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: 08/31/15
Date of Reporting Period: Six months ended 02/28/15
Item 1. Reports to Stockholders
Semi-Annual Shareholder Report
February 28, 2015
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, 2014 through February 28, 2015. 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, 2015, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 30.3% |
| Hospital | 15.2% |
| Water & Sewer | 11.4% |
| Education | 8.8% |
| Dedicated Tax | 7.7% |
| Refunded | 7.1% |
| Airport | 4.8% |
| Other Transportation | 4.0% |
| Public Power | 3.9% |
| General Obligation - State Appropriation | 3.2% |
| Other2 | 2.8% |
| Other Assets and Liabilities—Net3 | 0.8% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party, 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 96.4% 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, 2015 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.6% | |
| | | Michigan—97.6% | |
| $1,000,000 | | Anchor Bay, MI School District, Refunding UT GO Bonds (Series 2012), 5.00% (Q-SBLF GTD), 5/1/2020 | $1,165,040 |
| 250,000 | | Ann Arbor, MI Public School District, Refunding UT GO Bonds (Series 2015), 5.00% (Q-SBLF GTD), 5/1/2026 | 301,693 |
| 1,300,000 | | Ann Arbor, MI Public School District, School Building & Site UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS) (United States Treasury PRF 5/1/2016@100), 5/1/2019 | 1,371,188 |
| 955,000 | | Ann Arbor, MI, Court and Police Facilities LT GO Capital Improvement Bonds, 4.75%, 5/1/2025 | 1,056,106 |
| 1,000,000 | | Avondale, MI School District, Refunding UT GO Bonds (Series 2009), 4.50% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2018 | 1,095,800 |
| 1,000,000 | | Battle Creek, MI School District, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,086,680 |
| 500,000 | | Bay City, MI School District, Refunding UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 11/1/2023 | 605,480 |
| 725,000 | | Berkley, MI School District, Refunding UT GO Bonds (Series 2009), 5.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2019 | 824,332 |
| 1,690,000 | | Bishop, MI International Airport Authority, Refunding LT GO (Series 2010A), 4.50% (Assured Guaranty Municipal Corp. INS), 12/1/2023 | 1,832,906 |
| 1,000,000 | | Brandon School District, MI, UT GO School Building and Site Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 1,054,310 |
| 450,000 | | Byron Center, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Q-SBLF GTD), 5/1/2021 | 532,107 |
| 710,000 | | Caledonia, MI Community Schools, School Building & Site UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2023 | 860,215 |
| 1,000,000 | | Central Michigan University Board of Trustees, General Revenue Refunding Bonds (Series 2009), 5.00%, 10/1/2023 | 1,132,630 |
| 1,000,000 | | Chippewa Valley, MI Schools, Refunding UT GO Bonds (Series 2013), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,194,730 |
| 1,250,000 | | Coopersville, MI Public Schools, School Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2022 | 1,314,637 |
| 2,000,000 | | Dearborn, MI School District, UT GO School Building & Site Bonds (Series 2014A), 5.00% (Q-SBLF GTD), 5/1/2025 | 2,390,140 |
| 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 | 1,117,720 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Eastern Michigan University Board of Regents, General Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Municipal Corp. INS), 2/15/2023 | $1,092,560 |
| 1,000,000 | | Ferris State University, MI, General Revenue Bonds (Series 2009), 5.00% (Assured Guaranty Municipal Corp. INS), 10/1/2020 | 1,125,690 |
| 1,000,000 | | Genesee, MI Water Supply System, Revenue Refunding Bonds (Series 2014), 5.00% (Build America Mutual Assurance INS), 11/1/2025 | 1,155,310 |
| 1,000,000 | | Grand Rapids, MI Sanitary Sewer System, Revenue Refunding Bonds (Series 2013), 5.00%, 1/1/2024 | 1,211,120 |
| 500,000 | | Grand Rapids, MI Sanitary Sewer System, Sanitary Sewer System Revenue Improvement and Refunding Bonds (Series 2014), 5.00%, 1/1/2022 | 606,535 |
| 1,500,000 | | Holland, MI Electric Utility System, Revenue Bonds (Series 2014A), 4.00%, 7/1/2022 | 1,688,400 |
| 2,000,000 | | Holland, MI School District, UT GO Bonds, 5.00% (Holland, MI School District INS), (Assured Guaranty Municipal Corp. INS), 5/1/2025 | 2,438,920 |
| 1,030,000 | | Holly Area School District, MI, UT GO Refunding Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,246,259 |
| 2,000,000 | | Jackson County, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2006C), 5.00% (Allegiance Health)/(Assured Guaranty Municipal Corp. INS), 6/1/2026 | 2,263,960 |
| 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 | 2,440,107 |
| 1,000,000 | | Kalamazoo, MI Public Schools, Refunding Building & Site UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2018 | 1,055,540 |
| 1,000,000 | | Kalamazoo, MI Regional Educational Services Agency, UT GO School Building and Site Bonds, 5.00%, 5/1/2019 | 1,115,940 |
| 510,000 | | Kalamazoo, MI Water Revenue, Revenue Refunding Bonds, 5.00% (AMBAC INS), 9/1/2015 | 522,026 |
| 1,785,000 | | Kent County, MI Airport Revenue, LT GO Airport Revenue Bonds (Series 2007), 5.00% (Gerald R. Ford International Airport) (United States Treasury PRF 1/1/2017@100), 1/1/2021 | 1,931,584 |
| 1,750,000 | | Kent County, MI, LT GO Bonds (Series 2009), 5.00%, 1/1/2025 | 1,981,455 |
| 1,500,000 | | Kent Hospital Finance Authority, MI, Revenue Refunding Bonds (Series 2011A), 5.00% (Spectrum Health), 11/15/2022 | 1,783,560 |
| 1,010,000 | | Lake Superior State University, MI, General Revenue Refunding Bonds (Series 2012), 4.00% (Assured Guaranty Municipal Corp. INS), 11/15/2020 | 1,103,374 |
| 1,900,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2011A), 5.00%, 7/1/2024 | 2,219,542 |
| 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 | 1,304,016 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $400,000 | | Michigan Finance Authority, Hospital Revenue Bonds (Series 2012), 5.00% (Sparrow Obligated Group, MI), 11/15/2026 | $450,000 |
| 1,500,000 | | Michigan Finance Authority, Revenue Bonds (Series 2012B), 5.00% (Michigan Finance Authority Unemployment Obligation Assessment), 1/1/2021 | 1,738,200 |
| 1,000,000 | | Michigan Finance Authority, State Revolving Fund Revenue Bonds (Series 2012), 5.00% (Clean Water Revolving Fund), 10/1/2025 | 1,202,960 |
| 1,525,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.00% (Clean Water Revolving Fund), 10/1/2017 | 1,696,212 |
| 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 | 1,143,890 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue & Refunding Bonds (Series 2013 1-A), 5.00%, 10/15/2022 | 598,240 |
| 1,000,000 | | Michigan State Building Authority, Facilities Program Revenue Bonds (2009 Series II), 5.00% (Assured Guaranty Municipal Corp. INS), 10/15/2022 | 1,155,650 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2009I), 5.25% (Assured Guaranty Municipal Corp. INS), 10/15/2024 | 1,163,240 |
| 2,000,000 | | Michigan State Comprehensive Transportation Fund, Refunding Bonds (Series 2009), 5.25%, 5/15/2019 | 2,298,100 |
| 2,485,000 | | Michigan State Department of Transportation, Grant Anticipation Bonds, 5.25% (Assured Guaranty Municipal Corp. INS), 9/15/2021 | 2,758,027 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Hospital Revenue & Refunding Bonds (Series 2015MI), 5.50% (Trinity Healthcare Credit Group), 12/1/2026 | 1,233,280 |
| 250,000 | | Michigan State Finance Authority Revenue, Hospital Revenue Refunding Bonds (Series 2014), 5.00% (MidMichigan Obligated Group), 6/1/2026 | 291,498 |
| 2,000,000 | | Michigan State Finance Authority Revenue, Hospital Revenue Refunding Bonds (Series 2015A), 5.00% (Beaumont Health Credit Group ), 8/1/2025 | 2,371,300 |
| 1,500,000 | | Michigan State Finance Authority Revenue, Local Government Loan Program Revenue Bonds (Series 2014B), 5.00% (Public Lighting Authority ), 7/1/2022 | 1,731,675 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Local Government Loan Program Revenue Bonds (Series 2014H-1), 5.00% (Detroit, MI Regional Convention Facility Authority), 10/1/2020 | 1,135,870 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-5), 5.00% (Detroit, MI Sewage Disposal System)/(National Public Finance Guarantee Corporation INS), 7/1/2019 | 1,128,210 |
| 2,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 D-2), 5.00% (Detroit, MI Water Supply System)/(Assured Guaranty Municipal Corp. INS), 7/1/2025 | 2,325,580 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $2,500,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series D-2), 5.00% (Detroit, MI Water Supply System)/(Assured Guaranty Municipal Corp. INS), 7/1/2024 | $2,930,325 |
| 1,970,000 | | Michigan State Financial Authority, Revenue Bonds (Series 2006A), 5.00% (Trinity Healthcare Credit Group) (United States Treasury PRF 12/1/2016@100), 12/1/2026 | 2,128,191 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2006A), 5.00% (Henry Ford Health System, MI), 11/15/2021 | 1,059,540 |
| 1,275,000 | | Michigan State Hospital Finance Authority, Hospital Revenue & Refunding Bonds (Series 2007A), 5.00% (Oakwood Obligated Group) (United States Treasury PRF 7/15/2017@100), 7/15/2018 | 1,405,726 |
| 1,565,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2005C), 5.00% (McLaren Health Care Corp.), 8/1/2020 | 1,595,392 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2010B), 5.00% (Ascension Health Alliance Senior Credit Group), 11/15/2024 | 2,281,900 |
| 500,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A), 5.00% (Henry Ford Health System, MI), 11/15/2025 | 525,100 |
| 750,000 | | Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 5.00% (Sparrow Obligated Group, MI), 11/15/2022 | 818,558 |
| 1,000,000 | | Michigan State Strategic Fund, LO Revenue Refunding Bonds, 7.00% (Detroit Edison Co.)/(AMBAC INS), 5/1/2021 | 1,288,090 |
| 2,600,000 | | Michigan State Trunk Line, Revenue Refunding Bonds (Series 2009), 5.00%, 11/1/2020 | 3,027,856 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2022 | 599,695 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.00%, 11/15/2023 | 591,500 |
| 1,000,000 | | Michigan State Trunk Line, State Trunk Line Refunding Bonds (Series 2014), 5.00%, 11/15/2018 | 1,143,800 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Bonds (Series 2011), 5.25% (Michigan State), 10/15/2022 | 1,193,580 |
| 1,000,000 | | Michigan Strategic Fund, Ltd Obligation Refunding Revenue Bonds (Series 2008ET-2), 5.50% TOBs (Detroit Edison Co.), Mandatory Tender 8/1/2016 | 1,057,910 |
| 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 | 1,150,820 |
| 500,000 | | Northview Michigan Public School District, Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 5/1/2019 | 555,970 |
| 1,000,000 | | Oakland County, MI EDC, Revenue Refunding Bonds, 4.00% (Cranbrook Educational Community), 11/1/2021 | 1,045,070 |
| 1,855,000 | | Orchard View, MI Schools, UT GO Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2022 | 2,048,031 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $525,000 | | Ovid Elsie, MI Area Schools, UT GO Refunding Bonds, 4.00% (Q-SBLF GTD)/(Assured Guaranty Municipal Corp. INS), 5/1/2015 | $528,266 |
| 1,425,000 | | Rockford, MI Public Schools, School Building & Site UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2025 | 1,717,253 |
| 1,130,000 | | Romulus, MI Tax Increment Finance Authority, Recreation Center LT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS), 11/1/2022 | 1,205,168 |
| 1,100,000 | | Roseville, MI Community Schools, School Building & Site Refunding UT GO Bonds, 5.00% (Assured Guaranty Municipal Corp. INS) (United States Treasury PRF 5/1/2016@100), 5/1/2021 | 1,161,138 |
| 1,000,000 | | Roseville, MI Community Schools, UT GO Refunding Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,209,960 |
| 2,000,000 | | Royal Oak, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2014D), 5.00% (William Beaumont Hospital, MI), 9/1/2023 | 2,399,840 |
| 1,670,000 | | Saginaw County, MI Water Supply System, Revenue Bonds (Series 2011A), 4.75% (Assured Guaranty Municipal Corp. INS), 7/1/2025 | 1,853,082 |
| 500,000 | | South Redford, MI School District, UT GO Refunding Bonds , 5.00% (Q-SBLF GTD), 5/1/2020 | 582,520 |
| 1,085,000 | | Southfield, MI Library Building Authority, Refunding LT GO Bonds, 5.00%, 5/1/2026 | 1,280,701 |
| 1,000,000 | | Thornapple Kellogg, MI School District, Refunding UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2025 | 1,205,090 |
| 430,000 | | Troy, MI School District, UT GO School Building & Site Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2023 | 520,975 |
| 1,000,000 | | University of Michigan Regents, General Revenue Bonds (Series 2010C), 4.00%, 4/1/2022 | 1,112,830 |
| 250,000 | | University of Michigan Regents, General Revenue Bonds (Series 2014A), 5.00%, 4/1/2024 | 312,550 |
| 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 | 546,540 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2010C), 5.00%, 12/1/2021 | 2,305,380 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2011A-B), 5.00%, 12/1/2021 | 2,339,780 |
| 1,400,000 | | Wayne County, MI Airport Authority, Junior Lien Revenue Bonds, 5.00% (National Re Holdings Corp. INS), 12/1/2023 | 1,514,198 |
| 1,000,000 | | Wayne State University, MI, General Revenue Refunding Bonds (Series 2008), 5.00% (Assured Guaranty Municipal Corp. INS), 11/15/2019 | 1,132,100 |
| 1,355,000 | | West Bloomfield, MI School District, Refunding UT GO Bonds (Series 2015), 5.00%, 5/1/2020 | 1,570,377 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Western Michigan University, General Revenue Refunding Bonds (Series 2009), 5.25% (Assured Guaranty Municipal Corp. INS), 11/15/2019 | $1,141,540 |
| 500,000 | | Western Townships MI, Utilities Authority, Sewage Disposal System Refunding LT GO Bonds (Series 2012), 5.00%, 1/1/2023 | 598,360 |
| 1,000,000 | | Ypsilanti, MI School District, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 5/1/2023 | 1,086,680 |
| | | TOTAL | 125,414,926 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $118,006,863) | 125,414,926 |
| | | SHORT-TERM MUNICIPAL—1.6%1 | |
| | | Michigan—1.6% | |
| 2,100,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC), 0.030%, 3/3/2015 (AT AMORTIZED COST) | 2,100,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.2%
(IDENTIFIED COST $120,106,863)2 | 127,514,926 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.8%3 | 1,081,696 |
| | | TOTAL NET ASSETS—100% | $128,596,622 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.0% 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 $120,103,787. |
| 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, 2015.
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.
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, 2015, 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 |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LO | —Limited Obligation |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| 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)
2/28/2015 | Year Ended August 31 |
| 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value,
Beginning of Period | $11.39 | $10.90 | $11.59 | $11.17 | $11.27 | $10.80 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.33 | 0.34 | 0.36 | 0.39 | 0.40 |
| Net realized and unrealized gain (loss) on investments | 0.05 | 0.49 | (0.67) | 0.42 | (0.10) | 0.47 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.20 | 0.82 | (0.33) | 0.78 | 0.29 | 0.87 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.15) | (0.33) | (0.33) | (0.36) | (0.39) | (0.40) |
| Distributions from net realized gain on investments | — | — | (0.03) | — | — | — |
| TOTAL DISTRIBUTIONS | (0.15) | (0.33) | (0.36) | (0.36) | (0.39) | (0.40) |
| Net Asset Value, End of Period | $11.44 | $11.39 | $10.90 | $11.59 | $11.17 | $11.27 |
| Total Return1 | 1.76% | 7.60% | (2.89)% | 7.11% | 2.74% | 8.25% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.75%2 | 0.73% | 0.63% | 0.62% | 0.54% | 0.54% |
| Net investment income | 2.63%2 | 2.94% | 2.95% | 3.16% | 3.60% | 3.66% |
| Expense waiver/reimbursement3 | 0.17%2 | 0.20% | 0.26% | 0.35% | 0.38% | 0.35% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $128,597 | $123,083 | $121,759 | $131,357 | $124,626 | $160,614 |
| Portfolio turnover | 14% | 19% | 8% | 13% | 16% | 21% |
| 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 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, 2015 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $120,106,863) | | $127,514,926 |
| Cash | | 49,160 |
| Income receivable | | 1,502,005 |
| Receivable for shares sold | | 50,837 |
| TOTAL ASSETS | | 129,116,928 |
| Liabilities: | | |
| Payable for investments purchased | $300,760 | |
| Income distribution payable | 89,212 | |
| Payable for shares redeemed | 77,666 | |
| Payable for other service fees (Notes 2 and 5) | 24,292 | |
| Payable for portfolio accounting fees | 23,497 | |
| Accrued expenses (Note 5) | 4,879 | |
| TOTAL LIABILITIES | | 520,306 |
| Net assets for 11,243,955 shares outstanding | | $128,596,622 |
| Net Assets Consists of: | | |
| Paid-in capital | | $121,103,491 |
| Net unrealized appreciation of investments | | 7,408,063 |
| Accumulated net realized gain on investments | | 81,233 |
| Undistributed net investment income | | 3,835 |
| TOTAL NET ASSETS | | $128,596,622 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Net asset value per share ($128,596,622 ÷ 11,243,955 shares outstanding), no par value, unlimited shares authorized | | $11.44 |
| Offering price per share (100/97.00 of $11.44) | | $11.79 |
| Redemption proceeds per share | | $11.44 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2015 (unaudited)
| Investment Income: | | |
| Interest | | $2,089,385 |
| Expenses: | | |
| Investment adviser fee (Note 5) | $246,760 | |
| Administrative fee (Note 5) | 48,272 | |
| Custodian fees | 4,658 | |
| Transfer agent fees | 26,202 | |
| Directors'/Trustees' fees (Note 5) | 1,116 | |
| Auditing fees | 13,215 | |
| Legal fees | 5,841 | |
| Other service fees (Notes 2 and 5) | 152,247 | |
| Portfolio accounting fees | 44,747 | |
| Share registration costs | 12,863 | |
| Printing and postage | 9,230 | |
| Miscellaneous (Note 5) | 3,103 | |
| TOTAL EXPENSES | 568,254 | |
| Waiver of investment adviser fee (Note 5) | (102,557) | |
| Net expenses | | 465,697 |
| Net investment income | | 1,623,688 |
| Realized and Unrealized Gain on Investments: | | |
| Net realized gain on investments | | 330,814 |
| Net change in unrealized appreciation of investments | | 206,057 |
| Net realized and unrealized gain on investments | | 536,871 |
| Change in net assets resulting from operations | | $2,160,559 |
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)
2/28/2015 | Year Ended
8/31/2014 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,623,688 | $3,424,627 |
| Net realized gain (loss) on investments | 330,814 | (196,442) |
| Net change in unrealized appreciation of investments | 206,057 | 5,296,325 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 2,160,559 | 8,524,510 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | (1,623,428) | (3,415,561) |
| Share Transactions: | | |
| Proceeds from sale of shares | 10,929,167 | 25,994,779 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,044,597 | 2,116,109 |
| Cost of shares redeemed | (6,997,662) | (31,895,430) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 4,976,102 | (3,784,542) |
| Change in net assets | 5,513,233 | 1,324,407 |
| Net Assets: | | |
| Beginning of period | 123,083,389 | 121,758,982 |
| End of period (including undistributed net investment income of $3,835 and $3,575, respectively) | $128,596,622 | $123,083,389 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2015 (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 Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their 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, except that options are valued at the mean of closing bid and asked quotations. |
| ■ | 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 last traded or purchase price of the security, information obtained by contacting the issuer or dealers, 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, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. |
Semi-Annual Shareholder Report
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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value 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, methods, models 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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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.
Semi-Annual Shareholder Report
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares to unaffiliated 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 other service fees. For the six months ended February 28, 2015, the fund incurred $152,247 of other service fees.
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 during the six months ended February 28, 2015, 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, 2015, tax years 2011 through 2014 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. The Fund applies Investment Company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Shares sold | 956,154 | 2,321,428 |
| Shares issued to shareholders in payment of distributions declared | 91,430 | 189,307 |
| Shares redeemed | (613,262) | (2,872,096) |
| NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 434,322 | (361,361) |
Semi-Annual Shareholder Report
4. FEDERAL TAX INFORMATION
At February 28, 2015, the cost of investments for federal tax purposes was $120,103,787. The net unrealized appreciation of investments for federal tax purposes was $7,411,139. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $7,462,783 and net unrealized depreciation from investments for those securities having an excess of cost over value of $51,644.
At August 31, 2014, the Fund had a net capital loss carryforward of $251,932 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 |
| $251,932 | — | $251,932 |
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, 2015, the Adviser waived $102,557 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, 2015, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-Annual Shareholder Report
Other Service Fees
For the six months ended February 28, 2015, FSSC received $992 of the other service fees disclosed in Note 2.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable.
Interfund Transactions
During the six months ended February 28, 2015, 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 $16,050,000 and $15,100,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. 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, 2015; 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. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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, 2015, were as follows:
| Purchases | $16,688,573 |
| Sales | $18,093,303 |
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, 2015, 51.9% of the securities in the Portfolio of
Semi-Annual Shareholder Report
Investments were 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) a letter of credit from any one institution or agency, Assured Guaranty Municipal Corporation, was 34.0% of total investments.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of February 28, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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 February 28, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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 other service 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, 2014 to February 28, 2015.
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
9/1/2014 | Ending
Account Value
2/28/2015 | Expenses Paid
During Period1 |
| Actual | $1,000 | $1,017.60 | $3.75 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,021.08 | $3.76 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.75%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2014
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 2014 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 of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
Semi-Annual Shareholder Report
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.
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
Semi-Annual Shareholder Report
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.
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. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. 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.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and that it 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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; 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 was one of the Board's considerations 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
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. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
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 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 may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
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 concluded that Federated's profit margins did not appear to be excessive.
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
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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 (4/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2015
| 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, 2014 through February 28, 2015. 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, 2015, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Dedicated Tax | 14.4% |
| Education | 13.1% |
| General Obligation—Local | 10.3% |
| Hospital | 9.1% |
| Other Transportation | 7.1% |
| Industrial Development Bond/Pollution Control | 6.0% |
| Tollroad | 5.5% |
| General Obligation—State | 3.9% |
| Resource Recovery | 3.6% |
| Water & Sewer | 2.9% |
| Other2 | 23.1% |
| Other Assets and Liabilities—Net3 | 1.0% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities. |
| 2 | For purposes of this table, sector classifications constitute 75.9% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2015 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.6% | |
| | | Guam—1.1% | |
| $300,000 | | Guam Power Authority, Revenue Bonds (Series 2014A), 5.00%, 10/1/2031 | $336,915 |
| | | New York—96.2% | |
| 1,000,000 | | Babylon, NY IDA, Resource Recovery Bonds (Series 2009A), 5.00% (Covanta Babylon, Inc.), 1/1/2019 | 1,133,860 |
| 250,000 | | Battery Park, NY City Authority, Senior Revenue Bonds (Series 2013A), 5.00%, 11/1/2025 | 309,730 |
| 480,000 | | Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 | 570,581 |
| 200,000 | | Build NYC Resource Corporation, Revenue Refunding Bonds (Series 2014), 5.00% (New York Methodist Hospital), 7/1/2028 | 228,696 |
| 250,000 | | Cattaraugus County, NY Capital Resource Corp., Revenue Bonds, 5.00% (St. Bonaventure University), 5/1/2044 | 266,658 |
| 200,000 | | Chautauqua, NY Tobacco Asset Securitization Corp., Tobacco Settlement Asset-Backed Bonds (Series 2014), 5.00%, 6/1/2034 | 213,584 |
| 300,000 | | Dutchess County, NY Local Development Corporation, Revenue Bonds (Series 2014A), 5.00% (Health Quest Systems, Inc. Obligated Group), 7/1/2034 | 335,082 |
| 200,000 | | Hempstead, NY Local Development Corporation, Revenue Refunding Bonds (Series 2014), 5.00% (Adelphi University), 10/1/2034 | 228,468 |
| 215,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 250,036 |
| 500,000 | | Livingston County, NY IDA, Civic Facility Revenue Bonds (Series 2005), 6.00% (Nicholas H. Noyes Memorial Hospital Civic Facility), 7/1/2030 | 500,495 |
| 500,000 | | Long Island Power Authority, NY, Electric System General Revenue Bonds (Series 2014A), 5.00%, 9/1/2044 | 559,800 |
| 300,000 | 1 | Metropolitan Transportation Authority, NY, (MTA Dedicated Tax Fund), Dedicated Tax Fund Refunding Bonds (Series 2008B-3a) (Floating Rate Tender Notes), 0.39% 11/1/2018 | 300,084 |
| 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 | 572,730 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2006A), 5.00% (MTA Transportation Revenue), 11/15/2035 | 532,555 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2012E), 5.00% (MTA Transportation Revenue), 11/15/2025 | 595,285 |
| 475,000 | | Monroe County, NY IDC, Revenue Bonds (Series 2011A), 5.00% (University of Rochester, NY), 7/1/2041 | 526,020 |
| 500,000 | | Nassau County, NY IDA, IDRBs (Series 2003A), 5.25% (Keyspan-Glenwood Energy Center LLC)/(KeySpan Corp. GTD), 6/1/2027 | 501,975 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $300,000 | | Nassau County, NY Local Economic Assistance Corporation, Revenue Bonds (Series 2014), 5.00% (Catholic Health Services of Long Island Obligated Group), 7/1/2033 | $337,626 |
| 100,000 | | Nassau County, NY Local Economic Assistance Corporation, Revenue Bonds (Series 2014), 5.00% (Catholic Health Services of Long Island Obligated Group), 7/1/2034 | 112,372 |
| 300,000 | | Nassau County, NY, LT GO Bonds (Series 2014A), 5.00%, 4/1/2029 | 344,862 |
| 500,000 | | New York City Liberty Development Corp., Revenue Bonds (Series 2005), 5.25% (Goldman Sachs Group, Inc.), 10/1/2035 | 596,515 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2028 | 562,455 |
| 500,000 | | New York City Trust For Cultural Resources, Refunding Revenue Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2031 | 560,495 |
| 500,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British Airways), 12/1/2032 | 501,090 |
| 300,000 | | New York City, NY IDA, Special Facilities Revenue Bonds, 5.50% (Terminal One Group Association), 1/1/2024 | 312,021 |
| 500,000 | | New York City, NY Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (Series 2008AA), 5.00%, 6/15/2022 | 566,785 |
| 455,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Series 2011C), 5.50%, 11/1/2035 | 546,000 |
| 500,000 | | New York City, NY, UT GO Bonds (Series 2009E-1), 6.25% (Original Issue Yield: 6.40%), 10/15/2028 | 592,235 |
| 400,000 | | New York City, NY, UT GO Bonds (Series 2012B), 5.00%, 8/1/2027 | 471,332 |
| 500,000 | | New York Liberty Development Corporation, Liberty Revenue Bonds (Series 2011), 5.75% (4 World Trade Center), 11/15/2051 | 585,110 |
| 400,000 | | New York Liberty Development Corporation, Revenue Refunding Bonds (Series 2012 Class 3), 5.00% (7 World Trade Center LLC), 3/15/2044 | 435,628 |
| 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 | 585,565 |
| 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 | 621,060 |
| 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 | 578,906 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2009C), 5.00% (School District Financing Program)/(Assured Guaranty Corp. INS), 10/1/2023 | 570,330 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2010A), 5.00% (Cornell University), 7/1/2035 | 576,485 |
| 350,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Miriam Osborn Memorial Home Association), 7/1/2042 | 371,409 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Rochester, NY Institute of Technology), 7/1/2038 | $446,500 |
| 100,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (Catholic Health System Obligated Group), 7/1/2032 | 110,454 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (St. John's University), 7/1/2026 | 578,305 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012B), 5.00% (St. John's University), 7/1/2030 | 283,083 |
| 200,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2013A), 5.00% (New York University), 7/1/2037 | 229,964 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2014), 5.00% (Fordham University), 7/1/2030 | 458,784 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2014), 5.00% (NYU Hospitals Center), 7/1/2034 | 342,006 |
| 300,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolving Funds Revenue Bonds (Series 2008A), 5.00%, 6/15/2029 | 335,136 |
| 500,000 | | New York State Local Government Assistance Corp., Senior Lien Revenue Refunding Bonds (Series 2008 A-5/6), 5.00%, 4/1/2020 | 576,720 |
| 500,000 | | New York State Local Government Assistance Corp., Subordinate Lien Refunding Revenue Bonds (Series 2010A), 5.00%, 4/1/2023 | 590,025 |
| 500,000 | | New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series 183 AMT), 3.75%, 10/1/2023 | 530,355 |
| 220,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2012I), 5.00% (New York State Thruway Authority - General Revenue), 1/1/2028 | 254,547 |
| 500,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2014J), 5.00% (New York State Thruway Authority - General Revenue), 1/1/2027 | 594,690 |
| 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 | 283,477 |
| 500,000 | | New York State Urban Development Corp., Service Contract Revenue Refunding Bonds (Series 2008C), 5.00% (New York State), 1/1/2027 | 557,145 |
| 500,000 | | New York State, UT GO Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.24%), 2/15/2039 | 566,345 |
| 500,000 | | New York State, UT GO Bonds (Series 2011A), 5.00%, 2/15/2020 | 591,180 |
| 335,000 | | Niagara Area Development Corporation, NY, Solid Waste Disposal Facility Refunding Revenue Bonds (Series 2012B), 4.00% (Covanta Energy Corp.), 11/1/2024 | 341,251 |
| 500,000 | | Niagara Area Development Corporation, NY, Tax Exempt Revenue Bonds (Series 2012A), 5.00% (Niagara University), 5/1/2030 | 542,590 |
| 500,000 | | Niagara Frontier Transportation Authority, Airport Revenue Refunding Bonds (Series 2014A), 5.00% (Buffalo Niagara International Airport), 4/1/2029 | 558,385 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $200,000 | | Niagara Tobacco Asset Securitization Corporation, Tobacco Settlement Asset-Backed Bonds (Series 2014), 5.25%, 5/15/2040 | $225,010 |
| 250,000 | | Onondaga, NY Civic Development Corporation, Tax Exempt Revenue Bonds (Series 2014A), 5.125% (St. Joseph's Hospital Health Center)/(Original Issue Yield: 5.375%), 7/1/2031 | 270,630 |
| 200,000 | | Oyster Bay, NY, Public Improvement Refunding Bonds (Series 2014A), 5.00%, 1/15/2019 | 227,130 |
| 500,000 | | Port Authority of New York and New Jersey, 5.00%, 12/1/2029 | 511,535 |
| 500,000 | | Rockland County, NY, Public Improvement LT GO Bonds (Series 2014C), 3.00% (AGM INS), 5/1/2019 | 523,560 |
| 450,000 | | Syracuse, NY IDA, School Facility Revenue Bonds (Series 2008A), 5.00% (Syracuse CSD, NY)/(AGM INS), 5/1/2028 | 498,843 |
| 300,000 | | Tompkins County, NY Development Corporation, Continuing Care Retirement Community Revenue Bonds (Series 2014A), 5.00% (Kendal at Ithaca, Inc.), 7/1/2044 | 322,698 |
| 500,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (Original Issue Yield: 5.10%), 11/15/2037 | 552,620 |
| 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 | 195,452 |
| 290,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00%, 11/15/2023 | 330,736 |
| 400,000 | | TSASC, Inc. NY, Tobacco Settlement Asset-Backed Bonds (Series 2006-1), 5.125% (Original Issue Yield: 5.35%), 6/1/2042 | 340,072 |
| | | TOTAL | 30,223,148 |
| | | Puerto Rico—0.3% | |
| 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 | 94,505 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $28,637,459) | 30,654,568 |
| | | SHORT-TERM MUNICIPAL—1.4%2 | |
| | | New York—1.4% | |
| 450,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Series 2013C-4) Daily VRDNs (JPMorgan Chase Bank, N.A. LIQ), 0.020%, 3/2/2015
(AT AMORTIZED COST) | 450,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.0%
(IDENTIFIED COST $29,087,459)3 | 31,104,568 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.0%4 | 315,256 |
| | | TOTAL NET ASSETS—100% | $31,419,824 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 7.7% of the Fund's portfolio as calculated based upon total market value.
Semi-Annual Shareholder Report
At February 28, 2015, the Fund had the following open futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Unrealized
Depreciation |
| 5United States Treasury Notes 10-Year Long Futures | 15 | $1,789,219 | June 2015 | $(8,237) |
Unrealized Depreciation on Futures Contracts is included in “Other Assets and Liabilities—Net.”
| 1 | Floating rate note with current maturity or tender date shown. |
| 2 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 3 | The cost of investments for federal tax purposes amounts to $29,071,619. |
| 4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 5 | Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2015.
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.
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, 2015, in valuing the Fund's assets carried at fair value:
| Valuation Inputs |
| | Level 1—
Quoted
Prices | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | Total |
| Debt Securities: | | | | |
| Municipal Bonds | $— | $30,654,568 | $— | $30,654,568 |
| Short-Term Municipal | — | 450,000 | — | 450,000 |
| TOTAL SECURITIES | $— | $31,104,568 | $— | $31,104,568 |
| OTHER FINANCIAL INSTRUMENTS* | $(8,237) | $— | $— | $(8,237) |
| * | Other financial instruments include futures contracts. |
Semi-Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AGM | —Assured Guaranty Municipal Corp. |
| 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 |
| LIQ | —Liquidity Agreement |
| LT | —Limited Tax |
| 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $10.45 | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.33 | 0.34 | 0.36 | 0.38 | 0.38 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.03 | 0.59 | (0.80) | 0.52 | (0.19) | 0.61 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.19 | 0.92 | (0.46) | 0.88 | 0.19 | 0.99 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.33) | (0.33) | (0.36) | (0.38) | (0.38) |
| Net Asset Value, End of Period | $10.48 | $10.45 | $9.86 | $10.65 | $10.13 | $10.32 |
| Total Return1 | 1.81% | 9.46% | (4.50)% | 8.88% | 2.00% | 10.41% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2 | 0.76% | 0.76% | 0.62% | 0.76% | 0.76% |
| Net investment income | 3.13%2 | 3.26% | 3.15% | 3.49% | 3.88% | 3.82% |
| Expense waiver/reimbursement3 | 0.68%2 | 0.70% | 0.53% | 1.18% | 1.12% | 0.98% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $29,059 | $28,022 | $27,534 | $33,073 | $29,108 | $31,644 |
| Portfolio turnover | 5% | 27% | 7% | 19% | 11% | 26% |
| 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 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $10.45 | $9.86 | $10.65 | $10.13 | $10.32 | $9.71 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.12 | 0.25 | 0.25 | 0.28 | 0.31 | 0.31 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.03 | 0.59 | (0.79) | 0.53 | (0.19) | 0.61 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.15 | 0.84 | (0.54) | 0.81 | 0.12 | 0.92 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.12) | (0.25) | (0.25) | (0.29) | (0.31) | (0.31) |
| Net Asset Value, End of Period | $10.48 | $10.45 | $9.86 | $10.65 | $10.13 | $10.32 |
| Total Return1 | 1.43% | 8.65% | (5.21)% | 8.07% | 1.23% | 9.58% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.52%2 | 1.52% | 1.52% | 1.38% | 1.52% | 1.52% |
| Net investment income | 2.37%2 | 2.50% | 2.37% | 2.72% | 3.10% | 3.07% |
| Expense waiver/reimbursement3 | 0.67%2 | 0.69% | 0.52% | 1.17% | 1.10% | 0.92% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $2,361 | $2,562 | $2,661 | $3,022 | $3,471 | $9,362 |
| Portfolio turnover | 5% | 27% | 7% | 19% | 11% | 26% |
| 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 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, 2015 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $29,087,459) | | $31,104,568 |
| Cash | | 16,678 |
| Restricted cash (Note 2) | | 13,500 |
| Income receivable | | 360,319 |
| Prepaid expenses | | 10,542 |
| Receivable for shares sold | | 1,793 |
| TOTAL ASSETS | | 31,507,400 |
| Liabilities: | | |
| Payable for shares redeemed | $33,568 | |
| Payable for portfolio accounting fees | 23,497 | |
| Income distribution payable | 13,845 | |
| Payable for share registration costs | 6,396 | |
| Payable for other service fees (Notes 2 and 5) | 5,983 | |
| Payable for daily variation margin | 1,875 | |
| Payable for distribution services fee (Note 5) | 1,378 | |
| Payable to adviser (Note 5) | 1,034 | |
| TOTAL LIABILITIES | | 87,576 |
| Net assets for 2,999,063 shares outstanding | | $31,419,824 |
| Net Assets Consists of: | | |
| Paid-in capital | | $32,484,473 |
| Net unrealized appreciation of investments and futures contracts | | 2,008,872 |
| Accumulated net realized loss on investments and futures contracts | | (3,090,862) |
| Undistributed net investment income | | 17,341 |
| TOTAL NET ASSETS | | $31,419,824 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
Net asset value per share ($29,058,935 ÷ 2,773,702 shares outstanding),
no par value, unlimited shares authorized | | $10.48 |
| Offering price per share (100/95.50 of $10.48) | | $10.97 |
| Redemption proceeds per share | | $10.48 |
| Class B Shares: | | |
Net asset value per share ($2,360,889 ÷ 225,361 shares outstanding),
no par value, unlimited shares authorized | | $10.48 |
| Offering price per share | | $10.48 |
| Redemption proceeds per share (94.50/100 of $10.48) | | $9.90 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2015 (unaudited)
| Investment Income: | | | |
| Interest | | | $591,649 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $60,772 | |
| Administrative fee (Note 5) | | 11,889 | |
| Custodian fees | | 3,123 | |
| Transfer agent fees | | 11,809 | |
| Directors'/Trustees' fees (Note 5) | | 864 | |
| Auditing fees | | 15,298 | |
| Legal fees | | 5,841 | |
| Distribution services fee (Note 5) | | 9,025 | |
| Other service fees (Notes 2 and 5) | | 37,881 | |
| Portfolio accounting fees | | 44,747 | |
| Share registration costs | | 15,161 | |
| Printing and postage | | 8,971 | |
| Miscellaneous (Note 5) | | 2,888 | |
| TOTAL EXPENSES | | 228,269 | |
| Waiver and Reimbursements: | | | |
| Waiver of investment adviser fee (Note 5) | $(60,772) | | |
| Reimbursement of other operating expenses (Notes 2 and 5) | (42,142) | | |
| TOTAL WAIVER AND REIMBURSEMENTS | | (102,914) | |
| Net expenses | | | 125,355 |
| Net investment income | | | 466,294 |
Realized and Unrealized Gain (Loss) on Investments and
Futures Contracts: | | | |
| Net realized gain on investments | | | 112,228 |
| Net realized loss on futures contracts | | | (52,010) |
| Net change in unrealized appreciation of investments | | | 19,226 |
| Net change in unrealized depreciation of futures contracts | | | (8,237) |
| Net realized and unrealized gain on investments and futures contracts | | | 71,207 |
| Change in net assets resulting from operations | | | $537,501 |
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)
2/28/2015 | Year End
8/31/2014 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $466,294 | $932,422 |
| Net realized gain (loss) on investments and futures contracts | 60,218 | (90,156) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | 10,989 | 1,769,490 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 537,501 | 2,611,756 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (425,062) | (861,279) |
| Class B Shares | (27,528) | (66,411) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (452,590) | (927,690) |
| Share Transactions: | | |
| Proceeds from sale of shares | 2,112,255 | 7,059,525 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 363,141 | 733,887 |
| Cost of shares redeemed | (1,724,177) | (9,089,054) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 751,219 | (1,295,642) |
| Change in net assets | 836,130 | 388,424 |
| Net Assets: | | |
| Beginning of period | 30,583,694 | 30,195,270 |
| End of period (including undistributed net investment income of $17,341 and $3,637, respectively) | $31,419,824 | $30,583,694 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2015 (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 acquired with remaining maturities of 60 days or less are valued at their 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, except that options are valued at the mean of closing bid and asked quotations. |
| ■ | 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 last traded or purchase price of the security, information obtained by contacting the issuer or dealers, 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, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. |
Semi-Annual Shareholder Report
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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value 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, methods, models 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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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 and Class B Shares may bear distribution services fees and other service fees unique to those classes.
Semi-Annual Shareholder Report
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.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class B Shares to unaffiliated 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 other service fees. In addition, unaffiliated third-party financial intermediaries may waive other service fees. This waiver can be modified or terminated at any time. For the six months ended February 28, 2015, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $34,873 | $(1,300) |
| Class B Shares | 3,008 | — |
| TOTAL | $37,881 | $(1,300) |
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, 2015, 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, 2015, tax years 2011 through 2014 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
Semi-Annual Shareholder Report
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.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of futures contracts held by the Fund throughout the period was $1,293,281. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments |
| | Liability |
| | Statement of
Assets and
Liabilities
Location | Fair
Value |
Derivatives not accounted for as
hedging instruments under
ASC Topic 815 | | |
| Interest rate contracts | Payable for daily
variation margin | $8,237* |
| * | 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. |
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended February 28, 2015
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $(52,010) |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $(8,237) |
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. The Fund applies Investment Company accounting and reporting guidance.
Semi-Annual Shareholder Report
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 181,158 | $1,899,242 | 628,818 | $6,401,405 |
| Shares issued to shareholders in payment of distributions declared | 32,655 | 342,150 | 66,866 | 683,202 |
| Shares redeemed | (122,565) | (1,283,763) | (806,005) | (8,127,678) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | 91,248 | $957,629 | (110,321) | $(1,043,071) |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 20,228 | $213,013 | 64,975 | $658,120 |
| Shares issued to shareholders in payment of distributions declared | 2,004 | 20,991 | 4,966 | 50,685 |
| Shares redeemed | (42,100) | (440,414) | (94,657) | (961,376) |
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS | (19,868) | $(206,410) | (24,716) | $(252,571) |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | 71,380 | $751,219 | (135,037) | $(1,295,642) |
4. FEDERAL TAX INFORMATION
At February 28, 2015, the cost of investments for federal tax purposes was $29,071,619. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized depreciation resulting from futures contracts was $2,032,949. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,087,676 and net unrealized depreciation from investments for those securities having an excess of cost over value of $54,727.
At August 31, 2014, the Fund had a capital loss carryforward of $2,742,643 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 | $239,378 | NA | $239,378 |
| 2017 | $958,822 | NA | $958,822 |
| 2018 | $1,218,820 | NA | $1,218,820 |
| 2019 | $325,623 | NA | $325,623 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2014, for federal income tax purposes, post October losses of $157,203 were deferred to September 1, 2014.
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, 2015, the Adviser, voluntarily waived its entire fee of $60,772 and voluntarily reimbursed $40,842 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, 2015, 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 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, 2015, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $9,025 |
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, 2015, FSC retained $5,500 of fees paid by the Fund. For the six months ended February 28, 2015, 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.
Other Service Fees
For the six months ended February 28, 2015, FSSC received $2,448 and reimbursed $1,300 of the other service fees disclosed in Note 2.
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, 2015, FSC retained $2,126 in sales charges from the sale of Class A Shares. FSC also retained $3,883 of CDSC relating to redemptions of Class B Shares.
Interfund Transactions
During the six months ended February 28, 2015, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $5,600,000 and $5,900,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. 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
Semi-Annual Shareholder Report
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, 2015; 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. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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, 2015, were as follows:
| Purchases | $2,770,427 |
| Sales | $1,522,259 |
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, 2015, 9.03% of the securities in the Portfolio of Investments were 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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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, 2015 there were no outstanding loans. During the six months ended February 28, 2015, 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 other service 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, 2014 to February 28, 2015.
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
9/1/2014 | Ending
Account Value
2/28/2015 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,018.10 | $3.80 |
| Class B Shares | $1,000 | $1,014.30 | $7.59 |
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
Evaluation and Approval of Advisory Contract–May 2014
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 2014 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 of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
Semi-Annual Shareholder Report
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.
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
Semi-Annual Shareholder Report
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.
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. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. 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 advisory fee rate, net advisory fee rate and other expenses of the Fund with the Adviser and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and that it 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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; 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.
Semi-Annual Shareholder Report
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 was one of the Board's considerations 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
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. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
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 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
Semi-Annual Shareholder Report
change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
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 concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant 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.
Semi-Annual Shareholder Report
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.
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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 (4/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2015
| 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, 2014 through February 28, 2015. 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, 2015, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 17.1% |
| Education | 16.5% |
| Hospital | 12.3% |
| Dedicated Tax | 9.9% |
| Pre-refunded | 9.1% |
| Public Power | 5.9% |
| Water & Sewer | 5.4% |
| Airport | 5.4% |
| Senior Care | 6.0% |
| Other2 | 11.1% |
| Other Assets and Liabilities—Net3 | 1.3% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party 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 87.6% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2015 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.2% | |
| | | Guam—0.9% | |
| $1,000,000 | | Guam Government Business Privilege Tax, Business Privilege Tax Bonds (Series 2012B), 5.00%, 1/1/2037 | $1,095,650 |
| 560,000 | | Guam Government Limited Obligation (Section 30), Bonds (Series 2009A), 5.625% (Original Issue Yield: 5.875%), 12/1/2029 | 620,805 |
| | | TOTAL | 1,716,455 |
| | | Ohio—96.9% | |
| 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 | 2,142,100 |
| 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 | 2,239,820 |
| 1,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2031 | 1,149,980 |
| 2,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2033 | 2,287,200 |
| 500,000 | | Akron, OH, Revenue Refunding Bonds (Series A), 5.00% (Akron, OH Community Learning Centers), 12/1/2023 | 596,450 |
| 2,000,000 | | Allen County, OH, Hospital Facilities Revenue Bonds (Series 2010B), 5.25% (Catholic Healthcare Partners), 9/1/2027 | 2,318,340 |
| 1,000,000 | | American Municipal Power-Ohio, Inc., Refunding Revenue Bonds (Series 2015A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2042 | 1,129,350 |
| 165,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2016 | 172,432 |
| 335,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.00% (American Municipal Power, Prairie State Energy Campus Project)/(United States Treasury COL), 2/15/2016 | 350,363 |
| 115,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.25% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2028 | 127,119 |
| 1,885,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.25% (American Municipal Power, Prairie State Energy Campus Project)/(United States Treasury PRF 2/15/2018@100), 2/15/2028 | 2,132,067 |
| 2,250,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2015A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2029 | 2,572,942 |
| 465,000 | | Beavercreek, OH Local School District, UT GO Bonds, 6.60% (National Public Finance Guarantee Corporation INS), 12/1/2015 | 484,614 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $320,000 | | Bowling Green, OH CSD, UT GO School Facilities Bonds, 5.00% (AGM INS), 12/1/2024 | $349,136 |
| 1,000,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.00%, 6/1/2015 | 1,010,120 |
| 2,000,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series A-2), 6.50%, 6/1/2047 | 1,784,240 |
| 1,965,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds, 5.125% (Original Issue Yield: 5.44%), 6/1/2024 | 1,682,590 |
| 1,000,000 | | Centerville, OH, Health Care Fixed Rate Revenue Bonds (Series 2007A), 6.00% (Bethany Lutheran Village), 11/1/2038 | 1,052,840 |
| 740,000 | | Cincinnati City School District, OH, Certificates of Participation, 5.00% (Assured Guaranty Municipal Corp. INS 12/15/2016@100)/(United States Treasury PRF 12/15/2016@100), 12/15/2024 | 800,584 |
| 260,000 | | Cincinnati City School District, OH, Certificates of Participation, 5.00% (United States Treasury PRF 12/15/2016@100), 12/15/2024 | 281,190 |
| 1,000,000 | | Cincinnati City School District, OH, UT GO Bonds, 5.00% (National Public Finance Guarantee Corporation INS), 12/1/2017 | 1,118,870 |
| 2,000,000 | | Cincinnati, OH, UT Various Purpose GO Improvement & Refunding Bonds (Series 2014A), 5.00%, 12/1/2032 | 2,291,460 |
| 2,105,000 | | Cleveland Heights & University Heights, OH City School District, School Improvement UT GO Bonds (Series, 5.00%), 12/1/2051 | 2,296,471 |
| 250,000 | | Cleveland Heights & University Heights, OH City School District, UT GO School Improvement Bonds, 5.25%, 12/1/2027 | 299,245 |
| 1,500,000 | | Cleveland State University, OH, General Receipts Bonds (Series 2012), 5.00%, 6/1/2037 | 1,662,915 |
| 1,980,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2006A), 5.25% (Assured Guaranty Corp. INS), 1/1/2018 | 2,193,563 |
| 365,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Corp. INS), 1/1/2023 | 408,333 |
| 2,200,000 | | Cleveland, OH Airport System, Revenue Bonds, 5.00% (AGM INS), 1/1/2022 | 2,367,134 |
| 1,550,000 | | Cleveland, OH Public Power System, Revenue Bonds (Series 2008B-1), 5.00%, 11/15/2038 | 1,703,899 |
| 2,685,000 | | Cleveland, OH Public Power System, Revenue Refunding Bonds (Series 2010), 5.00%, 11/15/2017 | 2,972,859 |
| 500,000 | | Cleveland, OH Water, Revenue Bonds (Series 2007P), 5.00%, 1/1/2022 | 557,585 |
| 1,000,000 | | Cleveland, OH Water, Senior Lien Revenue Bonds (Series 2012X), 5.00%, 1/1/2042 | 1,121,570 |
| 1,000,000 | | Cleveland, OH Water, Water Revenue Bonds (Series 2007O), 5.00% (National Public Finance Guarantee Corporation INS), 1/1/2032 | 1,067,580 |
| 245,000 | | Cleveland, OH Water, Water Revenue Bonds (Series 2007P), 5.00%, 1/1/2026 | 272,339 |
| 2,000,000 | | Cleveland, OH, LT GO Bonds, 5.50% (AGM INS), 10/1/2019 | 2,368,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $3,000,000 | | Cleveland-Cuyahoga County, OH Port Authority, Revenue Bonds (Series 2014), 5.00% (Euclid Avenue Development Corporation), 8/1/2039 | $3,307,950 |
| 1,000,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds (Series 2009), 5.00% (United States Treasury PRF 6/1/2019@100), 12/1/2027 | 1,160,990 |
| 1,225,000 | | Columbus, OH Sewer System, Revenue Bonds (Series 2008A), 5.00% (United States Treasury PRF 12/1/2017@100), 6/1/2031 | 1,370,028 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Bonds (Series A), 5.00% (United States Treasury PRF 12/1/2017@100), 6/1/2023 | 1,118,390 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Refunding Bonds (Series 2014), 5.00%, 6/1/2031 | 1,190,490 |
| 505,000 | | Columbus, OH, LT GO Refunding Bonds, 5.00%, 7/1/2023 | 615,711 |
| 500,000 | | Columbus, OH, UT GO Refunding Bonds (Series 1), 5.00%, 7/1/2028 | 597,555 |
| 1,500,000 | | Columbus, OH, Various Purpose LT GO Bonds (Series 2013B), 5.00%, 8/15/2028 | 1,795,785 |
| 1,340,000 | | Cuyahoga Cnty, OH Sales Tax, Various Purpose Sales Tax Revenue Bonds (Series 2014), 5.00%, 12/1/2034 | 1,577,676 |
| 200,000 | | Cuyahoga County, OH, LT GO Bonds (Series 2009A), 5.00% (United States Treasury 12/1/2016@100), 12/1/2021 | 236,130 |
| 1,000,000 | | Cuyahoga County, OH, LT GO Convention Hotel Project, 5.00%, 12/1/2036 | 1,124,460 |
| 200,000 | | Cuyahoga County, OH, LT GO Refunding Bonds (Series 2012A), 4.00%, 12/1/2024 | 220,216 |
| 220,000 | | Cuyahoga, OH CCD , General Receipts Revenue Bonds (Series 2012D), 5.00%, 8/1/2026 | 258,291 |
| 220,000 | | Dalton, OH Local School District, UT GO Bonds, 5.00% (School District Credit Program GTD), 8/1/2024 | 254,162 |
| 490,000 | | Dalton, OH Local School District, UT GO Bonds, 5.00% (School District Financing Program GTD), 8/1/2025 | 564,451 |
| 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 | 2,388,160 |
| 1,335,000 | | Dayton, OH Airport, Airport Revenue Refunding Bonds (Series 2014A), 5.00% (James M. Cox Dayton International Airport)/(AGM INS), 12/1/2026 | 1,517,855 |
| 315,000 | | Dayton-Montgomery County, OH Port Authority, Revenue Bonds (Series A), 5.00% (Dayton Regional Bond Fund), 11/15/2017 | 315,469 |
| 2,000,000 | | Fairfield County, OH, LT GO Bonds (Series 2015), 4.00%, 12/1/2040 | 2,048,700 |
| 3,000,000 | | Franklin County, OH Convention Facilities Authority, Revenue Bonds, 5.00% (AMBAC INS)/(United States Treasury PRF 12/1/2015@100), 12/1/2026 | 3,106,140 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Franklin County, OH Convention Facilities Authority, Tax & Lease Revenue Anticipation & Refunding Bonds (Series 2014), 5.00%, 12/1/2035 | $2,297,860 |
| 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 | 2,611,752 |
| 1,000,000 | | Franklin County, OH Health Care Facilities, Refunding & Improvement Bonds (Series 2014), 5.00% (Friendship Village of Dublin, OH, Inc.), 11/15/2044 | 1,070,650 |
| 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 | 1,725,739 |
| 2,165,000 | | Franklin County, OH, Various Purpose LT GO Bonds, 5.00%, 12/1/2031 | 2,382,128 |
| 2,000,000 | | Hamilton County, OH Convention Facilities Authority, Convention Facilities Authority Revenue & Refunding Bonds (Series 2014), 5.00%, 12/1/2032 | 2,226,180 |
| 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 | 1,046,740 |
| 2,850,000 | | Hamilton County, OH, Sales Tax Refunding Bonds (Series 2011A), 5.00%, 12/1/2032 | 3,192,627 |
| 280,000 | | Hamilton, OH, LT GO Various Purpose Bonds, 5.00% (Assured Guaranty Corp. INS), 11/1/2021 | 319,606 |
| 300,000 | | Hamilton, OH, LT GO Various Purpose Refunding Bonds, 5.00%, 11/1/2021 | 341,280 |
| 500,000 | | Hilliard, OH, LT GO Various Purpose Bonds, 5.00%, 12/1/2024 | 599,105 |
| 200,000 | | Huber Heights, OH City School District, UT GO School Improvement Bonds, 4.75%, 12/1/2024 | 229,062 |
| 1,555,000 | | Jobs Ohio Beverage System, OH, Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds (Series 2013A), 5.00%, 1/1/2038 | 1,746,607 |
| 2,000,000 | | Kent State University, OH, General Receipts Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. INS), 5/1/2028 | 2,255,300 |
| 615,000 | | Kent State University, OH, General Receipts Revenue Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. INS), 5/1/2023 | 703,714 |
| 1,860,000 | | Kettering, OH City School District, UT GO Bonds, 4.75% (AGM INS), 12/1/2020 | 2,028,665 |
| 400,000 | | Kettering, OH City School District, UT GO School Improvement Refunding Bonds, 4.75% (AGM INS), 12/1/2022 | 435,308 |
| 1,500,000 | | Lorain County, OH Port Authority, Recovery Zone Facility Revenue Bonds (Series 2010), 6.75% (United States Steel Corp.), 12/1/2040 | 1,666,260 |
| 1,000,000 | | Lorain County, OH, Hospital Revenue Bonds (Series 2006H), 5.00% (Catholic Healthcare Partners)/(Assured Guaranty Corp. INS), 2/1/2024 | 1,101,260 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Lucas County, OH, Hospital Revenue Bonds (Series 2011A), 6.50% (ProMedica Healthcare Obligated Group), 11/15/2037 | $2,508,600 |
| 1,090,000 | | Marysville, OH Wastewater Treatment System, Revenue Bonds, 4.75% (Assured Guaranty Corp. INS)/(Original Issue Yield: 4.80%), 12/1/2046 | 1,155,335 |
| 1,000,000 | | Miami County, OH, Hospital Facilities Revenue & Refunding Bonds (Series 2006), 5.25% (Upper Valley Medical Center, OH), 5/15/2021 | 1,050,150 |
| 500,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.00%, 9/1/2036 | 562,375 |
| 2,000,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011, 5.00%, 9/1/2031 | 2,295,000 |
| 500,000 | | Miami University, OH, Revenue Refunding Bonds, 5.00%, 9/1/2026 | 575,975 |
| 1,600,000 | | Miamisburg, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00%, 12/1/2024 | 1,813,424 |
| 500,000 | | Middletown, OH, LT GO Refunding and Improvement Bonds, 5.00% (AGM INS), 12/1/2021 | 561,690 |
| 1,000,000 | | Montgomery County, OH, Revenue Bonds (Series 2008D), 6.125% (Catholic Health Initiatives)/(Original Issue Yield: 6.30%), 10/1/2028 | 1,153,170 |
| 250,000 | | Mount Healthy, OH City School District, UT GO School Improvement Bonds, 5.00% (AGM INS), 12/1/2025 | 278,885 |
| 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 | 1,033,150 |
| 2,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Bonds (Series 2013), 5.00%, 11/15/2038 | 2,283,040 |
| 1,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Refunding Bonds (Series 2014), 5.00%, 11/15/2049 | 1,143,870 |
| 205,000 | | Northmont, OH City School District, UT GO School Improvement Bonds (Series A), 4.00% (School District Credit Program GTD), 11/1/2024 | 223,885 |
| 1,415,000 | | Oak Hills, OH Local School District, UT GO Bonds, 5.00% (AGM INS), 12/1/2025 | 1,464,214 |
| 210,000 | | Ohio HFA SFM , Revenue Bond (Series 1), 3.25%, 5/1/2020 | 208,979 |
| 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 | 2,239,660 |
| 1,150,000 | | Ohio State Air Quality Development Authority, Environmental Improvement Revenue Bonds (Series 2010), 5.00% (Buckeye Power, Inc.), 12/1/2021 | 1,308,159 |
| 1,455,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 1,685,923 |
| 400,000 | | Ohio State Building Authority, Administration Building Fund Revenue Bonds (Series 2009A), 5.00%, 10/1/2023 | 457,248 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Ohio State Higher Educational Facility Commission, Higher Education Facility Revenue Bonds (Series 2006), 5.00% (Kenyon College, OH), 7/1/2041 | $2,097,180 |
| 1,875,000 | | Ohio State Higher Educational Facility Commission, Hospital Revenue Bonds (Series 2007A), 5.25% (University Hospitals Health System, Inc.), 1/15/2046 | 1,960,050 |
| 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 | 1,159,280 |
| 1,830,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds (Series 2013), 5.00% (University of Dayton), 12/1/2031 | 2,087,097 |
| 300,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 4.75% (Mount Union College), 10/1/2016 | 318,363 |
| 350,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds, 5.00% (University of Dayton)/(Berkshire Hathaway Assurance Corp. INS), 12/1/2025 | 377,772 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Refunding Bonds (Series 2008C), 5.00% (Case Western Reserve University, OH), 12/1/2029 | 1,092,940 |
| 240,000 | | Ohio State Turnpike & Infrastructure Commission, Refunding Revenue Bonds (Series 2009A), 5.00%, 2/15/2021 | 270,377 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Revenue Refunding Bonds (Series 2010A), 5.00%, 2/15/2031 | 1,139,900 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Junior Lien Revenue Bonds (Series 2013A-1), 5.000% (Original Issue Yield: 5.05%), 02/15/2048 | 1,118,180 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Revenue Refunding Bonds (Series 1998A), 5.50% (National Re Holdings Corp. INS), 2/15/2024 | 1,267,220 |
| 190,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00% (United States Treasury PRF 12/1/2018@100), 12/1/2027 | 218,538 |
| 1,810,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00%, 12/1/2027 | 2,045,752 |
| 340,000 | | Ohio State University, Revenue Bonds (Series 2009A), 4.25%, 12/1/2024 | 365,571 |
| 255,000 | | Ohio State University, Revenue Bonds, (Series 2009A), 5.00%, 12/1/2026 | 288,614 |
| 1,000,000 | | Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.00%, 6/1/2038 | 1,135,150 |
| 1,000,000 | | Ohio State Water Development Authority, Drinking Water Assistance Fund Refunding Revenue Bonds (Series 2008), 5.00% (United States Treasury PRF 6/1/2018@100), 12/1/2021 | 1,132,660 |
| 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 | 1,133,360 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,500,000 | | Ohio State, Common Schools UT GO Bonds (Series 2011B), 5.00%, 9/15/2024 | $1,789,515 |
| 1,500,000 | | Ohio State, Hospital Revenue Bonds, 5.00% (Cleveland Clinic), 1/1/2031 | 1,707,195 |
| 1,200,000 | | Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033 | 1,315,320 |
| 2,585,000 | | Ohio State, Infrastructure Improvement GO Bonds (Series 2008A), 5.375% (Original Issue Yield: 5.50%), 9/1/2028 | 2,910,245 |
| 2,000,000 | | Ohio State, Infrastructure Improvement UT GO Bonds (Series 2007A), 4.75%, 9/1/2027 | 2,145,980 |
| 1,000,000 | | Ohio State, Major New State Infrastructure Project Revenue Bonds (Series 2008-1), 5.75% (United States Treasury PRF 6/15/2018@100), 6/15/2019 | 1,157,260 |
| 655,000 | | Ohio State, UT GO Bonds (Series 2008A), 5.375% (Original Issue Yield: 5.42%), 9/1/2023 | 739,646 |
| 2,310,000 | | Ohio State, UT GO Bonds, 4.25%, 5/1/2016 | 2,418,131 |
| 525,000 | | Ohio State, UT GO Conservation Project Bonds (Series 2011A), 5.25%, 9/1/2022 | 626,813 |
| 2,000,000 | | Ohio University, General Receipts Bonds (Series 2013), 5.00%, 12/1/2043 | 2,247,040 |
| 700,000 | | Olentangy, OH Local School District, UT GO Refunding Bonds, 5.00% (United States Treasury PRF 12/1/2016@100)/(AGM INS), 12/1/2022 | 756,336 |
| 415,000 | | Orrville, OH CSD, UT GO Bonds, 4.50% (AMBAC INS), 12/1/2018 | 452,429 |
| 350,000 | | Orrville, OH CSD, UT GO Refunding Bonds, 5.00% (AMBAC INS), 12/1/2020 | 388,738 |
| 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 | 366,535 |
| 50,374 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 39,493 |
| 1,000,000 | | Ravenna, OH City School District, UT GO Bonds (Series 2006), 5.00% (AGM INS)/(United States Treasury PRF 7/15/2016@100), 1/15/2031 | 1,064,690 |
| 1,240,000 | | 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 | 1,281,527 |
| 470,000 | | River Valley, OH Local School District, UT GO School Facilities Bonds, 5.25% (School District Credit Program GTD, AGM INS), 11/1/2023 | 582,725 |
| 300,000 | | Sheffield Lake, OH City School District, UT GO School Improvement Bonds, 5.00%, 12/1/2025 | 340,671 |
| 700,000 | | South Euclid, OH, LT GO Real Estate Acquisition and Urban Development Bonds, 5.00%, 6/1/2032 | 797,069 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,250,000 | | 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 | $1,332,787 |
| 500,000 | | Switzerland, OH Local School District, UT GO School Improvement Refunding Bonds, 5.00% (School District Credit Program GTD), 12/1/2027 | 580,770 |
| 1,000,000 | | Toledo, OH Water System, Revenue Improvement and Refunding Bonds (Series 2013), 5.00%, 11/15/2032 | 1,139,180 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds, 6.45% (CSX Corp.), 12/15/2021 | 1,896,630 |
| 1,265,000 | | 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 | 1,279,636 |
| 2,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2008B), 5.25% (AGM INS), 1/1/2027 | 2,224,620 |
| 350,000 | | University of Akron, OH, Revenue Bonds (Series A), 5.00% (AGM INS), 1/1/2021 | 389,473 |
| 500,000 | | University of Akron, OH, Revenue Bonds (Series B), 5.25% (AGM INS), 1/1/2024 | 557,945 |
| 300,000 | | University of Cincinnati, OH, General Receipt Bonds (Series 2005B), 5.00% (AMBAC INS), 6/1/2019 | 303,738 |
| 1,000,000 | | University of Cincinnati, OH, General Receipts Bonds (Series 2014C), 5.00%, 6/1/2041 | 1,148,030 |
| | | TOTAL | 177,305,635 |
| | | Puerto Rico—0.4% | |
| 1,000,000 | | Puerto Rico Government Development Bank (GDB), Senior Notes (Series 2006B), 5.00%, 12/1/2017 | 824,100 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $170,166,857) | 179,846,190 |
| | | SHORT-TERM MUNICIPAL—0.5%1 | |
| | | Ohio—0.5% | |
| 850,000 | | Allen County, OH, (Series 2010C) Daily VRDNs (Catholic Healthcare Partners)/(MUFG Union Bank, N.A. LOC), 0.010%, 3/02/2015 | 850,000 |
| | | TOTAL INVESTMENTS—98.7%
(IDENTIFIED COST $171,016,857)2 | 180,696,190 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.3%3 | 2,358,697 |
| | | TOTAL NET ASSETS—100% | $183,054,887 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 1.1% of the Fund's portfolio as calculated based upon total market value.
Semi-Annual Shareholder Report
At February 28, 2015, the Fund had the following outstanding futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Unrealized
Appreciation |
| 4U.S. Treasury Notes, 10-Year Long Futures | 90 | $11,509,719 | June 2015 | $97,532 |
Unrealized Appreciation on Futures Contracts is included in “Other Assets and
Liabilities—Net.”
| 1 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 2 | The cost of investments for federal tax purposes amounts to $170,948,635. |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 4 | Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2015.
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.
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, 2015, in valuing the Fund's assets carried at fair value:
| Valuation Inputs | | | | |
| | Level 1—
Quoted
Prices | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | Total |
| Debt Securities: | | | | |
| Municipal Bonds | $— | $179,846,190 | $— | $179,846,190 |
| Short-Term Municipal | — | 850,000 | — | 850,000 |
| TOTAL SECURITIES | $— | $180,696,190 | $— | $180,696,190 |
| OTHER FINANCIAL INSTRUMENTS* | $97,532 | $— | $— | $97,532 |
| * | Other financial instruments include futures contracts. |
Semi-Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AGM | —Assured Guaranty Municipal Corp. |
| AMBAC | —American Municipal Bond Assurance Corporation |
| CCD | —Community College District |
| CSD | —Central School District |
| EDRBs | —Economic Development Revenue Bonds |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HFA | —Housing Finance Authority |
| INS | —Insured |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| SFM | —Single Family Mortgage |
| 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $11.28 | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.18 | 0.36 | 0.38 | 0.38 | 0.42 | 0.42 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.03 | 0.59 | (0.79) | 0.56 | (0.21) | 0.45 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.21 | 0.95 | (0.41) | 0.94 | 0.21 | 0.87 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.17) | (0.37) | (0.36) | (0.40) | (0.42) | (0.41) |
| Net Asset Value, End of Period | $11.32 | $11.28 | $10.70 | $11.47 | $10.93 | $11.14 |
| Total Return1 | 1.89% | 9.00% | (3.73)% | 8.72% | 2.04% | 8.34% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.75%2 | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 3.14%2 | 3.32% | 3.28% | 3.40% | 3.87% | 3.84% |
| Expense waiver/reimbursement3 | 0.14%2 | 0.16% | 0.14% | 0.18% | 0.18% | 0.16% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $72,179 | $69,461 | $45,131 | $53,165 | $50,990 | $57,338 |
| Portfolio turnover | 13% | 8% | 15% | 17% | 9% | 20% |
| 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 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $11.28 | $10.70 | $11.47 | $10.93 | $11.14 | $10.68 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.17 | 0.35 | 0.36 | 0.36 | 0.40 | 0.40 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.03 | 0.58 | (0.79) | 0.56 | (0.21) | 0.46 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.20 | 0.93 | (0.43) | 0.92 | 0.19 | 0.86 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.35) | (0.34) | (0.38) | (0.40) | (0.40) |
| Net Asset Value, End of Period | $11.32 | $11.28 | $10.70 | $11.47 | $10.93 | $11.14 |
| Total Return1 | 1.81% | 8.84% | (3.87)% | 8.56% | 1.89% | 8.18% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.90%2 | 0.90% | 0.90% | 0.90% | 0.90% | 0.90% |
| Net investment income | 2.99%2 | 3.19% | 3.13% | 3.25% | 3.70% | 3.72% |
| Expense waiver/reimbursement3 | 0.39%2 | 0.41% | 0.39% | 0.43% | 0.43% | 0.41% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $110,876 | $109,583 | $118,639 | $128,005 | $117,884 | $135,096 |
| Portfolio turnover | 13% | 8% | 15% | 17% | 9% | 20% |
| 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 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, 2015 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $171,016,857) | | $180,696,190 |
| Restricted cash (Note 2) | | 121,500 |
| Cash | | 15,579 |
| Income receivable | | 2,011,482 |
| Receivable for shares sold | | 291,492 |
| Receivable for daily variation margin | | 14,063 |
| Prepaid expenses | | 14,121 |
| TOTAL ASSETS | | 183,164,427 |
| Liabilities: | | |
| Payable for other service fees (Notes 2 and 5) | $34,274 | |
| Payable for portfolio accounting fees | 23,497 | |
| Payable for transfer agent fee | 15,098 | |
| Payable for share registration costs | 13,348 | |
| Payable for distribution services fee (Note 5) | 12,896 | |
| Payable for shares redeemed | 10,427 | |
| TOTAL LIABILITIES | | 109,540 |
| Net assets for 16,172,925 shares outstanding | | $183,054,887 |
| Net Assets Consists of: | | |
| Paid-in capital | | $174,693,464 |
| Net unrealized appreciation of investments and futures contracts | | 9,776,865 |
| Accumulated net realized loss on investments and futures contracts | | (1,499,641) |
| Undistributed net investment income | | 84,199 |
| TOTAL NET ASSETS | | $183,054,887 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($72,178,533 ÷ 6,377,750 shares outstanding), no par value, unlimited shares authorized | | $11.32 |
| Offering price per share (100/95.50 of $11.32) | | $11.85 |
| Redemption proceeds per share | | $11.32 |
| Class F Shares: | | |
| Net asset value per share ($110,876,354 ÷ 9,795,175 shares outstanding), no par value, unlimited shares authorized | | $11.32 |
| Offering price per share (100/99.00 of $11.32) | | $11.43 |
| Redemption proceeds per share (99.00/100 of $11.32) | | $11.21 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2015 (unaudited)
| Investment Income: | | | |
| Interest | | | $3,495,061 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $358,579 | |
| Administrative fee (Note 5) | | 70,147 | |
| Custodian fees | | 6,798 | |
| Transfer agent fees | | 49,465 | |
| Directors'/Trustees' fees (Note 5) | | 1,223 | |
| Auditing fees | | 13,216 | |
| Legal fees | | 5,848 | |
| Distribution services fee (Note 5) | | 218,942 | |
| Other service fees (Notes 2 and 5) | | 223,548 | |
| Portfolio accounting fees | | 44,747 | |
| Share registration costs | | 16,336 | |
| Printing and postage | | 12,002 | |
| Miscellaneous (Note 5) | | 3,650 | |
| TOTAL EXPENSES | | 1,024,501 | |
| Waivers and Reimbursement: | | | |
| Waiver of investment adviser fee (Note 5) | $(129,394) | | |
| Waiver/reimbursement of other operating expenses (Notes 2 and 5) | (136,375) | | |
| TOTAL WAIVERS AND REIMBURSEMENT | | (265,769) | |
| Net expenses | | | 758,732 |
| Net investment income | | | 2,736,329 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 1,096,399 |
| Net realized loss on futures contracts | | | (142,593) |
| Net change in unrealized appreciation of investments | | | (494,594) |
| Net change in unrealized appreciation of futures contracts | | | 97,532 |
| Net realized and unrealized gain on investments and futures contracts | | | 556,744 |
| Change in net assets resulting from operations | | | $3,293,073 |
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)
2/28/2015 | Year End
8/31/2014 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $2,736,329 | $5,273,110 |
| Net realized gain (loss) on investments and futures contracts | 953,806 | (311,632) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (397,062) | 8,695,510 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 3,293,073 | 13,656,988 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (1,070,703) | (1,662,020) |
| Class F Shares | (1,591,725) | (3,603,881) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (2,662,428) | (5,265,901) |
| Share Transactions: | | |
| Proceeds from sale of shares | 10,826,731 | 15,463,380 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from Huntington Ohio Tax Free Fund | — | 24,405,186 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,081,587 | 3,965,276 |
| Cost of shares redeemed | (9,528,199) | (36,951,129) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 3,380,119 | 6,882,713 |
| Change in net assets | 4,010,764 | 15,273,800 |
| Net Assets: | | |
| Beginning of period | 179,044,123 | 163,770,323 |
| End of period (including undistributed net investment income of $84,199 and $10,298, respectively) | $183,054,887 | $179,044,123 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2015 (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.
On May 16, 2014, the Fund acquired all of the net assets of Huntington Ohio Tax Free Fund (the “Acquired Fund”), an open-end investment company in a tax-free reorganization, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders on May 16, 2014. In connection with the acquisition, the Acquired Fund's Institutional Class Shares and Class A Shares were exchanged for Class A Shares of the Fund. The purpose of the transaction was to combine two portfolios with comparable investment objectives and strategies. For financial reporting purposes, assets received and Class A Shares issued by the Fund were recorded at fair value; however; the cost basis of the investments received from the Acquired Fund was carried forward to align ongoing reporting of the Fund's realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
For every Institutional Class Share and Class A Share exchanged, a shareholder of Huntington Ohio Tax Free Fund received approximately 1.91 Class A Shares of Federated Ohio Municipal Income Fund.
The Fund received net assets from the Acquired Fund as the result of the tax-free reorganization as follows:
Class A
Shares of the
Fund Issued | Acquired Fund
Net Assets
Received | Unrealized
Appreciation† | Net Assets
of the Fund
Immediately
Prior to
Combination | Net Assets
of the Fund
Immediately
After
Combination |
| 2,170,409 | $24,405,186 | $765,871 | $155,661,433 | $180,066,619 |
| † | Unrealized Appreciation is included in the Acquired Fund Net Assets Received amount shown above. |
Semi-Annual Shareholder Report
Assuming the acquisition had been completed on September 1, 2013, the beginning of the annual reporting period of the Fund, the Fund's pro forma results of operations for the year ended August 31, 2014, are as follows:
| Net investment income* | $5,863,794 |
| Net realized and unrealized gain on investments | $10,076,271 |
| Net increase in net assets resulting from operations | $15,940,065 |
| * | Net investment income reflects $150,937 of pro forma eliminated expenses. |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amount of earnings of the Acquired Fund that has been included in the Fund's Statement of Changes in Net Assets as of August 31, 2014.
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 acquired with remaining maturities of 60 days or less are valued at their 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, except that options are valued at the mean of closing bid and asked quotations. |
| ■ | 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 last traded or purchase price of the security, information obtained by contacting the issuer or dealers, 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, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. |
Semi-Annual Shareholder Report
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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value 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, methods, models 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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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.
Semi-Annual Shareholder Report
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. 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 distribution services fees and other service 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.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class F Shares to unaffiliated 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 other service fees. In addition, unaffiliated third-party financial intermediaries may waive other service fees. This waiver can be modified or terminated at any time. For the six months ended February 28, 2015, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $87,273 | $(100) |
| Class F Shares | 136,275 | — |
| TOTAL | $223,548 | $(100) |
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, 2015, 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, 2015, tax years 2011 through 2014 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
Semi-Annual Shareholder Report
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 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.
Futures contracts outstanding at the period end are listed after the Fund's Portfolio of Investments.
The average notional value of long futures contracts held by the Fund throughout the period was $2,390,960. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments |
| | Asset |
| | Statements 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 | $97,532* |
| * | Includes cumulative appreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statements of Assets and Liabilities. |
Semi-Annual Shareholder Report
The Effect of Derivative Instruments on the Statements of Operations for the Six Months ended February 28, 2015
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $(142,593) |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $97,532 |
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. The Fund applies Investment Company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 552,555 | $6,257,896 | 931,514 | $10,338,577 |
Proceeds from shares issued in connection
with the tax-free transfer of assets from
Huntington Ohio Tax Free Fund | — | — | 2,170,409 | 24,405,186 |
| Shares issued to shareholders in payment of distributions declared | 53,667 | 606,946 | 57,323 | 636,316 |
| Shares redeemed | (387,938) | (4,389,958) | (1,218,774) | (13,405,504) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | 218,284 | $2,474,884 | 1,940,472 | $21,974,575 |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 403,486 | $4,568,835 | 462,494 | $5,124,803 |
| Shares issued to shareholders in payment of distributions declared | 130,375 | 1,474,641 | 301,689 | 3,328,960 |
| Shares redeemed | (453,988) | (5,138,241) | (2,138,315) | (23,545,625) |
NET CHANGE RESULTING FROM
CLASS F SHARE TRANSACTIONS | 79,873 | $905,235 | (1,374,132) | $(15,091,862) |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | 298,157 | $3,380,119 | 566,340 | $6,882,713 |
Semi-Annual Shareholder Report
4. FEDERAL TAX INFORMATION
At February 28, 2015, the cost of investments for federal tax purposes was $170,948,635. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation/depreciation resulting from futures contracts was $9,747,555. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,539,044 and net unrealized depreciation from investments for those securities having an excess of cost over value of $791,489.
At August 31, 2014, the Fund had a capital loss carryforward of $2,084,856 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| No expiration | $164,561 | $— | $164,561 |
| 2015 | $70,099 | NA | $70,099 |
| 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 February 28, 2015, the Adviser voluntarily waived $129,394 of its fee.
Semi-Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.150% | on the first $5 billion |
| 0.125% | on the next $5 billion |
| 0.100% | on the next $10 billion |
| 0.075% | on assets in excess of $20 billion |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| Share Class Name | Percentage of Average Daily
Net Assets of Class |
| Class A Shares | 0.05% |
| Class F Shares | 0.40% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, distribution services fees for the Fund were as follows:
| | Distribution
Services Fees
Incurred | Distribution
Services Fees
Waived |
| Class F Shares | $218,942 | $(136,275) |
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, 2015, FSC retained $82,667 of fees paid by the Fund. For the six months ended February 28, 2015, 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.
Semi-Annual Shareholder Report
Other Service Fees
For the six months ended February 28, 2015, FSSC received $1,856 and reimbursed $100 of the other service fees disclosed in Note 2.
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, 2015, FSC retained $1,959 in sales charges from the sale of Class A Shares. FSC retained $7,782 in CDSC relating to redemptions of Class F Shares.
Interfund Transactions
During the six months ended February 28, 2015, 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 $22,500,000 and $21,550,000 respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive their respective fees and/or reimburse expenses. 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, 2015; 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. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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, 2015, were as follows:
| Purchases | $26,465,542 |
| Sales | $22,936,337 |
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, 2015, 21.8% of the securities in the Portfolio of Investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies.
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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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 other service 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, 2014 to February 28, 2015.
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
9/1/2014 | Ending
Account Value
2/28//2015 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,018.90 | $3.75 |
| Class F Shares | $1,000 | $1,018.10 | $4.50 |
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
Evaluation and Approval of Advisory Contract–May 2014
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 2014 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 of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
Semi-Annual Shareholder Report
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.
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
Semi-Annual Shareholder Report
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.
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. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. 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.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and that it 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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; 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 was one of the Board's considerations 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
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. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
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 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 may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
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 concluded that Federated's profit margins did not appear to be excessive.
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
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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 (4/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2015
| 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, 2014 through February 28, 2015. 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, 2015, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 21.1% |
| Education | 17.1% |
| General Obligation-Local | 13.0% |
| Water & Sewer | 9.5% |
| Industrial Development Bond/Pollution Control Revenue Bond | 7.6% |
| Tollroad | 6.8% |
| Dedicated Tax | 6.3% |
| Refunded | 2.6% |
| Airport | 2.6% |
| Senior Care | 2.6% |
| Other2 | 11.4% |
| Other Assets and Liabilities—Net3 | (0.6)% |
| 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, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities. |
| 2 | For purposes of this table, sector classifications constitute 89.2% 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, 2015 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—99.9% | |
| | | Pennsylvania—99.9% | |
| $1,450,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2023 | $1,669,805 |
| 1,550,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2024 | 1,768,255 |
| 3,555,000 | | Allegheny County, PA HDA, Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018 | 4,009,080 |
| 2,000,000 | | Allegheny County, PA HDA, Revenue Refunding Bonds (Series 1998A), 5.125% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.34%), 5/1/2023 | 2,006,000 |
| 1,385,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | 1,448,447 |
| 3,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.75% (United States Steel Corp.), 11/1/2024 | 3,445,050 |
| 595,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2006), 5.125% (Residential Resources Inc. Project), 9/1/2031 | 600,284 |
| 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 | 2,277,480 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 2,039,958 |
| 2,500,000 | | Allegheny County, PA, GO Refunding Bonds (Series C-73), 5.00%, 12/1/2019 | 2,908,650 |
| 2,250,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2035 | 2,455,020 |
| 3,000,000 | | Berks County, PA Municipal Authority, Revenue Bonds (Series 2012A), 5.00% (Reading Hospital & Medical Center), 11/1/2044 | 3,287,280 |
| 2,000,000 | | Bethlehem, PA Authority, GTD Water Revenue Bonds (Series 2014), 5.00% (Bethlehem, PA)/(Build America Mutual Assurance INS), 11/15/2030 | 2,276,580 |
| 1,360,000 | | Bethlehem, PA Authority, GTD Water Revenue Bonds (Series 2014), 5.00% (Bethlehem, PA)/(Build America Mutual Assurance INS), 11/15/2031 | 1,543,056 |
| 3,000,000 | | Bradford County, PA IDA, Solid Waste Disposal Revenue Refunding Bonds (Series 2005A), 4.70% (International Paper Co.), 3/1/2019 | 3,007,110 |
| 500,000 | | Butler County, PA Hospital Authority, Hospital Revenue Bonds (Series 2015A), 5.00% (Butler Health System), 7/1/2039 | 552,255 |
| 1,055,000 | | Catasauqua, PA Area School District, UT GO Bonds, 5.00% (AGM INS), 2/15/2031 | 1,094,636 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds (Series 2012B), 5.00% (Mount Nittany Medical Center), 11/15/2032 | $2,188,500 |
| 1,000,000 | | Chartiers Valley, PA School District, UT GO Bonds (Series 2015B), 5.00% (State Aid Withholding GTD), 10/15/2040 | 1,127,910 |
| 2,530,000 | | Cheltenham Twp, PA School District, LT GO Bonds (Series 2014), 5.00% (State Aid Withholding GTD), 2/15/2040 | 2,840,431 |
| 2,000,000 | | Chester County, PA HEFA, Revenue Bonds (Series 2006), 5.00% (Devereux Foundation), 11/1/2031 | 2,061,900 |
| 1,000,000 | | Chester County, PA, UT GO Bonds, 5.00%, 7/15/2028 | 1,156,830 |
| 1,900,000 | | Chester, PA Water Authority, Water Revenue Bonds (Series 2014), 5.00%, 12/1/2039 | 2,186,406 |
| 2,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00%, 12/1/2037 | 2,159,900 |
| 1,500,000 | | Clarion County, PA IDA, Water Facility Revenue Refunding Bonds (Series 2009), 5.50% (Pennsylvania American Water Co.), 12/1/2039 | 1,656,735 |
| 2,000,000 | | Commonwealth Financing Authority of PA, Revenue Bonds (Series 2013B), 5.00% (Commonwealth of Pennsylvania), 6/1/2036 | 2,216,480 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2011), 5.00%, 11/15/2030 | 2,315,440 |
| 2,355,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2012), 5.00%, 6/1/2022 | 2,830,239 |
| 2,000,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2007A), 5.00% (Diakon Lutheran Social Ministries), 1/1/2036 | 2,046,200 |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Revenue Refunding Bonds (Series 2012), 5.25% (Asbury Pennsylvania Obligated Group), 1/1/2041 | 1,039,220 |
| 2,500,000 | | Dauphin County, PA General Authority, Health System Revenue Bonds (Series 2012A), 5.00% (Pinnacle Health System), 6/1/2042 | 2,705,150 |
| 410,000 | | Delaware County, PA Authority, Revenue Bonds (Series 2012), 5.00% (Villanova University), 8/1/2020 | 484,882 |
| 2,350,000 | | Delaware River Port Authority, Revenue Bonds (Series 2010D), 5.00%, 1/1/2028 | 2,659,965 |
| 1,105,000 | | Erie County, NY Water Authority, Revenue Refunding Bonds (Series 2014), 5.00% (AGM INS), 12/1/2034 | 1,263,601 |
| 1,500,000 | | Erie County, PA Hospital Authority, Revenue Bonds (Series 2006), 5.00% (UPMC Health System)/(CIFG Assurance NA INS), 11/1/2035 | 1,546,920 |
| 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 | 1,026,490 |
| 2,250,000 | | Geisinger Authority, PA Health System, Health System Revenue Bonds (Series 2009A), 5.25% (Geisinger Health System), 6/1/2039 | 2,523,690 |
| 2,260,000 | | Geisinger Authority, PA Health System, Revenue Bonds (Series 2014A), 5.00% (Geisinger Health System), 6/1/2041 | 2,562,388 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | $2,004,780 |
| 1,260,000 | | Haverford Twp, PA School District, UT GO Bonds (Series 2015A), 5.00% (State Aid Withholding GTD), 3/15/2029 | 1,445,812 |
| 785,000 | | Lancaster County, PA Hospital Authority, Health Center Revenue Bonds (Series 2015), 5.00% (Masonic Villages), 11/1/2035 | 885,056 |
| 1,215,000 | | Lancaster County, PA Hospital Authority, Health System Revenue Bonds (Series 2012B), 5.00% (Lancaster General Hospital), 7/1/2042 | 1,340,570 |
| 1,000,000 | | Lancaster County, PA Solid Waste Management Authority, GTD Authority Bonds (Series 2013B), 5.00% (Dauphin County, PA GTD), 12/15/2033 | 1,145,310 |
| 1,000,000 | | Lancaster, PA Higher Education Authority, College Revenue Bonds, 5.00% (Franklin & Marshall College), 4/15/2019 | 1,053,350 |
| 1,000,000 | | Lebanon County, PA Health Facilities Authority, Hospital Revenue Bonds, 5.80% (Good Samaritan Hospital)/(Original Issue Yield: 5.92%), 11/15/2022 | 1,000,730 |
| 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 | 2,494,260 |
| 2,200,000 | | Lycoming County PA Authority, Revenue Bonds (Series A), 5.75% (Susquehanna Health System)/(Original Issue Yield: 5.90%), 7/1/2039 | 2,413,576 |
| 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 | 2,092,620 |
| 1,100,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2028 | 1,188,341 |
| 400,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2029 | 431,860 |
| 1,000,000 | | New Wilmington, PA Municipal Authority, Revenue Bonds (Series 2007GG4), 5.125% (Westminster College)/(Radian Asset Assurance, Inc. INS), 5/1/2033 | 1,028,440 |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2012A), 5.00% (Amtrak), 11/1/2041 | 1,084,060 |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Refunding Bonds (Series 2014), 5.50% (National Gypsum Co.), 11/1/2044 | 1,031,410 |
| 2,000,000 | | Pennsylvania EDFA, Junior GTD Parking Revenue Bonds (Series 2013B-1), 6.00% (Dauphin County, PA GTD), 7/1/2053 | 2,383,820 |
| 700,000 | | Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human Services, Inc.)/(Original Issue Yield: 5.668%), 6/1/2028 | 700,427 |
| 1,500,000 | | Pennsylvania EDFA, Revenue Bonds (Series 2014A), 5.00% (UPMC Health System), 2/1/2045 | 1,667,850 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Pennsylvania EDFA, Solid Waste Disposal Revenue Bonds, Project A, 5.10% (Waste Management, Inc.), 10/1/2027 | $1,031,370 |
| 1,000,000 | | Pennsylvania EDFA, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (Pennsylvania Rapid Bridge Replacement), 6/30/2042 | 1,095,190 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009), 6.20% (Pennsylvania American Water Co.), 4/1/2039 | 2,328,840 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009B), 5.00% (Aqua Pennsylvania, Inc.), 11/15/2040 | 2,270,540 |
| 1,500,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2009), 5.00%, 6/15/2022 | 1,714,830 |
| 1,000,000 | | Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Refunding Bonds (Series 2010), 5.00%, 6/15/2018 | 1,129,850 |
| 1,020,000 | | Pennsylvania State Higher Education Facilities Authority, 5.125% (Gwynedd-Mercy College)/(Radian Asset Assurance, Inc. INS), 5/1/2032 | 1,049,662 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, College Revenue Bonds (Series 2007), 5.00% (Bryn Mawr College)/(AMBAC Financial Group, Inc. INS), 12/1/2037 | 1,080,530 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Fixed Rate Revenue Bonds (Series 2015A), 5.25% (Thomas Jefferson University), 9/1/2050 | 1,118,920 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (First Series of 2012), 5.00% (Temple University), 4/1/2035 | 2,260,680 |
| 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 | 1,046,940 |
| 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 | 1,181,517 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2008), 5.00% (University of the Sciences in Philadelphia)/(United States Treasury PRF 11/1/2018@100), 11/1/2032 | 2,289,680 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009), 5.00% (Carnegie Mellon University), 8/1/2021 | 1,713,855 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009A), 5.25% (University of Pennsylvania Health System), 8/15/2022 | 1,170,190 |
| 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 | 2,294,300 |
| 1,100,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2010), 5.00% (Thomas Jefferson University), 3/1/2040 | 1,188,352 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012), 5.00% (LaSalle University), 5/1/2042 | 1,076,450 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012A), 5.00% (University of Pennsylvania Health System), 8/15/2042 | $1,672,770 |
| 1,630,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2015), 5.00% (University of the Sciences in Philadelphia), 11/1/2036 | 1,843,090 |
| 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 | 1,175,730 |
| 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 | 1,285,612 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Refunding Bonds (Series 2015A), 5.00% (University of Pennsylvania), 10/1/2036 | 1,181,340 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Student Housing Revenue Bonds, 5.125% (Foundation for Indiana University of Pennsylvania)/(Syncora Guarantee, Inc. INS), 7/1/2039 | 2,033,780 |
| 5,740,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2006A), 5.00% (AMBAC Financial Group, Inc. INS), 12/1/2026 | 6,055,815 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2011E), 5.00%, 12/1/2030 | 1,122,820 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2009B), 5.125% (Original Issue Yield: 5.30%), 12/1/2040 | 2,212,140 |
| 1,430,000 | 1 | Pennsylvania State Turnpike Commission, Variable Rate Turnpike Revenue Bonds (Series 2013B), 1.29%, 12/1/2020 | 1,463,305 |
| 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 | 2,804,707 |
| 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 | 2,383,960 |
| 1,500,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2029 | 1,534,650 |
| 3,000,000 | | Pennsylvania State University, Revenue Bonds, 5.00%, 9/1/2035 | 3,070,770 |
| 1,600,000 | | Philadelphia Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 1,629,184 |
| 2,000,000 | | Philadelphia, PA Airport System, Airport Revenue Refunding Bonds (Series 2010D), 5.25%, 6/15/2028 | 2,207,740 |
| 1,210,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 1,340,753 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,350,000 | | Philadelphia, PA Gas Works, Revenue Bonds (Seventh Series 1998 General Ordinance), 5.00% (AMBAC Financial Group, Inc. INS), 10/1/2037 | $2,565,401 |
| 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 | 2,277,760 |
| 1,670,000 | | 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 | 1,786,282 |
| 1,040,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 2014A), 5.00% (Children's Hospital of Philadelphia), 7/1/2042 | 1,191,934 |
| 1,250,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.50% (Beech Student Housing Complex), 7/1/2019 | 1,251,962 |
| 1,000,000 | | Philadelphia, PA Redevelopment Authority, Revenue Bonds (Series 2003A), 5.625% (Beech Student Housing Complex), 7/1/2023 | 1,001,310 |
| 5,000 | | Philadelphia, PA School District, LT GO Bonds (Series 2008E), 6.00% (United States Treasury PRF 9/1/2018@100), 9/1/2038 | 5,868 |
| 40,000 | | Philadelphia, PA School District, LT GO Bonds (Series 2008E), 6.00% (United States Treasury PRF 9/1/2018@100)/(Original Issue Yield: 6.30%), 9/1/2038 | 46,944 |
| 2,955,000 | | Philadelphia, PA School District, LT GO Bonds (Series 2008E), 6.00%, 9/1/2038 | 3,376,885 |
| 3,000,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds (Series 2012), 5.00%, 11/1/2028 | 3,454,470 |
| 750,000 | | Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2009A), 5.25% (Original Issue Yield: 5.33%), 1/1/2036 | 836,505 |
| 3,000,000 | | Philadelphia, PA, UT GO Refunding Bonds (Series 2009A), 5.125% (Assured Guaranty Corp. INS)/(Original Issue Yield: 5.20%), 8/1/2025 | 3,429,180 |
| 1,035,000 | | Pittsburgh, PA Urban Redevelopment Authority, Tax Allocation, 4.50% (Center Triangle), 5/1/2019 | 1,104,635 |
| 2,000,000 | | Pittsburgh, PA Water & Sewer Authority, Water and Sewer System Revenue Bonds (Series 2008 D-1), 5.00% (AGM INS), 9/1/2025 | 2,239,800 |
| 3,000,000 | | Pittsburgh, PA, UT GO Bonds (Series 2012B), 5.00%, 9/1/2026 | 3,486,900 |
| 1,075,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.00% (Original Issue Yield: 5.08%), 12/1/2031 | 1,200,753 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,691,385 |
| 1,000,000 | | South Fork Municipal Authority, PA, Hospital Revenue Bonds (Series 2010), 5.50% (Conemaugh Valley Memorial Hospital)/(United States Treasury PRF 7/1/2020@100)/(Original Issue Yield: 5.72%), 7/1/2029 | 1,213,850 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,295,000 | | Southcentral PA, General Authority, Hospital Revenue Bonds, 5.00% (Hanover Hospital, Inc.)/(Radian Asset Assurance, Inc. INS), 12/1/2029 | $1,307,354 |
| 1,140,000 | | Southcentral PA, General Authority, Revenue Bonds (Series 2014A), 5.00% (Wellspan Health Obligated Group), 6/1/2026 | 1,343,308 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2025 | 1,144,450 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2028 | 1,121,430 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Revenue Refunding Bonds (Series 2010), 5.00%, 3/1/2018 | 1,118,280 |
| 2,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2012A), 5.00% (CHE Trinity Healthcare Credit Group), 11/15/2026 | 2,284,040 |
| 2,000,000 | | State Public School Building Authority, PA, School Revenue Bonds, 5.00% (Haverford Twp, PA School District)/(United States Treasury PRF 3/15/2016@100), 3/15/2029 | 2,098,280 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority, University Revenue Bonds (Series 2012A), 5.00% (Bucknell University), 4/1/2042 | 1,125,560 |
| 3,000,000 | | West View, PA Municipal Authority Water Revenue, Revenue Bonds (Series 2014), 5.00%, 11/15/2039 | 3,415,500 |
| 2,895,000 | | York County, PA, UT GO Bonds (Series 2013), 5.00%, 6/1/2037 | 3,293,034 |
| | | TOTAL | 214,853,417 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $203,958,800) | 214,853,417 |
| | | SHORT-TERM MUNICIPAL—0.7%2 | |
| | | Pennsylvania—0.7% | |
| 1,650,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, (Series 2002-A) Daily VRDNs (Children's Hospital of Philadelphia)/(Wells Fargo Bank, N.A. LIQ), 0.03%, 3/2/2015
(AT AMORTIZED COST) | 1,650,000 |
| | | TOTAL INVESTMENTS—100.6%
(IDENTIFIED COST $205,608,800)3 | 216,503,417 |
| | | OTHER ASSETS AND LIABILITIES - NET—(0.6)%4 | (1,369,334) |
| | | TOTAL NET ASSETS—100% | $215,134,083 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 6.0% of the Fund's portfolio as calculated based upon total market value.
Semi-Annual Shareholder Report
As of February 28, 2015, the Fund had the following open futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Unrealized
Appreciation |
5United States Treasury Notes,
10 Year Long Futures | 135 | $17,252,578 | June 2015 | $146,297 |
Unrealized Appreciation on Futures Contracts is included in “Other Assets and Liabilities–Net.”
| 1 | Floating rate note with current maturity or tender date shown. |
| 2 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 3 | The cost of investments for federal tax purposes amounts to $205,589,685. |
| 4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 5 | Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2015.
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.
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, 2015 in valuing the Fund's assets carried at fair value:
| Valuation Inputs | | | | |
| | Level 1—
Quoted
Prices | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | Total |
| Debt Securities: | | | | |
| Municipal Bonds | $— | $214,853,417 | $— | $214,853,417 |
| Short-Term Municipal | — | 1,650,000 | — | 1,650,000 |
| TOTAL SECURITIES | $— | $216,503,417 | $— | $216,503,417 |
| OTHER FINANCIAL INSTRUMENTS* | $146,297 | $— | $— | $146,297 |
| * | Other financial instruments include futures contracts. |
Semi-Annual Shareholder Report
The following acronyms are used throughout this portfolio:
| AGM | —Assured Guaranty Municipal Corp. |
| AMBAC | —American Municipal Bond Assurance Corporation |
| CHE | —Catholic Health East |
| EDFA | —Economic Development Finance Authority |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HDA | —Hospital Development Authority |
| HEFA | —Health and Education Facilities Authority |
| IDA | —Industrial Development Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value,
Beginning of Period | $10.94 | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.18 | 0.38 | 0.39 | 0.40 | 0.44 | 0.43 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.08 | 0.61 | (0.87) | 0.52 | (0.25) | 0.55 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.26 | 0.99 | (0.48) | 0.92 | 0.19 | 0.98 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.18) | (0.39) | (0.38) | (0.40) | (0.43) | (0.43) |
| Net Asset Value, End of Period | $11.02 | $10.94 | $10.34 | $11.20 | $10.68 | $10.92 |
| Total Return1 | 2.37% | 9.68% | (4.41)% | 8.80% | 1.92% | 9.60% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.75%2 | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 3.28%2 | 3.60% | 3.50% | 3.63% | 4.04% | 4.04% |
| Expense waiver/reimbursement3 | 0.12%2 | 0.13% | 0.10% | 0.10% | 0.11% | 0.09% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $212,519 | $219,307 | $231,890 | $275,974 | $238,538 | $270,219 |
| Portfolio turnover | 20% | 5% | 7% | 15% | 8% | 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 less than one year are not annualized. |
| 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $10.95 | $10.34 | $11.20 | $10.68 | $10.92 | $10.37 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.30 | 0.31 | 0.32 | 0.331 | 0.35 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.07 | 0.61 | (0.87) | 0.52 | (0.22) | 0.54 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.22 | 0.91 | (0.56) | 0.84 | 0.11 | 0.89 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.14) | (0.30) | (0.30) | (0.32) | (0.35) | (0.34) |
| Net Asset Value, End of Period | $11.03 | $10.95 | $10.34 | $11.20 | $10.68 | $10.92 |
| Total Return2 | 1.98% | 8.93% | (5.15)% | 7.96% | 1.13% | 8.76% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.52%3 | 1.52% | 1.52% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.51%3 | 2.84% | 2.73% | 2.87% | 3.26% | 3.27% |
| Expense waiver/reimbursement4 | 0.10%3 | 0.11% | 0.08% | 0.08% | 0.09% | 0.07% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $2,615 | $2,815 | $3,824 | $5,137 | $7,401 | $16,071 |
| Portfolio turnover | 20% | 5% | 7% | 15% | 8% | 12% |
| 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. Total returns for periods 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. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2015 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $205,608,800) | | $216,503,417 |
| Restricted cash (Note 2) | | 182,250 |
| Cash | | 48,713 |
| Income receivable | | 2,681,460 |
| Receivable for shares sold | | 33,786 |
| Receivable for daily variation margin | | 21,094 |
| TOTAL ASSETS | | 219,470,720 |
| Liabilities: | | |
| Payable for investments purchased | $3,942,065 | |
| Payable for shares redeemed | 311,570 | |
| Payable for other service fees (Notes 2 and 5) | 42,328 | |
| Payable for distribution services fee (Note 5) | 1,506 | |
| Accrued expenses (Note 5) | 39,168 | |
| TOTAL LIABILITIES | | 4,336,637 |
| Net assets for 19,521,658 shares outstanding | | $215,134,083 |
| Net Assets Consists of: | | |
| Paid-in capital | | $222,529,835 |
| Net unrealized appreciation of investments and futures contracts | | 11,040,914 |
| Accumulated net realized loss on investments and futures contracts | | (18,494,229) |
| Undistributed net investment income | | 57,563 |
| TOTAL NET ASSETS | | $215,134,083 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
Net asset value per share ($212,519,372 ÷ 19,284,520 shares outstanding),
no par value, unlimited shares authorized | | $11.02 |
| Offering price per share (100/95.50 of $11.02) | | $11.54 |
| Redemption proceeds per share | | $11.02 |
| Class B Shares: | | |
Net asset value per share ($2,614,711 ÷ 237,138 shares outstanding),
no par value, unlimited shares authorized | | $11.03 |
| Offering price per share | | $11.03 |
| Redemption proceeds per share (94.50/100 of $11.03) | | $10.42 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2015 (unaudited)
| Investment Income: | | | |
| Interest | | | $4,383,252 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $434,059 | |
| Administrative fee (Note 5) | | 84,913 | |
| Custodian fees | | 5,959 | |
| Transfer agent fees | | 52,259 | |
| Directors'/Trustees' fees (Note 5) | | 1,413 | |
| Auditing fees | | 13,215 | |
| Legal fees | | 5,841 | |
| Distribution services fee (Note 5) | | 10,122 | |
| Other service fees (Notes 2 and 5) | | 270,548 | |
| Portfolio accounting fees | | 44,747 | |
| Share registration costs | | 15,958 | |
| Printing and postage | | 13,653 | |
| Miscellaneous (Note 5) | | 3,930 | |
| TOTAL EXPENSES | | 956,617 | |
| Waiver and Reimbursement: | | | |
| Waiver of investment adviser fee (Note 5) | $(106,353) | | |
| Reimbursement of other operating expenses (Notes 2 and 5) | (20,695) | | |
| TOTAL WAIVER AND REIMBURSEMENT | | (127,048) | |
| Net expenses | | | 829,569 |
| Net investment income | | | 3,553,683 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 2,274,623 |
| Net realized loss on futures contracts | | | (234,513) |
| Net change in unrealized appreciation of investments | | | (690,533) |
| Net change in unrealized appreciation of futures contracts | | | 146,297 |
| Net realized and unrealized gain on investments and futures contracts | | | 1,495,874 |
| Change in net assets resulting from operations | | | $5,049,557 |
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)
2/28/2015 | Year End
8/31/2014 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $3,553,683 | $8,096,863 |
| Net realized gain (loss) on investments and futures contracts | 2,040,110 | (2,335,039) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (544,236) | 15,333,368 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 5,049,557 | 21,095,192 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (3,478,193) | (8,006,426) |
| Class B Shares | (33,431) | (89,155) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (3,511,624) | (8,095,581) |
| Share Transactions: | | |
| Proceeds from sale of shares | 4,310,382 | 18,490,234 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,467,884 | 5,547,806 |
| Cost of shares redeemed | (15,304,145) | (50,630,071) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (8,525,879) | (26,592,031) |
| Change in net assets | (6,987,946) | (13,592,420) |
| Net Assets: | | |
| Beginning of period | 222,122,029 | 235,714,449 |
| End of period (including undistributed net investment income of $57,563 and $15,504, respectively) | $215,134,083 | $222,122,029 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2015 (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 state of Pennsylvania and Pennsylvania municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their 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, except that options are valued at the mean of closing bid and asked quotations. |
| ■ | 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 last traded or purchase price of the security, information obtained by contacting the issuer or dealers, 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, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. |
Semi-Annual Shareholder Report
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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value 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, methods, models 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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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 B Shares may bear distribution services fees and other services fees unique to those classes.
Semi-Annual Shareholder Report
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.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class B Shares to unaffiliated 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 other service fees. In addition, unaffiliated third-party financial intermediaries may waive other service fees. This waiver can be modified or terminated at any time. For the six months ended February 28, 2015, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $267,174 | $(20,695) |
| Class B Shares | 3,374 | — |
| TOTAL | $270,548 | $(20,695) |
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, 2015, 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, 2015, tax years 2011 through 2014 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
Semi-Annual Shareholder Report
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.
As of February 28, 2015, the Fund did not hold any restricted securities.
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.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of futures contracts held by the Fund throughout the period was $3,866,886. This is based on amounts held as of each month-end throughout the six-month fiscal period.
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 | $146,297* |
| * | Includes cumulative appreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended February 28, 2015
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $(234,513) |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income |
| | Futures |
| Interest rate contracts | $146,297 |
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. The Fund applies Investment Company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 382,251 | $4,218,026 | 1,721,422 | $18,311,012 |
| Shares issued to shareholders in payment of distributions declared | 221,365 | 2,435,302 | 511,013 | 5,461,420 |
| Shares redeemed | (1,357,140) | (14,959,584) | (4,631,540) | (49,168,945) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (753,524) | $(8,306,256) | (2,399,105) | $(25,396,513) |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 8,381 | $92,356 | 16,729 | $179,222 |
| Shares issued to shareholders in payment of distributions declared | 2,959 | 32,582 | 8,086 | 86,386 |
| Shares redeemed | (31,314) | (344,561) | (137,553) | (1,461,126) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (19,974) | $(219,623) | (112,738) | $(1,195,518) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (773,498) | $(8,525,879) | (2,511,843) | $(26,592,031) |
Semi-Annual Shareholder Report
4. FEDERAL TAX INFORMATION
At February 28, 2015, the cost of investments for federal tax purposes was $205,589,685. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from futures contracts was $10,913,732. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $11,143,799 and net unrealized depreciation from investments for those securities having an excess of cost over value of $230,067.
At August 31, 2014, the Fund had a capital loss carryforward of $20,552,673 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| No expiration | $678,541 | $2,074,981 | $2,753,522 |
| 2016 | $213,566 | NA | $213,566 |
| 2017 | $7,730,607 | NA | $7,730,607 |
| 2018 | $9,851,417 | NA | $9,851,417 |
| 2019 | $3,561 | NA | $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, 2015 the Adviser voluntarily waived $106,353 of its fee.
Semi-Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.150% | on the first $5 billion |
| 0.125% | on the next $5 billion |
| 0.100% | on the next $10 billion |
| 0.075% | on assets in excess of $20 billion |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class B Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| Share Class Name | Percentage of Average Daily
Net Assets of Class |
| Class A Shares | 0.05% |
| Class B Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $10,122 |
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, 2015, FSC retained $6,164 of fees paid by the Fund. For the six months ended February 28, 2015, 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.
Other Service Fees
For the six months ended February 28, 2015, FSSC received $19,699 and reimbursed $20,695 of other service fees disclosed in Note 2.
Semi-Annual Shareholder Report
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the six months ended February 28, 2015, FSC retained $4,929 in sales charges from the sale of Class A Shares. FSC also retained $121 and $489 in CDSC relating to redemptions of Class A Shares and Class B Shares, respectively.
Interfund Transactions
During the six months ended February 28, 2015, 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 $39,400,000 and $39,950,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. 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, 2015; 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. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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, 2015 were as follows:
| Purchases | $41,931,744 |
| Sales | $47,476,394 |
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, 2015, 23.4% of the securities in the Portfolio of Investments are 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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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 other service 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, 2014 to February 28, 2015.
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
9/1/2014 | Ending
Account Value
2/28/2015 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,023.70 | $3.76 |
| Class B Shares | $1,000 | $1,019.80 | $7.61 |
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
Evaluation and Approval of Advisory Contract–May 2014
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 2014 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 of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
Semi-Annual Shareholder Report
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.
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
Semi-Annual Shareholder Report
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.
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. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. 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.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and that it 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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; 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 was one of the Board's considerations 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
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 in the context of the other factors considered relevant by the Board.
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. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
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 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 may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
Semi-Annual Shareholder Report
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 concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant 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 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 (4/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2015
| 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, 2014 through February 28, 2015. 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, 2015, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Senior Care | 11.1% |
| Industrial Development Bond/Pollution Control Revenue Bond | 10.9% |
| Hospital | 10.6% |
| Education | 8.8% |
| Dedicated Tax | 7.3% |
| Incremental Tax | 5.9% |
| Tobacco | 5.4% |
| Tollroad | 5.3% |
| General Obligation—State | 5.3% |
| Water & Sewer | 4.8% |
| Other2 | 24.1% |
| Other Assets and Liabilities—Net3 | 0.5% |
| 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 | For purposes of this table, sector classifications constitute 75.4% 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, 2015 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.2% | |
| | | Alabama—2.5% | |
| $2,000,000 | | Alabama State Port Authority, Docks Facilities Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.25%), 10/1/2040 | $2,349,860 |
| 2,000,000 | | Courtland, AL IDB, Solid Waste Disposal Revenue Refunding Bonds (Series 2005B), 5.20% (International Paper Co.), 6/1/2025 | 2,009,520 |
| 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 | 560,810 |
| 1,500,000 | | Huntsville, AL Special Care Facilities Financing Authority, Retirement Facilities Revenue Bonds (Series 2007), 5.50% (Redstone Village)/(Original Issue Yield: 5.60%), 1/1/2043 | 1,506,390 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer
Revenue Current Interest Warrants (Series 2013-A), 5.50%
(AGM INS)/(Original Issue Yield: 5.65%), 10/1/2053 | 2,238,540 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer
Revenue Current Interest Warrants (Series 2013A), 5.25%
(AGM INS), 10/1/2048 | 2,216,420 |
| 835,000 | | Selma, AL IDB, Gulf Opportunity Zone Bonds (Series 2010A), 5.80% (International Paper Co.), 5/1/2034 | 943,742 |
| 2,100,000 | | Sylacauga, AL Health Care Authority, Revenue Bonds (Series 2005A), 6.00% (Coosa Valley Medical Center)/(Original Issue Yield: 6.05%), (United States Treasury PRF 8/1/2015@100), 8/1/2035 | 2,151,912 |
| | | TOTAL | 13,977,194 |
| | | Alaska—0.5% | |
| 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 | 429,970 |
| 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 | 2,223,160 |
| | | TOTAL | 2,653,130 |
| | | Arizona—2.8% | |
| 4,000,000 | | Maricopa County, AZ Pollution Control Corp., PCR Refunding Bonds (Series 2003A), 6.25% (Public Service Co., NM), 1/1/2038 | 4,523,680 |
| 1,500,000 | | Maricopa County, AZ Pollution Control Corp., PCR Refunding Bonds (Series 2009A), 7.25% (El Paso Electric Co.), 2/1/2040 | 1,754,760 |
| 1,500,000 | 3,4 | Phoenix, AZ IDA, Education Facility Revenue Bonds (Series 2014A), 5.00% (Great Heart Academies), 7/1/2044 | 1,553,145 |
| 1,385,000 | | Pima County, AZ IDA, PCRBs (Series 2009A), 4.95% (Tucson Electric Power Co.), 10/1/2020 | 1,612,403 |
| 4,955,000 | | Salt Verde Financial Corp., AZ, Senior Gas Revenue Bonds (Series 2007), 5.00% (Citigroup, Inc. GTD), 12/1/2037 | 5,714,849 |
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 | $497,437 |
| | | TOTAL | 15,656,274 |
| | | California—9.1% | |
| 5,000,000 | | Bay Area Toll Authority, CA, San Francisco Bay Area Toll Bridge Revenue Bonds (Series F-1), 5.00%, 4/1/2054 | 5,617,000 |
| 2,500,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2002B), 5.00% (Waste Management, Inc.), 7/1/2027 | 2,555,100 |
| 1,000,000 | 3,4 | California PCFA, Solid Waste Disposal Revenue Bonds (Series 2005A-2), 5.40% (Waste Management, Inc.), 4/1/2025 | 1,013,670 |
| 750,000 | 3,4 | California School Finance Authority, School Facility Revenue Bonds (Series 2014A), 5.125%, (KIPP LA), 7/1/2044 | 791,250 |
| 2,750,000 | | California State, Various Purpose UT GO Bonds, 5.00%, 8/1/2035 | 3,196,242 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 5.25%, 10/1/2029 | 2,925,600 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 6.00% (Original Issue Yield: 6.10%), 4/1/2038 | 3,000,225 |
| 1,100,000 | 3,4 | California Statewide CDA MFH, Revenue Bonds (Series 1999X), 6.65% (Magnolia City Lights Project), 7/1/2039 | 1,101,089 |
| 2,000,000 | | Chula Vista, CA, COPs, 5.50% (Original Issue Yield: 5.88%), 3/1/2033 | 2,308,480 |
| 500,000 | | Corona-Norco USD Community Facilities District No. 98-1, CA, 2013 Special Tax Refunding Bonds, 5.00%, 9/1/2032 | 556,735 |
| 3,000,000 | | Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Revenue Refunding Bonds (Series 2013A), 6.00% (Original Issue Yield: 6.40%), 1/15/2053 | 3,538,140 |
| 500,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2013A), 5.00% (California State), 6/1/2029 | 571,880 |
| 530,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.75%, 6/1/2047 | 452,705 |
| 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 | 4,679,520 |
| 1,000,000 | | Irvine, CA Community Facilities District No. 2013-3, Special Tax Bonds (Series 2014), 5.00% (Improvement Area No. 1 (Great Park)), 9/1/2049 | 1,129,090 |
| 95,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2028 | 108,415 |
| 365,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2029 | 414,881 |
| 180,000 | | Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2030 | 204,262 |
| 1,000,000 | | Los Angeles, CA Harbor Department, Revenue Refunding Bonds (Series 2014A), 5.00%, 8/1/2044 | 1,119,550 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $2,500,000 | | M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), 7.00% (Citigroup, Inc. GTD), 11/1/2034 | $3,570,725 |
| 500,000 | | Poway, CA USDT, Special Tax Bonds (Series 2012), 5.00% (Community Facilities District No. 6 (4S Ranch)), 9/1/2033 | 550,895 |
| 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 | 2,334,000 |
| 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 | 1,777,170 |
| 349,000 | 1 | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042 | 171,230 |
| 1,250,000 | | San Buenaventura, CA, Revenue Bonds (Series 2011), 8.00% (Community Memorial Health System), 12/1/2031 | 1,607,700 |
| 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 | 1,225,000 |
| 2,000,000 | | San Jose, CA Airport, Airport Revenue Bonds (Series 2011A-1), 6.25%, 3/1/2034 | 2,384,020 |
| 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 | 1,425,613 |
| | | TOTAL | 50,330,187 |
| | | Colorado—5.0% | |
| 2,000,000 | | Beacon Point, CO Metropolitan District, Revenue Bonds (Series 2005A), 6.25% (Original Issue Yield: 6.375%), 12/1/2035 | 2,008,920 |
| 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 | 559,150 |
| 2,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 5.625% (Original Issue Yield: 5.79%), 12/1/2038 | 2,318,180 |
| 1,250,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 6.00%, 12/1/2038 | 1,489,162 |
| 1,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2014), 5.00%, 12/1/2043 | 1,041,690 |
| 1,625,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2014), 5.50% (Skyview Academy), 7/1/2049 | 1,717,739 |
| 720,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.70% (Windsor Charter Academy)/(Original Issue Yield: 5.70%), 5/1/2037 | 736,330 |
| 795,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.75% (Northeast Academy Charter School), 5/15/2037 | 599,152 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $1,000,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Monument Academy Charter School)/(United States Treasury PRF 10/1/2017@100), 10/1/2037 | $1,129,790 |
| 800,000 | | Colorado HFA, Health & Residential Care Facilities Revenue Bonds (Series 2007), 5.30% (Volunteers of America Care Facilities), 7/1/2037 | 781,008 |
| 1,100,000 | | Colorado HFA, Revenue Bonds (Series 2010A), 6.25% (Total Long Term Care National Obligated Group), 11/15/2040 | 1,214,125 |
| 2,000,000 | 2 | Colorado Springs Urban Renewal Authority, Tax Increment Revenue Bonds (Series 2007), 7.00% (University Village Colorado), 12/1/2029 | 1,594,560 |
| 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 | 1,812,041 |
| 450,000 | | Eagle County, CO Air Terminal Corp., Airport Terminal Project Revenue Improvement Bonds (Series 2006B), 5.25%, 5/1/2020 | 462,438 |
| 750,000 | | Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds (Series 2011A), 6.00%, 5/1/2027 | 826,807 |
| 1,500,000 | | Foothills Metropolitan District, CO, Special Revenue Bonds (Series 2014), 6.00%, 12/1/2038 | 1,607,220 |
| 2,235,000 | | Northwest, CO Metropolitan District No. 3, LT GO Bonds (Series 2005), 6.25%, 12/1/2035 | 2,136,548 |
| 2,000,000 | | Public Authority for Colorado Energy, Natural Gas Purchase Revenue Bonds (Series 2008), 6.25% (Bank of America Corp. GTD)/(Original Issue Yield: 6.63%), 11/15/2028 | 2,562,100 |
| 1,030,000 | | Tallyn's Reach Metropolitan District No. 3, CO, LT GO Refunding & Improvement Bonds (Series 2013), 5.125%, 11/1/2038 | 1,061,065 |
| 2,000,000 | | Three Springs Metropolitan District No. 3, CO, Property Tax Supported Revenue Bonds (Series 2010), 7.75%, 12/1/2039 | 2,158,000 |
| | | TOTAL | 27,816,025 |
| | | Connecticut—0.2% | |
| 1,000,000 | | Connecticut Development Authority, Airport Facility Revenue Bonds, 7.95% (Bombardier, Inc.), 4/1/2026 | 1,027,910 |
| | | Delaware—0.4% | |
| 1,905,000 | | Delaware EDA, Gas Facilities Refunding Bonds, 5.40% (Delmarva Power and Light Co.), 2/1/2031 | 2,145,201 |
| | | 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 | 2,106,260 |
| 1,030,000 | | District of Columbia, Revenue Bonds (Series 2013A), 6.00%
(KIPP DC), 7/1/2043 | 1,204,328 |
| | | TOTAL | 3,310,588 |
| | | Florida—6.8% | |
| 3,000,000 | | Alachua County, FL, IDRBs (Series 2007A), 5.875% (North Florida Retirement Village, Inc,), 11/15/2042 | 3,064,320 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $1,070,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A-2), 5.35%, 5/1/2036 | $1,070,225 |
| 165,000 | 1,2 | Arborwood, FL Community Development District, Special Assessment Revenue Bonds (Series 2014A-1), 0.00% (Step Coupon 5/1/2016) (Original Issue Yield: 6.90%), 5/1/2036 | 177,169 |
| 104,232 | 1 | Capital Trust Agency, FL, Housing Revenue Notes, 5.95% (Atlantic Housing Foundation Properties), 1/15/2039 | 5,493 |
| 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 | 3,462,930 |
| 700,000 | | East Homestead, FL Community Development District, Special Assessment Revenue Bonds (Series 2005), 5.45%, 5/1/2036 | 708,869 |
| 1,000,000 | | Lakewood Ranch Stewardship District, FL, Special Assessment Revenue Bonds (Series 2015), 4.875% (Lakewood Centre North)/(Original Issue Yield: 4.96%), 5/1/2045 | 963,970 |
| 2,000,000 | | Lee County, FL IDA, Healthcare Facilities Revenue Refunding Bonds (Series 2012), 6.50% (Cypress Cove at Healthpark), 10/1/2047 | 2,250,700 |
| 2,000,000 | | Martin County, FL HFA, Hospital Revenue Bonds (Series 2012), 5.50% (Martin Memorial Medical Center)/(Original Issue
Yield: 5.53%), 11/15/2042 | 2,214,760 |
| 2,000,000 | | Martin County, FL IDA, Industrial Development Revenue Refunding Bonds (Series 2013), 4.20% (Indiantown
Cogeneration, L.P.), 12/15/2025 | 2,058,800 |
| 500,000 | | Miami Beach, FL HFA, Hospital Revenue Refunding Bonds (Series 2014), 5.00% (Mt. Sinai Medical Center, FL), 11/15/2044 | 548,340 |
| 2,000,000 | 3,4 | Miami, FL, SO Non-Ad Valorem Revenue Refunding Bonds (Series 2012), 5.00%, 3/1/2030 | 2,240,620 |
| 1,000,000 | | Miami-Dade County, FL Aviation, Aviation Revenue Refunding Bonds (Series 2014A), 5.00%, 10/1/2036 | 1,122,190 |
| 4,000,000 | | Miami-Dade County, FL Transit System, Sales Surtax Revenue Bonds (Series 2012), 5.00%, 7/1/2042 | 4,481,680 |
| 750,000 | | Midtown Miami, FL Community Development District, Special Assessment & Revenue Refunding Bonds (Series 2014A), 5.00% (Original Issue Yield: 5.25%), 5/1/2037 | 802,373 |
| 1,000,000 | | Palm Beach County, FL HFA, Revenue Bonds (Series 2014A), 7.50% (Sinai Residences of Boca Raton)/(Original Issue
Yield: 7.625%), 6/1/2049 | 1,143,430 |
| 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 | 1,925,180 |
| 1,405,000 | | Pinellas County, FL Educational Facilities Authority, Revenue Bonds (Series 2011A), 7.125% (Pinellas Preparatory Academy), 9/15/2041 | 1,549,785 |
| 690,000 | | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | 700,950 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $310,000 | 1,2 | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | $201,528 |
| 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 | 1,122,260 |
| 10,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 1), 6.55%, 5/1/2027 | 10,226 |
| 465,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2), 6.55%, 5/1/2027 | 278,526 |
| 1,405,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2006), 5.40%, 5/1/2037 | 1,407,360 |
| 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 | 40,281 |
| 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 | 80,561 |
| 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 | 30,922 |
| 200,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Refunding Bonds (Series A-1), 6.55% (Original Issue
Yield: 6.60%), 5/1/2027 | 201,290 |
| 870,000 | | Verandah East, FL Community Development District, Capital Improvement Revenue Bonds (Series 2006A), 5.40%, 5/1/2037 | 864,702 |
| 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 | 1,032,860 |
| 1,630,000 | | Volusia County, FL Education Facility Authority, Educational Facilities Revenue Refunding Bonds (Series 2005), 5.00% (Embry-Riddle Aeronautical University, Inc.)/(Radian Asset Assurance, Inc. INS), 10/15/2025 | 1,652,380 |
| 435,000 | | Winter Garden Village at Fowler Groves Community Development District, FL, Special Assessment Bonds (Series 2006), 5.65%, 5/1/2037 | 442,147 |
| | | TOTAL | 37,856,829 |
| | | Georgia—1.7% | |
| 4,000,000 | | Atlanta, GA Water & Wastewater, Revenue Bonds (Series 2009A), 6.25% (Original Issue Yield: 6.38%), 11/1/2039 | 4,803,280 |
| 1,000,000 | | Atlanta, GA Water & Wastewater, Revenue Refunding Bonds (Series 2015), 5.00%, 11/1/2040 | 1,142,190 |
| 770,000 | | Atlanta, GA, Tax Allocation Bonds (Series 2005B), 5.60% (Eastside Tax Allocation District)/(Original Issue Yield: 5.65%), 1/1/2030 | 781,727 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Georgia—continued | |
| $1,530,000 | | Augusta, GA HFA, MFH Revenue Refunding Bonds, 6.55%
(Forest Brook Apartments), 12/1/2030 | $1,531,331 |
| 1,000,000 | | Medical Center Hospital Authority, GA, Revenue Refunding Bonds (Series 2007), 5.25% (Spring Harbor at Green Island), 7/1/2037 | 1,012,790 |
| | | TOTAL | 9,271,318 |
| | | Guam—0.8% | |
| 500,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.75% (Original Issue Yield: 6.00%), 12/1/2034 | 554,235 |
| 1,000,000 | | Guam Government, GO Bonds (Series 2009A), 7.00% (Original Issue Yield: 7.18%), 11/15/2039 | 1,179,950 |
| 1,000,000 | | Guam Government, UT GO Bonds (Series 2007A), 5.25% (Original Issue Yield: 5.45%), 11/15/2037 | 1,021,220 |
| 1,000,000 | | Guam International Airport Authority, General Revenue Bonds (Series 2013C), 6.125% (AGM INS)/(Original Issue
Yield: 6.23%), 10/1/2043 | 1,187,630 |
| 500,000 | | Guam Power Authority, Revenue Bonds (Series 2012A), 5.00%, 10/1/2034 | 556,320 |
| | | TOTAL | 4,499,355 |
| | | Hawaii—1.0% | |
| 3,660,000 | | Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds (Series 2009), 6.50% (Hawaiian Electric Co., Inc.), 7/1/2039 | 4,246,735 |
| 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 | 1,254,460 |
| | | TOTAL | 5,501,195 |
| | | 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 | 2,692,075 |
| | | Illinois—7.2% | |
| 500,000 | | Chicago, IL Motor Fuel Tax, Motor Fuel Tax Revenue Refunding Bonds (Series 2013), 5.00% (AGM INS), 1/1/2033 | 553,395 |
| 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 | 2,025,502 |
| 2,500,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011C), 6.50%, 1/1/2041 | 3,049,625 |
| 3,000,000 | | Chicago, IL Wastewater Transmission, Second Lien Revenue Project Bonds (Series 2014), 5.00%, 1/1/2044 | 3,265,770 |
| 1,250,000 | | Chicago, IL Water Revenue, Second Lien Water Revenue Bonds (Series 2014), 5.00%, 11/1/2044 | 1,391,875 |
| 415,000 | | DuPage County, IL, Special Tax Bonds (Series 2006), 5.625% (Naperville Campus LLC), 3/1/2036 | 418,341 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $1,500,000 | | Illinois Finance Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2011A), 7.125% (Uno Charter School
Network, Inc.), 10/1/2041 | $1,725,210 |
| 1,100,000 | | Illinois Finance Authority, Educational Facility Revenue, Senior Revenue Bonds (Series 2014A), 6.125% (Rogers Park Montessori School Project), 2/1/2045 | 1,133,858 |
| 1,000,000 | | Illinois Finance Authority, MFH Revenue Bonds (Series 2007), 6.10% (Dekalb Supportive Living Facility), 12/1/2041 | 999,890 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 5.625% (Friendship Village of Schaumburg)/(Original Issue
Yield: 5.70%), 2/15/2037 | 1,000,140 |
| 1,250,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.00% (Landing at Plymouth Place)/(Original Issue Yield: 6.04%), 5/15/2037 | 1,251,312 |
| 1,500,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 6.25% (Smith Village), 11/15/2035 | 1,511,685 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2010), 7.25% (Friendship Village of Schaumburg)/(Original Issue
Yield: 7.375%), 2/15/2045 | 1,079,180 |
| 1,251,520 | 1,2 | Illinois Finance Authority, Revenue Bonds (Series 2010A), 6.125% (Clare at Water Tower), 5/15/2041 | 13 |
| 485,785 | 1,2,5 | Illinois Finance Authority, Revenue Bonds (Series 2010B) (Clare at Water Tower)/(Original Issue Yield: 5.00%), 5/15/2050 | 5 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2015A), 5.00% (Rush University Medical Center Obligated Group), 11/15/2038 | 1,122,380 |
| 1,000,000 | | Illinois Finance Authority, Solid Waste Disposal Revenue Bonds, 5.05% (Waste Management, Inc.), 8/1/2029 | 1,024,960 |
| 2,250,000 | | Illinois State, UT GO Bonds (Series 2006), 5.00%, 1/1/2027 | 2,303,302 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series 2013A), 5.00%, 4/1/2035 | 2,120,020 |
| 2,025,000 | | Illinois State, UT GO Bonds (Series June 2013), 5.50% (Original Issue Yield: 5.65%), 7/1/2038 | 2,250,727 |
| 1,000,000 | | Illinois State, UT GO Bonds (Series of February 2014), 5.00% (Original Issue Yield: 5.04%), 2/1/2039 | 1,057,490 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series of May 2014), 5.00%, 5/1/2039 | 2,117,580 |
| 1,410,000 | | Illinois State, UT GO Refunding Bonds (Series May 2012), 5.00%, 8/1/2025 | 1,547,574 |
| 1,000,000 | | Quad Cities, IL Regional EDA, MFH Revenue Bonds (Series 2006), 6.00% (Heritage Woods of Moline SLF), 12/1/2041 | 999,890 |
| 1,600,000 | | Railsplitter Tobacco Settlement Authority, IL, Tobacco Settlement Revenue Bonds (Series 2010), 6.00% (Original Issue
Yield: 6.10%), 6/1/2028 | 1,877,376 |
| 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 | 2,488,740 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $1,500,000 | | Will-Kankakee, IL Regional Development Authority, MFH Revenue Bonds (Series 2007), 7.00% (Senior Estates Supportive Living), 12/1/2042 | $1,566,060 |
| | | TOTAL | 39,881,900 |
| | | Indiana—2.4% | |
| 1,250,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.20%), 11/15/2042 | 1,391,975 |
| 1,000,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.30%), 11/15/2047 | 1,110,240 |
| 1,305,000 | | Indiana State Finance Authority, Environmental Revenue Refunding Bonds (Series 2010), 6.00% (United States Steel Corp.), 12/1/2026 | 1,439,350 |
| 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 | 4,336,800 |
| 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 | 1,086,220 |
| 2,000,000 | | Rockport, IN, Revenue Refunding Bonds (Series 2012-A), 7.00%
(AK Steel Corp.), 6/1/2028 | 2,050,680 |
| 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 | 95,013 |
| 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 | 2,092,200 |
| | | TOTAL | 13,602,478 |
| | | Iowa—1.4% | |
| 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 | 3,274,680 |
| 1,000,000 | | Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.50% (Iowa Fertilizer Co.), 12/1/2022 | 1,056,840 |
| 994,700 | | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2014A), 2.70%, (Deerfield Retirement Community, Inc.), 11/15/2046 | 398,646 |
| 186,592 | | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2014B), 2.00%, (Deerfield Retirement Community, Inc.), 5/15/2056 | 187 |
| 3,750,000 | | Tobacco Settlement Authority, IA, Tobacco Settlement Asset-Backed Bonds (Series 2005C), 5.50% (Original Issue Yield: 5.78%), 6/1/2042 | 3,290,812 |
| | | TOTAL | 8,021,165 |
| | | Kansas—1.3% | |
| 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 | 2,332,960 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Kansas—continued | |
| $1,000,000 | | Manhattan, KS IDRBs, Industrial Revenue Bonds (Series 2007), 5.50% (Farrar Corp. Project)/(Original Issue Yield: 5.55%), 8/1/2021 | $969,210 |
| 2,015,000 | | Norwich, KS, Industrial Revenue Bonds (Series 2006), 5.90%
(Farrar Corp. Project), 8/1/2021 | 2,015,846 |
| 2,000,000 | | Olathe, KS, Senior Living Facility Revenue Bonds (Series 2006A), 6.00% (Catholic Care Campus, Inc.), 11/15/2038 | 2,025,120 |
| 25,000 | | Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1), 6.95% (GNMA Home Mortgage
Program COL), 6/1/2029 | 26,351 |
| | | TOTAL | 7,369,487 |
| | | Kentucky—0.3% | |
| 1,250,000 | | Kentucky EDFA, Revenue Bonds (Series 2011A), 7.375% (Miralea)/(Original Issue Yield: 7.40%), 5/15/2046 | 1,431,513 |
| | | Louisiana—2.2% | |
| 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 | 1,727,370 |
| 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 | 343,468 |
| 1,000,000 | | Louisiana Public Facilities Authority, 6.50% (Ochsner Clinic Foundation)/(Original Issue Yield: 6.65%), 5/15/2037 | 1,177,240 |
| 3,000,000 | | Louisiana Public Facilities Authority, Revenue Bonds (Series 2010A), 5.00% (Entergy Gulf States Louisiana LLC), 9/1/2028 | 3,061,530 |
| 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 | 2,298,440 |
| 2,000,000 | | New Orleans, LA Aviation Board, General Airport Revenue Bonds (Series 2015B), 5.00%, 1/1/2045 | 2,203,780 |
| 1,500,000 | | Tobacco Settlement Financing Corp., LA, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2013A), 5.25%, 5/15/2035 | 1,670,655 |
| | | TOTAL | 12,482,483 |
| | | Maine—0.3% | |
| 1,335,000 | | Maine Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2011), 7.50% (MaineGeneral Medical Center), 7/1/2032 | 1,620,276 |
| | | Maryland—1.4% | |
| 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 | 2,275,040 |
| 1,060,000 | | Maryland State EDC, Port Facilities Revenue Refunding Bonds (Series 2010), 5.75% (CONSOL Energy, Inc.), 9/1/2025 | 1,181,804 |
| 2,385,000 | | Maryland State EDC, Revenue Bonds (Series B), 5.75% (Ports America Chesapeake, Inc.)/(Original Issue Yield: 5.875%), 6/1/2035 | 2,581,095 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Maryland—continued | |
| $500,000 | | Maryland State IDFA, EDRBs (Series 2005A), 6.00% (Our Lady of Good Counsel High School)/(United States Treasury PRF 5/1/2015@100), 5/1/2035 | $505,045 |
| 1,000,000 | | Westminster, MD, Revenue Bonds (Series 2014A), 6.25% (Lutheran Village at Miller's Grant, Inc.)/(Original Issue Yield: 6.30%), 7/1/2044 | 1,063,910 |
| | | TOTAL | 7,606,894 |
| | | Massachusetts—0.6% | |
| 2,000,000 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011I), 7.25% (Tufts Medical Center), 1/1/2032 | 2,440,460 |
| 1,000,000 | | Massachusetts HEFA, Revenue Bonds (Series 2003E), 6.75%
(Jordan Hospital)/(Original Issue Yield: 7.00%), 10/1/2033 | 1,003,840 |
| | | TOTAL | 3,444,300 |
| | | Michigan—4.2% | |
| 1,000,000 | | Dearborn, MI EDC, Revenue Refunding Bonds, 7.125% (Henry Ford Village)/(Original Issue Yield: 7.25%), 11/15/2043 | 1,016,420 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2028 | 1,122,760 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2031 | 1,111,870 |
| 1,500,000 | | Detroit, MI Sewage Disposal System, Revenue Refunding Senior Lien Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.30%), 7/1/2039 | 1,613,280 |
| 4,000,000 | | Detroit, MI Water Supply System, Second Lien Revenue Refunding Bonds (Series 2006C), 5.00% (AGM INS), 7/1/2033 | 4,108,760 |
| 2,500,000 | | Kent Hospital Finance Authority, MI, Revenue Bonds (Series 2005A), 6.25% (Metropolitan Hospital), 7/1/2040 | 2,522,750 |
| 2,000,000 | | Michigan State Finance Authority Revenue, Local Government Loan Program Revenue Bonds (Series 2014B), 5.00% (Public Lighting Authority), 7/1/2044 | 2,164,280 |
| 1,900,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-5), 5.00% (Detroit, MI Sewage Disposal System)/(National Public Finance Guarantee Corp. INS), 7/1/2020 | 2,165,259 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-7), 5.00% (Detroit, MI Sewage Disposal System)/(National Public Finance Guarantee Corp. INS), 7/1/2032 | 1,106,030 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 D-6), 5.00% (Detroit, MI Water Supply System)/(National Public Finance Guarantee Corp. INS), 7/1/2036 | 1,094,420 |
| 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 | 4,253,500 |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035 | 1,029,450 |
| | | TOTAL | 23,308,779 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Minnesota—2.2% | |
| $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 | $2,095,320 |
| 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 | 2,233,500 |
| 1,500,000 | | Forest Lake, MN, Charter School Lease Revenue Bonds (Series 2014A), 5.75% (Lakes International Language Academy), 8/1/2044 | 1,653,810 |
| 930,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 3/1/2029 | 970,753 |
| 500,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2026 | 525,000 |
| 1,660,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.00% (Bluffview Montessori School Project), 11/1/2027 | 1,669,462 |
| 2,920,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2007A), 6.15% (Bluffview Montessori School Project), 11/1/2037 | 2,936,235 |
| | | TOTAL | 12,084,080 |
| | | 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 | 1,062,851 |
| | | Missouri—1.0% | |
| 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 | 1,153,940 |
| 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 | 3,454,380 |
| 1,000,000 | | St. Joseph, MO IDA, Healthcare Revenue Bonds, 7.00% (Living Community St. Joseph Project), 8/15/2032 | 1,001,500 |
| | | TOTAL | 5,609,820 |
| | | Nebraska—0.5% | |
| 2,500,000 | | Central Plains Energy Project, NE, Gas Project Revenue Bonds (Project No. 3) (Series 2012), 5.25% (Goldman Sachs & Co. GTD), 9/1/2037 | 2,793,775 |
| | | Nevada—1.2% | |
| 1,000,000 | | Clark County, NV Improvement District, Special Assessment Revenue Refunding Bonds (Series 2006B), 5.30% (Southern Highlands SID No.121-B)/(Original Issue Yield: 5.33%), 12/1/2029 | 1,003,730 |
| 4,000,000 | | Clark County, NV School District, LT GO Building Bonds (Series 2008A), 5.00%, 6/15/2025 | 4,459,480 |
| 430,000 | | Clark County, NV, Special Assessment Revenue Bonds (Series 2005), 5.00% (Summerlin-Mesa SID No. 151), 8/1/2025 | 376,985 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Nevada—continued | |
| $835,000 | | North Las Vegas, NV SID No. 60, Subordinate LT Obligation Refunding Bonds (Series 2006B), 5.10% (Aliante SID No. 60), 12/1/2022 | $836,603 |
| | | TOTAL | 6,676,798 |
| | | New Jersey—1.7% | |
| 1,135,000 | | New Jersey EDA, Kapkowski Road Landfill Revenue Bonds, 6.50% (New Jersey Metromall Urban Renewal, Inc.)/(Original Issue
Yield: 6.55%), 4/1/2018 | 1,247,501 |
| 2,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 1999), 5.25% (Continental Airlines, Inc.), 9/15/2029 | 2,730,750 |
| 1,125,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 2000B), 5.625% (Continental Airlines, Inc.), 11/15/2030 | 1,271,093 |
| 1,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 2003), 5.50% (Continental Airlines, Inc.), 6/1/2033 | 1,671,885 |
| 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 | 1,050,520 |
| 1,200,000 | | New Jersey State Transportation Trust Fund Authority, Transportation System Bonds (Series 2011A), 6.00% (New Jersey State), 6/15/2035 | 1,453,344 |
| | | TOTAL | 9,425,093 |
| | | New Mexico—0.5% | |
| 2,060,000 | | Dona Ana County, NM, MFH Revenue Bonds (Series 2001A), 7.00% (Montana Meadows Apartments), 12/1/2030 | 2,062,204 |
| 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 | 1,004,110 |
| | | TOTAL | 3,066,314 |
| | | New York—6.0% | |
| 1,495,000 | | Brooklyn Arena Local Development Corp., NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 | 1,777,121 |
| 1,285,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 1,494,404 |
| 2,000,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2014D-1), 5.00% (MTA Transportation Revenue), 11/15/2039 | 2,268,120 |
| 1,500,000 | | Nassau County, NY IDA, Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2014A), 6.70% (Amsterdam at Harborside), 1/1/2049 | 1,453,095 |
| 541,316 | | Nassau County, NY IDA, Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2014C), 2.00% (Amsterdam at Harborside), 1/1/2049 | 21,599 |
| 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 | 1,509,375 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $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 | $6,007,320 |
| 1,000,000 | | New York City, NY IDA, Special Facility Revenue Bonds
(Series 2006), 5.125% (Jet Blue Airways Corp.)/(Original Issue
Yield: 5.35%), 5/15/2030 | 1,000,300 |
| 2,500,000 | | New York City, NY TFA, Building Aid Revenue Bonds (Fiscal 2015 Series S-1), 5.00%, 7/15/2043 | 2,862,650 |
| 2,000,000 | 3,4 | New York Liberty Development Corp., Revenue Bonds (Series 2014 Class 1), 5.00% (3 World Trade Center), 11/15/2044 | 2,102,000 |
| 1,000,000 | 3,4 | New York Liberty Development Corp., Revenue Bonds (Series 2014 Class 2), 5.375% (3 World Trade Center), 11/15/2040 | 1,117,430 |
| 1,120,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.40%), 6/15/2029 | 1,201,211 |
| 1,185,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.50%, 6/15/2030 | 1,280,914 |
| 1,000,000 | | Niagara Area Development Corp., NY, Solid Waste Disposal Facility Revenue Refunding Bonds (Series 2012A), 5.25% (Covanta Energy Corp.), 11/1/2042 | 1,040,080 |
| 1,000,000 | | Onondaga, NY Civic Development Corp., Tax Exempt Revenue Bonds (Series 2014A), 5.125% (St. Joseph's Hospital Health Center)/(Original Issue Yield: 5.375%), 7/1/2031 | 1,082,520 |
| 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 | 2,943,150 |
| 4,700,000 | | TSASC, Inc. NY, Tobacco Settlement Asset-Backed Bonds (Series 2006-1), 5.125% (Original Issue Yield: 5.35%), 6/1/2042 | 3,995,846 |
| | | TOTAL | 33,157,135 |
| | | North Carolina—0.8% | |
| 2,335,000 | | North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series 2009B), 5.00%, 1/1/2026 | 2,648,520 |
| 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 | 503,635 |
| 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 | 1,136,260 |
| | | TOTAL | 4,288,415 |
| | | Ohio—3.6% | |
| 2,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District, Hospital Facilities Revenue Bonds (Series 2012), 5.00% (Akron General Health System), 1/1/2031 | 2,142,100 |
| 1,000,000 | | American Municipal Power-Ohio, Inc., Revenue Refunding Bonds (Series 2015A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2039 | 1,131,840 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $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 | $1,703,240 |
| 3,655,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series A-2), 6.50%, 6/1/2047 | 3,260,699 |
| 1,500,000 | | Hamilton County, OH, Healthcare Revenue Bonds
(Series 2011A), 6.625% (Life Enriching Communities)/(Original Issue
Yield: 6.75%), 1/1/2046 | 1,735,860 |
| 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 | 2,066,300 |
| 2,910,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 3,371,846 |
| 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 | 2,612,613 |
| 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 | 1,099,605 |
| 151,123 | | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 118,480 |
| 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 | 799,673 |
| | | TOTAL | 20,042,256 |
| | | Oklahoma—1.3% | |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.00% (Concordia Life Care Community)/(Original Issue Yield: 6.15%), 11/15/2038 | 1,006,720 |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.125% (Concordia Life Care Community), 11/15/2025 | 1,011,690 |
| 3,000,000 | | Tulsa, OK Airport Improvement Trust, Revenue Refunding Bonds (Series 2000B), 5.50% (American Airlines, Inc.), 6/1/2035 | 3,254,400 |
| 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 | 2,216,300 |
| | | TOTAL | 7,489,110 |
| | | 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 | 1,023,450 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—5.5% | |
| $865,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 | $904,626 |
| 2,000,000 | | Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2009), 6.875% (United States Steel Corp.), 5/1/2030 | 2,297,460 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 2,039,958 |
| 3,715,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2042 | 4,019,258 |
| 500,000 | | Butler County, PA Hospital Authority, Hospital Revenue Bonds (Series 2015A), 5.00% (Butler Health System), 7/1/2035 | 554,970 |
| 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 | 1,574,505 |
| 2,000,000 | | Chester County, PA IDA, Revenue Bonds (Series 2012A), 5.375% (Collegium Charter School)/(Original Issue Yield: 5.50%), 10/15/2042 | 2,028,600 |
| 1,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00% (Original Issue Yield: 5.05%), 12/1/2042 | 1,077,160 |
| 3,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | 3,007,170 |
| 2,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Refunding Bonds (Series 2014), 5.50% (National Gypsum Co.), 11/1/2044 | 2,062,820 |
| 1,250,000 | | Pennsylvania EDFA, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (Pennsylvania Rapid Bridge Replacement), 12/31/2038 | 1,377,413 |
| 1,000,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2010), 6.375% (Global Leadership Academy Charter School), 11/15/2040 | 1,075,510 |
| 1,205,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 1,335,212 |
| 900,000 | | Philadelphia, PA Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 916,416 |
| 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 | 1,780,934 |
| 2,000,000 | | Philadelphia, PA, GO Bonds (Series 2011), 6.50%, 8/1/2041 | 2,419,460 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,691,385 |
| 560,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035 | 571,026 |
| | | TOTAL | 30,733,883 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Puerto Rico—1.9% | |
| $2,335,000 | | Commonwealth of Puerto Rico, GO Bonds (Series 2014A), 8.00% (Original Issue Yield: 8.727%), 7/1/2035 | $1,946,853 |
| 1,470,000 | | Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00%, 7/1/2020 | 1,142,028 |
| 3,000,000 | | Commonwealth of Puerto Rico, Public Improvement UT GO Bonds (Series 2003A), 5.00% (Original Issue Yield: 5.02%), 7/1/2033 | 2,033,070 |
| 4,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2010 XX), 5.25% (Original Issue Yield: 5.40%), 7/1/2040 | 2,290,520 |
| 2,500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00% (Original Issue Yield: 7.12%), 7/1/2043 | 1,446,950 |
| 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 | 1,618,825 |
| | | TOTAL | 10,478,246 |
| | | Rhode Island—0.9% | |
| 4,000,000 | | Rhode Island State Health and Educational Building Corp., Hospital Financing Revenue Bonds (Series 2009A), 7.00% (Lifespan Obligated Group)/(Assured Guaranty Corp. INS), 5/15/2039 | 4,792,160 |
| | | South Carolina—0.9% | |
| 1,265,000 | | Lancaster County, SC, Assessment Revenue Bonds (Series 2006), 5.45% (Sun City Carolina Lakes Improvement District), 12/1/2037 | 1,277,233 |
| 700,000 | | 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 | 701,596 |
| 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 | 751,665 |
| 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 | 2,197,680 |
| | | TOTAL | 4,928,174 |
| | | South Dakota—0.2% | |
| 800,000 | | Educational Enhancement Funding Corp., SD, Tobacco Settlement Revenue Bonds (Series 2013B), 5.00%, 6/1/2025 | 923,664 |
| | | Tennessee—1.1% | |
| 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 | 1,141,950 |
| 1,500,000 | | Johnson City, TN Health & Education Facilities Board, Hospital Revenue Bonds (Series 2010), 6.50% (Mountain States Health Alliance), 7/1/2038 | 1,767,120 |
| 2,725,000 | | Tennessee Energy Acquisition Corp., Gas Revenue Bonds (Series 2006A), 5.25% (Goldman Sachs & Co. GTD), 9/1/2023 | 3,211,876 |
| | | TOTAL | 6,120,946 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—9.3% | |
| $500,000 | | Austin, TX Airport System, Airport System Revenue Bonds (Series 2014), 5.00%, 11/15/2044 | $558,245 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2024 | 1,030,400 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2034 | 1,025,030 |
| 755,000 | | Bexar County, HFDC, Revenue Bonds (Series 2010), 6.20%
(Army Retirement Residence Foundation), 7/1/2045 | 866,219 |
| 2,000,000 | | Cass County, TX IDC., Environmental Improvement Revenue Bonds (Series 2009A), 9.50% (International Paper Co.), 3/1/2033 | 2,530,560 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.00% (Original Issue Yield: 6.13%), 1/1/2041 | 1,162,590 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.25% (Original Issue Yield: 6.30%), 1/1/2046 | 1,166,570 |
| 2,000,000 | | Clifton Higher Education Finance Corp., TX, 6.00% (Idea Public Schools), 8/15/2043 | 2,409,140 |
| 750,000 | | Clifton Higher Education Finance Corp., TX, Education Revenue
Bonds (Series 2011), 5.75% (Idea Public Schools)/(Original Issue
Yield: 6.00%), 8/15/2041 | 849,210 |
| 500,000 | | Clifton Higher Education Finance Corp., TX, Education Revenue
Bonds (Series 2012), 5.00% (Idea Public Schools), 8/15/2042 | 540,030 |
| 1,000,000 | | Clifton Higher Education Finance Corp., TX, Revenue Bonds (Series 2014), 5.00% (Idea Public Schools)/(PSFG GTD), 8/15/2039 | 1,139,860 |
| 4,000,000 | | Dallas-Fort Worth, TX International Airport, Joint Revenue Improvement Bonds (Series 2014B), 5.00%, 11/1/2034 | 4,423,400 |
| 1,500,000 | | Decatur, TX Hospital Authority, Hospital Revenue Bonds (Series 2014A), 5.25% (Wise Regional Health System)/(Original
Issue Yield: 5.30%), 9/1/2044 | 1,606,650 |
| 515,000 | | Decatur, TX Hospital Authority, Revenue Bonds, 6.375% (Wise Regional Health System), 9/1/2042 | 603,307 |
| 2,775,000 | | Grand Parkway Transportation Corp., TX, Subordinate Tier Toll Revenue Bonds (Series 2013B TELA Supported), 5.25%, 10/1/2051 | 3,148,099 |
| 1,000,000 | | HFDC of Central Texas, Inc., Retirement Facility Revenue Bonds (Series 2006A), 5.75% (Legacy at Willow Bend), 11/1/2036 | 1,013,370 |
| 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 | 1,760,385 |
| 500,000 | | Houston, TX Airport System, Special Facilities Revenue Refunding Bonds (Series 2014), 4.75% (United Airlines, Inc.)/(Original Issue Yield: 4.90%), 7/1/2024 | 542,780 |
| 1,000,000 | | Houston, TX Airport System, Special Facilities Revenue Refunding Bonds (Series 2014), 5.00% (United Airlines, Inc.)/(Original Issue Yield: 5.15%), 7/1/2029 | 1,075,660 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $1,000,000 | | Houston, TX Airport System, Subordinate Lien Revenue Refunding Bonds (Series 2012A), 5.00%, 7/1/2032 | $1,107,970 |
| 535,000 | | Houston, TX Higher Education Finance Corp., Education Revenue Bonds (Series 2011A), 6.875% (Cosmos Foundation, Inc.), 5/15/2041 | 672,121 |
| 2,000,000 | | Kerrville, TX HFDC, Hospital Revenue Bonds, 5.375% (Sid Peterson Memorial Hospital), 8/15/2035 | 2,036,460 |
| 2,000,000 | | Lufkin, TX HFDC, Revenue Refunding and Improvement Bonds (Series 2009), 6.25% (Memorial Health System of East Texas)/
(United States Treasury PRF 2/15/2019@100)/(Original Issue
Yield: 6.50%), 2/15/2037 | 2,406,040 |
| 1,000,000 | | Matagorda County, TX Navigation District No. 1, PCR Refunding Bonds (Series 2001A), 6.30% (AEP Texas Central Co.), 11/1/2029 | 1,151,890 |
| 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 | 1,814,985 |
| 2,000,000 | | North Texas Tollway Authority, System Second Tier Revenue Refunding Bonds (Series 2014B), 5.00%, 1/1/2031 | 2,258,880 |
| 2,000,000 | | Red River, TX HFDC, Retirement Facility Revenue Bonds (Series 2014A), 8.00% (MRC The Crossings), 11/15/2049 | 2,392,260 |
| 1,000,000 | | San Juan Higher Education Finance Authority, TX, Education Revenue Bonds (Series 2010A), 6.70% (Idea Public Schools), 8/15/2040 | 1,186,920 |
| 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 | 211,124 |
| 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 | 1,206,062 |
| 2,000,000 | | Texas State Public Finance Authority Charter School Finance Corp., Education Revenue Bonds (Series 2010A), 6.20% (Cosmos Foundation, Inc.), 2/15/2040 | 2,305,220 |
| 2,680,000 | | Texas State Transportation Commission, Second Tier Revenue Refunding Bonds (Series 2015-C), 5.00% (Central Texas Turnpike System), 8/15/2042 | 2,947,089 |
| 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 | 2,724,550 |
| | | TOTAL | 51,873,076 |
| | | Utah—0.7% | |
| 800,000 | 3,4 | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.55% (American Leadership Academy), 11/15/2026 | 806,040 |
| 1,750,000 | 3,4 | Spanish Fork City, UT, Charter School Revenue Bonds (Series 2006), 5.70% (American Leadership Academy), 11/15/2036 | 1,759,188 |
| 1,315,000 | 3,4 | Utah State Charter School Finance Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Channing Hall), 7/15/2037 | 1,331,161 |
| | | TOTAL | 3,896,389 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Virginia—2.1% | |
| $1,500,000 | | Chesterfield County, VA EDA, PCR Refunding Bonds (Series 2009A), 5.00% (Virginia Electric & Power Co.), 5/1/2023 | $1,726,350 |
| 1,380,000 | | Mosaic District CDA, VA, Revenue Bonds (Series 2011A), 6.875% (Original Issue Yield: 6.93%), 3/1/2036 | 1,595,308 |
| 1,500,000 | | Peninsula Town Center CDA, VA, SO Bonds (Series 2007), 6.35%, 9/1/2028 | 1,613,880 |
| 1,000,000 | | Peninsula Town Center CDA, VA, SO Bonds (Series 2007), 6.45%, 9/1/2037 | 1,073,310 |
| 2,535,000 | | Route 460 Funding Corp. of Virginia, Toll Road Senior Lien Revenue Bonds (Series 2012), 5.00%, 7/1/2052 | 2,696,555 |
| 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 | 3,046,995 |
| | | TOTAL | 11,752,398 |
| | | Washington—1.4% | |
| 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 | 1,048,080 |
| 1,250,000 | | Tacoma, WA Consolidated Local Improvement District No. 65, Bonds, 5.75%, 4/1/2043 | 1,251,387 |
| 925,000 | | Tobacco Settlement Authority, WA, Tobacco Settlement Revenue Refunding Bonds (Series 2013), 5.25%, 6/1/2031 | 1,027,934 |
| 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 | 1,634,865 |
| 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 | 2,798,350 |
| | | TOTAL | 7,760,616 |
| | | West Virginia—0.5% | |
| 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 | 653,971 |
| 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 | 1,008,200 |
| 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 | 1,033,420 |
| | | TOTAL | 2,695,591 |
| | | Wisconsin—1.3% | |
| 5,335,000 | | Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 5.75% (Wisconsin State)/(Original Issue
Yield: 5.95%), 5/1/2033 | 6,227,759 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Wisconsin—continued | |
| $800,000 | | Wisconsin State HEFA, Revenue Refunding Bonds (Series 2015), 5.00% (ProHealth Care, Inc.), 8/15/2039 | $900,096 |
| | | TOTAL | 7,127,855 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $515,302,687) | 545,308,651 |
| | | CORPORATE BONDS—0.1% | |
| | | Multi State—0.1% | |
| 4,000,000 | 1,3 | Non-Profit Preferred Funding Trust I, Partnership, 9/15/2037
(IDENTIFIED COST $3,989,000) | 512,560 |
| | | SHORT-TERM MUNICIPALS—1.2%6 | |
| | | Georgia—0.6% | |
| 3,680,000 | | Athens-Clarke County, GA IDA, (Series 2003) Daily VRDNs (University of Georgia Athletic Association)/(Wells Fargo Bank, N.A. LOC), 0.010%, 3/2/2015 | 3,680,000 |
| | | New York—0.3% | |
| 1,500,000 | | New York City, NY, (Series 2013D-3) Daily VRDNs, (JPMorgan Chase Bank, N.A. LIQ), 0.02%, 3/2/2015 | 1,500,000 |
| | | Utah—0.3% | |
| 1,700,000 | | Murray City, Utah Hospital Revenue, (Series 2005A) Daily VRDNs (IHC Health Services, Inc.)/(JPMorgan Chase Bank, N.A. LIQ), 0.02%, 3/2/2015 | 1,700,000 |
| | | TOTAL SHORT-TERM MUNICIPALS—1.2%
(AT AMORTIZED COST) | 6,880,000 |
| | | TOTAL INVESTMENTS—99.5%
(IDENTIFIED COST $526,171,687) | 552,701,211 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.5%7 | 2,908,433 |
| | | TOTAL NET ASSETS—100%8 | $555,609,644 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 13.0% of the Fund's portfolio as calculated based upon total market value.
Semi-Annual Shareholder Report
| 1 | Non-income-producing security. |
| 2 | Security in default. |
| 3 | Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2015, these restricted securities amounted to $30,448,625, which represented 5.5% of total net assets. |
| 4 | Denotes a restricted security that may be resold without restriction to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Trustees (the “Trustees”). At February 28, 2015, these liquid restricted securities amounted to $29,936,065, which represented 5.4% of total net assets. |
| 5 | Zero coupon bond. |
| 6 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 7 | The cost of investments for federal tax purposes amounts to $525,756,333. |
| 8 | 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, 2015.
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.
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, 2015, 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:
| AGM | —Assured Guaranty Municipal Corp. |
| AMBAC | —American Municipal Bond Assurance Corporation |
| CDA | —Community Development Authority |
| COL | —Collateralized |
| COPs | —Certificates of Participation |
| EDA | —Economic Development Authority |
| EDC | —Economic Development Corporation |
| EDFA | —Economic Development Finance Authority |
| EDRBs | —Economic Development Revenue Bonds |
| GNMA | —Government National Mortgage Association |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HEFA | —Health and Education Facilities Authority |
| HFA | —Housing Finance Authority |
| HFDC | —Health Facility Development Corporation |
| IDA | —Industrial Development Authority |
| IDB | —Industrial Development Bond |
| IDC | —Industrial Development Corporation |
| IDFA | —Industrial Development Finance Authority |
| IDRBs | —Industrial Development Revenue Bonds |
| 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 |
| PSFG | —Public School Fund Guarantee |
| Q-SBLF | —Qualified School Bond Loan Fund |
| SFM | —Single Family Mortgage |
| SID | —Special Improvement District |
| SO | —Special Obligation |
| TELA | —Toll Equity Loan Agreement |
| TFA | —Transitional Finance Authority |
| 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.19 | 0.41 | 0.40 | 0.42 | 0.45 | 0.49 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.16 | 0.74 | (0.84) | 0.74 | (0.36) | 0.83 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.35 | 1.15 | (0.44) | 1.16 | 0.09 | 1.32 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.20) | (0.41) | (0.40) | (0.42) | (0.47) | (0.49) |
| Net Asset Value, End of Period | $9.00 | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 |
| Total Return1 | 3.95% | 14.54% | (5.17)% | 14.58% | 1.29% | 17.42% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.89%2 | 0.89% | 0.89% | 0.89% | 0.85% | 0.77% |
| Net investment income | 4.39%2 | 4.84% | 4.53% | 4.88% | 5.57% | 5.93% |
| Expense waiver/reimbursement3 | 0.15%2 | 0.17% | 0.15% | 0.15% | 0.22% | 0.28% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $231,820 | $224,298 | $215,101 | $239,911 | $190,003 | $229,217 |
| Portfolio turnover | 5% | 19% | 17% | 14% | 28% | 18% |
| 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 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)
2/28/2015 | Year Ended August 31, | |
| 2014 | 2013 | 2012 | 2011 | 2010 | |
| Net Asset Value, Beginning of Period | $8.84 | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.17 | 0.36 | 0.36 | 0.36 | 0.41 | 0.44 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.14 | 0.71 | (0.86) | 0.74 | (0.38) | 0.82 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.31 | 1.07 | (0.50) | 1.10 | 0.03 | 1.26 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.34) | (0.34) | (0.36) | (0.41) | (0.42) |
| Net Asset Value, End of Period | $8.99 | $8.84 | $8.11 | $8.95 | $8.21 | $8.59 |
| Total Return1 | 3.57% | 13.56% | (5.88)% | 13.72% | 0.55% | 16.69% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%2 | 1.64% | 1.64% | 1.64% | 1.60% | 1.53% |
| Net investment income | 3.64%2 | 4.09% | 3.76% | 4.15% | 4.82% | 5.19% |
| Expense waiver/reimbursement3 | 0.15%2 | 0.17% | 0.15% | 0.15% | 0.22% | 0.28% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $12,801 | $13,424 | $15,620 | $22,783 | $24,122 | $36,952 |
| Portfolio turnover | 5% | 19% | 17% | 14% | 28% | 18% |
| 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 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)
2/28/2015 | Year Ended August 31, | |
| 2014 | 2013 | 2012 | 2011 | 2010 | |
| Net Asset Value, Beginning of Period | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 | $7.75 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.35 | 0.34 | 0.36 | 0.39 | 0.43 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.14 | 0.74 | (0.84) | 0.74 | (0.36) | 0.83 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.30 | 1.09 | (0.50) | 1.10 | 0.03 | 1.26 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.35) | (0.34) | (0.36) | (0.41) | (0.42) |
| Net Asset Value, End of Period | $8.99 | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 |
| Total Return1 | 3.45% | 13.69% | (5.88)% | 13.72% | 0.54% | 16.69% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%2 | 1.64% | 1.64% | 1.64% | 1.60% | 1.53% |
| Net investment income | 3.64%2 | 4.09% | 3.78% | 4.13% | 4.82% | 5.18% |
| Expense waiver/reimbursement3 | 0.15%2 | 0.17% | 0.15% | 0.15% | 0.22% | 0.28% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $60,875 | $56,208 | $53,002 | $61,295 | $46,925 | $52,785 |
| Portfolio turnover | 5% | 19% | 17% | 14% | 28% | 18% |
| 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 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)
2/28/2015 | Year Ended August 31, |
| 2014 | 2013 | 2012 | 2011 | 2010 | | |
| Net Asset Value, Beginning of Period | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 | $7.76 | |
| Income From Investment Operations: | | | | | | | |
| Net investment income | 0.20 | 0.41 | 0.40 | 0.42 | 0.45 | 0.49 | |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.15 | 0.74 | (0.84) | 0.74 | (0.36) | 0.83 | |
| TOTAL FROM INVESTMENT OPERATIONS | 0.35 | 1.15 | (0.44) | 1.16 | 0.09 | 1.32 | |
| Less Distributions: | | | | | | | |
| Distributions from net investment income | (0.20) | (0.41) | (0.40) | (0.42) | (0.47) | (0.49) | |
| Net Asset Value, End of Period | $9.00 | $8.85 | $8.11 | $8.95 | $8.21 | $8.59 | |
| Total Return1 | 3.95% | 14.54% | (5.17)% | 14.58% | 1.29% | 17.42% | |
| Ratios to Average Net Assets: | | | | | | | |
| Net expenses | 0.89%2 | 0.89% | 0.89% | 0.89% | 0.85% | 0.77% | |
| Net investment income | 4.39%2 | 4.84% | 4.53% | 4.89% | 5.57% | 5.93% | |
| Expense waiver/reimbursement3 | 0.15%2 | 0.17% | 0.15% | 0.15% | 0.22% | 0.28% | |
| Supplemental Data: | | | | | | | |
| Net assets, end of period (000 omitted) | $194,502 | $187,704 | $178,932 | $203,396 | $177,290 | $200,948 | |
| Portfolio turnover | 5% | 19% | 17% | 14% | 28% | 18% | |
| 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 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)
2/28/2015 | Year
Ended
8/31/2014 | Period
Ended
8/31/20131 |
| Net Asset Value, Beginning of Period | $8.84 | $8.11 | $8.88 |
| Income From Investment Operations: | | | |
| Net investment income | 0.20 | 0.42 | 0.09 |
| Net realized and unrealized gain (loss) on investments and futures contracts | 0.16 | 0.74 | (0.78) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.36 | 1.16 | (0.69) |
| Less Distributions: | | | |
| Distributions from net investment income | (0.21) | (0.43) | (0.08) |
| Net Asset Value, End of Period | $8.99 | $8.84 | $8.11 |
| Total Return2 | 4.09% | 14.71% | (7.83)% |
| Ratios to Average Net Assets: | | | |
| Net expenses | 0.64%3 | 0.64% | 0.64%3 |
| Net investment income | 4.65%3 | 5.01% | 6.05%3 |
| Expense waiver/reimbursement4 | 0.15%3 | 0.16% | 0.21%3 |
| Supplemental Data: | | | |
| Net assets, end of period (000 omitted) | $55,612 | $48,577 | $2,426 |
| Portfolio turnover | 5% | 19% | 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, 2015 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $526,171,687) | | $552,701,211 |
| Income receivable | | 7,649,311 |
| Receivable for shares sold | | 1,063,553 |
| TOTAL ASSETS | | 561,414,075 |
| Liabilities: | | |
| Payable for investments purchased | $5,247,410 | |
| Payable for shares redeemed | 296,086 | |
| Payable for other service fees (Notes 2 and 5) | 92,775 | |
| Bank overdraft | 55,745 | |
| Payable for distribution services fee (Note 5) | 42,166 | |
| Accrued expenses (Note 5) | 70,249 | |
| TOTAL LIABILITIES | | 5,804,431 |
| Net assets for 61,763,400 shares outstanding | | $555,609,644 |
| Net Assets Consists of: | | |
| Paid-in capital | | $603,350,602 |
| Net unrealized appreciation of investments | | 26,529,524 |
| Accumulated net realized loss on investments and futures contracts | | (74,715,337) |
| Undistributed net investment income | | 444,855 |
| TOTAL NET ASSETS | | $555,609,644 |
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 ($231,819,510 ÷ 25,764,065 shares outstanding), no par value, unlimited shares authorized | | $9.00 |
| Offering price per share (100/95.50 of $9.00) | | $9.42 |
| Redemption proceeds per share | | $9.00 |
| Class B Shares: | | |
| Net asset value per share ($12,801,011 ÷ 1,423,802 shares outstanding), no par value, unlimited shares authorized | | $8.99 |
| Offering price per share | | $8.99 |
| Redemption proceeds per share (94.50/100 of $8.99) | | $8.50 |
| Class C Shares: | | |
| Net asset value per share ($60,875,025 ÷ 6,770,072 shares outstanding), no par value, unlimited shares authorized | | $8.99 |
| Offering price per share | | $8.99 |
| Redemption proceeds per share (99.00/100 of $8.99) | | $8.90 |
| Class F Shares: | | |
| Net asset value per share ($194,501,651 ÷ 21,618,417 shares outstanding), no par value, unlimited shares authorized | | $9.00 |
| Offering price per share (100/99.00 of $9.00) | | $9.09 |
| Redemption proceeds per share (99.00/100 of $9.00) | | $8.91 |
| Institutional Shares: | | |
| Net asset value per share ($55,612,447 ÷ 6,187,044 shares outstanding), no par value, unlimited shares authorized | | $8.99 |
| Offering price per share | | $8.99 |
| Redemption proceeds per share | | $8.99 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2015 (unaudited)
| Investment Income: | | | |
| Interest | | | $14,236,991 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $1,615,944 | |
| Administrative fee (Note 5) | | 210,745 | |
| Custodian fees | | 11,432 | |
| Transfer agent fees | | 144,240 | |
| Directors'/Trustees' fees (Note 5) | | 2,105 | |
| Auditing fees | | 13,215 | |
| Legal fees | | 5,846 | |
| Distribution services fee (Note 5) | | 264,878 | |
| Other service fees (Notes 2 and 5) | | 603,782 | |
| Portfolio accounting fees | | 61,868 | |
| Share registration costs | | 35,679 | |
| Printing and postage | | 20,341 | |
| Miscellaneous (Note 5) | | 7,231 | |
| TOTAL EXPENSES | | 2,997,306 | |
| Waiver of investment adviser fee (Note 5) | | (391,836) | |
| Net expenses | | | 2,605,470 |
| Net investment income | | | 11,631,521 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized loss on investments | | | (1,671,631) |
| Net change in unrealized appreciation of investments | | | 10,617,361 |
| Net realized and unrealized gain on investments | | | 8,945,730 |
| Change in net assets resulting from operations | | | $20,577,251 |
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)
2/28/2015 | Year Ended
8/31/2014 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $11,631,521 | $22,555,604 |
| Net realized loss on investments and futures contracts | (1,671,631) | (4,945,035) |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | 10,617,361 | 46,128,331 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 20,577,251 | 63,738,900 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (4,943,538) | (10,586,062) |
| Class B Shares | (238,772) | (568,676) |
| Class C Shares | (1,054,504) | (2,119,921) |
| Class F Shares | (4,183,270) | (8,681,990) |
| Institutional Shares | (1,291,265) | (456,285) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (11,711,349) | (22,412,934) |
| Share Transactions: | | |
| Proceeds from sale of shares | 70,713,692 | 139,670,680 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 10,284,293 | 19,624,185 |
| Cost of shares redeemed | (64,465,614) | (135,491,803) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 16,532,371 | 23,803,062 |
| Change in net assets | 25,398,273 | 65,129,028 |
| Net Assets: | | |
| Beginning of period | 530,211,371 | 465,082,343 |
| End of period (including undistributed net investment income of $444,855 and $524,683, respectively) | $555,609,644 | $530,211,371 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2015 (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 acquired with remaining maturities of 60 days or less are valued at their 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, except that options are valued at the mean of closing bid and asked quotations. |
| ■ | 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 last traded or purchase price of the security, information obtained by contacting the issuer or dealers, 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, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. |
Semi-Annual Shareholder Report
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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value 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, methods, models 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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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 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 distribution services fees and other service fees unique to those classes.
Semi-Annual Shareholder Report
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.
Other Service Fees
The Fund may pay other 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 unaffiliated 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 other service fees. In addition, unaffiliated third-party financial intermediaries may waive other service fees. This waiver can be modified or terminated at any time. For the six months ended February 28, 2015, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred |
| Class A Shares | $279,081 |
| Class B Shares | 16,237 |
| Class C Shares | 72,055 |
| Class F Shares | 236,409 |
| TOTAL | $603,782 |
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, 2015, 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, 2015, tax years 2011 through 2014 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.
Semi-Annual Shareholder Report
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.
Additional information on restricted securities held at February 28, 2015, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees if applicable, 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 | $512,560 |
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. 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.
As of February 28, 2015, the Fund had no outstanding future 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. The Fund applies Investment Company accounting and reporting guidance.
Semi-Annual Shareholder Report
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 2,736,604 | $24,531,901 | 7,812,836 | $66,017,760 |
| Shares issued to shareholders in payment of distributions declared | 496,798 | 4,428,389 | 1,111,463 | 9,346,914 |
| Shares redeemed | (2,808,252) | (25,082,903) | (10,095,392) | (85,121,348) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 425,150 | $3,877,387 | (1,171,093) | $(9,756,674) |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 51,458 | $459,980 | 156,420 | $1,333,126 |
| Shares issued to shareholders in payment of distributions declared | 24,121 | 214,920 | 61,484 | 515,795 |
| Shares redeemed | (169,445) | (1,512,234) | (626,713) | (5,247,689) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (93,866) | $(837,334) | (408,809) | $(3,398,768) |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 770,554 | $6,887,639 | 1,177,559 | $9,804,747 |
| Shares issued to shareholders in payment of distributions declared | 104,051 | 927,526 | 224,734 | 1,888,324 |
| Shares redeemed | (458,767) | (4,093,896) | (1,584,392) | (12,967,370) |
| NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | 415,838 | $3,721,269 | (182,099) | $(1,274,299) |
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 846,609 | $7,572,795 | 1,833,090 | $15,356,390 |
| Shares issued to shareholders in payment of distributions declared | 408,213 | 3,638,608 | 890,367 | 7,483,043 |
| Shares redeemed | (843,274) | (7,524,807) | (3,570,676) | (29,720,893) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | 411,548 | $3,686,596 | (847,219) | $(6,881,460) |
Semi-Annual Shareholder Report
| | Six Months Ended
2/28/2015 | Year Ended
8/31/2014 |
| Institutional Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 3,509,239 | $31,261,377 | 5,435,795 | $47,158,657 |
| Shares issued to shareholders in payment of distributions declared | 120,675 | 1,074,850 | 45,574 | 390,109 |
| Shares redeemed | (2,935,129) | (26,251,774) | (288,293) | (2,434,503) |
| NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 694,785 | $6,084,453 | 5,193,076 | $45,114,263 |
| NET CHANGE RESULTING FROM TOTAL FUND SHARES TRANSACTIONS | 1,853,455 | $16,532,371 | 2,583,856 | $23,803,062 |
4. FEDERAL TAX INFORMATION
At February 28, 2015, the cost of investments for federal tax purposes was $525,756,333. The net unrealized appreciation of investments for federal tax purposes was $26,944,878. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $42,571,675 and net unrealized depreciation from investments for those securities having an excess of cost over value of $15,626,797.
At August 31, 2014, the Fund had a capital loss carryforward of $72,660,857 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
| Expiration Year | Short-Term | Long-Term | Total |
| No expiration | $ 5,676,021 | $24,357,069 | $ 30,033,090 |
| 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, 2015, the Adviser voluntarily waived $391,836 of its fee.
Semi-Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.150% | on the first $5 billion |
| 0.125% | on the next $5 billion |
| 0.100% | on the next $10 billion |
| 0.075% | on assets in excess of $20 billion |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares, and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| Share Class Name | Percentage of Average Daily
Net Assets of Class |
| Class A Shares | 0.05% |
| Class B Shares | 0.75% |
| Class C Shares | 0.75% |
| Class F Shares | 0.05% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2015, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $48,713 |
| Class C Shares | 216,165 |
| TOTAL | $264,878 |
Semi-Annual Shareholder Report
For the six months ended February 28, 2015, FSC retained $64,292 of fees paid by the Fund. 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, 2015, the Fund's Class A Shares and Class F Shares did not incur a distribution services fee; however, each may begin to incur this fee upon approval by the Trustees.
Other Service Fees
For the six months ended February 28, 2015, FSSC received $18,719 of the other service fees disclosed in Note 2.
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, 2015, FSC retained $35,312 in sales charges from the sale of Class A Shares. FSC also retained $7,773, $4,156 and $7,197 of CDSC relating to redemptions of Class B Shares, Class C Shares and Class F Shares, respectively.
Interfund Transactions
During the six months ended February 28, 2015, 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 $68,450,000 and $75,700,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. 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, 2015; 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. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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, 2015, were as follows:
| Purchases | $ 60,663,037 |
| Sales | $ 27,604,351 |
7. CONCENTRATION OF RISK
The Fund has 44.4% of its portfolio invested in lower rated and comparable quality unrated high-yield securities. Investments in higher yield securities may be subject to a greater degree of credit risk and the risk tends to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly higher for the holders of high yielding securities because such securities are generally unsecured and often subordinated to other creditors of the issuer.
8. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of February 28, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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, 2015, there were no outstanding loans. During the six months ended February 28, 2015, 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 other service 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, 2014 to February 28, 2015.
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
9/1/2014 | Ending
Account Value
2/28/2015 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,039.50 | $4.50 |
| Class B Shares | $1,000 | $1,035.70 | $8.28 |
| Class C Shares | $1,000 | $1,034.50 | $8.27 |
| Class F Shares | $1,000 | $1,039.50 | $4.50 |
| Institutional Shares | $1,000 | $1,040.90 | $3.24 |
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
Evaluation and Approval of Advisory Contract–May 2014
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 2014 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 of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
Semi-Annual Shareholder Report
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.
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
Semi-Annual Shareholder Report
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.
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. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. 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.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements and 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 in the context of the other factors considered relevant by the Board.
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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; 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.
Semi-Annual Shareholder Report
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 was one of the Board's considerations 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
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 in the context of the other factors considered relevant by the Board.
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. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
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
Semi-Annual Shareholder Report
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 may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
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 concluded that Federated's profit margins did not appear to be excessive.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant 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.
Semi-Annual Shareholder Report
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 (4/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©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 23, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date April 23, 2015
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date April 23, 2015
