| General Obligation—State | 11.5% |
| Water & Sewer | 10.5% |
| Transportation | 9.8% |
| General Obligation—Local | 9.5% |
| Special Tax | 7.3% |
| Pre-refunded | 4.7% |
| Industrial Development Bond/Pollution Control Revenue Bond | 4.4% |
| Multi-Family Housing | 2.5% |
| Other2 | 6.8% |
| 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 92.0% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2014 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.5% | |
| | | Pennsylvania—96.9% | |
| $1,450,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2023 | $1,616,910 |
| 1,550,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2024 | 1,708,162 |
| 3,555,000 | | Allegheny County, PA HDA , Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018 | 4,117,863 |
| 2,000,000 | | Allegheny County, PA HDA , Refunding Revenue Bonds (Series 1998A), 5.13% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.34%), 5/1/2023 | 2,001,120 |
| 1,385,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | 1,405,498 |
| 3,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.75% (United States Steel Corp.), 11/1/2024 | 3,172,890 |
| 665,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2006), 5.13% (Residential Resources Inc. Project), 9/1/2031 | 619,507 |
| 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 | 2,183,540 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,932,548 |
| 2,250,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2035 | 2,175,660 |
| 3,000,000 | | Bradford County, PA IDA, Solid Waste Disposal Refunding Revenue Bonds (Series 2005A), 4.70% (International Paper Co.), 3/1/2019 | 3,053,880 |
| 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 | 2,123,180 |
| 1,055,000 | | Catasauqua, PA Area School District, UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 2/15/2031 | 1,108,868 |
| 2,000,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds (Series 2012B), 5.00% (Mount Nittany Medical Center), 11/15/2032 | 2,069,840 |
| 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 | 1,565,400 |
| 2,000,000 | | Chester County, PA HEFA, Revenue Bonds (Series 2006), 5.00% (Devereux Foundation), 11/1/2031 | 2,017,780 |
| 2,000,000 | | Chester County, PA, UT GO Bonds, 5.00%, 7/15/2028 | 2,214,580 |
| 2,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00%, 12/1/2037 | 2,001,260 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,500,000 | | Clarion County, PA IDA, Water Facility Revenue Refunding Bonds (Series 2009), 5.50% (Pennsylvania American Water Co.), 12/1/2039 | $1,592,415 |
| 2,000,000 | | Commonwealth Financing Authority of PA, Revenue Bonds (Series 2013B), 5.00% (Commonwealth of Pennsylvania), 6/1/2036 | 2,075,200 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2011), 5.00%, 11/15/2030 | 2,226,900 |
| 2,355,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2012), 5.00%, 6/1/2022 | 2,831,723 |
| 5,075,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Second Series 2009), 5.00%, 4/15/2023 | 5,905,980 |
| 4,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Second
Series 2010A), 5.00%, 5/1/2017 | 4,564,480 |
| 6,150,000 | | Commonwealth of Pennsylvania, UT GO Bonds (Series 2007A), 5.00%, 8/1/2023 | 6,946,978 |
| 2,000,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2007A), 5.00% (Diakon Lutheran Social Ministries), 1/1/2036 | 2,005,640 |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Revenue Refunding Bonds (Series 2012), 5.25% (Asbury Pennsylvania Obligated Group), 1/1/2041 | 904,800 |
| 3,500,000 | | Dauphin County, PA General Authority, Health System Revenue Bonds (Series 2012A), 5.00% (Pinnacle Health System), 6/1/2042 | 3,511,480 |
| 410,000 | | Delaware County, PA Authority, Revenue Bonds (Series 2012), 5.00% (Villanova University), 8/1/2020 | 479,921 |
| 2,350,000 | | Delaware River Port Authority, Revenue Bonds (Series 2010D), 5.00%, 1/1/2028 | 2,546,295 |
| 1,500,000 | | Ephrata, PA Area School District, UT GO Bonds, 4.25% (FGIC and National Public Finance Guarantee Corporation INSs), 4/15/2017 | 1,605,120 |
| 1,500,000 | | Erie County, PA Hospital Authority, Revenue Bonds (Series 2006), 5.00% (UPMC Health System)/(CIFG Assurance NA INS), 11/1/2035 | 1,520,250 |
| 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 | 1,001,090 |
| 2,250,000 | | Geisinger Authority, PA Health System, Health System Revenue Bonds (Series 2009A), 5.25% (Geisinger Health System), 6/1/2039 | 2,349,495 |
| 2,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | 1,841,360 |
| 2,000,000 | | Indiana County, PA IDA, Refunding Revenue Bonds, 5.00% (Indiana University of PA)/(AMBAC INS), 11/1/2029 | 1,901,760 |
| 1,615,000 | | Johnstown, PA Redevelopment Authority, Revenue Bonds (Series A), 4.50% (Assured Guaranty Municipal Corp. INS), 8/15/2019 | 1,643,812 |
| 1,000,000 | | Lancaster County, PA Solid Waste Management Authority, GTD Authority Bonds (Series 2013B), 5.00% (Dauphin County, PA GTD), 12/15/2033 | 1,064,480 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Lancaster, PA Higher Education Authority, College Revenue Bonds, 5.00% (Franklin & Marshall College), 4/15/2019 | $1,091,480 |
| 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 | 999,990 |
| 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 | 512,400 |
| 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 | 2,391,840 |
| 2,200,000 | | Lycoming County PA Authority, Revenue Bonds (Series A), 5.75% (Susquehanna Health System)/(Original Issue Yield: 5.90%), 7/1/2039 | 2,281,554 |
| 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 | 2,116,200 |
| 1,100,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2028 | 1,128,985 |
| 400,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2029 | 409,164 |
| 1,000,000 | | New Wilmington, PA Municipal Authority, Revenue Bonds (Series 2007GG4), 5.13% (Westminster College)/(Radian Asset Assurance, Inc. INS), 5/1/2033 | 1,003,850 |
| 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 | 1,533,855 |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2012A), 5.00% (Amtrak), 11/1/2041 | 1,025,410 |
| 700,000 | | Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human Services, Inc.)/(Original Issue
Yield: 5.67%), 6/1/2028 | 699,937 |
| 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 | 1,000,590 |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds (Series 2004A), 4.70% TOBs (Waste Management, Inc.), Mandatory Tender 11/1/2014 | 1,024,650 |
| 1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds, Project A, 5.10% (Waste Management, Inc.), 10/1/2027 | 1,036,360 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009B), 5.00% (Aqua Pennsylvania, Inc. ), 11/15/2040 | 2,104,280 |
| 2,000,000 | | Pennsylvania EDFA, Water Facility Revenue Bonds (Series 2009), 6.20% (Pennsylvania American Water Co.), 4/1/2039 | 2,244,100 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,770,000 | | Pennsylvania HFA, SFM Revenue Bonds (Series 114C), 3.70%, 10/1/2042 | $1,546,538 |
| 1,500,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2009), 5.00%, 6/15/2022 | 1,689,555 |
| 1,000,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2010), 5.00%, 6/15/2018 | 1,170,150 |
| 1,020,000 | | Pennsylvania State Higher Education Facilities Authority, 5.13% (Gwynedd-Mercy College)/(Radian Asset Assurance, Inc. INS), 5/1/2032 | 1,030,781 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, College Revenue Bonds (Series 2007), 5.00% (Bryn Mawr College)/(AMBAC INS), 12/1/2037 | 1,066,380 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (First Series of 2012), 5.00% (Temple University), 4/1/2035 | 2,115,760 |
| 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 | 1,010,300 |
| 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 | 1,186,749 |
| 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 | 2,079,200 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009), 5.00% (Carnegie Mellon University), 8/1/2021 | 1,712,985 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009A), 5.25% (University of Pennsylvania Health System), 8/15/2022 | 1,143,770 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 200B), 5.50% (University of Pennsylvania Health System)/(Original Issue Yield: 5.65%), 8/15/2018 | 2,367,480 |
| 1,100,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2010), 5.00% (Thomas Jefferson University), 3/1/2040 | 1,146,893 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012), 5.00% (LaSalle University), 5/1/2042 | 1,005,520 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012A), 5.00% (University of Pennsylvania Health System), 8/15/2042 | 1,561,920 |
| 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 | 1,188,180 |
| 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 | 1,313,538 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $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 | $3,177,468 |
| 340,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Widener University), 7/15/2039 | 340,609 |
| 410,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, 5.00% (Widener University)/(United States Treasury PRF 7/15/2015@100), 7/15/2039 | 437,089 |
| 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 | 1,929,740 |
| 5,740,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2006A), 5.00% (AMBAC INS), 12/1/2026 | 6,174,174 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2011E), 5.00%, 12/1/2030 | 1,079,220 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2009B), 5.13% (Original Issue
Yield: 5.30%), 12/1/2040 | 2,071,880 |
| 1,430,000 | | Pennsylvania State Turnpike Commission, Variable Rate Turnpike Revenue Bonds (Series 2013B), 1.30%, 12/1/2020 | 1,457,728 |
| 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 | 2,632,223 |
| 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 | 2,286,840 |
| 1,500,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2029 | 1,585,635 |
| 3,000,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2035 | 3,158,160 |
| 1,600,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.63% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 1,522,640 |
| 2,000,000 | | Philadelphia, PA Airport System, Airport Revenue Refunding Bonds (Series 2010D), 5.25%, 6/15/2028 | 2,125,240 |
| 1,210,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.63% (New Foundations Charter School), 12/15/2041 | 1,237,128 |
| 2,350,000 | | Philadelphia, PA Gas Works, Revenue Bonds (Seventh Series 1998 General Ordinance), 5.00% (AMBAC INS), 10/1/2037 | 2,372,184 |
| 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 | 2,181,840 |
| 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 | 1,439,523 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,250,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.50% (Beech Student Housing Complex), 7/1/2019 | $1,256,350 |
| 1,000,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.63% (Beech Student Housing Complex), 7/1/2023 | 1,002,600 |
| 3,000,000 | | Philadelphia, PA School District, UT GO Bonds (Series 2008E), 6.00% (Original Issue Yield: 6.30%), 9/1/2038 | 3,254,280 |
| 3,000,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds (Series 2012), 5.00%, 11/1/2028 | 3,315,120 |
| 750,000 | | Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2009A), 5.25% (Original Issue
Yield: 5.33%), 1/1/2036 | 797,303 |
| 3,000,000 | | Philadelphia, PA, UT GO Bonds (Series 2008B), 7.13% (United States Treasury PRF 7/15/2016 @ 100)/(Assured Guaranty Corp. INS)/(Original Issue Yield: 7.25%), 7/15/2038 | 3,480,990 |
| 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 | 3,288,210 |
| 915,000 | | Pittsburgh, PA Urban Redevelopment Authority, Revenue Bonds (Series 2006C), 4.80% (GNMA COL), 4/1/2028 | 929,420 |
| 1,035,000 | | Pittsburgh, PA Urban Redevelopment Authority, Tax Allocation, 4.50% (Center Triangle), 5/1/2019 | 1,122,012 |
| 3,000,000 | | Pittsburgh, PA Water & Sewer Authority, Water and Sewer System Revenue Bonds (Series 2008 D-1), 5.00% (Assured Guaranty Municipal Corp. INS), 9/1/2025 | 3,210,270 |
| 3,000,000 | | Pittsburgh, PA, UT GO Bonds (Series 2012B), 5.00%, 9/1/2026 | 3,359,100 |
| 2,165,000 | | Radnor Township, PA, UT GO Bonds (Series 2004AA), 5.13% (United States Treasury PRF 7/15/2014@100), 7/15/2027 | 2,206,113 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,580,910 |
| 1,000,000 | | Saxonburg, PA Area Authority, Sewer & Water Revenue Bonds, 5.00% (Assured Guaranty Corp. INS), 3/1/2030 | 1,052,030 |
| 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 | 1,046,710 |
| 1,295,000 | | Southcentral PA, General Authority, Hospital Revenue Bonds, 5.00% (Hanover Hospital, Inc.)/(Radian Asset Assurance, Inc. INS), 12/1/2029 | 1,301,825 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2025 | 1,095,540 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2028 | 1,075,440 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Revenue Refunding Bonds (Series 2010), 5.00%, 3/1/2018 | 1,152,830 |
| 500,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004A), 5.00% (CHE Trinity Healthcare Credit Group)/(Original Issue Yield: 5.15%), 11/15/2021 | 514,360 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.38% (CHE Trinity Healthcare Credit Group)/(United States Treasury PRF 11/15/2014@100)/(Original Issue
Yield: 5.42%), 11/15/2034 | $1,037,230 |
| 1,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2004B), 5.50% (CHE Trinity Healthcare Credit Group)/(United States Treasury PRF 11/15/2014@100), 11/15/2024 | 1,038,120 |
| 2,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2012A), 5.00% (CHE Trinity Healthcare Credit Group), 11/15/2026 | 2,207,540 |
| 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 | 2,131,260 |
| 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 | 2,131,260 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority, University Revenue Bonds (Series 2012A), 5.00% (Bucknell University), 4/1/2042 | 1,070,650 |
| 1,250,000 | | Union County, PA Hospital Authority, Revenue Bonds, 5.25% (Evangelical Community Hospital)/(Radian Asset Assurance, Inc. INS), 8/1/2024 | 1,255,900 |
| 400,000 | | Washington County, PA Authority, Lease Revenue Bonds, 7.88% (Escrowed In Treasuries COL), 12/15/2018 | 527,416 |
| 310,000 | | West View, PA Municipal Authority, SO Bonds, 9.50% (Escrowed In Treasuries COL), 11/15/2014 | 327,028 |
| | | TOTAL | 217,525,147 |
| | | Puerto Rico—1.6% | |
| 1,750,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.50%, 7/1/2039 | 1,348,900 |
| 2,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2012A), 5.00%, 7/1/2029 | 1,380,800 |
| 1,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 755,530 |
| | | TOTAL | 3,485,230 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $215,699,221) | 221,010,377 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPAL—0.3%1 | |
| | | Pennsylvania—0.3% | |
| $650,000 | | Luzerne County, PA, (Series A of 2006) Weekly VRDNs (Assured Guaranty Municipal Corp. INS)/(JPMorgan Chase Bank, N.A. LIQ), 0.650%, 3/7/2014
(AT AMORTIZED COST) | $650,000 |
| | | TOTAL INVESTMENTS—98.8%
(IDENTIFIED COST $216,349,221)2 | 221,660,377 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.2%3 | 2,748,902 |
| | | TOTAL NET ASSETS—100% | $224,409,279 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 5.0% 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 $216,325,307. |
| 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 February 28, 2014.
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 February 28, 2014, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
Semi-Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| AMT | —Alternative Minimum Tax |
| CHE | —Catholic Health East |
| COL | —Collateralized |
| EDFA | —Economic Development Finance Authority |
| FGIC | —Financial Guaranty Insurance Company |
| GNMA | —Government National Mortgage Association |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HDA | —Hospital Development Authority |
| HEFA | —Health and Education Facilities Authority |
| HFA | —Housing Finance Authority |
| IDA | —Industrial Development Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| PRF | —Pre-refunded |
| SFM | —Single Family Mortgage |
| SO | —Special Obligation |
| TOBs | —Tender Option Bonds |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements.
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value,
Beginning of Period | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 | $10.70 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.20 | 0.39 | 0.40 | 0.44 | 0.43 | 0.47 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.40 | (0.87) | 0.52 | (0.25) | 0.55 | (0.34) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.60 | (0.48) | 0.92 | 0.19 | 0.98 | 0.13 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.20) | (0.38) | (0.40) | (0.43) | (0.43) | (0.46) |
| Net Asset Value, End of Period | $10.74 | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
| Total Return1 | 5.91% | (4.41)% | 8.80% | 1.92% | 9.60% | 1.46% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.75%2 | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 3.69%2 | 3.50% | 3.63% | 4.04% | 4.04% | 4.65% |
| Expense waiver/reimbursement3 | 0.13%2 | 0.10% | 0.10% | 0.11% | 0.09% | 0.10% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $221,264 | $231,890 | $275,974 | $238,538 | $270,219 | $276,442 |
| Portfolio turnover | 1% | 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 | Computed on an annualized basis. |
| 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
Semi-Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 2010 | 2009 |
| Net Asset Value, Beginning of Period | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 | $10.69 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.31 | 0.32 | 0.331 | 0.35 | 0.39 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.40 | (0.87) | 0.52 | (0.22) | 0.54 | (0.33) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.55 | (0.56) | 0.84 | 0.11 | 0.89 | 0.06 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.15) | (0.30) | (0.32) | (0.35) | (0.34) | (0.38) |
| Net Asset Value, End of Period | $10.74 | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
| Total Return2 | 5.40% | (5.15)% | 7.96% | 1.13% | 8.76% | 0.77% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.52%3 | 1.52% | 1.52% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.92%3 | 2.73% | 2.87% | 3.26% | 3.27% | 3.90% |
| Expense waiver/reimbursement4 | 0.11%3 | 0.08% | 0.08% | 0.09% | 0.07% | 0.08% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $3,145 | $3,824 | $5,137 | $7,401 | $16,071 | $20,671 |
| Portfolio turnover | 1% | 7% | 15% | 8% | 12% | 13% |
| 1 | Per share number has 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 | Computed on an annualized basis. |
| 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
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2014 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $216,349,221) | | $221,660,377 |
| Cash | | 11,536 |
| Income receivable | | 2,958,551 |
| Receivable for shares sold | | 128,200 |
| Receivable for investments sold | | 35,000 |
| Prepaid expenses | | 12,939 |
| TOTAL ASSETS | | 224,806,603 |
| Liabilities: | | |
| Payable for shares redeemed | $283,376 | |
| Payable for shareholder services fee (Note 5) | 43,575 | |
| Payable for portfolio accounting fees | 37,448 | |
| Payable for transfer agent fee | 20,985 | |
| Payable for distribution services fee (Note 5) | 1,807 | |
| Payable for Directors'/Trustees' fees (Note 5) | 35 | |
| Accrued expenses (Note 5) | 10,098 | |
| TOTAL LIABILITIES | | 397,324 |
| Net assets for 20,903,385 shares outstanding | | $224,409,279 |
| Net Assets Consist of: | | |
| Paid-in capital | | $237,641,743 |
| Net unrealized appreciation of investments | | 5,311,156 |
| Accumulated net realized loss on investments | | (18,523,377) |
| Distributions in excess of net investment income | | (20,243) |
| TOTAL NET ASSETS | | $224,409,279 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($221,264,364 ÷ 20,610,595 shares outstanding), no par value, unlimited shares authorized | | $10.74 |
| Offering price per share (100/95.50 of $10.74) | | $11.25 |
| Redemption proceeds per share | | $10.74 |
| Class B Shares: | | |
| Net asset value per share ($3,144,915 ÷ 292,790 shares outstanding), no par value, unlimited shares authorized | | $10.74 |
| Offering price per share | | $10.74 |
| Redemption proceeds per share (94.50/100 of $10.74) | | $10.15 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2014 (unaudited)
| Investment Income: | | | |
| Interest | | | $5,038,657 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $453,033 | |
| Administrative fee (Note 5) | | 88,455 | |
| Custodian fees | | 8,363 | |
| Transfer agent fees | | 63,921 | |
| Directors'/Trustees' fees (Note 5) | | 1,291 | |
| Auditing fees | | 12,561 | |
| Legal fees | | 6,148 | |
| Distribution services fee (Note 5) | | 12,618 | |
| Shareholder services fee (Note 5) | | 282,387 | |
| Portfolio accounting fees | | 44,728 | |
| Share registration costs | | 16,917 | |
| Printing and postage | | 17,129 | |
| Insurance premiums (Note 5) | | 2,234 | |
| Miscellaneous (Note 5) | | 1,692 | |
| TOTAL EXPENSES | | 1,011,477 | |
| Waiver and Reimbursement (Note 5): | | | |
| Waiver of investment adviser fee | $(121,978) | | |
| Reimbursement of shareholder services fee | (21,557) | | |
| TOTAL WAIVER AND REIMBURSEMENT | | (143,535) | |
| Net expenses | | | 867,942 |
| Net investment income | | | 4,170,715 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized loss on investments | | | (315,654) |
| Net change in unrealized appreciation (depreciation) of investments | | | 9,059,374 |
| Net realized and unrealized gain on investments | | | 8,743,720 |
| Change in net assets resulting from operations | | | $12,914,435 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended
8/31/2013 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $4,170,715 | $9,540,979 |
| Net realized gain (loss) on investments and futures contracts | (315,654) | 612,605 |
| Net change in unrealized appreciation/depreciation of investments | 9,059,374 | (21,511,632) |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 12,914,435 | (11,358,048) |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (4,162,304) | (9,266,803) |
| Class B Shares | (49,287) | (127,508) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (4,211,591) | (9,394,311) |
| Share Transactions: | | |
| Proceeds from sale of shares | 10,934,896 | 26,708,289 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,873,016 | 6,351,162 |
| Cost of shares redeemed | (33,815,926) | (57,703,448) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (20,008,014) | (24,643,997) |
| Change in net assets | (11,305,170) | (45,396,356) |
| Net Assets: | | |
| Beginning of period | 235,714,449 | 281,110,805 |
| End of period (including (distributions in excess of) undistributed net investment income of $(20,243) and $20,633, respectively) | $224,409,279 | $235,714,449 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2014 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of 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 Commonwealth 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. |
| ■ | 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. |
Semi-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 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
Semi-Annual Shareholder Report
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 six months ended February 28, 2014, 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 February 28, 2014, 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.
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
Semi-Annual Shareholder Report
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 February 28, 2014, the Fund had no outstanding futures contracts.
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:
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,034,409 | $10,867,008 | 2,337,819 | $26,164,523 |
| Shares issued to shareholders in payment of distributions declared | 267,551 | 2,825,254 | 565,355 | 6,228,032 |
| Shares redeemed | (3,128,514) | (32,890,984) | (5,107,931) | (56,079,136) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (1,826,554) | $(19,198,722) | (2,204,757) | $(23,686,581) |
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 6,422 | $67,888 | 48,697 | $543,766 |
| Shares issued to shareholders in payment of distributions declared | 4,521 | 47,762 | 11,165 | 123,130 |
| Shares redeemed | (88,003) | (924,942) | (148,489) | (1,624,312) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (77,060) | $(809,292) | (88,627) | $(957,416) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (1,903,614) | $(20,008,014) | (2,293,384) | $(24,643,997) |
4. FEDERAL TAX INFORMATION
At February 28, 2014, the cost of investments for federal tax purposes was $216,325,307. The net unrealized appreciation of investments for federal tax purposes was $5,335,070. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $8,946,098 and net unrealized depreciation from investments for those securities having an excess of cost over value of $3,611,028.
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
Semi-Annual Shareholder Report
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 |
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 six months ended February 28, 2014 the Adviser voluntarily waived $121,978 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2014, the fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-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 six months ended February 28, 2014, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred |
| Class B Shares | $12,618 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2014, FSC retained $5,964 of fees paid by the Fund. For the six months ended February 28, 2014, 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 six months ended February 28, 2014, FSC retained $5,954 in sales charges from the sale of Class A Shares. FSC also retained $2,916 of CDSC relating to redemptions of Class A shares and $470 of Class B 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 six months ended February 28, 2014, Service Fees for the Fund were as follows:
| | Service Fees
Incurred | Service Fees
Reimbursed |
| Class A Shares | $278,181 | $(21,557) |
| Class B Shares | 4,206 | — |
| TOTAL | $282,387 | $(21,557) |
Semi-Annual Shareholder Report
For the six months ended February 28, 2014, FSSC received $19,732 of Service Fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2014, 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 $23,100,000 and $21,700,000, 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 six months ended February 28, 2014 were as follows:
| Purchases | $1,528,295 |
| Sales | $21,145,716 |
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 February 28, 2014, 32.1% of the securities in the Portfolio of Investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The largest percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency was 6.3% of total investments.
Semi-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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, the program was not utilized.
Semi-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 September 1, 2013 to February 28, 2014.
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.
Semi-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
9/1/2013 | Ending
Account Value
2/28/2014 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,059.10 | $3.83 |
| Class B Shares | $1,000 | $1,054.00 | $7.74 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.08 | $3.76 |
| Class B Shares | $1,000 | $1,017.26 | $7.60 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.75% |
| Class B Shares | 1.52% |
Semi-Annual Shareholder Report
Shareholder Meeting Results (unaudited)
A Special Meeting of Shareholders of Federated Municipal Securities Income Trust (the “Trust”), of which the Fund is a portfolio, was held on October 28, 2013. On August 29, 2013, the record date for shareholders voting at the meeting, there were 109,844,139.999 total outstanding shares of the Trust.
The following item was considered by shareholders of the Trust and the results of their voting were as follows:
AGENDA ITEM
Proposal to elect certain Trustees of the Trust:1
| Name | For | Withheld |
| John T. Collins | 91,507,128.403 | 2,809,854.606 |
| Maureen Lally-Green | 92,819,244.677 | 1,497,738.332 |
| Thomas M. O'Neill | 92,644,697.917 | 1,672,285.092 |
| P. Jerome Richey | 92,746,737.657 | 1,570,245.352 |
| 1 | The following Trustees continued their terms:
John F. Donahue, J. Christopher Donahue, Maureen Lally-Green (having been previously appointed by the Board), Peter E. Madden, Charles F. Mansfield, Jr., Thomas M. O'Neill (having been previously appointed by the Board), and John S. Walsh. |
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.
Semi-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.
Semi-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.
Semi-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,
Semi-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.
Semi-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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.Federatedinvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.Federatedinvestors.com/FundInformation.
Semi-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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
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
2032304 (4/14)
Federated is a registered trademark of Federated Investors, Inc.
2014 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2014
| 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 Semi-Annual Shareholder Report for your fund covering the period from September 1, 2013 through February 28, 2014. This report includes 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
Portfolio of Investments Summary Table (unaudited)
At February 28, 2014, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Special Tax | 13.2% |
| Senior Care | 13.0% |
| Hospital | 12.3% |
| Industrial Development Bond/Pollution Control Revenue Bond | 11.8% |
| Education | 8.5% |
| Transportation | 7.3% |
| General Obligation—State | 7.0% |
| Tobacco | 5.5% |
| Electric & Gas | 5.5% |
| Water & Sewer | 4.2% |
| Derivative Contracts2,3 | 0.0% |
| Other4 | 10.1% |
| Other Assets and Liabilities—Net5 | 1.6% |
| 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 88.3% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2014 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.5% | |
| | | Alabama—2.8% | |
| $2,000,000 | | Alabama State Port Authority, Docks Facilities Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.25%), 10/1/2040 | $2,261,820 |
| 2,000,000 | | Courtland, AL IDB, Solid Waste Disposal Revenue Refunding Bonds (Series 2005B), 5.20% (International Paper Co.), 6/1/2025 | 2,019,980 |
| 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 | 527,375 |
| 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 | 1,276,395 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer Revenue Current Interest Warrants (Series 2013-A), 5.50% (Assured Guaranty Municipal Corp. INS)/(Original Issue Yield: 5.65%), 10/1/2053 | 2,015,240 |
| 2,000,000 | | Jefferson County, AL Sewer System, Subordinate Lien Sewer Revenue Current Interest Warrants (Series 2013-D), 6.50% (Original Issue Yield: 6.85%), 10/1/2053 | 2,045,340 |
| 835,000 | | Selma, AL IDB, Gulf Opportunity Zone Bonds (Series 2010A), 5.80% (International Paper Co.), 5/1/2034 | 882,303 |
| 2,100,000 | | Sylacauga, AL Health Care Authority, Revenue Bonds (Series 2005A), 6.00% (Coosa Valley Medical Center)/(Original Issue Yield: 6.05%), 8/1/2035 | 2,014,446 |
| | | TOTAL | 13,042,899 |
| | | 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 | 450,100 |
| 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 | 2,135,700 |
| | | TOTAL | 2,585,800 |
| | | Arizona—2.1% | |
| 4,000,000 | | Maricopa County, AZ Pollution Control Corp., PCRBs (Series 2003A), 6.25% (Public Service Co., NM), 1/1/2038 | 4,242,720 |
| 1,500,000 | | Maricopa County, AZ Pollution Control Corp., PCRBs (Series 2009A), 7.25% (El Paso Electric Co.), 2/1/2040 | 1,677,525 |
| 1,385,000 | | Pima County, AZ IDA, PCRBs (Series 2009A), 4.95% (Tucson Electric Power Co.), 10/1/2020 | 1,534,054 |
| 2,000,000 | | Pima County, AZ IDA, Revenue Bonds (Series 2008B), 5.75% (Tucson Electric Power Co.), 9/1/2029 | 2,043,520 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Arizona—continued | |
| $430,000 | 3,4 | Verrado Community Facilities District No. 1, AZ, District GO Refunding Bonds (Series 2013A), 6.00%, 7/15/2027 | $458,070 |
| | | TOTAL | 9,955,889 |
| | | California—8.5% | |
| 2,500,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2002B), 5.00% (Waste Management, Inc.), 7/1/2027 | 2,584,175 |
| 1,000,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025 | 1,039,090 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 5.00%, 9/1/2041 | 2,632,575 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 5.25%, 10/1/2029 | 2,803,925 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 6.00% (Original Issue Yield: 6.10%), 4/1/2038 | 2,908,025 |
| 1,130,000 | 3,4 | California Statewide CDA MFH, Revenue Bonds (Series 1999X), 6.65% TOBs (Magnolia City Lights Project), Mandatory Tender 7/1/2029 | 1,129,944 |
| 2,000,000 | | Chula Vista, CA, COPs, 5.50% (Original Issue Yield: 5.88%), 3/1/2033 | 2,123,720 |
| 500,000 | | Corona-Norco USD Community Facilities District No. 98-1, CA, 2013 Special Tax Refunding Bonds, 5.00%, 9/1/2032 | 523,500 |
| 3,000,000 | | Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Refunding Revenue Bonds (Series 2013A), 6.00% (Original Issue Yield: 6.40%), 1/15/2053 | 3,143,250 |
| 500,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2013A), 5.00% (California State), 6/1/2029 | 534,345 |
| 530,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.75%, 6/1/2047 | 433,916 |
| 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 | 4,494,300 |
| 95,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2028 | 99,412 |
| 365,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2029 | 380,425 |
| 180,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2030 | 186,286 |
| 2,500,000 | | M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), 7.00%, 11/1/2034 | 3,286,750 |
| 500,000 | | Poway, CA USDT, Special Tax Bonds (Series 2012), 5.00% (Community Facilities District No. 6 (4S Ranch)), 9/1/2033 | 519,660 |
| 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 | 2,041,820 |
| 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 | 1,616,220 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $349,000 | 1 | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042 | $166,407 |
| 1,250,000 | | San Buenaventura, CA, Revenue Bonds (Series 2011), 8.00% (Community Memorial Health System), 12/1/2031 | 1,470,525 |
| 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 | 1,148,200 |
| 2,000,000 | | San Jose, CA Airport, Airport Revenue Bonds (Series 2011A-1), 6.25%, 3/1/2034 | 2,268,960 |
| 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 | 1,292,287 |
| 990,000 | | 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 | 963,042 |
| | | TOTAL | 39,790,759 |
| | | Colorado—4.7% | |
| 2,000,000 | | Beacon Point, CO Metropolitan District, Revenue Bonds (Series 2005A), 6.25% (Original Issue Yield: 6.375%), 12/1/2035 | 1,941,960 |
| 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 | 587,762 |
| 2,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 5.625% (Original Issue Yield: 5.79%), 12/1/2038 | 2,119,200 |
| 1,250,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 6.00%, 12/1/2038 | 1,372,837 |
| 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 | 662,226 |
| 795,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.75% (Northeast Academy Charter School), 5/15/2037 | 549,027 |
| 1,000,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Monument Academy Charter School), 10/1/2037 | 1,002,170 |
| 800,000 | | Colorado Health Facilities Authority, Health & Residential Care Facilities Revenue Bonds (Series 2007), 5.30% (Volunteers of America Care Facilities), 7/1/2037 | 658,888 |
| 1,100,000 | | Colorado Health Facilities Authority, Revenue Bonds (Series 2010A), 6.25% (Total Long Term Care National Obligated Group), 11/15/2040 | 1,161,545 |
| 2,000,000 | 2 | Colorado Springs Urban Renewal Authority, Tax Increment Revenue Bonds (Series 2007), 7.00% (University Village Colorado), 12/1/2029 | 1,295,340 |
| 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 | 1,784,167 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $450,000 | | Eagle County, CO Air Terminal Corp., Airport Terminal Project Revenue Improvement Bonds (Series 2006B), 5.25%, 5/1/2020 | $462,240 |
| 750,000 | | Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds (Series 2011A), 6.00%, 5/1/2027 | 797,940 |
| 2,235,000 | | Northwest, CO Metropolitan District No. 3, LT GO Bonds (Series 2005), 6.25%, 12/1/2035 | 2,018,920 |
| 2,000,000 | | Public Authority for Colorado Energy, Natural Gas Purchase Revenue Bonds (Series 2008), 6.25% (Merrill Lynch & Co., Inc.)/(Original Issue Yield: 6.63%), 11/15/2028 | 2,354,540 |
| 1,030,000 | | Tallyn's Reach Metropolitan District No. 3, CO, LT GO Refunding & Improvement Bonds (Series 2013), 5.125%, 11/1/2038 | 969,055 |
| 2,000,000 | | Three Springs Metropolitan District No. 3, CO, Property Tax Supported Revenue Bonds (Series 2010), 7.75%, 12/1/2039 | 2,082,620 |
| | | TOTAL | 21,820,437 |
| | | Connecticut—0.2% | |
| 1,000,000 | | Connecticut Development Authority, Airport Facility Revenue Bonds, 7.95% (Bombardier, Inc.), 4/1/2026 | 1,041,040 |
| | | Delaware—0.4% | |
| 1,905,000 | | Delaware EDA, Gas Facilities Refunding Bonds, 5.40% (Delmarva Power and Light Co.), 2/1/2031 | 2,050,047 |
| | | 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 | 1,801,800 |
| 1,030,000 | | District of Columbia, Revenue Bonds (Series 2013A), 6.00% (KIPP DC), 7/1/2043 | 1,095,766 |
| | | TOTAL | 2,897,566 |
| | | Florida—6.3% | |
| 3,000,000 | | Alachua County, FL, IDRB (Series 2007A), 5.875% (North Florida Retirement Village, Inc.), 11/15/2042 | 2,705,220 |
| 285,000 | 1,2 | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A), 5.35%, 5/1/2036 | 170,971 |
| 1,095,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A-2), 5.35%, 5/1/2036 | 1,031,129 |
| 104,232 | 1 | Capital Trust Agency, FL, Housing Revenue Notes, 5.95% (Atlantic Housing Foundation Properties), 1/15/2039 | 5,216 |
| 3,000,000 | 3,4 | Collier County, FL IDA, Continuing Care Community Revenue Bonds (Series 2013A), 8.25% (Arlington of Naples)/(Original Issue Yield: 8.375%), 5/15/2049 | 3,019,920 |
| 755,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2005), 5.45%, 5/1/2036 | 725,925 |
| 910,000 | | Lakes by the Bay South Community Development District, FL, Special Assessment Revenue Bonds (Series 2004A), 6.25% (United States Treasury PRF 5/1/2014@101)/(Original Issue Yield: 6.277%), 5/1/2034 | 920,028 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $2,000,000 | | Lee County, FL IDA, Healthcare Facilities Refunding Revenue Bonds (Series 2012), 6.50% (Cypress Cove at Healthpark), 10/1/2047 | $2,048,120 |
| 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 | 2,040,100 |
| 2,000,000 | | Martin County, FL IDA, Industrial Development Refunding Revenue Bonds (Series 2013), 4.20% (Indiantown Cogeneration, L.P.), 12/15/2025 | 1,860,940 |
| 2,000,000 | 3,4 | Miami, FL, SO Non-Ad Valorem Revenue Refunding Bonds (Series 2012), 5.00%, 3/1/2030 | 2,052,520 |
| 1,000,000 | | Midtown Miami, FL Community Development District, Special Assessment Bonds (Series 2004A), 6.25% (Original Issue Yield: 6.30%), 5/1/2037 | 1,000,360 |
| 600,000 | | Orlando, FL Urban Community Development District, Capital Improvement Revenue Bonds, 6.25%, 5/1/2034 | 600,066 |
| 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 | 1,839,660 |
| 1,405,000 | | Pinellas County, FL Educational Facilities Authority, Revenue Bonds (Series 2011A), 7.125% (Pinellas Preparatory Academy), 9/15/2041 | 1,447,600 |
| 690,000 | | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | 700,302 |
| 310,000 | 1,2 | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1, 7.375%, 5/1/2033 | 215,605 |
| 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 | 1,078,790 |
| 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 | 190,610 |
| 10,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 1), 6.55%, 5/1/2027 | 9,923 |
| 465,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2), 6.55%, 5/1/2027 | 265,371 |
| 1,485,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2006), 5.40%, 5/1/2037 | 1,437,227 |
| 155,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 3), 6.55%, 5/1/2027 | 2 |
| 55,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-2) 0.00% (Step Coupon 5/1/2017), (Original Issue Yield: 6.61%), 5/1/2039 | 40,378 |
| 135,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-3) 0.00% (Step Coupon 5/1/2019), (Original Issue Yield: 6.61%), 5/1/2040 | 80,768 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $70,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-4) 0.00% (Step Coupon 5/1/2022), (Original Issue Yield: 6.61%), 5/1/2040 | $31,006 |
| 890,000 | | Verandah East, FL Community Development District, Capital Improvement Revenue Bonds (Series 2006A), 5.40%, 5/1/2037 | 646,505 |
| 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 | 910,220 |
| 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 | 1,669,902 |
| 450,000 | | Winter Garden Village at Fowler Groves Community Development District, FL, Special Assessment Bonds (Series 2006), 5.65%, 5/1/2037 | 455,184 |
| | | TOTAL | 29,199,568 |
| | | Georgia—1.9% | |
| 4,000,000 | | Atlanta, GA Water & Wastewater, Revenue Bonds (Series 2009A), 6.25% (Original Issue Yield: 6.38%), 11/1/2039 | 4,587,680 |
| 770,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2005B), 5.60% (Eastside Tax Allocation District)/(Original Issue Yield: 5.65%), 1/1/2030 | 804,827 |
| 1,600,000 | | Augusta, GA HFA, MFH Refunding Revenue Bonds, 6.55% (Forest Brook Apartments), 12/1/2030 | 1,599,920 |
| 750,000 | | Fulton County, GA Residential Care Facilities, Revenue Bonds (Series 2004A), 6.00% (Canterbury Court), 2/15/2022 | 750,413 |
| 1,000,000 | | Medical Center Hospital Authority, GA, Revenue Refunding Bonds (Series 2007), 5.25% (Spring Harbor at Green Island), 7/1/2037 | 929,450 |
| | | TOTAL | 8,672,290 |
| | | Guam—0.9% | |
| 500,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.75% (Original Issue Yield: 6.00%), 12/1/2034 | 529,275 |
| 1,000,000 | | Guam Government, GO Bonds (Series 2009A), 7.00% (Original Issue Yield: 7.18%), 11/15/2039 | 1,057,540 |
| 1,000,000 | | Guam Government, UT GO Bonds (Series 2007A), 5.25% (Original Issue Yield: 5.45%), 11/15/2037 | 917,480 |
| 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 | 1,084,040 |
| 500,000 | | Guam Power Authority, Revenue Bonds (Series 2012A), 5.00%, 10/1/2034 | 495,850 |
| | | TOTAL | 4,084,185 |
| | | 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 | 3,989,363 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Hawaii—continued | |
| $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 | $1,124,160 |
| | | TOTAL | 5,113,523 |
| | | Idaho—0.5% | |
| 2,500,000 | | Idaho Health Facilities Authority, Revenue Bonds (Series 2013A), 8.125% (Terraces of Boise)/(Original Issue Yield: 8.25%), 10/1/2049 | 2,521,750 |
| | | Illinois—6.5% | |
| 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 | 1,868,982 |
| 2,500,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011C), 6.50%, 1/1/2041 | 2,870,700 |
| 415,000 | | DuPage County, IL, Special Tax Bonds (Series 2006), 5.625% (Naperville Campus LLC), 3/1/2036 | 412,203 |
| 1,500,000 | | Illinois Finance Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2011A), 7.125% (Uno Charter School Network, Inc.), 10/1/2041 | 1,675,380 |
| 1,000,000 | | Illinois Finance Authority, MFH Revenue Bonds (Series 2007), 6.10% (Dekalb Supportive Living Facility), 12/1/2041 | 857,940 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 5.625% (Friendship Village of Schaumburg)/(Original Issue Yield: 5.70%), 2/15/2037 | 888,190 |
| 1,250,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.00% (Landing at Plymouth Place)/(Original Issue Yield: 6.04%), 5/15/2037 | 1,132,587 |
| 1,500,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.25% (Smith Village), 11/15/2035 | 1,447,230 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2010), 7.25% (Friendship Village of Schaumburg)/(Original Issue Yield: 7.375%), 2/15/2045 | 1,020,990 |
| 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 | 1,821,520 |
| 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 | 1,030,150 |
| 2,250,000 | | Illinois State, UT GO Bonds (Series 2006), 5.00%, 1/1/2027 | 2,342,700 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series 2013A), 5.00%, 4/1/2035 | 2,049,840 |
| 2,025,000 | | Illinois State, UT GO Bonds (Series June 2013), 5.50% (Original Issue Yield: 5.65%), 7/1/2038 | 2,150,935 |
| 1,000,000 | | Illinois State, UT GO Bonds (Series of February 2014), 5.00% (Original Issue Yield: 5.04%), 2/1/2039 | 1,017,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $1,410,000 | | Illinois State, UT GO Refunding Bonds (Series May 2012), 5.00%, 8/1/2025 | $1,535,405 |
| 1,000,000 | | Quad Cities, IL Regional EDA, MFH Revenue Bonds (Series 2006), 6.00% (Heritage Woods of Moline SLF), 12/1/2041 | 856,600 |
| 1,600,000 | | Railsplitter Tobacco Settlement Authority, IL, Tobacco Settlement Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.10%), 6/1/2028 | 1,828,992 |
| 2,000,000 | | Southwestern, IL Development Authority, Health Facility Revenue Bonds (Series 2013), 7.625% (Memorial Group, Inc.)/(Original Issue Yield: 7.95%), 11/1/2048 | 2,072,280 |
| 1,500,000 | | Will-Kankakee, IL Regional Development Authority, MFH Revenue Bonds (Series 2007), 7.00% (Senior Estates Supportive Living), 12/1/2042 | 1,477,875 |
| | | TOTAL | 30,358,497 |
| | | Indiana—2.7% | |
| 1,250,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.20%), 11/15/2042 | 1,275,138 |
| 1,000,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.30%), 11/15/2047 | 1,017,280 |
| 1,305,000 | | Indiana State Finance Authority Environmental Revenue, Revenue Refunding Bonds (Series 2010), 6.00% (United States Steel Corp.), 12/1/2026 | 1,327,289 |
| 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 | 4,027,320 |
| 1,000,000 | | Jasper County, IN, PCR Refunding Bonds (Series 2003), 5.70% (Northern Indiana Public Service Company)/(AMBAC Financial Group, Inc. INS), 7/1/2017 | 1,119,680 |
| 2,000,000 | | Rockport, IN, Revenue Refunding Bonds (Series 2012-A), 7.00% (AK Steel Corp.), 6/1/2028 | 1,764,900 |
| 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 | 123,519 |
| 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 | 1,879,040 |
| | | TOTAL | 12,534,166 |
| | | Iowa—1.1% | |
| 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 | 2,900,160 |
| 1,000,000 | | Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.50% (Iowa Fertilizer Co.), 12/1/2022 | 997,160 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Iowa—continued | |
| $1,715,000 | 1,2 | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2007A), 5.50% (Deerfield Retirement Community, Inc.), 11/15/2037 | $990,241 |
| | | TOTAL | 4,887,561 |
| | | Kansas—1.6% | |
| 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 | 2,204,960 |
| 280,000 | | Manhattan, KS IDRB, Industrial Revenue Bonds (Series 1999), 7.00% (Farrar Corp. Project), 8/1/2014 | 279,983 |
| 1,000,000 | | Manhattan, KS IDRB, Industrial Revenue Bonds (Series 2007), 5.50% (Farrar Corp. Project)/(Original Issue Yield: 5.55%), 8/1/2021 | 924,030 |
| 2,015,000 | | Norwich, KS, Industrial Revenue Bonds (Series 2006), 5.90% (Farrar Corp. Project), 8/1/2021 | 1,908,266 |
| 2,000,000 | | Olathe, KS, Senior Living Facility Revenue Bonds (Series 2006A), 6.00% (Catholic Care Campus, Inc.), 11/15/2038 | 1,989,580 |
| 45,000 | | Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1), 6.95% (GNMA Home Mortgage Program COL), 6/1/2029 | 47,565 |
| | | TOTAL | 7,354,384 |
| | | Kentucky—0.3% | |
| 1,250,000 | | Kentucky EDFA, Revenue Bonds (Series 2011A), 7.375% (Miralea)/(Original Issue Yield: 7.40%), 5/15/2046 | 1,341,475 |
| | | Louisiana—2.4% | |
| 1,000,000 | | DeSoto Parish, LA Environmental Improvement Authority, Revenue Bonds, Series A, 5.00% (International Paper Co.), 11/1/2018 | 1,021,010 |
| 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 | 1,607,415 |
| 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 | 387,397 |
| 1,000,000 | | Louisiana Public Facilities Authority, 6.50% (Ochsner Clinic Foundation)/(Original Issue Yield: 6.65%), 5/15/2037 | 1,121,950 |
| 3,000,000 | | Louisiana Public Facilities Authority, Revenue Bonds (Series 2010A), 5.00% (Entergy Gulf States Louisiana LLC), 9/1/2028 | 3,149,550 |
| 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 | 2,295,520 |
| 1,500,000 | | Tobacco Settlement Financing Corp., LA, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2013A), 5.25%, 5/15/2035 | 1,510,230 |
| | | TOTAL | 11,093,072 |
Semi-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 | $1,524,650 |
| | | Maryland—1.6% | |
| 2,000,000 | | Frederick County, MD, Tax Increment & Special Tax B LO Bonds (Series 2013B), 7.125% (Jefferson Technology Park)/(Original Issue Yield: 7.30%), 7/1/2043 | 2,086,620 |
| 1,060,000 | | Maryland State EDC., Port Facilities Refunding Revenue Bonds (Series 2010), 5.75% (CONSOL Energy, Inc.), 9/1/2025 | 1,118,141 |
| 2,385,000 | | Maryland State EDC., Revenue Bonds (Series B), 5.75% (Ports America Chesapeake, Inc.)/(Original Issue Yield: 5.875%), 6/1/2035 | 2,449,347 |
| 395,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2007A), 5.25% (King Farm Presbyterian Retirement Community), 1/1/2027 | 393,511 |
| 1,100,000 | | Maryland State Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2007A), 5.30% (King Farm Presbyterian Retirement Community)/(Original Issue Yield: 5.35%), 1/1/2037 | 1,034,484 |
| 500,000 | | Maryland State IDFA, EDRBs (Series 2005A), 6.00% (Our Lady of Good Counsel High School), 5/1/2035 | 512,725 |
| | | TOTAL | 7,594,828 |
| | | Massachusetts—0.9% | |
| 1,063,562 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011 A-1), 6.25% (Linden Ponds, Inc.), 11/15/2046 | 850,658 |
| 56,460 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011 A-2), 5.50% (Linden Ponds, Inc.), 11/15/2046 | 40,263 |
| 280,825 | 5 | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011B)(Linden Ponds, Inc.), 11/15/2056 | 1,317 |
| 2,000,000 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011I), 7.25% (Tufts Medical Center), 1/1/2032 | 2,371,080 |
| 296,578 | 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 | 2,966 |
| 593,225 | 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 | 5,932 |
| 1,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2003E), 6.75% (Jordan Hospital )/(Original Issue Yield: 7.00%), 10/1/2033 | 1,000,670 |
| | | TOTAL | 4,272,886 |
| | | Michigan—3.7% | |
| 1,000,000 | | Dearborn, MI EDC., Revenue Refunding Bonds, 7.125% (Henry Ford Village)/(Original Issue Yield: 7.25%), 11/15/2043 | 1,002,520 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2028 | 1,049,870 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2031 | 1,027,620 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $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 | $1,452,930 |
| 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 | 3,922,000 |
| 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 | 981,610 |
| 2,500,000 | | Kent Hospital Finance Authority, MI, Revenue Bonds (Series 2005A), 6.25% (Metropolitan Hospital), 7/1/2040 | 2,611,000 |
| 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 | 4,105,600 |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035 | 1,121,010 |
| | | TOTAL | 17,274,160 |
| | | Minnesota—2.8% | |
| 2,000,000 | | Baytown Township, MN, Lease Revenue Bonds (Series 2008A), 7.00% (St. Croix Preparatory Academy)/(Original Issue Yield: 7.05%), 8/1/2038 | 2,069,540 |
| 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 | 2,037,700 |
| 1,500,000 | | Forest Lake, MN, Charter School Lease Revenue Bonds (Series 2014A), 5.75% (Lakes International Language Academy), 8/1/2044 | 1,510,440 |
| 1,000,000 | | Pine City, MN Lease Revenue, Lease Revenue Bonds (Series 2006A), 6.25% (Lakes International Language Academy), 5/1/2035 | 1,030,440 |
| 500,000 | | Ramsey, MN, Lease Revenue Bonds (Series 2004A), 6.75% (Pact Charter School)/(United States Treasury PRF 6/1/2014 @ 102), 12/1/2033 | 518,275 |
| 500,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2026 | 498,160 |
| 930,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2029 | 916,487 |
| 1,740,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.00% (Bluffview Montessori School Project), 11/1/2027 | 1,709,620 |
| 2,920,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.15% (Bluffview Montessori School Project), 11/1/2037 | 2,783,490 |
| | | TOTAL | 13,074,152 |
| | | 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 | 975,457 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Missouri—1.2% | |
| $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 | $1,118,710 |
| 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 | 3,351,180 |
| 1,000,000 | | St. Joseph, MO IDA, Healthcare Revenue Bonds, 7.00% (Living Community St. Joseph Project), 8/15/2032 | 1,000,730 |
| | | TOTAL | 5,470,620 |
| | | Nebraska—0.6% | |
| 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 | 2,588,425 |
| | | Nevada—1.4% | |
| 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 | 873,420 |
| 4,000,000 | | Clark County, NV School District, LT GO Building Bonds (Series 2008A), 5.00%, 6/15/2025 | 4,487,400 |
| 450,000 | | Clark County, NV, Special Assessment Revenue Bonds (Series 2005), 5.00% (Summerlin-Mesa SID No. 151), 8/1/2025 | 390,447 |
| 865,000 | | North Las Vegas, NV SID No. 60, Subordinate LT Obligation Refunding Bonds (Series 2006B), 5.10% (Aliante SID No. 60), 12/1/2022 | 857,111 |
| | | TOTAL | 6,608,378 |
| | | New Jersey—2.2% | |
| 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 | 1,447,526 |
| 1,550,000 | | New Jersey EDA, Revenue Bonds (Series 1997A), 5.875% (Host Marriott Corp.), 12/1/2027 | 1,503,996 |
| 1,500,000 | | New Jersey EDA, Special Facilities Revenue Bonds (Series 2003), 5.50% (Continental Airlines, Inc.), 6/1/2033 | 1,448,070 |
| 2,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 1999), 5.25% (Continental Airlines, Inc.), 9/15/2029 | 2,436,950 |
| 1,125,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 2000B), 5.625% (Continental Airlines, Inc.), 11/15/2030 | 1,124,899 |
| 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 | 974,030 |
| 1,200,000 | | New Jersey State Transportation Trust Fund Authority, Transportation System Bonds (Series 2011A), 6.00% (New Jersey State), 6/15/2035 | 1,404,828 |
| | | TOTAL | 10,340,299 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New Mexico—0.6% | |
| $2,125,000 | | Dona Ana County, NM, MFH Revenue Bonds (Series 2001A), 7.00% (Montana Meadows Apartments), 12/1/2030 | $2,125,361 |
| 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 | 824,540 |
| | | TOTAL | 2,949,901 |
| | | New York—4.8% | |
| 1,495,000 | | Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 | 1,606,378 |
| 1,285,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 1,402,089 |
| 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 | 1,090,400 |
| 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 | 930,580 |
| 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 | 1,507,875 |
| 5,500,000 | | New York City, NY IDA, Special Facility Revenue Bonds (Series 2005), 8.00% (American Airlines, Inc.)/(Original Issue Yield: 8.095%), 8/1/2028 | 6,040,045 |
| 1,120,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.40%), 6/15/2029 | 1,087,811 |
| 1,185,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.50%, 6/15/2030 | 1,178,589 |
| 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 | 959,880 |
| 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 | 2,720,800 |
| 4,700,000 | | TSASC, Inc. NY, Tobacco Settlement Asset-Backed Bonds (Series 2006-1), 5.125% (Original Issue Yield: 5.35%), 6/1/2042 | 3,682,685 |
| | | TOTAL | 22,207,132 |
| | | North Carolina—0.9% | |
| 2,335,000 | | North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series 2009C), 5.00%, 1/1/2026 | 2,545,010 |
| 500,000 | | North Carolina Medical Care Commission, Healthcare Facilities Revenue Bonds (Series 2005A), 5.65% (Pennybyrn at Maryfield)/(Original Issue Yield: 5.85%), 10/1/2025 | 495,240 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | North Carolina—continued | |
| $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 | $1,067,730 |
| | | TOTAL | 4,107,980 |
| | | Ohio—3.8% | |
| 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 | 2,060,020 |
| 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 | 1,667,720 |
| 3,655,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series A-2), 6.50%, 6/1/2047 | 3,249,587 |
| 1,500,000 | | Hamilton County, OH, Healthcare Revenue Bonds (Series 2011A), 6.625% (Life Enriching Communities)/(Original Issue Yield: 6.75%), 1/1/2046 | 1,624,290 |
| 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 | 1,615,200 |
| 2,910,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 3,252,361 |
| 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 | 2,501,057 |
| 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 | 1,045,935 |
| 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 | 711,638 |
| | | TOTAL | 17,727,808 |
| | | Oklahoma—1.5% | |
| 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 | 976,000 |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.125% (Concordia Life Care Community), 11/15/2025 | 1,009,910 |
| 3,000,000 | | Tulsa, OK Airport Improvement Trust, Refunding Revenue Bonds (Series 2000B), 5.50% (American Airlines, Inc.), 6/1/2035 | 2,908,350 |
| 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 | 2,125,600 |
| | | TOTAL | 7,019,860 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Oregon—0.2% | |
| $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 | $898,850 |
| | | Pennsylvania—5.5% | |
| 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 | 1,130,136 |
| 865,000 | | Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | 877,802 |
| 2,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.875% (United States Steel Corp.), 5/1/2030 | 2,102,480 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,932,548 |
| 3,715,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2042 | 3,485,562 |
| 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 | 1,522,995 |
| 2,000,000 | | Chester County, PA IDA, Revenue Bonds (Series 2012A), 5.375% (Collegium Charter School)/(Original Issue Yield: 5.50%), 10/15/2042 | 1,784,940 |
| 1,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00% (Original Issue Yield: 5.05%), 12/1/2042 | 992,500 |
| 3,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | 2,762,040 |
| 900,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 856,485 |
| 1,000,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2010), 6.375% (Global Leadership Academy Charter School), 11/15/2040 | 1,012,380 |
| 1,205,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 1,232,016 |
| 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 | 1,435,213 |
| 2,000,000 | | Philadelphia, PA, GO Bonds (Series 2011), 6.50%, 8/1/2041 | 2,244,640 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,580,910 |
| 560,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035 | 553,694 |
| | | TOTAL | 25,506,341 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Puerto Rico—1.5% | |
| $1,470,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00%, 7/1/2020 | $1,212,088 |
| 3,000,000 | | Commonwealth of Puerto Rico, Public Improvement UT GO Bonds (Series 2003A), 5.00% (Original Issue Yield: 5.02%), 7/1/2033 | 2,203,740 |
| 2,500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00% (Original Issue Yield: 7.12%), 7/1/2043 | 1,837,600 |
| 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 | 1,786,750 |
| | | TOTAL | 7,040,178 |
| | | Rhode Island—1.0% | |
| 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 | 4,507,240 |
| | | South Carolina—1.3% | |
| 1,370,000 | | Lancaster County, SC, Assessment Revenue Bonds (Series 2006), 5.45% (Sun City Carolina Lakes Improvement District), 12/1/2037 | 1,300,267 |
| 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 | 732,560 |
| 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 | 640,688 |
| 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 | 423,025 |
| 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 | 847,050 |
| 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 | 2,109,240 |
| | | TOTAL | 6,052,830 |
| | | South Dakota—0.2% | |
| 800,000 | | Educational Enhancement Funding Corp., SD, Tobacco Settlement Revenue Bonds (Series 2013B), 5.00%, 6/1/2025 | 862,160 |
| | | 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 | 1,067,650 |
| 1,500,000 | | Johnson City, TN Health & Education Facilities Board, Hospital Revenue Bonds (Series 2010), 6.50% (Mountain States Health Alliance), 7/1/2038 | 1,675,200 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Tennessee—continued | |
| $2,725,000 | | Tennessee Energy Acquisition Corp., Gas Revenue Bonds (Series 2006A), 5.25% (Goldman Sachs & Co. GTD), 9/1/2023 | $3,068,650 |
| | | TOTAL | 5,811,500 |
| | | Texas—7.4% | |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2024 | 1,016,780 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2034 | 993,480 |
| 755,000 | | Bexar County, Health Facilities Development Corp., Revenue Bonds (Series 2010), 6.20% (Army Retirement Residence Foundation), 7/1/2045 | 804,928 |
| 2,000,000 | | Cass County, TX IDC., Environmental Improvement Revenue Bonds (Series 2009A), 9.50% (International Paper Co.), 3/1/2033 | 2,459,020 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.00% (Original Issue Yield: 6.13%), 1/1/2041 | 1,057,260 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.25% (Original Issue Yield: 6.30%), 1/1/2046 | 1,056,770 |
| 2,000,000 | | Clifton Higher Education Finance Corporation, TX, 6.00% (Idea Public Schools), 8/15/2043 | 2,149,300 |
| 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 | 779,933 |
| 500,000 | | Clifton Higher Education Finance Corporation, TX, Education Revenue Bonds (Series 2012), 5.00% (Idea Public Schools), 8/15/2042 | 487,395 |
| 2,000,000 | | Decatur, TX Hospital Authority, Hospital Revenue Bonds (Series 2004A), 7.125% (Wise Regional Health System), 9/1/2034 | 2,025,780 |
| 515,000 | | Decatur, TX Hospital Authority, Revenue Bonds, 6.375% (Wise Regional Health System), 9/1/2042 | 488,709 |
| 1,665,000 | | Grand Parkway Transportation Corp., TX, Subordinate Tier Toll Revenue Bonds (Series 2013B TELA Supported), 5.25%, 10/1/2051 | 1,745,469 |
| 1,000,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.75% (Legacy at Willow Bend), 11/1/2036 | 1,001,380 |
| 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 | 1,561,455 |
| 1,000,000 | | Houston, TX Airport System, Special Facilities Revenue Bonds (Series 2001), 7.00% (Continental Airlines, Inc.), 7/1/2029 | 1,000,120 |
| 1,000,000 | | Houston, TX Airport System, Subordinate Lien Revenue Refunding Bonds (Series 2012A), 5.00%, 7/1/2032 | 1,044,300 |
| 535,000 | | Houston, TX Higher Education Finance Corp., Education Revenue Bonds (Series 2011A), 6.875% (Cosmos Foundation, Inc.), 5/15/2041 | 603,705 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $2,000,000 | | Kerrville, TX HFDC, Hospital Revenue Bonds, 5.375% (Sid Peterson Memorial Hospital), 8/15/2035 | $2,016,420 |
| 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 | 2,118,560 |
| 1,000,000 | | Matagorda County, TX Navigation District No. 1, PCRBs (Series 2001A), 6.30% (AEP Texas Central Co.), 11/1/2029 | 1,125,240 |
| 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 | 1,760,475 |
| 1,000,000 | | San Juan Higher Education Finance Authority, TX, Education Revenue Bonds (Series 2010A), 6.70% (Idea Public Schools), 8/15/2040 | 1,097,510 |
| 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 | 206,330 |
| 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 | 1,169,412 |
| 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 | 2,140,480 |
| 2,500,000 | | Travis County, TX HFDC., First Mortgage Revenue Refunding Bonds (Series 2012A), 7.125% (Longhorn Village)/(Original Issue Yield: 7.40%), 1/1/2046 | 2,560,325 |
| | | TOTAL | 34,470,536 |
| | | Utah—0.8% | |
| 800,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.55% (American Leadership Academy), 11/15/2026 | 761,384 |
| 1,750,000 | | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.70% (American Leadership Academy), 11/15/2036 | 1,565,760 |
| 1,315,000 | 3,4 | Utah State Charter School Finance Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Channing Hall), 7/15/2037 | 1,208,367 |
| | | TOTAL | 3,535,511 |
| | | Virginia—2.6% | |
| 1,500,000 | | Chesterfield County, VA EDA, PCRBs (Series 2009A), 5.00% (Virginia Electric & Power Co.), 5/1/2023 | 1,659,450 |
| 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 | 921,820 |
| 1,380,000 | | Mosaic District CDA, VA, Revenue Bonds (Series 2011A), 6.875% (Original Issue Yield: 6.93%), 3/1/2036 | 1,543,488 |
| 1,500,000 | | Peninsula Town Center CDA, VA, SO Bonds (Series 2007), 6.35%, 9/1/2028 | 1,563,435 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Virginia—continued | |
| $1,000,000 | | Peninsula Town Center CDA, VA, SO Bonds (Series 2007), 6.45%, 9/1/2037 | $1,037,340 |
| 2,535,000 | | Route 460 Funding Corporation of Virginia, Toll Road Senior Lien Revenue Bonds (Series 2012), 5.00%, 7/1/2052 | 2,526,229 |
| 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 | 2,974,575 |
| | | TOTAL | 12,226,337 |
| | | Washington—1.5% | |
| 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 | 909,180 |
| 1,250,000 | | Tacoma, WA Consolidated Local Improvement District No. 65, Bonds, 5.75%, 4/1/2043 | 1,208,962 |
| 925,000 | | Tobacco Settlement Authority, WA, Tobacco Settlement Revenue Refunding Bonds (Series 2013), 5.25%, 6/1/2031 | 969,604 |
| 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 | 1,561,335 |
| 2,500,000 | 3,4 | Washington State Housing Finance Commission, Nonprofit Housing Revenue & Refunding Revenue Bonds (Series 2014A), 7.50% (Rockwood Retirement Communities), 1/1/2049 | 2,517,325 |
| | | TOTAL | 7,166,406 |
| | | 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 | 652,570 |
| 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 | 1,008,640 |
| 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 | 1,020,660 |
| | | TOTAL | 2,681,870 |
| | | Wisconsin—2.0% | |
| 5,335,000 | | Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 5.75% (Wisconsin State)/(Original Issue Yield: 5.950%), 5/1/2033 | 5,979,841 |
| 1,400,000 | | Wisconsin State HEFA, Revenue Bonds (Series 2004), 6.125% (Eastcastle Place, Inc.)/(Original Issue Yield: 6.25%), 12/1/2034 | 976,738 |
| 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 | 1,030,510 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Wisconsin—continued | |
| $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 | $1,328,235 |
| | | TOTAL | 9,315,324 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $457,097,532) | 454,156,527 |
| | | CORPORATE BONDS—0.2% | |
| | | Multi State—0.2% | |
| 4,000,000 | 3 | Non-Profit Preferred Funding Trust I, Partnership, 9/15/2037
(IDENTIFIED COST $3,989,000) | 848,960 |
| | | SHORT-TERM MUNICIPALS—0.7%7 | |
| | | Michigan—0.1% | |
| 250,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC), 0.030%, 3/7/2014 | 250,000 |
| | | New York—0.0% | |
| 200,000 | | New York City, NY Municipal Water Finance Authority, (Series A-1) Daily VRDNs (Mizuho Bank Ltd. LOC), 0.030%, 3/3/2014 | 200,000 |
| | | Virginia—0.6% | |
| 2,950,000 | | Roanoke, VA IDA, (Series 2005A-1) Daily VRDNs (Carilion Health System Obligated Group)/(Assured Guaranty Municipal Corp. INS)/(Wells Fargo Bank, N.A. LIQ), 0.050%, 3/3/2014 | 2,950,000 |
| | | TOTAL SHORT-TERM MUNICIPALS—0.7%
(AT AMORTIZED COST) | 3,400,000 |
| | | TOTAL INVESTMENTS—98.4%
(IDENTIFIED COST $464,486,532)8 | 458,405,487 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.6%9 | 7,499,138 |
| | | TOTAL NET ASSETS—100% | $465,904,625 |
At February 28, 2014, the Fund had the following outstanding futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Unrealized
Appreciation/
(Depreciation) |
| 1U.S Treasury Note, 10-Year Futures | 200 | $24,906,250 | June 2014 | $(120,148) |
Securities that are subject to the federal alternative minimum tax (AMT) represent 14.8% of the Fund's portfolio as calculated based upon total market value.
| 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 February 28, 2014, these liquid restricted securities amounted to $21,302,814, which represented 4.6% of total net assets. |
Semi-Annual Shareholder Report
| 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 February 28, 2014, these liquid restricted securities amounted to $20,453,854, which represented 4.4% 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 | At February 28, 2014, the cost of investments for federal tax purposes was $463,894,099. |
| 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.
The following is a summary of the inputs used, as of February 28, 2014, in valuing the Fund's assets carried at fair value:
| 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 | $— | $454,156,527 | $— | $454,156,527 |
| Corporate Bonds | — | 848,960 | — | 848,960 |
| Short-Term Municipals | — | 3,400,000 | — | 3,400,000 |
| TOTAL SECURITIES | $— | $458,405,487 | $— | $458,405,487 |
| OTHER FINANCIAL INSTRUMENTS1 | $(120,148) | $— | $— | $(120,148) |
| 1 | Other financial instruments include futures contracts. |
Semi-Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| CDA | —Community Development Authority |
| COL | —Collateralized |
| COP | —Certificates of Participation |
| EDA | —Economic Development Authority |
| 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 |
| LIQ | —Liquidity Agreement |
| 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 |
| SO | —Special Obligation |
| TELA | —Toll Equity Loan Agreement |
| TOBs | —Tender Option Bonds |
| USDT | —Unified School District |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 20101 | 2009 |
Net Asset Value,
Beginning of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 | $8.72 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.21 | 0.40 | 0.42 | 0.45 | 0.49 | 0.49 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.39 | (0.84) | 0.74 | (0.36) | 0.83 | (0.96) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.60 | (0.44) | 1.16 | 0.09 | 1.32 | (0.47) |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.21) | (0.40) | (0.42) | (0.47) | (0.49) | (0.49) |
| Net Asset Value, End of Period | $8.50 | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 |
| Total Return2 | 7.48% | (5.17)% | 14.58% | 1.29% | 17.42% | (4.87)% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.89%3 | 0.89% | 0.89% | 0.85% | 0.77% | 0.79%4 |
| Net investment income | 4.99%3 | 4.53% | 4.88% | 5.57% | 5.93% | 6.65% |
| Expense waiver/reimbursement5 | 0.17%3 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $216,033 | $215,101 | $239,911 | $190,003 | $229,217 | $180,422 |
| Portfolio turnover | 8% | 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. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | 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 this expense reduction. |
| 5 | 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
Semi-Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value, Beginning of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 | $8.71 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.19 | 0.36 | 0.36 | 0.41 | 0.44 | 0.45 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.37 | (0.86) | 0.74 | (0.38) | 0.82 | (0.97) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.56 | (0.50) | 1.10 | 0.03 | 1.26 | (0.52) |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.18) | (0.34) | (0.36) | (0.41) | (0.42) | (0.44) |
| Net Asset Value, End of Period | $8.49 | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Total Return2 | 6.96% | (5.88)% | 13.72% | 0.55% | 16.69% | (5.59)% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%3 | 1.64% | 1.64% | 1.60% | 1.53% | 1.54%4 |
| Net investment income | 4.23%3 | 3.76% | 4.15% | 4.82% | 5.19% | 5.90% |
| Expense waiver/reimbursement5 | 0.17%3 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $13,741 | $15,620 | $22,783 | $24,122 | $36,952 | $41,094 |
| Portfolio turnover | 8% | 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. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | 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 this expense reduction. |
| 5 | 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
Semi-Annual Shareholder Report
Financial Highlights–Class C Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 20101 | 2009 |
| Net Asset Value Beginning of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 | $8.72 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.18 | 0.34 | 0.36 | 0.39 | 0.43 | 0.44 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.38 | (0.84) | 0.74 | (0.36) | 0.83 | (0.97) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.56 | (0.50) | 1.10 | 0.03 | 1.26 | (0.53) |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.18) | (0.34) | (0.36) | (0.41) | (0.42) | (0.44) |
| Net Asset Value, End of Period | $8.49 | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Total Return2 | 6.96% | (5.88)% | 13.72% | 0.54% | 16.69% | (5.69)% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%3 | 1.64% | 1.64% | 1.60% | 1.53% | 1.54%4 |
| Net investment income | 4.23%3 | 3.78% | 4.13% | 4.82% | 5.18% | 5.91% |
| Expense waiver/reimbursement5 | 0.17%3 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $50,012 | $53,002 | $61,295 | $46,925 | $52,785 | $40,630 |
| Portfolio turnover | 8% | 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. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | 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 this expense reduction. |
| 5 | 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
Semi-Annual Shareholder Report
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended August 31, |
| | 2013 | 2012 | 2011 | 20101 | 2009 |
Net Asset Value,
Beginning of Period | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 | $8.72 |
Income from
Investment Operations: | | | | | | |
| Net investment income | 0.21 | 0.40 | 0.42 | 0.45 | 0.49 | 0.49 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | 0.39 | (0.84) | 0.74 | (0.36) | 0.83 | (0.96) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.60 | (0.44) | 1.16 | 0.09 | 1.32 | (0.47) |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.21) | (0.40) | (0.42) | (0.47) | (0.49) | (0.49) |
| Net Asset Value, End of Period | $8.50 | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 |
| Total Return2 | 7.48% | (5.17)% | 14.58% | 1.29% | 17.42% | (4.87)% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.89%3 | 0.89% | 0.89% | 0.85% | 0.77% | 0.79%4 |
| Net investment income | 4.99%3 | 4.53% | 4.89% | 5.57% | 5.93% | 6.66% |
| Expense waiver/reimbursement5 | 0.17%3 | 0.15% | 0.15% | 0.22% | 0.28% | 0.29% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $179,856 | $178,932 | $203,396 | $177,290 | $200,948 | $162,315 |
| Portfolio turnover | 8% | 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. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | 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 this expense reduction. |
| 5 | 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
Semi-Annual Shareholder Report
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
02/28/2014 | Year Ended
08/31/20131 |
| Net Asset Value, Beginning of Period | $8.11 | $8.88 |
| Income from Investment Operations: | | |
| Net investment income | 0.22 | 0.09 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.39 | (0.78) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.61 | (0.69) |
| Less Distributions: | | |
| Distributions from net investment income | (0.22) | (0.08) |
| Net Asset Value, End of Period | $8.50 | $8.11 |
| Total Return2 | 7.62% | (7.83)% |
| Ratios to Average Net Assets: | | |
| Net expenses | 0.64%3 | 0.64%3 |
| Net investment income | 5.27%3 | 6.05%3 |
| Expense waiver/reimbursement4 | 0.18%3 | 0.21%3 |
| Supplemental Data: | | |
| Net assets, end of period (000 omitted) | $6,262 | $2,426 |
| Portfolio turnover | 8% | 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
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2014 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $464,486,532) | | $458,405,487 |
| Cash | | 45,379 |
| Restricted cash (Note 2) | | 295,000 |
| Income receivable | | 7,085,174 |
| Receivable for investments sold | | 1,025,379 |
| Receivable for shares sold | | 922,749 |
| Receivable for daily variation margin | | 43,750 |
| TOTAL ASSETS | | 467,822,918 |
| Liabilities: | | |
| Payable for investments purchased | $1,125,000 | |
| Payable for shares redeemed | 567,028 | |
| Payable for shareholder services fee (Note 5) | 84,416 | |
| Payable for portfolio accounting fees | 49,596 | |
| Payable for distribution services fee (Note 5) | 36,152 | |
| Payable for Directors'/Trustees' fees (Note 5) | 16 | |
| Accrued expenses (Note 5) | 56,085 | |
| TOTAL LIABILITIES | | 1,918,293 |
| Net assets for 54,818,944 shares outstanding | | $465,904,625 |
| Net Assets Consist of: | | |
| Paid-in capital | | $543,646,821 |
| Net unrealized depreciation of investments and futures contracts | | (6,201,193) |
| Accumulated net realized loss on investments and futures contracts | | (71,893,140) |
| Undistributed net investment income | | 352,137 |
| TOTAL NET ASSETS | | $465,904,625 |
Semi-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 ($216,033,291 ÷ 25,415,549 shares outstanding),
no par value, unlimited shares authorized | | $8.50 |
| Offering price per share (100/95.50 of $8.50) | | $8.90 |
| Redemption proceeds per share | | $8.50 |
| Class B Shares: | | |
Net asset value per share ($13,740,634 ÷ 1,617,724 shares outstanding),
no par value, unlimited shares authorized | | $8.49 |
| Offering price per share | | $8.49 |
| Redemption proceeds per share (94.50/100 of $8.49) | | $8.02 |
| Class C Shares: | | |
Net asset value per share ($50,012,396 ÷ 5,887,693 shares outstanding),
no par value, unlimited shares authorized | | $8.49 |
| Offering price per share | | $8.49 |
| Redemption proceeds per share (99.00/100 of $8.49) | | $8.41 |
| Class F Shares: | | |
Net asset value per share ($179,855,812 ÷ 21,160,825 shares outstanding),
no par value, unlimited shares authorized | | $8.50 |
| Offering price per share (100/99.00 of $8.50) | | $8.59 |
| Redemption proceeds per share (99.00/100 of $8.50) | | $8.42 |
| Institutional Shares: | | |
Net asset value per share ($6,262,492 ÷ 737,153 shares outstanding),
no par value, unlimited shares authorized | | $8.50 |
| Offering price per share | | $8.50 |
| Redemption proceeds per share | | $8.50 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2014 (unaudited)
| Investment Income: | | | |
| Interest | | | $13,430,062 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $1,370,094 | |
| Administrative fee (Note 5) | | 178,340 | |
| Custodian fees | | 13,774 | |
| Transfer agent fee | | 148,325 | |
| Directors'/Trustees' fees (Note 5) | | 2,185 | |
| Auditing fees | | 14,628 | |
| Legal fees | | 6,365 | |
| Distribution services fee (Note 5) | | 242,496 | |
| Shareholder services fee (Note 5) | | 562,356 | |
| Account administration fee (Note 2) | | 1,266 | |
| Portfolio accounting fees | | 58,856 | |
| Share registration costs | | 39,272 | |
| Printing and postage | | 31,023 | |
| Insurance premiums (Note 5) | | 2,451 | |
| Miscellaneous (Note 5) | | 4,494 | |
| TOTAL EXPENSES | | 2,675,925 | |
| Waiver of investment adviser fee (Note 5) | | (397,185) | |
| Net expenses | | | 2,278,740 |
| Net investment income | | | 11,151,322 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized loss on investments | | | (2,276,907) |
| Net realized loss on futures contracts | | | (218,331) |
| Net change in unrealized appreciation of investments | | | 24,163,225 |
| Net change in unrealized depreciation of futures contracts | | | (148,250) |
| Net realized and unrealized gain on investments | | | 21,519,737 |
| Change in net assets resulting from operations | | | $32,671,059 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| | Six Months
Ended
(unaudited)
2/28/2014 | Year Ended
8/31/2013 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $11,151,322 | $23,818,891 |
| Net realized loss on investments and futures contracts | (2,495,238) | (2,438,258) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | 24,014,975 | (48,089,777) |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 32,671,059 | (26,709,144) |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (5,347,899) | (11,372,294) |
| Class B Shares | (305,742) | (791,649) |
| Class C Shares | (1,097,072) | (2,406,363) |
| Class F Shares | (4,454,675) | (9,299,876) |
| Institutional Shares | (113,908) | (187) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (11,319,296) | (23,870,369) |
| Share Transactions: | | |
| Proceeds from sale of shares | 45,687,061 | 103,323,478 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 9,862,060 | 20,623,079 |
| Cost of shares redeemed | (76,078,602) | (135,670,001) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (20,529,481) | (11,723,444) |
| Change in net assets | 822,282 | (62,302,957) |
| Net Assets: | | |
| Beginning of period | 465,082,343 | 527,385,300 |
| End of period (including undistributed net investment income of $352,137 and $520,111, respectively) | $465,904,625 | $465,082,343 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2014 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of 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.
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. |
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
Semi-Annual Shareholder Report
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. 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.
Semi-Annual Shareholder Report
For the six months ended February 28, 2014, account administration fees for the Fund were as follows:
| | Account
Administration
Fees Incurred |
| Class A Shares | $562 |
| Class F Shares | 704 |
| TOTAL | $1,266 |
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 six months ended February 28, 2014, 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 February 28, 2014, 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.
Semi-Annual Shareholder Report
Additional information on restricted securities, excluding securities purchased under Rule 144A, that have been deemed liquid by the Trustees, held at February 28, 2014, 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 | $848,960 |
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 $14,303,795. This is based on amounts held as of each month-end throughout the six-month 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 | $(120,148)* |
| * | Includes cumulative depreciation 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. |
Semi-Annual Shareholder Report
The Effect of Derivative Instruments on the Statement of Operations for the Six-Months Ended February 28, 2014
| Amount of Realized Gain (Loss) on Derivatives Recognized in Income |
| | | Futures |
| Interest rate contracts | | $(218,331) |
Change in Unrealized Appreciation (Depreciation) on Derivatives
Recognized in Income |
| | | Futures |
| Interest rate contracts | | $(148,250) |
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:
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 3,661,196 | $30,118,376 | 6,959,731 | $62,555,415 |
| Shares issued to shareholders in payment of distributions declared | 571,674 | 4,690,938 | 1,111,256 | 9,885,188 |
| Shares redeemed | (5,327,329) | (43,783,167) | (8,355,249) | (73,574,560) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | (1,094,459) | $(8,973,853) | (284,262) | $(1,133,957) |
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 60,741 | $504,080 | 270,193 | $2,437,019 |
| Shares issued to shareholders in payment of distributions declared | 33,906 | 278,101 | 79,356 | 706,506 |
| Shares redeemed | (403,400) | (3,317,318) | (969,325) | (8,553,078) |
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS | (308,753) | $(2,535,137) | (619,776) | $(5,409,553) |
Semi-Annual Shareholder Report
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 437,101 | $3,607,787 | 1,474,483 | $13,261,170 |
| Shares issued to shareholders in payment of distributions declared | 118,689 | 973,716 | 235,625 | 2,095,408 |
| Shares redeemed | (1,204,430) | $(9,908,320) | (2,023,629) | (17,748,118) |
NET CHANGE RESULTING FROM
CLASS C SHARE TRANSACTIONS | (648,640) | $(5,326,817) | (313,521) | $(2,391,540) |
| | Six Months Ended
2/28/2014 | Year Ended
8/31/2013 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 784,377 | $6,485,701 | 2,514,553 | $22,487,400 |
| Shares issued to shareholders in payment of distributions declared | 467,235 | 3,833,611 | 892,320 | 7,935,790 |
| Shares redeemed | (2,144,875) | (17,635,198) | (4,070,464) | (35,651,626) |
NET CHANGE RESULTING FROM
CLASS F SHARE TRANSACTIONS | (893,263) | $(7,315,886) | (663,591) | $(5,228,436) |
| | Six Months Ended
2/28/2014 | Period Ended
8/31/20131 |
| Institutional Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 601,176 | $4,971,117 | 316,724 | $2,582,474 |
| Shares issued to shareholders in payment of distributions declared | 10,436 | 85,694 | 23 | 187 |
| Shares redeemed | (173,642) | (1,434,599) | (17,564) | (142,619) |
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS | 437,970 | $3,622,212 | 299,183 | $2,440,042 |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | (2,507,145) | $(20,529,481) | (1,581,967) | $(11,723,444) |
| 1 | Reflects operations for the period from June 11, 2013 (date of initial investment) to August 31, 2013. |
4. FEDERAL TAX INFORMATION
At February 28, 2014, the cost of investments for federal tax purposes was $463,894,099. The net unrealized depreciation of investments for federal tax purposes, excluding any unrealized depreciation resulting from futures contracts was $5,488,612. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $20,141,798 and net unrealized depreciation from investments for those securities having an excess of cost over value of $25,630,410.
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
Semi-Annual Shareholder Report
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 | NA | $ 1,161,133 |
| 2017 | $ 20,198,309 | NA | $ 20,198,309 |
| 2018 | $ 19,483,511 | NA | $ 19,483,511 |
| 2019 | $ 2,945,947 | NA | $ 2,945,947 |
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 six months ended February 28, 2014, the Adviser voluntarily waived $397,185 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 |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2014, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-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, 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 six months ended February 28, 2014, distribution services fees for the Fund were as follows:
| | Distribution
Service Fees
Incurred |
| Class B Shares | $53,004 |
| Class C Shares | 189,492 |
| TOTAL | $242,496 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 28, 2014, FSC retained $51,367 of fees paid by the Fund. For the six months ended February 28, 2014, 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 six months ended February 28, 2014, FSC retained $13,919 in sales charges from the sale of Class A Shares and $1,409 from the sale of Class F Shares. FSC also retained $15,029 of CDSC relating to redemptions of Class A Shares, $17,382 related to redemptions of Class B Shares, $1,800 related to redemptions of Class C Shares and $27,072 related to redemptions of Class F Shares.
Semi-Annual Shareholder Report
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 six months ended February 28, 2014, Service Fees for the Fund were as follows:
| | Service Fees
Incurred |
| Class A Shares | $263,260 |
| Class B Shares | 17,668 |
| Class C Shares | 63,164 |
| Class F Shares | 218,264 |
| TOTAL | $562,356 |
For the six months ended February 28, 2014, FSSC received $19,616 of fees paid by the Fund.
Interfund Transactions
During the six months ended February 28, 2014, 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 $65,965,000 and $77,400,000, 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”): (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.
Semi-Annual Shareholder Report
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 28, 2014, were as follows:
| Purchases | $ 37,484,345 |
| Sales | $ 60,630,242 |
7. INVESTMENT RISK
Although the Fund has a diversified portfolio, the Fund has 51.5% 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, 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 February 28, 2014, there were no outstanding loans. During the six months ended February 28, 2014, the program was not utilized.
Semi-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 September 1, 2013 to February 28, 2014.
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.
Semi-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
9/1/13 | Ending
Account Value
2/28/14 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,074.80 | $4.58 |
| Class B Shares | $1,000 | $1,069.60 | $8.42 |
| Class C Shares | $1,000 | $1,069.60 | $8.42 |
| Class F Shares | $1,000 | $1,074.80 | $4.58 |
| Institutional Shares | $1,000 | $1,076.20 | $3.29 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,020.38 | $4.46 |
| Class B Shares | $1,000 | $1,016.66 | $8.20 |
| Class C Shares | $1,000 | $1,016.66 | $8.20 |
| Class F Shares | $1,000 | $1,020.38 | $4.46 |
| Institutional Shares | $1,000 | $1,021.62 | $3.21 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.89% |
| Class B Shares | 1.64% |
| Class C Shares | 1.64% |
| Class F Shares | 0.89% |
| Institutional Shares | 0.64% |
Semi-Annual Shareholder Report
Shareholder Meeting Results (unaudited)
A Special Meeting of Shareholders of Federated Municipal Securities Income Trust (the “Trust”), of which the Fund is a portfolio, was held on October 28, 2013. On August 29, 2013, the record date for shareholders voting at the meeting, there were 109,844,139.999 total outstanding shares of the Trust.
The following item was considered by shareholders of the Trust and the results of their voting were as follows:
AGENDA ITEM
Proposal to elect certain Trustees of the Trust:1
| Name | For | Withheld |
| John T. Collins | 91,507,128.403 | 2,809,854.606 |
| Maureen Lally-Green | 92,819,244.677 | 1,497,738.332 |
| Thomas M. O'Neill | 92,644,697.917 | 1,672,285.092 |
| P. Jerome Richey | 92,746,737.657 | 1,570,245.352 |
| 1 | The following Trustees continued their terms:
John F. Donahue, J. Christopher Donahue, Maureen Lally-Green (having been previously appointed by the Board), Peter E. Madden, Charles F. Mansfield, Jr., Thomas M. O'Neill (having been previously appointed by the Board), and John S. Walsh. |
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.
Semi-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.
Semi-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.
Semi-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.
Semi-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.
Semi-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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.Federatedinvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.Federatedinvestors.com/FundInformation.
Semi-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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
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
8040407 (4/14)
Federated is a registered trademark of Federated Investors, Inc.
2014 ©Federated Investors, Inc.
Item 2. Code of Ethics
Not Applicable
Item 3. Audit Committee Financial Expert
Not Applicable
Item 4. Principal Accountant Fees and Services
Not Applicable
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
(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 Securities Income Trust
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date April 22, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date April 22, 2014
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date April 22, 2014
