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: 08/31/17
Date of Reporting Period: Six months ended 02/28/17
| Item 1. | Reports to Stockholders |
Semi-Annual Shareholder Report
February 28, 2017
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, 2016 through February 28, 2017. 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, 2017, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 32.1% |
| Hospital | 12.1% |
| Water & Sewer | 11.6% |
| Education | 10.0% |
| Dedicated Tax | 8.7% |
| Airport | 5.4% |
| General Obligation—State Appropriation | 4.8% |
| Public Power | 4.5% |
| General Obligation—State | 3.2% |
| Special Tax | 3.1% |
| Other2 | 4.1% |
| Other Assets and Liabilities—Net3 | 0.4% |
| 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. |
| 2 | For purposes of this table, sector classifications constitute 95.5% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2017 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.9% | |
| | | Michigan—97.9% | |
| $850,000 | | Ann Arbor, MI Public School District, School Building & Site UT GO Bonds (Series 2015), 5.00%, 5/1/2025 | $1,007,845 |
| 955,000 | | Ann Arbor, MI, Court and Police Facilities LT GO Capital Improvement Bonds, 4.75%, 5/1/2025 | 998,672 |
| 500,000 | | Bay City, MI School District, Refunding UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 11/1/2023 | 583,575 |
| 1,000,000 | | Berkley, MI School District, School Building & Site UT GO Bonds (Series 2015), 5.00% (Q-SBLF GTD), 5/1/2030 | 1,139,600 |
| 410,000 | | Birmingham, MI Public Schools, School Building & Site UT GO Bonds (Series 2015), 5.00%, 5/1/2027 | 486,022 |
| 1,690,000 | | Bishop, MI International Airport Authority, Refunding LT GO (Series 2010A), 4.50% (AGM INS), 12/1/2023 | 1,839,142 |
| 710,000 | | Caledonia, MI Community Schools, School Building & Site UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2023 | 823,756 |
| 1,000,000 | | Chippewa Valley, MI Schools, Refunding UT GO Bonds (Series 2013), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,153,540 |
| 2,000,000 | | Dearborn, MI School District, UT GO School Building & Site Bonds (Series 2014A), 5.00% (Q-SBLF GTD), 5/1/2025 | 2,297,220 |
| 1,000,000 | | Detroit/Wayne County, MI Stadium Authority, Building Authority Stadium LT GO Refunding Bonds (Series 2012), 5.00% (Wayne County, MI)/(AGM INS), 10/1/2021 | 1,105,950 |
| 1,000,000 | | Eastern Michigan University Board of Regents, General Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Corp. INS), 2/15/2023 | 1,058,110 |
| 1,000,000 | | Genesee, MI Water Supply System, Revenue Refunding Bonds (Series 2014), 5.00% (Build America Mutual Assurance INS), 11/1/2025 | 1,146,720 |
| 620,000 | | Grand Rapids, MI Public Schools, School Building & Site & Refunding UT GO Bonds (Series 2016), 5.00% (AGM INS), 5/1/2027 | 730,050 |
| 670,000 | | Grand Rapids, MI Public Schools, UT GO Refunding Bonds (Series 2017), 5.00% (AGM INS), 5/1/2027 | 793,615 |
| 500,000 | | Grand Rapids, MI Sanitary Sewer System Revenue Improvement and Refunding Bonds (Series 2014), 5.00%, 1/1/2022 | 578,635 |
| 1,000,000 | | Grand Rapids, MI Sanitary Sewer System, Revenue Refunding Bonds (Series 2013), 5.00%, 1/1/2024 | 1,167,600 |
| 300,000 | | Grand Rapids, MI, LT GO Refunding Bonds (Series 2016), 5.00%, 10/1/2025 | 359,259 |
| 1,500,000 | | Holland, MI Electric Utility System, Revenue Bonds (Series 2014A), 4.00%, 7/1/2022 | 1,646,775 |
| 2,000,000 | | Holland, MI School District, UT GO Bonds, 5.00% (AGM INS), 5/1/2025 | 2,334,160 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,030,000 | | Holly Area School District, MI, UT GO Refunding Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2024 | $1,200,362 |
| 2,000,000 | | Jackson County, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2006C), 5.00% (Allegiance Health)/(United States Treasury PRF 6/1/2020@100), 6/1/2026 | 2,238,000 |
| 2,130,000 | | Kalamazoo, MI Hospital Finance Authority, Hospital Revenue Bonds (Series 2006), 5.00% (Bronson Methodist Hospital)/(AGM INS), 5/15/2019 | 2,298,632 |
| 1,000,000 | | Kalamazoo, MI Regional Educational Services Agency, UT GO School Building and Site Bonds, 5.00%, 5/1/2019 | 1,043,630 |
| 1,750,000 | | Kent County, MI, LT GO Bonds (Series 2009), 5.00%, 1/1/2025 | 1,863,452 |
| 335,000 | | Kent County, MI, LT GO Capital Improvement Bonds (Series 2016), 5.00%, 6/1/2027 | 403,675 |
| 1,500,000 | | Kent Hospital Finance Authority, MI, Revenue Refunding Bonds (Series 2011A), 5.00% (Spectrum Health), 11/15/2022 | 1,714,245 |
| 1,010,000 | | Lake Superior State University, MI, General Revenue Refunding Bonds (Series 2012), 4.00% (AGM INS), 11/15/2020 | 1,081,932 |
| 1,900,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2011A), 5.00%, 7/1/2024 | 2,157,070 |
| 1,525,000 | | Michigan Municipal Bond Authority, Revenue Bonds, 5.00% (Clean Water Revolving Fund), 10/1/2017 | 1,564,330 |
| 1,000,000 | | Michigan Public Power Agency, Combustion Turbine No. 1 Project Revenue Refunding Bonds (Series 2011A), 5.00% (AGM INS), 1/1/2022 | 1,103,740 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue & Refunding Bonds (Series 2013I-A), 5.00%, 10/15/2022 | 582,955 |
| 1,000,000 | | Michigan State Building Authority, Facilities Program Revenue Bonds (Series 2009II), 5.00% (Assured Guaranty Corp. INS), 10/15/2022 | 1,090,190 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2009I), 5.25% (Assured Guaranty Corp. INS), 10/15/2024 | 1,094,170 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2015I), 5.00%, 4/15/2027 | 1,165,100 |
| 2,000,000 | | Michigan State Comprehensive Transportation Fund, Refunding Bonds (Series 2009), 5.25%, 5/15/2019 | 2,166,360 |
| 1,000,000 | | Michigan State Comprehensive Transportation Fund, Revenue Refunding Bonds (Series 2015), 5.00%, 11/15/2026 | 1,184,290 |
| 1,200,000 | | Michigan State Finance Authority Revenue, Hospital Revenue & Refunding Bonds (Series 2015), 5.00% (Sparrow Obligated Group, MI), 11/15/2022 | 1,391,772 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Hospital Revenue & Refunding Bonds (Series 2015MI), 5.50% (Trinity Healthcare Credit Group), 12/1/2026 | 1,212,300 |
| 250,000 | | Michigan State Finance Authority Revenue, Hospital Revenue Refunding Bonds (Series 2014), 5.00% (MidMichigan Obligated Group), 6/1/2026 | 288,420 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,500,000 | | Michigan State Finance Authority Revenue, Local Government Loan Program Revenue Bonds (Series 2014B), 5.00% (Public Lighting Authority), 7/1/2022 | $1,690,800 |
| 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 | 1,082,370 |
| 2,500,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 D-2), 5.00% (Great Lakes, MI Water Authority)/(AGM INS), 7/1/2024 | 2,908,575 |
| 2,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 D-2), 5.00% (Great Lakes, MI Water Authority)/(AGM INS), 7/1/2025 | 2,308,780 |
| 1,500,000 | | Michigan State Finance Authority, Revenue Bonds (Series 2012B), 5.00% (Michigan Finance Authority Unemployment Obligation Assessment), 1/1/2021 | 1,630,125 |
| 1,000,000 | | Michigan State Finance Authority, State Revolving Fund Revenue Bonds (Series 2012), 5.00% (Clean Water Revolving Fund), 10/1/2025 | 1,165,430 |
| 1,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds, 5.00% (McLaren Health Care Corp.), 5/15/2023 | 1,162,060 |
| 500,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2016), 5.00% (Henry Ford Health System, MI), 11/15/2028 | 568,680 |
| 2,000,000 | | Michigan State Hospital Finance Authority, Revenue Bonds (Series 2010B), 5.00% (Ascension Health Alliance Senior Credit Group), 11/15/2024 | 2,167,760 |
| 500,000 | | Michigan State Trunk Line, Fund Bonds (Series 2011), 5.00%, 11/15/2022 | 571,290 |
| 500,000 | | Michigan State Trunk Line, Fund Bonds (Series 2011), 5.00%, 11/15/2023 | 567,390 |
| 1,000,000 | | Michigan State Trunk Line, Refunding Bonds (Series 2014), 5.00%, 11/15/2018 | 1,069,740 |
| 2,600,000 | | Michigan State Trunk Line, Revenue Refunding Bonds (Series 2009), 5.00%, 11/1/2020 | 2,851,810 |
| 1,000,000 | | Michigan State University Board of Trustees, General Revenue Bonds (Series 2015A), 5.00% (Michigan State University), 8/15/2028 | 1,175,680 |
| 1,000,000 | | Michigan State, UT GO Environmental Program Bonds (Series 2016A), 5.00%, 12/1/2023 | 1,194,420 |
| 1,000,000 | | Michigan State, UT GO Environmental Program Refunding Bonds (Series 2016B), 5.00%, 11/1/2024 | 1,202,820 |
| 1,000,000 | | Michigan Strategic Fund, LO Revenue Refunding Bonds, 7.00% (Detroit Edison Co.)/(AMBAC Financial Group, Inc. INS), 5/1/2021 | 1,203,000 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Bonds (Series 2011), 5.25% (Michigan State), 10/15/2022 | 1,151,590 |
| 1,000,000 | | Michigan Strategic Fund, LT Obligation Revenue Bonds (Series 2015), 5.00% (Michigan State), 3/1/2023 | 1,145,610 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Michigan Technological University Board of Control, General Revenue & Revenue Refunding Bonds (Series 2008), 5.25% (United States Treasury COL)/(Assured Guaranty Corp. INS), 10/1/2018 | $1,068,910 |
| 500,000 | | Northview, MI Public School District, Refunding UT GO Bonds, 5.00% (Q-SBLF GTD)/(AGM INS), 5/1/2019 | 521,995 |
| 1,855,000 | | Orchard View, MI Schools, UT GO Bonds, 4.00% (Q-SBLF GTD)/(AGM INS), 5/1/2022 | 2,001,879 |
| 1,000,000 | | Plymouth-Canton, MI Community School District, UT GO School Building and Site Bonds (Series 2013A), 5.00%, 5/1/2027 | 1,134,050 |
| 1,000,000 | | Portage, MI Public Schools, UT GO School Building & Site & Refunding Bonds (Series 2016), 5.00%, 11/1/2027 | 1,166,450 |
| 1,425,000 | | Rockford, MI Public Schools, School Building & Site UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2025 | 1,634,447 |
| 1,000,000 | | Roseville, MI Community Schools, UT GO Refunding Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2024 | 1,165,400 |
| 2,000,000 | | Royal Oak, MI Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2014D), 5.00% (Beaumont Health Credit Group), 9/1/2023 | 2,306,380 |
| 1,670,000 | | Saginaw County, MI Water Supply System, Revenue Bonds (Series 2011A), 4.75% (AGM INS), 7/1/2025 | 1,812,234 |
| 1,085,000 | | Southfield, MI Library Building Authority, Refunding LT GO Bonds, 5.00%, 5/1/2026 | 1,250,604 |
| 1,000,000 | | Southfield, MI Public Schools, UT GO Refunding Bonds, 5.00% (Q-SBLF GTD), 5/1/2026 | 1,178,090 |
| 1,000,000 | | Thornapple Kellogg, MI School District, Refunding UT GO Bonds (Series 2014), 5.00% (Q-SBLF GTD), 5/1/2025 | 1,159,220 |
| 1,000,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2010C), 4.00%, 4/1/2022 | 1,075,170 |
| 2,000,000 | 1 | University of Michigan (The Regents of), General Revenue Bonds (Series 2012E), 1.07%, 4/2/2018 | 1,996,820 |
| 250,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2014A), 5.00%, 4/1/2024 | 299,583 |
| 1,000,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2017A), 5.00%, 4/1/2027 | 1,228,270 |
| 500,000 | | Utica, MI Community Schools, School Building and Site Refunding UT GO Bonds (Series 2015), 5.00% (Q-SBLF GTD), 5/1/2029 | 566,840 |
| 1,000,000 | | Wayland, MI University School District, UT GO Refunding Bonds (Series 2016A), 5.00% (Michigan School Bond Qualification and Loan Program GTD), 5/1/2028 | 1,159,340 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2010C), 5.00%, 12/1/2021 | 2,202,000 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2011A-B), 5.00%, 12/1/2021 | 2,254,160 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,400,000 | | Wayne County, MI Airport Authority, Junior Lien Revenue Bonds, 5.00% (National Re Holdings Corp. INS), 12/1/2023 | $1,441,146 |
| 1,000,000 | | Wayne State University, MI, General Revenue Refunding Bonds (Series 2008), 5.00% (AGM INS), 11/15/2019 | 1,065,100 |
| 500,000 | | Western Townships MI, Utilities Authority, Sewage Disposal System Refunding LT GO Bonds (Series 2012), 5.00%, 1/1/2023 | 578,415 |
| 1,000,000 | | Ypsilanti, MI School District, UT GO Bonds (Series 2016A), 5.00% (Michigan School Bond Qualification and Loan Program GTD), 5/1/2026 | 1,145,820 |
| | | TOTAL | 106,325,124 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $102,550,998) | 106,325,124 |
| | | SHORT-TERM MUNICIPALS—1.7%2 | |
| | | Michigan—1.7% | |
| 1,900,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC),
0.63%, 3/7/2017
(IDENTIFIED COST $1,900,000) | 1,900,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.6%
(IDENTIFIED COST $104,450,998)3 | 108,225,124 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.4%4 | 398,888 |
| | | TOTAL NET ASSETS—100% | $108,624,012 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.4% of the Fund's portfolio as calculated based upon total market value.
| 1 | Floating rate note with current rate and current maturity or next reset date shown. |
| 2 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 3 | Also represents cost of investments for federal tax purposes. |
| 4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2017.
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.
Semi-Annual Shareholder Report
As of February 28, 2017, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AGM | —Assured Guaranty Municipal Corp. |
| AMBAC | —American Municipal Bond Assurance Corporation |
| COL | —Collateralized |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LO | —Limited Obligation |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| Q-SBLF | —Qualified School Bond Loan Fund |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value,
Beginning of Period | $11.54 | $11.31 | $11.39 | $10.90 | $11.59 | $11.17 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.13 | 0.28 | 0.29 | 0.33 | 0.34 | 0.36 |
| Net realized and unrealized gain (loss) on investments | (0.42) | 0.26 | (0.08) | 0.49 | (0.67) | 0.42 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.29) | 0.54 | 0.21 | 0.82 | (0.33) | 0.78 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.28) | (0.29) | (0.33) | (0.33) | (0.36) |
| Distributions from net realized gain on investments | (0.04) | (0.03) | — | — | (0.03) | — |
| TOTAL DISTRIBUTIONS | (0.17) | (0.31) | (0.29) | (0.33) | (0.36) | (0.36) |
| Net Asset Value, End of Period | $11.08 | $11.54 | $11.31 | $11.39 | $10.90 | $11.59 |
| Total Return1 | (2.54)% | 4.82% | 1.88% | 7.60% | (2.89)% | 7.11% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.77%2 | 0.75% | 0.75% | 0.73% | 0.63% | 0.62% |
| Net investment income | 2.28%2 | 2.40% | 2.57% | 2.94% | 2.95% | 3.16% |
| Expense waiver/reimbursement3 | 0.18%2 | 0.16% | 0.16% | 0.20% | 0.26% | 0.35% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $108,624 | $130,516 | $129,662 | $123,083 | $121,759 | $131,357 |
| Portfolio turnover | 6% | 12% | 25% | 19% | 8% | 13% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis. |
| 3 | 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, 2017 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $104,450,998) | | $108,225,124 |
| Cash | | 85,367 |
| Income receivable | | 1,316,976 |
| Receivable for shares sold | | 5,317 |
| TOTAL ASSETS | | 109,632,784 |
| Liabilities: | | |
| Payable for investments purchased | $786,741 | |
| Payable for shares redeemed | 82,620 | |
| Income distribution payable | 66,277 | |
| Payable for other service fees (Notes 2 and 5) | 23,008 | |
| Payable for investment adviser fee (Note 5) | 611 | |
| Payable for administrative fee (Note 5) | 233 | |
| Accrued expenses (Note 5) | 49,282 | |
| TOTAL LIABILITIES | | 1,008,772 |
| Net assets for 9,807,932 shares outstanding | | $108,624,012 |
| Net Assets Consists of: | | |
| Paid-in capital | | $105,316,938 |
| Net unrealized appreciation of investments | | 3,774,126 |
| Accumulated net realized loss on investments | | (469,652) |
| Undistributed net investment income | | 2,600 |
| TOTAL NET ASSETS | | $108,624,012 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Net asset value per share ($108,624,012 ÷ 9,807,932 shares outstanding), no par value, unlimited shares authorized | | $11.08 |
| Offering price per share (100/97.00 of $11.08) | | $11.42 |
| Redemption proceeds per share | | $11.08 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2017 (unaudited)
| Investment Income: | | | |
| Interest | | | $1,798,847 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $235,988 | |
| Administrative fee (Note 5) | | 46,173 | |
| Custodian fees | | 3,818 | |
| Transfer agent fees | | 25,917 | |
| Directors'/Trustees' fees (Note 5) | | 1,306 | |
| Auditing fees | | 14,073 | |
| Legal fees | | 4,850 | |
| Other service fees (Notes 2 and 5) | | 146,052 | |
| Portfolio accounting fees | | 46,636 | |
| Share registration costs | | 13,075 | |
| Printing and postage | | 9,660 | |
| Miscellaneous (Note 5) | | 11,184 | |
| TOTAL EXPENSES | | 558,732 | |
| Waiver of investment adviser fee (Note 5) | | (106,875) | |
| Net expenses | | | 451,857 |
| Net investment income | | | 1,346,990 |
| Realized and Unrealized Loss on Investments: | | | |
| Net realized loss on investments | | | (346,594) |
| Net change in unrealized appreciation of investments | | | (4,585,119) |
| Net realized and unrealized loss on investments | | | (4,931,713) |
| Change in net assets resulting from operations | | | $(3,584,723) |
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)
2/28/2017 | Year Ended
8/31/2016 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,346,990 | $3,051,685 |
| Net realized gain (loss) on investments | (346,594) | 304,521 |
| Net change in unrealized appreciation/depreciation of investments | (4,585,119) | 2,601,270 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (3,584,723) | 5,957,476 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | (1,346,813) | (3,050,783) |
| Distributions from net realized gain on investments | (425,602) | (367,767) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,772,415) | (3,418,550) |
| Share Transactions: | | |
| Proceeds from sale of shares | 9,617,993 | 24,995,513 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,165,224 | 2,204,299 |
| Cost of shares redeemed | (27,318,343) | (28,884,490) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (16,535,126) | (1,684,678) |
| Change in net assets | (21,892,264) | 854,248 |
| Net Assets: | | |
| Beginning of period | 130,516,276 | 129,662,028 |
| End of period (including undistributed net investment income of $2,600 and $2,423, respectively) | $108,624,012 | $130,516,276 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2017 (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 are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | 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. |
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, 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, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, 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.
Semi-Annual Shareholder Report
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 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. Amortization/accretion of premium and discount is included in investment income. The detail of the total fund expense waiver of $106,875 is disclosed in Note 5.
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, 2017, the Fund incurred $146,052 of other service fees.
Semi-Annual Shareholder Report
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, 2017, 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, 2017, tax years 2013 through 2016 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
2/28/2017 | Year Ended
8/31/2016 |
| Shares sold | 861,859 | 2,180,293 |
| Shares issued to shareholders in payment of distributions declared | 104,688 | 192,469 |
| Shares redeemed | (2,464,093) | (2,526,727) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (1,497,546) | (153,965) |
4. FEDERAL TAX INFORMATION
At February 28, 2017, the cost of investments for federal tax purposes was $104,450,998. The net unrealized appreciation of investments for federal tax purposes was $3,774,126. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $4,124,740 and net unrealized depreciation from investments for those securities having an excess of cost over value of $350,614.
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5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2017, the Adviser waived $106,875 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, 2017, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Other Service Fees
For the six months ended February 28, 2017, FSSC received $1,531 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, 2017, 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 $19,800,000 and $19,100,000, respectively.
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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 interest expense, extraordinary expenses, line of credit 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, 2017; 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, 2017, were as follows:
| Purchases | $7,390,846 |
| Sales | $25,368,852 |
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, 2017, 43.5% 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. The largest percentage of investments insured by or supported by (backed) a letter of credit from any one institution or agency, Assured Guaranty Municipal Corp., was 20.2% of total investments.
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8. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of February 28, 2017, the Fund had no outstanding loans. During the six months ended February 28, 2017, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), 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, 2017, there were no outstanding loans. During the six months ended February 28, 2017, the program was not utilized.
10. Regulatory Updates
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. These amendments relate to Regulation S-X which sets forth the form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompanying notes.
Semi-Annual Shareholder Report
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees 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, 2016 to February 28, 2017.
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
9/1/2016 | Ending
Account Value
2/28/2017 | Expenses Paid
During Period1 |
| Actual | $1,000 | $974,60 | $3.77 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,020.98 | $3.86 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.77%, 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 2016
Federated Michigan Intermediate Municipal Trust (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved at its May 2016 meetings the continuation of 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 after consideration of all of the information received on whether to continue the existing arrangements.
The 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 ���Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment 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 an adviser to a fund and its shareholders, including the performance and fees and expenses of the fund and of comparable funds; an adviser's cost of providing the services, including the profitability to an adviser of providing advisory services to a fund; the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale 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 an 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 an adviser for services rendered to a fund); comparative fee and expense structures, including a comparison of fees paid to an adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which 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 an adviser's services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment 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 Federated Investment Management Company (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 investment 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 Investors, Inc. and its affiliates (“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 meetings at which the Board's formal review of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, 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 investment 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 Fund; 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 funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and
Semi-Annual Shareholder Report
audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
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 to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the 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 the Board 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 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 the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Semi-Annual Shareholder Report
Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract with respect to the Fund.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. 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 investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also 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 the 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.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of the other factors considered relevant by the Board.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the investment advisory contract with respect to the Fund.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to
Semi-Annual Shareholder Report
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. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
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. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
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 funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions, as well as systems technology (including technology relating to cybersecurity), and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and again in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply
Semi-Annual Shareholder Report
breakpoints or to apply breakpoints at higher levels and should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. 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 a fund attains a certain size.
The Senior Officer noted that, subject to the comments and recommendations made within the Senior Officer's Evaluation, his observations and the information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment 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 investment 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 investment 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 investment advisory contract was appropriate.
The Board based its decision to approve the investment 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 continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
Semi-Annual Shareholder Report
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
Federated Michigan Intermediate Municipal Trust
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923302
3032602 (4/17)
Federated is a registered trademark of Federated Investors, Inc.
2017 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2017
| 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, 2016 through February 28, 2017. 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, 2017, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Education | 21.2% |
| Pre-Refunded | 12.9% |
| Dedicated Tax | 11.8% |
| Hospital | 8.2% |
| Water & Sewer | 8.1% |
| General Obligation—Local | 6.2% |
| Industrial Development Bond/Pollution Control | 5.2% |
| Toll Road | 4.8% |
| Public Power | 3.9% |
| General Obligation—State | 3.8% |
| Other2 | 13.9% |
| Other Assets and Liabilities—Net3 | (0.0)%4 |
| 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 86.1% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 4 | Represents less than 0.1%. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2017 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—95.1% | |
| | | Guam—1.1% | |
| $300,000 | | Guam Power Authority, Revenue Bonds (Series 2014A), 5.00%, 10/1/2031 | $321,495 |
| | | New York—94.0% | |
| 480,000 | | Brooklyn Arena Local Development Corp., NY, PILOT Revenue Bonds (Series 2009), 6.375% (United States Treasury PRF 1/15/2020@100)/(Original Issue Yield: 6.476%), 7/15/2043 | 550,637 |
| 200,000 | | Build NYC Resource Corp., Revenue Refunding Bonds (Series 2014), 5.00% (New York Methodist Hospital), 7/1/2028 | 225,334 |
| 250,000 | | Cattaraugus County, NY Capital Resource Corp., Revenue Bonds, 5.00% (St. Bonaventure University), 5/1/2044 | 264,168 |
| 200,000 | | Chautauqua, NY Tobacco Asset Securitization Corp., Tobacco Settlement Asset-Backed Bonds (Series 2014), 5.00%, 6/1/2034 | 210,932 |
| 300,000 | | Dutchess County, NY Local Development Corp., Revenue Bonds (Series 2014A), 5.00% (Health Quest Systems, Inc. Obligated Group), 7/1/2034 | 324,858 |
| 300,000 | | Dutchess County, NY Local Development Corp., Revenue Bonds (Series 2015A), 5.00% (Marist College), 7/1/2040 | 330,699 |
| 200,000 | | Dutchess County, NY Local Development Corp., Revenue Bonds (Series 2016B), 5.00% (Health Quest Systems, Inc. Obligated Group), 7/1/2046 | 218,550 |
| 300,000 | | Erie County, NY IDA, School Facility Revenue Refunding Bonds, 5.00% (Buffalo, NY City School District), 5/1/2031 | 351,147 |
| 200,000 | | Hempstead, NY Local Development Corp., Revenue Refunding Bonds (Series 2014), 5.00% (Adelphi University), 10/1/2034 | 222,804 |
| 215,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 244,335 |
| 500,000 | | Long Island Power Authority, NY, Electric System General Revenue Bonds (Series 2014A), 5.00%, 9/1/2044 | 552,620 |
| 300,000 | | Madison County, NY Capital Resource Corp., Tax-Exempt Revenue Bonds (Series 2015B), 5.00% (Colgate University), 7/1/2040 | 341,604 |
| 300,000 | 1 | Metropolitan Transportation Authority, NY, (MTA Dedicated Tax Fund), Dedicated Tax Fund Refunding Bonds (Series 2008B-3a) (Floating Rate Tender Notes), 1.01%, 11/1/2018 | 299,940 |
| 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 | 546,395 |
| 500,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2012E), 5.00% (MTA Transportation Revenue), 11/15/2025 | 581,225 |
| 475,000 | | Monroe County, NY IDC, Revenue Bonds (Series 2011A), 5.00% (University of Rochester, NY), 7/1/2041 | 525,312 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $200,000 | | Monroe County, NY IDC, Tax-Exempt Revenue Bonds (Series 2015), 5.00% (Highland Hospital of Rochester), 7/1/2033 | $222,602 |
| 100,000 | | Nassau County, NY Local Economic Assistance Corp., Revenue Bonds (Series 2014), 5.00% (Catholic Health Services of Long Island Obligated Group), 7/1/2034 | 107,620 |
| 200,000 | | Nassau County, NY Tobacco Settlement Corp., Tobacco Settlement Asset-Backed Bonds (Series 2006A-3), 5.125% (Original Issue
Yield: 5.31%), 6/1/2046 | 190,418 |
| 500,000 | | New York City Liberty Development Corp., Revenue Bonds (Series 2005), 5.25% (Goldman Sachs Group, Inc.), 10/1/2035 | 596,755 |
| 500,000 | | New York City Trust For Cultural Resources, Revenue Refunding Bonds (Series 2008A), 5.00% (Museum of Modern Art)/(United States Treasury PRF 10/1/2018@100), 4/1/2028 | 532,565 |
| 500,000 | | New York City Trust For Cultural Resources, Revenue Refunding Bonds (Series 2008A), 5.00% (Museum of Modern Art)/(United States Treasury PRF 10/1/2018@100), 4/1/2031 | 532,565 |
| 300,000 | | New York City, NY Municipal Water Finance Authority, Water & Sewer System Second General Resolution Revenue Bonds (Fiscal 2016 Subseries CC-1), 4.00%, 6/15/2038 | 309,069 |
| 500,000 | | New York City, NY Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (Series 2008AA), 5.00% (United States Treasury PRF 6/15/2018@100), 6/15/2022 | 527,265 |
| 100,000 | | New York City, NY TFA , Future Tax Secured Subordinate Bonds (Fiscal 2017 Subseries A-1), 4.00%, 5/1/2042 | 103,335 |
| 455,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Series 2011C), 5.50%, 11/1/2035 | 517,663 |
| 200,000 | 1 | New York City, NY, UT GO Bonds (Fiscal 1995 Series F Subseries F-4), 1.34%, 2/15/2020 | 199,774 |
| 300,000 | | New York City, NY, UT GO Bonds (Fiscal 2016 Series E), 5.00%, 8/1/2032 | 348,666 |
| 55,000 | | New York City, NY, UT GO Bonds (Series 2008 E-1), 6.25% (Original Issue Yield: 6.40%), 10/15/2028 | 59,626 |
| 400,000 | | New York City, NY, UT GO Bonds (Series 2012B), 5.00%, 8/1/2027 | 461,344 |
| 180,000 | | New York Convention Center Development Corp., Revenue Refunding Bonds (Hotel Unit Fee Secured) (Series 2015), 5.00%, 11/15/2040 | 203,729 |
| 400,000 | | New York Liberty Development Corp., Revenue Refunding Bonds (Series 2012 Class 3), 5.00% (7 World Trade Center LLC), 3/15/2044 | 432,336 |
| 500,000 | | New York State Dormitory Authority, General Purpose Revenue Bonds (Series 2011C), 5.00% (New York State Personal Income Tax Revenue Bond Fund), 3/15/2026 | 567,790 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 1998), 5.50% (Memorial Sloan-Kettering Cancer Center)/(National Public Finance Guarantee Corp. INS), 7/1/2023 | 593,745 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $520,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2008C), 5.00% (New York State Personal Income Tax Revenue Bond Fund)/(United States Treasury PRF 3/15/2018@100), 3/15/2026 | $542,859 |
| 10,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2009C), 5.00% (School District Financing Program)/(Assured Guaranty Corp. INS), 10/1/2023 | 10,850 |
| 500,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2010A), 5.00% (Cornell University), 7/1/2035 | 554,580 |
| 350,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Miriam Osborn Memorial Home Association), 7/1/2042 | 361,291 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012), 5.00% (Rochester, NY Institute of Technology), 7/1/2038 | 443,364 |
| 100,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012A), 5.00% (Catholic Health System Obligated Group), 7/1/2032 | 106,994 |
| 250,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2012B), 5.00% (St. John's University), 7/1/2030 | 283,070 |
| 200,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2013A), 5.00% (New York University), 7/1/2037 | 225,520 |
| 400,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2014), 5.00% (Fordham University), 7/1/2030 | 453,196 |
| 200,000 | 2,3 | New York State Dormitory Authority, Revenue Bonds (Series 2015), 5.00% (Orange Regional Medical Center), 12/1/2040 | 212,634 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2015A), 5.00% (Barnard College), 7/1/2035 | 337,146 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2015A), 5.00% (North Shore-Long Island Jewish Obligated Group), 5/1/2036 | 332,187 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2015A), 5.00% (The New School), 7/1/2040 | 331,839 |
| 300,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2015B), 5.00% (State University of New York Educational Facilities), 7/1/2040 | 338,544 |
| 200,000 | | New York State Dormitory Authority, Revenue Bonds (Series 2017A), 5.00% (Columbia University), 10/1/2047 | 261,920 |
| 300,000 | | New York State Environmental Facilities Corp., Clean Water & Drinking Water Revolving Funds Revenue Bonds (Series 2008A), 5.00%, 6/15/2029 | 315,729 |
| 500,000 | | New York State Local Government Assistance Corp., Senior Lien Revenue Refunding Bonds (Series 2008 A-5/6), 5.00%, 4/1/2020 | 541,455 |
| 500,000 | | New York State Local Government Assistance Corp., Subordinate Lien Revenue Refunding Bonds (Series 2010A), 5.00%, 4/1/2023 | 557,735 |
| 220,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2012I), 5.00% (New York State Thruway Authority - General Revenue), 1/1/2028 | 248,030 |
| 500,000 | | New York State Thruway Authority, General Revenue Bonds (Series 2014J), 5.00% (New York State Thruway Authority - General Revenue), 1/1/2027 | 579,845 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $200,000 | | New York State Thruway Authority, General Revenue Junior Indebtedness Obligations (Series 2016A), 5.25% (New York State Thruway Authority - General Revenue), 1/1/2056 | $225,580 |
| 210,000 | | New York State Urban Development Corp., Revenue Refunding
Bonds (Series 1995), 5.70% (New York State)/(Original Issue
Yield: 5.94%), 4/1/2020 | 224,828 |
| 500,000 | | New York State, UT GO Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.24%), 2/15/2039 | 535,125 |
| 500,000 | | New York State, UT GO Bonds (Series 2011A), 5.00%, 2/15/2020 | 558,305 |
| 300,000 | | New York Transportation Development Corp., Special Facilities
Bonds (Series 2016A), 4.00% (Laguardia Airport Terminal B Redevelopment), 7/1/2046 | 274,542 |
| 100,000 | | New York Transportation Development Corp., Special Facility Revenue Refunding Bonds (Series 2016), 5.00% (American Airlines, Inc.), 8/1/2031 | 104,098 |
| 335,000 | | Niagara Area Development Corp., NY, Solid Waste Disposal Facility Revenue Refunding Bonds (Series 2012B), 4.00% (Covanta Energy Corp.), 11/1/2024 | 335,824 |
| 500,000 | | Niagara Area Development Corp., NY, Tax Exempt Revenue Bonds (Series 2012A), 5.00% (Niagara University), 5/1/2030 | 547,670 |
| 200,000 | | Niagara Tobacco Asset Securitization Corp., Tobacco Settlement Asset-Backed Bonds (Series 2014), 5.25%, 5/15/2040 | 218,796 |
| 250,000 | | Onondaga, NY Civic Development Corp., Tax Exempt Revenue Bonds (Series 2014A), 5.125% (St. Joseph's Hospital Health Center)/(United States Treasury PRF 7/1/2019@100)/(Original Issue Yield: 5.375%), 7/1/2031 | 273,257 |
| 200,000 | | Oyster Bay, NY, Public Improvement Refunding Bonds (Series 2014A), 5.00%, 1/15/2019 | 213,370 |
| 500,000 | | Port Authority of New York and New Jersey, Revenue Bonds
(194th Series), 5.00%, 10/15/2041 | 566,580 |
| 350,000 | | Suffolk County, NY Water Authority, Revenue Bonds (Series 2015A), 5.00%, 6/1/2037 | 399,476 |
| 450,000 | | Syracuse, NY IDA, School Facility Revenue Bonds (Series 2008A), 5.00% (Syracuse CSD, NY)/(AGM INS), 5/1/2028 | 468,859 |
| 300,000 | | Tompkins County, NY Development Corp., Continuing Care Retirement Community Revenue Bonds (Series 2014A), 5.00% (Kendal at Ithaca, Inc.), 7/1/2044 | 315,204 |
| 200,000 | | Tompkins County, NY Development Corp., Tax-Exempt Revenue Refunding Bonds (Series 2015), 5.00% (Ithaca College), 7/1/2038 | 220,164 |
| 500,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (United States Treasury PRF 5/15/2018@100)/(Original Issue Yield: 5.10%), 11/15/2037 | 525,375 |
| 290,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00%, 11/15/2023 | 309,427 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $170,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2009A-2), 5.00% (United States Treasury PRF 11/15/2018@100), 11/15/2023 | $181,946 |
| 300,000 | | Troy, NY Capital Resource Corp., Revenue Bonds (Series 2015), 5.00% (Rensselaer Polytechnic Institute), 8/1/2032 | 338,400 |
| 300,000 | | TSASC, Inc. NY, Tobacco Settlement Asset Backed Senior Refunding Bonds (Series 2017A), 5.00%, 6/1/2035 | 328,566 |
| 200,000 | | Utility Debt Securitization Authority, NY, Restructuring Bonds (Series 2016A), 5.00% (Long Island Power Authority, NY), 12/15/2034 | 235,074 |
| | | TOTAL | 26,736,681 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $26,059,289) | 27,058,176 |
| | | SHORT-TERM MUNICIPALS—4.9%4 | |
| | | New York—4.9% | |
| 150,000 | | New York City, NY Municipal Water Finance Authority,
(2014 Series AA-1) Daily VRDNs (JPMorgan Chase Bank, N.A. LIQ), 0.58%, 3/1/2017 | 150,000 |
| 250,000 | | New York City, NY Municipal Water Finance Authority,
(Senior Revenue Bonds) (Series 2008 B-3) Daily VRDNs
(Bank of America N.A. LIQ), 0.57%, 3/1/2017 | 250,000 |
| 900,000 | | New York City, NY Municipal Water Finance Authority, Second General Resolution (Fiscal 2009 Series BB-1) Daily VRDNs (Landesbank Hessen-Thuringen LIQ), 0.61%, 3/1/2017 | 900,000 |
| 100,000 | | New York State HFA, (2013 Series A) Daily VRDNs
(160 Madison Avenue)/(PNC Bank, N.A. LOC), 0.60%, 3/1/2017 | 100,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $1,400,000) | 1,400,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—100.0%
(IDENTIFIED COST $27,459,289)5 | 28,458,176 |
| | | OTHER ASSETS AND LIABILITIES - NET—(0.0)%6 | (11,592) |
| | | TOTAL NET ASSETS—100% | $28,446,584 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 1.3% of the Fund's portfolio as calculated based upon total market value.
| 1 | Floating rate note with current rate and current maturity or next reset date shown. |
| 2 | Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2017, these restricted securities amounted to $212,634, which represented 0.7% of total net assets. |
| 3 | Denotes a restricted security that may be resold without restriction to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Trustees (the “Trustees”). At February 28, 2017, these liquid restricted securities amounted to $212,634, which represented 0.7% of total net assets. |
| 4 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 5 | The cost of investments for federal tax purposes amounts to $27,440,710. |
Semi-Annual Shareholder Report
| 6 | 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, 2017.
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, 2017, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AGM | —Assured Guaranty Municipal Corp. |
| CSD | —Central School District |
| GO | —General Obligation |
| HFA | —Housing Finance Authority |
| IDA | —Industrial Development Authority |
| IDC | —Industrial Development Corporation |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| PILOT | —Payment in Lieu of Taxes |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $10.71 | $10.33 | $10.45 | $9.86 | $10.65 | $10.13 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.30 | 0.32 | 0.33 | 0.34 | 0.36 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.45) | 0.38 | (0.12) | 0.59 | (0.80) | 0.52 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.30) | 0.68 | 0.20 | 0.92 | (0.46) | 0.88 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.14) | (0.30) | (0.32) | (0.33) | (0.33) | (0.36) |
| Net Asset Value, End of Period | $10.27 | $10.71 | $10.33 | $10.45 | $9.86 | $10.65 |
| Total Return1 | (2.76)% | 6.72% | 1.94% | 9.46% | (4.50)% | 8.88% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2 | 0.76% | 0.76% | 0.76% | 0.76% | 0.62% |
| Net investment income | 2.83%2 | 2.89% | 3.10% | 3.26% | 3.15% | 3.49% |
| Expense waiver/reimbursement3 | 0.69%2 | 0.59% | 0.65% | 0.70% | 0.53% | 1.18% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $26,843 | $31,472 | $28,576 | $28,022 | $27,534 | $33,073 |
| Portfolio turnover | 4% | 10% | 17% | 27% | 7% | 19% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales change, 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $10.71 | $10.33 | $10.45 | $9.86 | $10.65 | $10.13 |
| Income From Investment Operations: | | | | | | |
| Net Investment Income | 0.11 | 0.23 | 0.25 | 0.25 | 0.25 | 0.28 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.44) | 0.38 | (0.13) | 0.59 | (0.79) | 0.53 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.33) | 0.61 | 0.12 | 0.84 | (0.54) | 0.81 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.11) | (0.23) | (0.24) | (0.25) | (0.25) | (0.29) |
| Net Asset Value, End of Period | $10.27 | $10.71 | $10.33 | $10.45 | $9.86 | $10.65 |
| Total Return1 | (3.12)% | 5.92% | 1.18% | 8.65% | (5.21)% | 8.07% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.52%2 | 1.52% | 1.52% | 1.52% | 1.52% | 1.38% |
| Net investment income | 2.06%2 | 2.14% | 2.34% | 2.50% | 2.37% | 2.72% |
| Expense waiver/reimbursement3 | 0.68%2 | 0.58% | 0.65% | 0.69% | 0.52% | 1.17% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $1,604 | $1,869 | $2,130 | $2,562 | $2,661 | $3,022 |
| Portfolio turnover | 4% | 10% | 17% | 27% | 7% | 19% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales change, 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, 2017 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $27,459,289) | | $28,458,176 |
| Cash | | 36,251 |
| Income receivable | | 304,288 |
| Prepaid expenses | | 10,860 |
| Receivable for shares sold | | 1,433 |
| TOTAL ASSETS | | 28,811,008 |
| Liabilities: | | |
| Payable for investments purchased | $256,490 | |
| Payable for shares redeemed | 42,835 | |
| Income distribution payable | 9,578 | |
| Payable for portfolio accounting fees | 46,662 | |
| Payable for other service fees (Notes 2 and 5) | 6,885 | |
| Payable to adviser (Note 5) | 1,054 | |
| Payable for distribution services fee (Note 5) | 920 | |
| TOTAL LIABILITIES | | 364,424 |
| Net assets for 2,770,165 shares outstanding | | $28,446,584 |
| Net Assets Consists of: | | |
| Paid-in capital | | $29,944,117 |
| Net unrealized appreciation of investments | | 998,887 |
| Accumulated net realized loss on investments and futures contracts | | (2,498,269) |
| Undistributed net investment income | | 1,849 |
| TOTAL NET ASSETS | | $28,446,584 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($26,842,612 ÷ 2,613,974 shares outstanding), no par value, unlimited shares authorized | | $10.27 |
| Offering price per share (100/95.50 of $10.27) | | $10.75 |
| Redemption proceeds per share | | $10.27 |
| Class B Shares: | | |
| Net asset value per share ($1,603,972 ÷ 156,191 shares outstanding), no par value, unlimited shares authorized | | $10.27 |
| Offering price per share | | $10.27 |
| Redemption proceeds per share (94.50/100 of $10.27) | | $9.71 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2017 (unaudited)
| Investment Income: | | | |
| Interest | | | $543,665 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $60,476 | |
| Administrative fee (Note 5) | | 11,833 | |
| Custodian fees | | 2,342 | |
| Transfer agent fees | | 9,820 | |
| Directors'/Trustees' fees (Note 5) | | 943 | |
| Auditing fees | | 14,073 | |
| Legal fees | | 4,850 | |
| Distribution services fee (Note 5) | | 6,377 | |
| Other service fees (Notes 2 and 5) | | 37,781 | |
| Portfolio accounting fees | | 46,635 | |
| Share registration costs | | 18,890 | |
| Printing and postage | | 9,077 | |
| Miscellaneous (Note 5) | | 2,615 | |
| TOTAL EXPENSES | | 225,712 | |
| Waiver and Reimbursements: | | | |
| Waiver of investment adviser fee (Note 5) | $(60,476) | | |
| Reimbursements of other operating expenses (Notes 2 and 5) | (43,145) | | |
| TOTAL WAIVER AND REIMBURSEMENTS | | (103,621) | |
| Net expenses | | | 122,091 |
| Net investment income | | | 421,574 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 352,628 |
| Net realized gain on futures contracts | | | 3,350 |
| Net change in unrealized appreciation of investments | | | (1,751,466) |
| Net realized and unrealized loss on investments and futures contracts | | | (1,395,488) |
| Change in net assets resulting from operations | | | $(973,914) |
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)
2/28/2017 | Year Ended
8/31/2016 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $421,574 | $911,602 |
| Net realized gain (loss) on investments and futures contracts | 355,978 | (48,294) |
| Net change in unrealized appreciation/depreciation of investments | (1,751,466) | 1,194,503 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (973,914) | 2,057,811 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (402,282) | (869,539) |
| Class B Shares | (17,517) | (42,732) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (419,799) | (912,271) |
| Share Transactions: | | |
| Proceeds from sale of shares | 1,547,105 | 3,794,181 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 355,078 | 761,780 |
| Cost of shares redeemed | (5,402,316) | (3,067,309) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,500,133) | 1,488,652 |
| Change in net assets | (4,893,846) | 2,634,192 |
| Net Assets: | | |
| Beginning of period | 33,340,430 | 30,706,238 |
| End of period (including undistributed net investment income of $1,849 and $74, respectively) | $28,446,584 | $33,340,430 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2017 (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. Class B shares were closed to new accounts/investors on June 1, 2015, and to new purchases/exchanges by existing shareholders on August 1, 2015. 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 are fair valued using price evaluations provided by a pricing service approved by the Trustees. |
| ■ | 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. |
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, 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, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not
Semi-Annual Shareholder Report
representative of the fair value of such security, 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 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. Amortization/accretion of premium and discount is included in investment income. 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. The detail of the total fund expense waiver and reimbursements of $103,621 is disclosed in various locations in this Note 2 and Note 5.
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, 2017, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $35,656 | $(1,411) |
| Class B Shares | 2,125 | — |
| TOTAL | $37,781 | $(1,411) |
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, 2017, 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, 2017, tax years 2013 through 2016 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.
Futures Contracts
The Fund purchases and sells financial futures contracts to seek to increase return and to manage duration risk and yield curve 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 contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
At February 28, 2017, the Fund had no outstanding futures contracts.
The average notional value of short futures contracts held by the Fund throughout the period was $230,942. This is based on amounts held as of each month-end throughout the six-month fiscal period.
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended February 28, 2017
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures
Contracts |
| Interest rate contracts | $3,350 |
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
2/28/2017 | Year Ended
8/31/2016 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 149,830 | $1,547,105 | 360,075 | $3,794,181 |
| Shares issued to shareholders in payment of distributions declared | 32,653 | 337,569 | 68,309 | 719,931 |
| Shares redeemed | (507,139) | (5,196,207) | (254,957) | (2,693,360) |
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS | (324,656) | $(3,311,533) | 173,427 | $1,820,752 |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | — | $— | — | $— |
| Shares issued to shareholders in payment of distributions declared | 1,694 | 17,509 | 3,973 | 41,849 |
| Shares redeemed | (19,993) | (206,109) | (35,640) | (373,949) |
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS | (18,299) | $(188,600) | (31,667) | $(332,100) |
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS | (342,955) | $(3,500,133) | 141,760 | $1,488,652 |
4. FEDERAL TAX INFORMATION
At February 28, 2017, the cost of investments for federal tax purposes was $27,440,710. The net unrealized appreciation of investments for federal tax purposes was $1,017,466. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $1,184,130 and net unrealized depreciation from investments for those securities having an excess of cost over value of $166,664.
At August 31, 2016, the Fund had a capital loss carryforward of $2,609,302 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 |
| No Expiration | $64,175 | $41,862 | $106,037 |
| 2017 | $958,822 | NA | $958,822 |
| 2018 | $1,218,820 | NA | $1,218,820 |
| 2019 | $325,623 | NA | $325,623 |
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse other operating expenses. For the six months ended February 28, 2017, the Adviser, voluntarily waived its entire fee of $60,476 and voluntarily reimbursed $41,734 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, 2017, 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, 2017, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $6,377 |
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, 2017, FSC retained $5,244 of fees paid by the Fund. For the six months ended February 28, 2017, 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, 2017, FSSC received $2,909 and reimbursed $1,411 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, 2017, FSC retained $2,073 in sales charges from the sale of Class A Shares.
Interfund Transactions
During the six months ended February 28, 2017, 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 $3,400,000 and $2,200,000, 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 interest expense, extraordinary expenses, line of credit expenses and proxy-related
Semi-Annual Shareholder Report
expenses paid by the Fund, if any) paid by the Fund's Class A Shares and Class B Shares (after the voluntary waivers and reimbursements) will not exceed 0.76% and 1.52% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2017; 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, 2017, were as follows:
| Purchases | $1,169,583 |
| Sales | $5,295,777 |
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, 2017, 4.1% 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 with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of February 28, 2017, the Fund had no outstanding loans. During the six months ended February 28, 2017, the Fund did not utilize the LOC.
Semi-Annual Shareholder Report
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), 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, 2017, there were no outstanding loans. During the six months ended February 28, 2017, the program was not utilized.
10. Regulatory UPDATES
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. These amendments relate to Regulation S-X which sets forth the form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompanying notes.
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, 2016 to February 28, 2017.
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
9/1/2016 | Ending
Account Value
2/28/2017 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $972.40 | $3.72 |
| Class B Shares | $1,000 | $968.80 | $7.42 |
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 2016
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 of Trustees (the “Board”) reviewed and unanimously approved at its May 2016 meetings the continuation of 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 after consideration of all of the information received on whether to continue the existing arrangements.
The 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 “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment 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 an adviser to a fund and its shareholders, including the performance and fees and expenses of the fund and of comparable funds; an adviser's cost of providing the services, including the profitability to an adviser of providing advisory services to a fund; the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale 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 an 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 an adviser for services rendered to a fund); comparative fee and expense structures, including a comparison of fees paid to an adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which 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 an adviser's services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment 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 Federated Investment Management Company (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 investment 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 Investors, Inc. and its affiliates (“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 meetings at which the Board's formal review of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, 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 investment 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 Fund; 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 funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and
Semi-Annual Shareholder Report
audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
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 to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the 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 Senior Officer's 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 the Board 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 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
Semi-Annual Shareholder Report
responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract with respect to the Fund.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. 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 investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also 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 the 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.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of the other factors considered relevant by the Board.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the investment advisory contract with respect to the Fund.
Semi-Annual Shareholder Report
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment 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. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
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. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
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 funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions, as well as systems technology (including technology relating to cybersecurity), and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has
Semi-Annual Shareholder Report
allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and again in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints at higher levels and should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. 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 a fund attains a certain size.
The Senior Officer noted that, subject to the comments and recommendations made within the Senior Officer's Evaluation, his observations and the information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment 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 investment 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 investment 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 investment advisory contract was appropriate.
The Board based its decision to approve the investment 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 continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
Semi-Annual Shareholder Report
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
Semi-Annual Shareholder Report
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
Federated New York Municipal Income Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923401
CUSIP 313923880
4031009 (4/17)
Federated is a registered trademark of Federated Investors, Inc.
2017 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2017
| 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, 2016 through February 28, 2017. 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, 2017, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 17.5% |
| Education | 16.3% |
| Pre-Refunded | 14.2% |
| Dedicated Tax | 9.7% |
| General Obligation—Local | 8.4% |
| Water & Sewer | 7.1% |
| Toll Road | 4.2% |
| Public Power | 4.0% |
| General Obligation—State | 3.9% |
| General Obligation— State Appropriation | 3.5% |
| Other2 | 10.2% |
| Other Assets and Liabilities—Net3 | 1.0% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party 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 88.8% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2017 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—94.8% | |
| | | Guam—1.0% | |
| $1,000,000 | | Guam Government Business Privilege Tax, Business Privilege Tax Bonds (Series 2012B), 5.00%, 1/1/2037 | $1,021,480 |
| 560,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.625% (United States Treasury PRF 12/1/2019@100)/(Original Issue
Yield: 5.875%), 12/1/2029 | 626,343 |
| | | TOTAL | 1,647,823 |
| | | Ohio—93.6% | |
| 2,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District, Hospital Facilities Revenue Bonds (Series 2012), 5.00% (Akron General Health System)/(United States Treasury PRF 1/1/2022@100), 1/1/2031 | 2,314,540 |
| 1,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District, Hospital Facilities Revenue Bonds (Series 2016), 5.25% (Summa Health System), 11/15/2041 | 1,089,650 |
| 2,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District, Hospital Improvement & Revenue Refunding Bonds (Series 2012), 5.00% (Children's Hospital Medical Center, Akron), 11/15/2032 | 2,177,540 |
| 1,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2031 | 1,130,850 |
| 2,000,000 | | Akron, OH, Income Tax Revenue Refunding Bonds (Series 2012A), 5.00% (Akron, OH Community Learning Centers), 12/1/2033 | 2,248,000 |
| 500,000 | | Akron, OH, Revenue Refunding Bonds (Series A), 5.00% (Akron, OH Community Learning Centers), 12/1/2023 | 578,330 |
| 2,000,000 | | Allen County, OH, Hospital Facilities Revenue Bonds (Series 2010B), 5.25% (Mercy Health), 9/1/2027 | 2,210,100 |
| 1,000,000 | | Allen County, OH, Hospital Facilities Revenue Refunding Bonds, 5.00% (Mercy Health), 11/1/2043 | 1,079,880 |
| 115,000 | | American Municipal Power-Ohio, Inc., Revenue Bonds (Series 2008A), 5.25% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2028 | 119,150 |
| 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 | 1,965,471 |
| 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 | 2,541,645 |
| 1,000,000 | | American Municipal Power-Ohio, Inc., Revenue Refunding Bonds (Series 2015A), 5.00% (American Municipal Power, Prairie State Energy Campus Project), 2/15/2042 | 1,096,510 |
| 2,000,000 | | Bowling Green State University, OH, General Receipts Bonds (Series 2016A), 5.00%, 6/1/2044 | 2,222,920 |
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 A-2), 6.50%, 6/1/2047 | $1,985,080 |
| 2,000,000 | | Butler County, OH Hospital Facilities Authority, Revenue Bonds (Series 2016), 5.00% (UC Health ), 11/15/2045 | 2,196,720 |
| 1,000,000 | | Centerville, OH, Health Care Fixed Rate Revenue Bonds (Series 2007A), 6.00% (Bethany Lutheran Village), 11/1/2038 | 1,004,480 |
| 1,000,000 | | Cincinnati City School District, OH, UT GO Bonds, 5.00%
(National Public Finance Guarantee Corp. INS), 12/1/2017 | 1,032,190 |
| 3,000,000 | | Cincinnati, OH Water System, Revenue Bonds (Series 2015A), 5.00%, 12/1/2040 | 3,419,310 |
| 2,000,000 | | Cincinnati, OH, UT Various Purpose GO Improvement & Refunding Bonds (Series 2014A), 5.00%, 12/1/2032 | 2,245,900 |
| 2,105,000 | | Cleveland Heights & University Heights, OH City School District, School Improvement UT GO Bonds (Series 2014), 5.00%, 12/1/2051 | 2,320,973 |
| 1,500,000 | | Cleveland State University, OH, General Receipts Bonds (Series 2012), 5.00%, 6/1/2037 | 1,664,880 |
| 1,980,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2006A), 5.25% (Assured Guaranty Corp. INS), 1/1/2018 | 2,046,924 |
| 365,000 | | Cleveland, OH Airport System, Revenue Bonds (Series 2009C), 5.00% (Assured Guaranty Corp. INS), 1/1/2023 | 386,878 |
| 1,000,000 | | Cleveland, OH Municipal School District, School Improvement UT GO Bonds (Series 2015A), 5.00% (Ohio School District Credit Enhancement GTD), 12/1/2033 | 1,138,370 |
| 1,550,000 | | Cleveland, OH Public Power System, Revenue Bonds (Series 2008B-1), 5.00%, 11/15/2038 | 1,611,597 |
| 1,000,000 | | Cleveland, OH Water, Senior Lien Revenue Bonds (Series 2012X), 5.00%, 1/1/2042 | 1,117,660 |
| 245,000 | | Cleveland, OH Water, Water Revenue Bonds (Series 2007P), 5.00%, 1/1/2026 | 253,105 |
| 2,000,000 | | Cleveland, OH, LT GO Bonds, 5.50% (AGM INS), 10/1/2019 | 2,218,500 |
| 3,000,000 | | Cleveland-Cuyahoga County, OH Port Authority, Revenue Bonds (Series 2014), 5.00% (Euclid Avenue Development Corp.), 8/1/2039 | 3,267,360 |
| 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 | 1,086,810 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Refunding Bonds (Series 2014), 5.00%, 6/1/2031 | 1,155,440 |
| 500,000 | | Columbus, OH, UT GO Refunding Bonds (Series 1), 5.00%
(United States Treasury PRF 7/1/2023@100), 7/1/2028 | 596,310 |
| 1,500,000 | | Columbus, OH, Various Purpose LT GO Bonds (Series 2013B), 5.00% (United States Treasury PRF 8/15/2023@100), 8/15/2028 | 1,792,590 |
| 1,340,000 | | Cuyahoga County, OH Sales Tax, Various Purpose Sales Tax Revenue Bonds (Series 2014), 5.00%, 12/1/2034 | 1,536,189 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Cuyahoga County, OH, LT GO Convention Hotel Project, 5.00%, 12/1/2036 | $1,108,880 |
| 220,000 | | Cuyahoga, OH CCD, General Receipts Revenue Bonds (Series 2012D), 5.00%, 8/1/2026 | 251,548 |
| 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 | 1,460,356 |
| 2,000,000 | | Fairfield County, OH, LT GO Bonds (Series 2015), 4.00%, 12/1/2040 | 2,029,260 |
| 2,000,000 | | Franklin County, OH Convention Facilities Authority, Tax & Lease Revenue Anticipation & Refunding Bonds (Series 2014), 5.00%, 12/1/2035 | 2,271,980 |
| 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 | 2,576,256 |
| 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 | 1,064,390 |
| 1,000,000 | | Franklin County, OH Hospital Facility Authority, Hospital Facilities Revenue Bonds (Series 2015), 5.00% (OhioHealth Corp,), 5/15/2040 | 1,111,510 |
| 1,535,000 | | Franklin County, OH Hospital Facility Authority, Hospital Improvement Revenue Bonds (Series 2009), 5.00% (Nationwide Children's Hospital)/(United States Treasury PRF 11/1/2019@100)/(Original Issue Yield: 5.11%), 11/1/2034 | 1,691,202 |
| 2,165,000 | | Franklin County, OH, Various Purpose LT GO Bonds, 5.00%
(United States Treasury PRF 12/1/2017@100), 12/1/2031 | 2,234,756 |
| 2,000,000 | | Hamilton County, OH Convention Facilities Authority, Convention Facilities Authority Revenue & Refunding Bonds (Series 2014), 5.00%, 12/1/2032 | 2,208,180 |
| 2,850,000 | | Hamilton County, OH Sales Tax, Revenue Refunding Bonds (Series 2011A), 5.00%, 12/1/2032 | 3,139,417 |
| 500,000 | | Hamilton County, OH, Healthcare Improvement and Revenue Refunding Bonds (Series 2016), 5.00% (Life Enriching Communities), 1/1/2051 | 508,185 |
| 280,000 | | Hamilton, OH, LT GO Various Purpose Bonds, 5.00% (Assured Guaranty Corp. INS), 11/1/2021 | 306,085 |
| 1,555,000 | | JobsOhio Beverage System, OH, Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds (Series 2013A), 5.00%, 1/1/2038 | 1,716,938 |
| 165,000 | | Kent State University, OH, General Receipts Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. INS), 5/1/2028 | 176,992 |
| 70,000 | | Kent State University, OH, General Receipts Bonds (Series 2009B), 5.00% (Assured Guaranty Corp. LOC), 5/1/2023 | 75,400 |
| 1,860,000 | | Kettering, OH City School District, UT GO Bonds, 4.75% (United States Treasury PRF 6/1/2017@100), 12/1/2020 | 1,879,772 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $400,000 | | Kettering, OH City School District, UT GO School Improvement Refunding Bonds, 4.75% (United States Treasury PRF 6/1/2017@100), 12/1/2022 | $404,252 |
| 1,000,000 | | Lorain County, OH, Hospital Revenue Bonds (Series 2006H), 5.00% (Mercy Health)/(Assured Guaranty Corp. INS), 2/1/2024 | 1,040,460 |
| 2,000,000 | | Lucas County, OH, Hospital Revenue Bonds (Series 2011A), 6.50% (ProMedica Healthcare Obligated Group), 11/15/2037 | 2,357,460 |
| 2,000,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.00%, 9/1/2031 | 2,238,180 |
| 500,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.00%, 9/1/2036 | 558,180 |
| 1,600,000 | | Miamisburg, OH City School District, School Facilities Construction & Improvement UT GO Bonds, 5.00% (United States Treasury PRF 12/1/2018@100), 12/1/2024 | 1,713,968 |
| 500,000 | | Middletown, OH, LT GO Refunding and Improvement Bonds, 5.00% (AGM INS), 12/1/2021 | 524,100 |
| 1,000,000 | | Montgomery County, OH, Revenue Bonds (Series 2008D), 6.125% (Catholic Health Initiatives)/(Original Issue Yield: 6.30%), 10/1/2028 | 1,070,650 |
| 1,000,000 | | Muskingum County, OH, Hospital Facilities Revenue Bonds (Series 2013), 5.00% (Genesis Healthcare Corp.)/(Original Issue
Yield: 5.08%), 2/15/2044 | 1,033,590 |
| 1,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue & Refunding Bonds (Series 2014), 5.00%, 11/15/2049 | 1,116,360 |
| 2,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Bonds (Series 2013), 5.00%, 11/15/2038 | 2,246,840 |
| 155,000 | | Ohio HFA SFM, Revenue Bond (Series 1), 3.25%, 5/1/2020 | 153,520 |
| 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 | 2,174,480 |
| 1,150,000 | | Ohio State Air Quality Development Authority, Environmental Improvement Revenue Bonds (Series 2010), 5.00% (Buckeye Power, Inc.), 12/1/2021 | 1,280,939 |
| 400,000 | | Ohio State Building Authority, Administration Building Fund Revenue Bonds (Series 2009A), 5.00% (United States Treasury PRF 4/1/2019@100), 10/1/2023 | 432,688 |
| 2,000,000 | | Ohio State Capital Facilities, Parks and Recreation Improvement Fund Projects (Series 2016C), 5.00% (Ohio State), 12/1/2031 | 2,328,760 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission, Higher Educational Facility Revenue Bonds (Series 2015), 5.00% (Kenyon College, OH), 7/1/2041 | 2,209,220 |
| 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 | 1,109,430 |
| 1,830,000 | | Ohio State Higher Educational Facility Commission, Revenue Bonds (Series 2013), 5.00% (University of Dayton), 12/1/2031 | 2,047,825 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Refunding Bonds (Series 2008C), 5.00% (Case Western Reserve University, OH)/(United States Treasury PRF 12/1/2017@100), 12/1/2029 | $1,031,990 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission, Revenue Refunding Bonds (Series 2016), 5.00% (Case Western Reserve University, OH), 12/1/2040 | 1,123,040 |
| 2,000,000 | | Ohio State Hospital Revenue, Hospital Revenue Bonds (Series 2016A), 5.00% (University Hospitals Health System, Inc.), 1/15/2046 | 2,152,820 |
| 3,325,000 | | Ohio State Treasurer Private Activity, Revenue Bonds (Series 2015), 5.00% (Portsmouth Gateway Group LLC), 12/31/2039 | 3,544,051 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Revenue Refunding Bonds (Series 2010A), 5.00%, 2/15/2031 | 1,090,440 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Junior Lien Revenue Bonds (Series 2013A-1), 5.00% (Original Issue
Yield: 5.05%), 2/15/2048 | 1,093,370 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Revenue Refunding Bonds (Series 1998A), 5.50% (National Re Holdings Corp. INS), 2/15/2024 | 1,196,720 |
| 1,810,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00%, 12/1/2027 | 1,936,881 |
| 190,000 | | Ohio State University, General Receipts Bonds (Series 2008A), 5.00% (United States Treasury PRF 12/1/2018@100), 12/1/2027 | 203,534 |
| 1,000,000 | | Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.00%, 6/1/2038 | 1,124,230 |
| 1,000,000 | | Ohio State Water Development Authority, Drinking Water Assistance Fund Revenue Refunding Bonds (Series 2008), 5.00% (United States Treasury PRF 6/1/2018@100), 12/1/2021 | 1,052,080 |
| 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 | 1,052,080 |
| 1,000,000 | | Ohio State Water Development Authority, Water Development Revenue Bonds (Fresh Water Series 2016B), 5.00%, 6/1/2037 | 1,159,800 |
| 3,000,000 | | Ohio State, Capital Facilities Lease-Appropriation Bonds (Series 2016A), 5.00%, 2/1/2030 | 3,471,780 |
| 1,500,000 | | Ohio State, Common Schools UT GO Bonds (Series 2011B), 5.00%, 9/15/2024 | 1,702,740 |
| 4,000,000 | | Ohio State, Higher Education UT GO Bonds (Series 2015C), 5.00%, 11/1/2033 | 4,604,160 |
| 1,500,000 | | Ohio State, Hospital Revenue Bonds, 5.00% (Cleveland Clinic), 1/1/2031 | 1,695,540 |
| 1,200,000 | | Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033 | 1,236,444 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $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 | $1,063,270 |
| 2,000,000 | | Ohio University, General Receipts Bonds (Series 2013), 5.00%, 12/1/2043 | 2,202,220 |
| 267,492 | 1,2 | 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 | 3 |
| 36,720 | 1,2 | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 0 |
| 470,000 | | River Valley, OH Local School District, UT GO School Facilities Bonds, 5.25% (School District Credit Program GTD), 11/1/2023 | 560,231 |
| 700,000 | | South Euclid, OH, LT GO Real Estate Acquisition and Urban Development Bonds, 5.00%, 6/1/2032 | 789,383 |
| 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 | 1,367,950 |
| 500,000 | | Switzerland, OH Local School District, UT GO School Improvement Refunding Bonds, 5.00% (School District Credit Program GTD), 12/1/2027 | 565,020 |
| 1,000,000 | | Toledo, OH Water System, Revenue Improvement and Refunding Bonds (Series 2013), 5.00%, 11/15/2032 | 1,131,950 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority, Revenue Bonds, 6.45%
(CSX Corp.), 12/15/2021 | 1,801,380 |
| 2,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2008B), 5.25% (United States Treasury PRF 1/1/2018@100), 1/1/2027 | 2,074,840 |
| 1,020,000 | | University of Akron, OH, General Receipts Bonds (Series 2015A), 5.00%, 1/1/2030 | 1,157,751 |
| 1,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2016A), 5.00%, 1/1/2036 | 1,113,540 |
| 1,000,000 | | University of Cincinnati, OH, General Receipts Bonds (Series 2014C), 5.00%, 6/1/2041 | 1,121,290 |
| 1,000,000 | 3 | University of Cincinnati, OH, General Receipts Floating Rate Notes (Series 2015A), 0.971%, 6/1/2018 | 996,830 |
| | | TOTAL | 153,121,219 |
| | | Puerto Rico—0.2% | |
| 1,000,000 | 2,4 | Puerto Rico Government Development Bank (GDB), Senior Notes (Series 2006B), 5.00%, 12/1/2017 | 253,750 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $151,375,827) | 155,022,792 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPALS—4.2%5 | |
| | | Ohio—4.2% | |
| $5,050,000 | | Allen County, OH, (Series 2010C) Daily VRDNs (Mercy Health)/(MUFG Union Bank, N.A. LOC), 0.59%, 3/1/2017 | $5,050,000 |
| 1,700,000 | | Alliance, OH, (Series 2003) Daily VRDNs (Alliance Community Hospital) , (JPMorgan Chase Bank, N.A. LOC), 0.57%, 3/1/2017 | 1,700,000 |
| 100,000 | | Ohio State Higher Educational Facility Commission, (Series 2008 B-4) Daily VRDNs (Cleveland Clinic)/(Barclays Bank PLC LIQ), 0.57%, 3/1/2017 | 100,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $6,850,000) | 6,850,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.0%
(IDENTIFIED COST $158,225,827)6 | 161,872,792 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.0%7 | 1,650,333 |
| | | TOTAL NET ASSETS—100% | $163,523,125 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 3.1% of the Fund's portfolio as calculated based upon total market value.
| 1 | Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2017, these restricted securities amounted to $3, which represented 0.0% of total net assets. |
| 2 | Non-income-producing security. |
| 3 | Floating rate note with current rate and current maturity or next reset date shown. |
| 4 | Security in default. |
| 5 | Current rate and next reset date shown for Variable Rate Demand Notes. |
| 6 | The cost of investments for federal tax purposes amounts to $158,003,566. |
| 7 | 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, 2017.
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, 2017, 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. |
| CCD | —Community College District |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HFA | —Housing Finance Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LO | —Limited Obligation |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $11.56 | $11.16 | $11.28 | $10.70 | $11.47 | $10.93 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.34 | 0.36 | 0.36 | 0.38 | 0.38 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.50) | 0.39 | (0.14) | 0.59 | (0.79) | 0.56 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.34) | 0.73 | (0.22) | 0.95 | (0.41) | 0.94 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.33) | (0.34) | (0.37) | (0.36) | (0.40) |
| Distributions from net realized gain on investments | (0.01) | — | — | — | — | — |
| TOTAL DISTRIBUTIONS | (0.17) | (0.33) | (0.34) | (0.37) | (0.36) | (0.40) |
| Net Asset Value, End of Period | $11.05 | $11.56 | $11.16 | $11.28 | $10.70 | $11.47 |
| Total Return1 | (2.98)% | 6.65% | 2.00% | 9.00% | (3.73)% | 8.72% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2 | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 2.86%2 | 2.96% | 3.16% | 3.32% | 3.28% | 3.40% |
| Expense waiver/reimbursement3 | 0.16%2 | 0.15% | 0.14% | 0.16% | 0.14% | 0.18% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $61,422 | $66,884 | $67,469 | $69,461 | $45,131 | $53,165 |
| Portfolio turnover | 5% | 13% | 25% | 8% | 15% | 17% |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $11.57 | $11.16 | $11.28 | $10.70 | $11.47 | $10.93 |
| Income from Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.32 | 0.34 | 0.35 | 0.36 | 0.36 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.51) | 0.40 | (0.13) | 0.58 | (0.79) | 0.56 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.36) | 0.72 | 0.21 | 0.93 | (0.43) | 0.92 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.15) | (0.31) | (0.33) | (0.35) | (0.34) | (0.38) |
| Distributions from net realized gain on investments | (0.01) | — | — | — | — | — |
| TOTAL DISTRIBUTIONS | (0.16) | (0.31) | (0.33) | (0.35) | (0.34) | (0.38) |
| Net Asset Value, End of Period | $11.05 | $11.57 | $11.16 | $11.28 | $10.70 | $11.47 |
| Total Return1 | (3.14)% | 6.58% | 1.84% | 8.84% | (3.87)% | 8.56% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.91%2 | 0.90% | 0.90% | 0.90% | 0.90% | 0.90% |
| Net investment income | 2.71%2 | 2.81% | 3.01% | 3.19% | 3.13% | 3.25% |
| Expense waiver/reimbursement3 | 0.41%2 | 0.40% | 0.39% | 0.41% | 0.39% | 0.43% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $102,101 | $111,156 | $107,450 | $109,583 | $118,639 | $128,005 |
| Portfolio turnover | 5% | 13% | 25% | 8% | 15% | 17% |
| 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, 2017 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $158,225,827) | | $161,872,792 |
| Cash | | 80,637 |
| Income receivable | | 1,675,075 |
| Receivable for shares sold | | 223,269 |
| TOTAL ASSETS | | 163,851,773 |
| Liabilities: | | |
| Payable for shares redeemed | $228,472 | |
| Payable for portfolio accounting fees | 46,662 | |
| Payable for other service fees (Notes 2 and 5) | 32,397 | |
| Payable for distribution services fee (Note 5) | 11,832 | |
| Payable for investment adviser fee (Note 5) | 1,067 | |
| Payable for administrative fee (Note 5) | 350 | |
| Accrued expenses (Note 5) | 7,868 | |
| TOTAL LIABILITIES | | 328,648 |
| Net assets for 14,796,511 shares outstanding | | $163,523,125 |
| Net Assets Consists of: | | |
| Paid-in capital | | $159,444,390 |
| Net unrealized appreciation of investments | | 3,646,965 |
| Accumulated net realized gain on investments and futures contracts | | 284,064 |
| Undistributed net investment income | | 147,706 |
| TOTAL NET ASSETS | | $163,523,125 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($61,422,005 ÷ 5,558,447 shares outstanding), no par value, unlimited shares authorized | | $11.05 |
| Offering price per share (100/95.50 of $11.05) | | $11.57 |
| Redemption proceeds per share | | $11.05 |
| Class F Shares: | | |
| Net asset value per share ($102,101,120 ÷ 9,238,064 shares outstanding), no par value, unlimited shares authorized | | $11.05 |
| Offering price per share (100/99.00 of $11.05) | | $11.16 |
| Redemption proceeds per share (99.00/100 of $11.05) | | $10.94 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2017 (unaudited)
| Investment Income: | | | |
| Interest | | | $3,063,098 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $337,978 | |
| Administrative fee (Note 5) | | 66,130 | |
| Custodian fees | | 5,549 | |
| Transfer agent fees | | 47,555 | |
| Directors'/Trustees' fees (Note 5) | | 1,506 | |
| Auditing fees | | 14,073 | |
| Legal fees | | 4,777 | |
| Distribution services fee (Note 5) | | 210,713 | |
| Other service fees (Notes 2 and 5) | | 210,879 | |
| Portfolio accounting fees | | 46,636 | |
| Share registration costs | | 18,874 | |
| Printing and postage | | 12,028 | |
| Miscellaneous (Note 5) | | 11,838 | |
| TOTAL EXPENSES | | 988,536 | |
| Waivers: | | | |
| Waiver of investment adviser fee (Note 5) | $(133,832) | | |
| Waiver of other operating expenses (Note 5) | (131,338) | | |
| TOTAL WAIVERS | | (265,170) | |
| Net expenses | | | 723,366 |
| Net investment income | | | 2,339,732 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 342,924 |
| Net realized loss on futures contracts | | | (56,299) |
| Net change in unrealized appreciation of investments | | | (8,146,712) |
| Net realized and unrealized loss on investments and futures contracts | | | (7,860,087) |
| Change in net assets resulting from operations | | | $(5,520,355) |
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)
2/28/2017 | Year Ended
8/31/2016 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $2,339,732 | $4,991,037 |
| Net realized gain on investments and futures contracts | 286,625 | 799,063 |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (8,146,712) | 5,334,706 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,520,355) | 11,124,806 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (909,902) | (1,929,974) |
| Class F Shares | (1,432,634) | (2,979,646) |
| Distributions from net realized gain on investments | | |
| Class A Shares | (32,612) | — |
| Class F Shares | (54,606) | — |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (2,429,754) | (4,909,620) |
| Share Transactions: | | |
| Proceeds from sale of shares | 8,961,720 | 13,106,588 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,945,017 | 3,876,913 |
| Cost of shares redeemed | (17,473,870) | (20,076,614) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (6,567,133) | (3,093,113) |
| Change in net assets | (14,517,242) | 3,122,073 |
| Net Assets: | | |
| Beginning of period | 178,040,367 | 174,918,294 |
| End of period (including undistributed net investment income of $147,706 and $150,510, respectively) | $163,523,125 | $178,040,367 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2017 (unaudited)
1. ORGANIZATION
Federated Municipal Securities Income Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of five portfolios. The financial statements included herein are only those of the Federated Ohio Municipal Income Fund (the “Fund”), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers two classes of shares: Class A Shares and Class F Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The investment objective of the Fund is to provide current income exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax (AMT)) and the personal income taxes imposed by the state of Ohio and Ohio municipalities. Interest income from the Fund's investments may be subject to the federal AMT for individuals and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | 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. |
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, 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, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not
Semi-Annual Shareholder Report
representative of the fair value of such security, 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 and Significant Events 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 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. Amortization/accretion of premium and discount is included in investment income. 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. The detail of the total fund expense waivers of $265,170 is disclosed in various locations in Note 5.
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.
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 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, 2017, other service fees for the Fund were as follows:
| | Other Service
Fees Incurred |
| Class A Shares | $79,541 |
| Class F Shares | 131,338 |
| TOTAL | $210,879 |
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, 2017, 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, 2017, tax years 2013 through 2016 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Semi-Annual Shareholder Report
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, if applicable, held at February 28, 2017, is as follows:
| | Acquisition
Date | Cost | Market
Value |
| 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 | 12/23/2004 | $266,671 | $3 |
| Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 8/1/2014 - 8/1/2015 | $36,720 | $0 |
Futures Contracts
The Fund purchases and sells financial futures contracts to seek 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 contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures, guarantees the futures contracts against default.
As of February 28, 2017, the Fund had no outstanding futures contracts.
The average notional value of long and short futures contracts held by the Fund throughout the period were $842,946 and 888,393. This is based on amounts held as of each month-end throughout the six-month period.
The Effect of Derivative Instruments on the Statement of Operations for the Six Months ended February 28, 2017
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures
Contracts |
| Interest rate contracts | $(56,299) |
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
2/28/2017 | Year Ended
8/31/2016 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 533,276 | $5,919,448 | 527,990 | $6,010,776 |
| Shares issued to shareholders in payment of distributions declared | 48,904 | 544,333 | 96,664 | 1,098,082 |
| Shares redeemed | (807,381) | (8,928,105) | (888,108) | (10,062,080) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (225,201) | $(2,464,324) | (263,454) | $(2,953,222) |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 270,430 | $3,042,272 | 619,691 | $7,095,812 |
| Shares issued to shareholders in payment of distributions declared | 125,855 | 1,400,684 | 244,601 | 2,778,831 |
| Shares redeemed | (768,159) | (8,545,765) | (882,975) | (10,014,534) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | (371,874) | $(4,102,809) | (18,683) | $(139,891) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (597,075) | $(6,567,133) | (282,137) | $(3,093,113) |
4. FEDERAL TAX INFORMATION
At February 28, 2017, the cost of investments for federal tax purposes was $158,003,566. The net unrealized appreciation of investments for federal tax purposes was $3,869,226. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,878,660 and net unrealized depreciation from investments for those securities having an excess of cost over value of $2,009,434.
At August 31, 2016, the Fund had a capital loss carryforward of $91,054 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 |
| 2018 | $68,589 | NA | $68,589 |
| 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, 2017, the Adviser voluntarily waived $133,832 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, 2017, 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% |
Semi-Annual Shareholder Report
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, 2017, distribution services fees for the Fund were as follows:
| | Distribution
Services Fees
Incurred | Distribution
Services Fees
Waived |
| Class F Shares | $210,713 | $(131,338) |
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, 2017, FSC retained $79,375 of fees paid by the Fund. For the six months ended February 28, 2017, the Fund's Class A shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the six months ended February 28, 2017, FSC retained $2,449 and $31 in sales charges from the sale of Class A Shares and Class F Shares, respectively. FSC retained $1,268 and $11,199 in CDSC relating to redemptions of Class A and Class F Shares, respectively.
Other Service Fees
For the six months ended February 28, 2017, FSSC received $1,009 of the other service fees disclosed in Note 2.
Interfund Transactions
During the six months ended February 28, 2017, 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 $18,700,000 and $19,100,000, 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 interest expense, extraordinary expenses, line of credit expense 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, 2017; 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.
Semi-Annual Shareholder Report
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. 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, 2017, were as follows:
| Purchases | $7,573,615 |
| Sales | $13,094,226 |
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, 2017, 12.3% of the securities in the Portfolio of Investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies.
8. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of February 28, 2017, the Fund had no outstanding loans. During the six months ended February 28, 2017, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (“SEC”), 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, 2017, there were no outstanding loans. During the six months ended February 28, 2017 the program was not utilized.
Semi-Annual Shareholder Report
10. REGULATORY UPDATES
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. These amendments relate to Regulation S-X which sets forth the form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompanying notes.
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, 2016 to February 28, 2017.
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
9/1/2016 | Ending
Account Value
2/28/2017 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $970.20 | $3.71 |
| Class F Shares | $1,000 | $968.60 | $4.44 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.03 | $3.81 |
| Class F Shares | $1,000 | $1,020.28 | $4.56 |
| 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 F Shares | 0.91% |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2016
Federated Ohio Municipal Income Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved at its May 2016 meetings the continuation of 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 after consideration of all of the information received on whether to continue the existing arrangements.
The 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 “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment 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 an adviser to a fund and its shareholders, including the performance and fees and expenses of the fund and of comparable funds; an adviser's cost of providing the services, including the profitability to an adviser of providing advisory services to a fund; the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale 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 an 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 an adviser for services rendered to a fund); comparative fee and expense structures, including a comparison of fees paid to an adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which 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 an adviser's services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment 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 Federated Investment Management Company (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 investment 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 Investors, Inc. and its affiliates (“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 meetings at which the Board's formal review of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, 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 investment 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 Fund; 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 funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and
Semi-Annual Shareholder Report
audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
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 to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the 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 the Board 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 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 the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Semi-Annual Shareholder Report
Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract with respect to the Fund.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. 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 investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also 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 the 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 Senior Officer's Evaluation, the Fund's performance for the three-year and five-year periods was at the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of the other factors considered relevant by the Board.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the investment advisory contract with respect to the Fund.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts,
Semi-Annual Shareholder Report
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. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
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. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
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 funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions, as well as systems technology (including technology relating to cybersecurity), and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and again in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information
Semi-Annual Shareholder Report
should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints at higher levels and should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. 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 a fund attains a certain size.
The Senior Officer noted that, subject to the comments and recommendations made within the Senior Officer's Evaluation, his observations and the information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment 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 investment 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 investment 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 investment advisory contract was appropriate.
The Board based its decision to approve the investment 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 continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
Semi-Annual Shareholder Report
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
Semi-Annual Shareholder Report
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
Semi-Annual Shareholder Report
Federated Ohio Municipal Income Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923823
CUSIP 313923609
2032305 (4/17)
Federated is a registered trademark of Federated Investors, Inc.
2017 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2017
| 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, 2016 through February 28, 2017. 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, 2017, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 18.5% |
| Water & Sewer | 13.6% |
| Education | 11.6% |
| Toll Road | 10.8% |
| General Obligation—Local | 10.1% |
| Pre-Refunded | 8.6% |
| Dedicated Tax | 5.8% |
| Industrial Development/Pollution Control | 4.3% |
| Senior Care | 4.1% |
| Airport | 2.9% |
| Other2 | 8.9% |
| 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 guarantor, such as bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. Pre-refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities. |
| 2 | For purposes of this table, sector classifications constitute 90.3% 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, 2017 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—97.5% | |
| | | Pennsylvania—97.5% | |
| $1,000,000 | | Allegheny County Sanitation Authority, Sewer Revenue Bonds (Series 2015), 5.00%, 12/1/2040 | $1,105,110 |
| 2,000,000 | | Allegheny County Sanitation Authority, Sewer Revenue Bonds (Series 2015), 5.00%, 12/1/2045 | 2,200,740 |
| 1,450,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2023 | 1,610,095 |
| 1,550,000 | | Allegheny County, PA Airport Authority, Airport Revenue Bonds (Series 2012A-1), 5.00% (Pittsburgh International Airport), 1/1/2024 | 1,704,814 |
| 3,555,000 | | Allegheny County, PA HDA, Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018 | 3,740,464 |
| 370,000 | | Allegheny County, PA IDA, Lease Revenue Bonds (Series 2006), 5.125% (Residential Resources Inc. Project), 9/1/2031 | 370,170 |
| 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 | 2,247,580 |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,976,126 |
| 2,000,000 | | Allegheny County, PA, UT GO Refunding Bonds (Series C-76), 5.00%, 11/1/2041 | 2,230,420 |
| 2,250,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2035 | 2,345,557 |
| 3,000,000 | | Berks County, PA Municipal Authority, Revenue Bonds (Series 2012A), 5.00% (Reading Hospital & Medical Center), 11/1/2044 | 3,217,050 |
| 2,000,000 | | Bethlehem, PA Authority, GTD Water Revenue Bonds (Series 2014), 5.00% (Bethlehem, PA)/(Build America Mutual Assurance INS), 11/15/2030 | 2,242,260 |
| 1,360,000 | | Bethlehem, PA Authority, GTD Water Revenue Bonds (Series 2014), 5.00% (Bethlehem, PA)/(Build America Mutual Assurance INS), 11/15/2031 | 1,520,725 |
| 1,000,000 | | Canonsburg-Houston Joint Authority, PA, Sewer Revenue Bonds (Series 2015A), 5.00%, 12/1/2040 | 1,101,950 |
| 2,000,000 | | Central Dauphin, PA School District, LT GO Bonds (Series 2016), 4.00% (State Aid Withholding GTD), 2/1/2029 | 2,145,240 |
| 500,000 | | Centre County, PA Hospital Authority, Hospital Revenue Bonds (Series 2016A), 5.00% (Mount Nittany Medical Center), 11/15/2046 | 544,515 |
| 1,000,000 | | Chartiers Valley, PA School District, UT GO Bonds (Series 2015B), 5.00% (State Aid Withholding GTD), 10/15/2040 | 1,112,790 |
| 2,530,000 | | Cheltenham Twp, PA School District, LT GO Bonds (Series 2014), 5.00% (State Aid Withholding GTD), 2/15/2040 | 2,758,231 |
| 1,900,000 | | Chester, PA Water Authority, Water Revenue Bonds (Series 2014), 5.00%, 12/1/2039 | 2,133,225 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00%, 12/1/2037 | $2,159,460 |
| 1,500,000 | | Clarion County, PA IDA, Water Facility Revenue Refunding Bonds (Series 2009), 5.50% (Pennsylvania American Water Co.), 12/1/2039 | 1,598,895 |
| 2,000,000 | | Commonwealth Financing Authority of PA, Revenue Bonds (Series 2013B), 5.00% (Commonwealth of Pennsylvania), 6/1/2036 | 2,177,920 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (First Series 2011), 5.00%, 11/15/2030 | 2,235,240 |
| 905,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2015), 5.00% (Diakon Lutheran Social Ministries), 1/1/2038 | 955,997 |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Revenue Bonds (Series 2016), 5.00% (Dickinson College), 5/1/2030 | 1,150,110 |
| 1,000,000 | | Cumberland County, PA Municipal Authority, Revenue Refunding Bonds (Series 2012), 5.25% (Asbury Pennsylvania Obligated Group), 1/1/2041 | 1,009,490 |
| 2,500,000 | | Dauphin County, PA General Authority, Health System Revenue Bonds (Series 2012A), 5.00% (Pinnacle Health System), 6/1/2042 | 2,693,500 |
| 1,000,000 | | Delaware County, PA Authority, Revenue Bonds (Series 2015), 5.00% (Villanova University), 8/1/2045 | 1,107,070 |
| 1,000,000 | | Delaware County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 2015), 5.00% (Covanta Energy Corp.), 7/1/2043 | 995,440 |
| 1,250,000 | | Delaware County, PA Regional Water Quality Control Authority, Sewer Revenue Bonds (Series 2015), 5.00%, 5/1/2040 | 1,388,813 |
| 500,000 | | Delaware River Joint Toll Bridge Commission, Revenue Bonds (Series 2017), 5.00%, 7/1/2042 | 563,155 |
| 2,350,000 | | Delaware River Port Authority, Revenue Bonds (Series 2010D), 5.00%, 1/1/2028 | 2,563,497 |
| 750,000 | | East Hempfield Township, PA IDA, Revenue & Revenue Refunding Bonds (Series 2016), 5.00% (Willow Valley Retirement Communities), 12/1/2029 | 844,178 |
| 250,000 | | East Hempfield Township, PA IDA, Revenue & Revenue Refunding Bonds (Series 2016), 5.00% (Willow Valley Retirement Communities), 12/1/2039 | 268,685 |
| 1,105,000 | | Erie, PA Water Authority, Revenue Refunding Bonds (Series 2014), 5.00% (AGM INS), 12/1/2034 | 1,239,832 |
| 1,000,000 | | Erie, PA Water Authority, Water Revenue Bonds (Series 2016), 5.00%, 12/1/2043 | 1,113,420 |
| 1,000,000 | | Fulton County, PA IDA, Hospital Revenue Bonds (Series 2016), 5.00% (Fulton County Medical Center), 7/1/2040 | 1,000,670 |
| 2,250,000 | | Geisinger Authority, PA Health System, Health System Revenue Bonds (Series 2009A), 5.25% (Geisinger Health System), 6/1/2039 | 2,390,062 |
| 2,260,000 | | Geisinger Authority, PA Health System, Revenue Bonds (Series 2014A), 5.00% (Geisinger Health System), 6/1/2041 | 2,478,542 |
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 | $2,035,040 |
| 785,000 | | Lancaster County, PA Hospital Authority, Health Center Revenue Bonds (Series 2015), 5.00% (Masonic Villages), 11/1/2035 | 858,123 |
| 1,000,000 | | Lancaster County, PA Hospital Authority, Health Center Revenue Refunding Bonds (Series 2015A), 5.00% (Landis Homes Retirement Community)/(Original Issue Yield: 5.03%), 7/1/2045 | 1,049,290 |
| 1,215,000 | | Lancaster County, PA Hospital Authority, Health System Revenue Bonds (Series 2012B), 5.00% (Lancaster General Hospital)/(United States Treasury PRF 1/1/2022@100), 7/1/2042 | 1,407,930 |
| 1,000,000 | | Lancaster County, PA Solid Waste Management Authority, GTD Authority Bonds (Series 2013B), 5.00% (Dauphin County, PA GTD), 12/15/2033 | 1,116,250 |
| 2,250,000 | | Lycoming County PA Authority, College Revenue Bonds (Series 2008), 5.50% (Pennsylvania College of Technology)/(United States Treasury PRF 4/1/2018@100), 10/1/2032 | 2,364,435 |
| 2,200,000 | | Lycoming County PA Authority, Revenue Bonds (Series A), 5.75% (Susquehanna Health System)/(Original Issue Yield: 5.90%), 7/1/2039 | 2,399,386 |
| 1,100,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2028 | 1,199,165 |
| 400,000 | | Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc.), 11/15/2029 | 434,280 |
| 1,000,000 | | Montgomery County, PA IDA, Revenue Bonds (Series 2016), 5.00% (Foulkeways at Gwynedd), 12/1/2046 | 1,045,160 |
| 1,000,000 | | New Wilmington, PA Municipal Authority, Revenue Bonds (Series 2007GG4), 5.125% (Westminster College)/(United States Treasury 5/1/2017@100), 5/1/2033 | 1,007,880 |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 2012A), 5.00% (Amtrak), 11/1/2041 | 1,054,940 |
| 1,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Refunding Bonds (Series 2014), 5.50% (National Gypsum Co.), 11/1/2044 | 1,056,580 |
| 2,000,000 | | Pennsylvania EDFA, Junior GTD Parking Revenue Bonds (Series 2013B-1), 6.00% (Dauphin County, PA GTD), 7/1/2053 | 2,346,760 |
| 700,000 | | Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human Services, Inc.)/(Original Issue Yield: 5.668%), 6/1/2028 | 700,315 |
| 1,500,000 | | Pennsylvania EDFA, Revenue Bonds (Series 2014A), 5.00% (UPMC Health System), 2/1/2045 | 1,639,800 |
| 1,000,000 | | Pennsylvania EDFA, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (Pennsylvania Rapid Bridge Replacement), 12/31/2038 | 1,073,210 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Pennsylvania EDFA, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (Pennsylvania Rapid Bridge Replacement), 6/30/2042 | $2,148,020 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009), 6.20% (Pennsylvania American Water Co.), 4/1/2039 | 2,181,780 |
| 2,000,000 | | Pennsylvania EDFA, Water Facilities Revenue Bonds (Series 2009B), 5.00% (Aqua Pennsylvania, Inc.), 11/15/2040 | 2,163,880 |
| 1,500,000 | | Pennsylvania Intergovernmental Cooperation Authority, Special Tax Revenue Refunding Bonds (Series 2009), 5.00%, 6/15/2022 | 1,618,665 |
| 1,000,000 | | Pennsylvania Intergovernmental Cooperation Authority, Special Tax Revenue Refunding Bonds (Series 2010), 5.00%, 6/15/2018 | 1,053,760 |
| 1,020,000 | | Pennsylvania State Higher Education Facilities Authority, 5.125% (Gwynedd-Mercy College)/(Assured Guaranty Corp. INS), 5/1/2032 | 1,025,865 |
| 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 | 1,009,200 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Fixed Rate Revenue Bonds (Series 2015A), 5.25% (Thomas Jefferson University), 9/1/2050 | 1,100,760 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (First Series of 2012), 5.00% (Temple University), 4/1/2035 | 2,201,420 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009), 5.00% (Carnegie Mellon University), 8/1/2021 | 1,611,360 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009A), 5.25% (University of Pennsylvania Health System)/(United States Treasury PRF 8/15/2019@100), 8/15/2022 | 1,101,190 |
| 2,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 200B), 5.50% (University of Pennsylvania Health System)/(United States Treasury COL)/(Original Issue Yield: 5.65%), 8/15/2018 | 2,131,220 |
| 1,100,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2010), 5.00% (Thomas Jefferson University)/(United States Treasury PRF 3/1/2020@100), 3/1/2040 | 1,222,804 |
| 1,500,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012A), 5.00% (University of Pennsylvania Health System), 8/15/2042 | 1,624,965 |
| 1,630,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2015), 5.00% (University of the Sciences in Philadelphia), 11/1/2036 | 1,785,942 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority, Revenue Refunding Bonds (Series 2015A), 5.00% (University of Pennsylvania), 10/1/2036 | 1,142,320 |
| 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 | 2,001,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2011E), 5.00%, 12/1/2030 | $1,114,670 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2009B), 5.125% (Original Issue Yield: 5.30%), 12/1/2040 | 2,156,860 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Sub-Series B-1 of 2015), 5.00%, 12/1/2045 | 1,077,040 |
| 5,500,000 | | Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Refunding Bonds (Second Series of 2016), 5.00%, 6/1/2039 | 5,966,070 |
| 2,000,000 | 1 | Pennsylvania State Turnpike Commission, Variable Rate Subordinate Lien Revenue Bonds (SIFMA Index Bonds) (Series 2015A-2), 1.44%, 12/1/2018 | 1,999,960 |
| 1,430,000 | 1 | Pennsylvania State Turnpike Commission, Variable Rate Turnpike Revenue Bonds (Series 2013B), 1.91%, 12/1/2020 | 1,443,328 |
| 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 | 2,701,226 |
| 2,000,000 | | Pennsylvania State Turnpike Commission-Motor License Fund Enhanced, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), 6.00% (United States Treasury PRF 12/1/2020@100), 12/1/2036 | 2,344,700 |
| 750,000 | | Pennsylvania State University, Revenue Bonds (Series A of 2016), 5.00%, 9/1/2041 | 859,920 |
| 2,000,000 | | Philadelphia, PA Airport System, Airport Revenue Refunding Bonds (Series 2010D), 5.25%, 6/15/2028 | 2,156,980 |
| 1,210,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 1,317,303 |
| 1,575,000 | | Philadelphia, PA Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 1,581,442 |
| 2,350,000 | | Philadelphia, PA Gas Works, Revenue Bonds (Seventh Series 1998 General Ordinance), 5.00% (United States Treasury PRF 10/1/2017@100), 10/1/2037 | 2,409,549 |
| 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 | 2,225,800 |
| 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 | 1,782,374 |
| 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 | 1,183,447 |
| 5,000 | | Philadelphia, PA School District, LT GO Bonds (Series 2008E), 6.00% (United States Treasury PRF 9/1/2018@100), 9/1/2038 | 5,378 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $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 | $43,026 |
| 5,000 | | 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 | 5,378 |
| 2,000,000 | | Philadelphia, PA Water & Wastewater System, Revenue Refunding Bonds (Series 2012), 5.00%, 11/1/2028 | 2,282,820 |
| 750,000 | | Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2009A), 5.25% (United States Treasury PRF 1/1/2019@100)/(Original Issue Yield: 5.33%), 1/1/2036 | 808,298 |
| 1,000,000 | | Pittsburgh, PA Public Parking Authority, Parking System Revenue Refunding Bonds (Series 2015A), 5.00%, 12/1/2025 | 1,161,020 |
| 1,035,000 | | Pittsburgh, PA Urban Redevelopment Authority, Tax Allocation, 4.50% (Center Triangle), 5/1/2019 | 1,057,770 |
| 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 | 2,109,240 |
| 3,000,000 | | Pittsburgh, PA, UT GO Bonds (Series 2012B), 5.00%, 9/1/2026 | 3,397,980 |
| 1,075,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.00% (Original Issue Yield: 5.08%), 12/1/2031 | 1,201,345 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,692,345 |
| 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 | 1,137,950 |
| 1,140,000 | | Southcentral PA, General Authority, Revenue Bonds (Series 2014A), 5.00% (Wellspan Health Obligated Group), 6/1/2026 | 1,317,156 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2028 | 1,111,630 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Revenue Refunding Bonds (Series 2010), 5.00%, 3/1/2018 | 1,041,140 |
| 2,000,000 | | St. Mary Hospital Authority, PA, Health System Revenue Bonds (Series 2012A), 5.00% (Trinity Healthcare Credit Group), 11/15/2026 | 2,172,780 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority, University Revenue Bonds (Series 2012A), 5.00% (Bucknell University), 4/1/2042 | 1,122,380 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority, University Revenue Bonds (Series 2015B), 5.00% (Bucknell University), 4/1/2032 | 1,148,140 |
| 3,000,000 | | West View, PA Municipal Authority Water Revenue, Revenue Bonds (Series 2014), 5.00%, 11/15/2039 | 3,377,310 |
| 1,685,000 | | Wilkes-Barre, PA Finance Authority, Revenue Bonds (Series 2015A), 5.00% (University of Scranton), 11/1/2033 | 1,869,962 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $825,000 | | Wilkes-Barre, PA Finance Authority, Revenue Bonds (Series 2015A), 5.00% (University of Scranton), 11/1/2034 | $911,658 |
| 2,895,000 | | York County, PA, UT GO Bonds (Series 2013), 5.00%, 6/1/2037 | 3,256,412 |
| | | TOTAL | 180,706,500 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $175,555,571) | 180,706,500 |
| | | SHORT-TERM MUNICIPALS—1.7%2 | |
| | | Pennsylvania—1.7% | |
| 3,200,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, (Series 2002-A) Daily VRDNs (Children's Hospital of Philadelphia)/(Wells Fargo Bank, N.A. LIQ), 0.56%, 3/1/2017 | 3,200,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $3,200,000) | 3,200,000 |
| | | TOTAL MUNICIPAL INVESTMENTS—99.2%
(IDENTIFIED COST $178,755,571)3 | 183,906,500 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.8%4 | 1,483,516 |
| | | TOTAL NET ASSETS—100% | $185,390,016 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 5.9% of the Fund's portfolio as calculated based upon total market value.
| 1 | Floating rate note with current rate and current maturity or next reset 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 $178,755,546. |
| 4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Note: The categories of investments are shown as a percentage of total net assets at February 28, 2017.
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, 2017, 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 |
| COL | —Collateralized |
| EDFA | —Economic Development Finance Authority |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HDA | —Hospital Development Authority |
| IDA | —Industrial Development Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| SIFMA | —Securities Industry and Financial Markets Association |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value,
Beginning of Period | $11.28 | $10.88 | $10.94 | $10.34 | $11.20 | $10.68 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.33 | 0.36 | 0.38 | 0.39 | 0.40 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.50) | 0.40 | (0.07) | 0.61 | (0.87) | 0.52 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.34) | 0.73 | 0.29 | 0.99 | (0.48) | 0.92 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.33) | (0.35) | (0.39) | (0.38) | (0.40) |
| Net Asset Value, End of Period | $10.78 | $11.28 | $10.88 | $10.94 | $10.34 | $11.20 |
| Total Return1 | (2.99)% | 6.85% | 2.65% | 9.68% | (4.41)% | 8.80% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2 | 0.75%3 | 0.75% | 0.75% | 0.75% | 0.75% |
| Net investment income | 2.98%2 | 3.01% | 3.25% | 3.60% | 3.50% | 3.63% |
| Expense waiver/reimbursement4 | 0.14%2 | 0.13% | 0.12% | 0.13% | 0.10% | 0.10% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $183,732 | $199,403 | $202,057 | $219,307 | $231,890 | $275,974 |
| Portfolio turnover | 0% | 14% | 29% | 5% | 7% | 15% |
| 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 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.75% for the year ended August 31, 2016, after taking into account this expense reduction. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $11.28 | $10.89 | $10.95 | $10.34 | $11.20 | $10.68 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.15 | 0.30 | 0.29 | 0.30 | 0.31 | 0.32 |
| Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts | (0.52) | 0.34 | (0.09) | 0.61 | (0.87) | 0.52 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.37) | 0.64 | 0.20 | 0.91 | (0.56) | 0.84 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.12) | (0.25) | (0.26) | (0.30) | (0.30) | (0.32) |
| Net Asset Value, End of Period | $10.79 | $11.28 | $10.89 | $10.95 | $10.34 | $11.20 |
| Total Return1 | (3.27)% | 5.93% | 1.87% | 8.93% | (5.15)% | 7.96% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.53%2 | 1.52%3 | 1.52% | 1.52% | 1.52% | 1.52% |
| Net investment income | 2.21%2 | 2.25% | 2.48% | 2.84% | 2.73% | 2.87% |
| Expense waiver/reimbursement4 | 0.12%2 | 0.11% | 0.10% | 0.11% | 0.08% | 0.08% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $1,658 | $1,955 | $2,429 | $2,815 | $3,824 | $5,137 |
| Portfolio turnover | 0% | 14% | 29% | 5% | 7% | 15% |
| 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 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 1.52% for the year ended August 31, 2016, after taking into account this expense reduction. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 28, 2017 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $178,755,571) | | $183,906,500 |
| Cash | | 12,426 |
| Income receivable | | 2,177,815 |
| Receivable for shares sold | | 1,102 |
| TOTAL ASSETS | | 186,097,843 |
| Liabilities: | | |
| Payable for investments purchased | $558,100 | |
| Payable for shares redeemed | 55,720 | |
| Payable for portfolio accounting fees | 46,663 | |
| Payable for other service fees (Notes 2 and 5) | 40,364 | |
| Payable for investment adviser fee (Note 5) | 1,415 | |
| Payable for distribution services fee (Note 5) | 954 | |
| Payable for administrative fee (Note 5) | 398 | |
| Accrued expenses (Note 5) | 4,213 | |
| TOTAL LIABILITIES | | 707,827 |
| Net assets for 17,193,153 shares outstanding | | $185,390,016 |
| Net Assets Consists of: | | |
| Paid-in capital | | $197,207,510 |
| Net unrealized appreciation of investments | | 5,150,929 |
| Accumulated net realized loss on investments and futures contracts | | (17,125,631) |
| Undistributed net investment income | | 157,208 |
| TOTAL NET ASSETS | | $185,390,016 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
| Net asset value per share ($183,732,351 ÷ 17,039,519 shares outstanding), no par value, unlimited shares authorized | | $10.78 |
| Offering price per share (100/95.50 of $10.78) | | $11.29 |
| Redemption proceeds per share | | $10.78 |
| Class B Shares: | | |
| Net asset value per share ($1,657,665 ÷ 153,634 shares outstanding), no par value, unlimited shares authorized | | $10.79 |
| Offering price per share | | $10.79 |
| Redemption proceeds per share (94.50/100 of $10.79) | | $10.20 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2017 (unaudited)
| Investment Income: | | | |
| Interest | | | $3,555,240 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $379,741 | |
| Administrative fee (Note 5) | | 74,301 | |
| Custodian fees | | 6,012 | |
| Transfer agent fees | | 48,913 | |
| Directors'/Trustees' fees (Note 5) | | 1,600 | |
| Auditing fees | | 14,073 | |
| Legal fees | | 4,777 | |
| Distribution services fee (Note 5) | | 6,687 | |
| Other service fees (Notes 2 and 5) | | 236,152 | |
| Portfolio accounting fees | | 46,636 | |
| Share registration costs | | 18,084 | |
| Printing and postage | | 13,019 | |
| Miscellaneous (Note 5) | | 11,899 | |
| TOTAL EXPENSES | | 861,894 | |
| Waiver and Reimbursement: | | | |
| Waiver of investment adviser fee (Note 5) | $(114,238) | | |
| Reimbursement of other operating expenses (Notes 2 and 5) | (17,623) | | |
| TOTAL WAIVER AND REIMBURSEMENT | | (131,861) | |
| Net expenses | | | 730,033 |
| Net investment income | | | 2,825,207 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 14,311 |
| Net realized loss on futures contracts | | | (39,057) |
| Net change in unrealized appreciation of investments | | | (8,757,357) |
| Net realized and unrealized loss on investments and futures contracts | | | (8,782,103) |
| Change in net assets resulting from operations | | | $(5,956,896) |
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)
2/28/2017 | Year Ended
8/31/2016 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $2,825,207 | $5,991,885 |
| Net realized gain (loss) on investments and futures contracts | (24,746) | 246,040 |
| Net change in unrealized appreciation/depreciation of investments and futures contracts | (8,757,357) | 6,876,038 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,956,896) | 13,113,963 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (2,824,214) | (5,952,216) |
| Class B Shares | (19,835) | (48,177) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (2,844,049) | (6,000,393) |
| Share Transactions: | | |
| Proceeds from sale of shares | 4,843,982 | 14,059,901 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,117,293 | 4,353,972 |
| Cost of shares redeemed | (14,128,977) | (28,654,766) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (7,167,702) | (10,240,893) |
| Change in net assets | (15,968,647) | (3,127,323) |
| Net Assets: | | |
| Beginning of period | 201,358,663 | 204,485,986 |
| End of period (including undistributed net investment income of $157,208 and $176,050, respectively) | $185,390,016 | $201,358,663 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2017 (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. Class B shares were closed to new accounts/investors on June 1, 2015 and to new purchases/exchanges by existing shareholders on August 1, 2015. 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 are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”). |
| ■ | 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, 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, or if information furnished by a price service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, 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 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. Amortization/accretion of premium and discount is included in investment income. 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
Semi-Annual Shareholder Report
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. The detail of the total fund expense waiver and reimbursement of $131,861 is disclosed in various locations in this Note 2 and Note 5.
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. For the six months ended February 28, 2017, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $233,923 | $(17,623) |
| Class B Shares | 2,229 | — |
| TOTAL | $236,152 | $(17,623) |
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, 2017, 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, 2017, tax years 2013 through 2016 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the
Semi-Annual Shareholder Report
securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Futures Contracts
The Fund purchases and sells financial futures contracts to seek to manage duration and yield curve risks. 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 contracts, guarantees the futures against default.
At February 28, 2017, the Fund had no outstanding futures contracts.
The average notional value of long futures contracts held by the Fund throughout the period was $2,703,449. This is based on amounts held as of each month-end throughout the six-month period.
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended February 28, 2017
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures Contracts |
| Interest rate contracts | $(39,057) |
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
2/28/2017 | Year Ended
8/31/2016 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 443,641 | $4,843,982 | 1,263,328 | $14,059,901 |
| Shares issued to shareholders in payment of distributions declared | 193,071 | 2,097,572 | 389,372 | 4,306,360 |
| Shares redeemed | (1,279,509) | (13,896,343) | (2,539,546) | (28,057,547) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (642,797) | $(6,954,789) | (886,846) | $(9,691,286) |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | — | $— | — | $— |
| Shares issued to shareholders in payment of distributions declared | 1,814 | 19,721 | 4,307 | 47,612 |
| Shares redeemed | (21,450) | (232,634) | (54,112) | (597,219) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (19,636) | $(212,913) | (49,805) | $(549,607) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (662,433) | $(7,167,702) | (936,651) | $(10,240,893) |
4. FEDERAL TAX INFORMATION
At February 28, 2017, the cost of investments for federal tax purposes was $178,755,546. The net unrealized appreciation of investments for federal tax purposes was $5,150,954. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $6,321,813 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,170,859.
At August 31, 2016, the Fund had a capital loss carryforward of $17,113,723 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 |
| 2017 | $7,258,745 | NA | $7,258,745 |
| 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, 2017, the Adviser voluntarily waived $114,238 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, 2017, 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% |
Semi-Annual Shareholder Report
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, 2017, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $6,687 |
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, 2017, FSC retained $5,499 of fees paid by the Fund. For the six months ended February 28, 2017, 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, 2017, FSSC received $16,386 and reimbursed $17,623 of 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, 2017, FSC retained $7,290 in sales charges from the sale of Class A Shares. FSC also retained $1,251 of CDSC relating to redemptions of Class B Shares.
Interfund Transactions
During the six months ended February 28, 2017, 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 $10,850,000 and $11,850,000, 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 interest expense, extraordinary expenses, line of credit 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, 2017; 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.
Semi-Annual Shareholder Report
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. 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, 2017 were as follows:
| Purchases | $558,100 |
| Sales | $5,039,870 |
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, 2017, 11.1% 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 with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of February 28, 2017, the Fund had no outstanding loans. During the six months ended February 28, 2017, the Fund did not utilize the LOC.
Semi-Annual Shareholder Report
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), 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, 2017, there were no outstanding loans. During the six months ended February 28, 2017, the program was not utilized.
10. Regulatory Updates
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. These amendments relate to Regulation S-X which sets forth the form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompanying notes.
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, 2016 to February 28, 2017.
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
9/1/2016 | Ending
Account Value
2/28/2017 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $970.10 | $3.71 |
| Class B Shares | $1,000 | $967.30 | $7.46 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.03 | $3.81 |
| Class B Shares | $1,000 | $1,017.21 | $7.65 |
| 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 | 1.53% |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2016
Federated Pennsylvania Municipal Income Fund (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved at its May 2016 meetings the continuation of 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 after consideration of all of the information received on whether to continue the existing arrangements.
The 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 “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment 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 an adviser to a fund and its shareholders, including the performance and fees and expenses of the fund and of comparable funds; an adviser's cost of providing the services, including the profitability to an adviser of providing advisory services to a fund; the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale 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 an 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 an adviser for services rendered to a fund); comparative fee and expense structures, including a comparison of fees paid to an adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which 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 an adviser's services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment 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 Federated Investment Management Company (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 investment 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 Investors, Inc. and its affiliates (“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 meetings at which the Board's formal review of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, 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 investment 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 Fund; 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 funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and
Semi-Annual Shareholder Report
audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
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 to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the 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 the Board 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 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 the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Semi-Annual Shareholder Report
Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract with respect to the Fund.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. 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 investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also 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 the 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.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of the other factors considered relevant by the Board.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the investment advisory contract with respect to the Fund.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to
Semi-Annual Shareholder Report
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. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
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. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
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 funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions, as well as systems technology (including technology relating to cybersecurity), and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and again in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply
Semi-Annual Shareholder Report
breakpoints or to apply breakpoints at higher levels and should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. 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 a fund attains a certain size.
The Senior Officer noted that, subject to the comments and recommendations made within the Senior Officer's Evaluation, his observations and the information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment 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 investment 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 investment 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 investment advisory contract was appropriate.
The Board based its decision to approve the investment 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 continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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 (4/17)
Federated is a registered trademark of Federated Investors, Inc.
2017 ©Federated Investors, Inc.
Semi-Annual Shareholder Report
February 28, 2017
| 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, 2016 through February 28, 2017. 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, 2017, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Industrial Development Bond/Pollution Control Revenue Bond | 10.3% |
| Education | 9.5% |
| Senior Care | 8.7% |
| Hospital | 8.4% |
| Pre-refunded | 8.2% |
| Dedicated Tax | 7.6% |
| Incremental Tax | 6.6% |
| Tobacco | 6.3% |
| Water and Sewer | 5.7% |
| Toll Road | 4.4% |
| Other2 | 23.3% |
| 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 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 75.7% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 28, 2017 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—94.8% | |
| | | Alabama—1.6% | |
| $2,000,000 | | Alabama State Port Authority, Docks Facilities Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.25%), 10/1/2040 | $2,284,840 |
| 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 | 1,491,690 |
| 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 | 538,655 |
| 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 | 2,264,140 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer Revenue Current Interest Warrants (Series 2013A), 5.25% (AGM INS), 10/1/2048 | 2,251,480 |
| 835,000 | | Selma, AL IDB, Gulf Opportunity Zone Bonds (Series 2010A), 5.80% (International Paper Co.), 5/1/2034 | 927,618 |
| | | TOTAL | 9,758,423 |
| | | Alaska—0.4% | |
| 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 | 97,570 |
| 2,000,000 | 3,4 | Koyukuk, AK, Revenue Bonds (Series 2011), 7.75% (Tanana Chiefs Conference Health Care)/(United States Treasury PRF 10/1/2019@100)/(Original Issue Yield: 8.125%), 10/1/2041 | 2,329,620 |
| | | TOTAL | 2,427,190 |
| | | Arizona—2.6% | |
| 1,000,000 | 3,4 | Maricopa County, AZ IDA, Revenue Refunding Bonds, 5.00% (Paradise Schools), 7/1/2047 | 985,720 |
| 4,000,000 | | Maricopa County, AZ Pollution Control Corp., PCR Refunding Bonds (Series 2003A), 6.25% (Public Service Co., NM), 1/1/2038 | 4,446,680 |
| 1,500,000 | | Maricopa County, AZ Pollution Control Corp., PCR Refunding Bonds (Series 2009A), 7.25% (El Paso Electric Co.), 2/1/2040 | 1,654,110 |
| 1,500,000 | | Phoenix, AZ IDA, Education Facility Revenue Bonds (Series 2014A), 5.00% (Great Heart Academies), 7/1/2044 | 1,562,550 |
| 1,000,000 | | Phoenix, AZ IDA, Education Facility Revenue Bonds (Series 2016A), 5.00% (Great Heart Academies), 7/1/2046 | 1,040,040 |
| 1,385,000 | | Pima County, AZ IDA, PCRBs (Series 2009A), 4.95% (Tucson Electric Power Co.), 10/1/2020 | 1,513,611 |
| 3,570,000 | | Salt River Project, AZ Agricultural Improvement & Power District, Revenue Refunding Bonds (Series 2015A), 5.00%, 12/1/2041 | 4,052,343 |
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 | $464,168 |
| | | TOTAL | 15,719,222 |
| | | California—8.7% | |
| 750,000 | 3,4 | California School Finance Authority, School Facility Revenue Bonds (Series 2014A), 5.125% (KIPP LA), 7/1/2044 | 779,460 |
| 565,000 | 3,4 | California School Finance Authority, School Facility Revenue Bonds (Series 2015A), 5.00% (KIPP LA), 7/1/2045 | 584,832 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 5.25%, 10/1/2029 | 2,755,225 |
| 2,500,000 | | California State, Various Purpose UT GO Bonds, 6.00% (Original Issue Yield: 6.10%), 4/1/2038 | 2,757,275 |
| 1,030,000 | 3,4 | California Statewide CDA MFH, Revenue Bonds (Series 1999X), 6.65% (Magnolia City Lights Project), 7/1/2039 | 1,030,927 |
| 2,250,000 | 3,4 | California Statewide CDA, Revenue Bonds (Series 2016A), 5.25% (Loma Linda University Medical Center ), 12/1/2056 | 2,364,277 |
| 2,000,000 | | Chula Vista, CA, COPs, 5.50% (United States Treasury PRF 3/1/2020@100)/(Original Issue Yield: 5.88%), 3/1/2033 | 2,257,180 |
| 1,555,000 | | Community Facilities District No. 2016 of the County of Orange, Special Tax Revenue Bonds (Series 2016A), 5.00% (CFD 2016-1 (Village of Esencia)), 8/15/2046 | 1,646,310 |
| 500,000 | | Corona-Norco USD Community Facilities District No. 98-1, CA, 2013 Special Tax Refunding Bonds, 5.00%, 9/1/2032 | 551,265 |
| 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 | 3,417,180 |
| 500,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2013A), 5.00% (California State), 6/1/2029 | 567,055 |
| 2,000,000 | | Golden State Tobacco Securitization Corp., CA, Enhanced Tobacco Settlement Asset-Backed Bonds (Series 2015A), 5.00% (California State), 6/1/2045 | 2,204,400 |
| 6,530,000 | | Golden State Tobacco Securitization Corp., CA, Tobacco Settlement Asset-Backed Bonds (Series 2007A-1), 5.75%, 6/1/2047 | 6,562,650 |
| 1,000,000 | | Irvine, CA Community Facilities District No. 2013-3, Special Tax Bonds (Series 2014), 5.00% (Great Park Improvement Area No. 1), 9/1/2049 | 1,049,270 |
| 1,300,000 | | Irvine, CA Community Facilities District No. 2013-3, Special Tax Bonds (Series 2016), 4.00% (Great Park Improvement Area No. 4), 9/1/2049 | 1,232,660 |
| 95,000 | | Irvine, CA, LO Improvement Bonds, 5.00% (Irvine, CA Reassessment District No. 13-1), 9/2/2028 | 104,217 |
| 365,000 | | Irvine, CA, LO Improvement Bonds, 5.00% (Irvine, CA Reassessment District No. 13-1), 9/2/2029 | 396,113 |
| 180,000 | | Irvine, CA, LO Improvement Bonds, 5.00% (Irvine, CA Reassessment District No. 13-1), 9/2/2030 | 194,688 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $1,000,000 | | Los Angeles, CA Department of Water & Power (Water Works/System), Water System Revenue Bonds (Series 2016A), 5.00%, 7/1/2046 | $1,138,450 |
| 1,000,000 | | Los Angeles, CA Harbor Department, Revenue Refunding Bonds (Series 2014A), 5.00%, 8/1/2044 | 1,096,620 |
| 2,500,000 | | M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), 7.00% (Citigroup, Inc. GTD), 11/1/2034 | 3,459,350 |
| 1,000,000 | | Palomar Health, CA Revenue, (Series 2016), 5.00%, 11/1/2039 | 1,045,200 |
| 495,000 | | Poway, CA USDT, Special Tax Bonds (Series 2012), 5.00% (Community Facilities District No. 6 (4S Ranch)), 9/1/2033 | 538,624 |
| 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 | 2,281,100 |
| 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 | 1,730,520 |
| 349,000 | 1 | San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042 | 163,880 |
| 1,250,000 | | San Buenaventura, CA, Revenue Bonds (Series 2011), 8.00% (Community Memorial Health System), 12/1/2031 | 1,505,437 |
| 1,000,000 | | San Francisco, CA City & County Redevelopment Finance Agency, Tax Allocation Bonds (Series 2011C), 6.75% (Mission Bay North Redevelopment)/(United States Treasury PRF 2/1/2021@100)/(Original Issue Yield: 6.86%), 8/1/2041 | 1,208,360 |
| 1,280,000 | | San Francisco, CA City & County Redevelopment Financing Agency, Tax Allocation Refunding Bonds (Series 2016A), 5.00% (Mission Bay North Redevelopment )/(National Public Finance Guarantee Corp. INS), 8/1/2041 | 1,437,350 |
| 500,000 | | San Francisco, CA City & County Redevelopment Financing Agency, Tax Allocation Refunding Bonds (Series 2016C), 5.00% (Mission Bay South Redevelopment)/(National Public Finance Guarantee Corp. INS), 8/1/2041 | 563,180 |
| 2,000,000 | | San Jose, CA Airport, Airport Revenue Bonds (Series 2011A-1), 6.25%, 3/1/2034 | 2,305,440 |
| 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 | 1,361,900 |
| 1,500,000 | | University of California (The Regents of), General Revenue Bonds (Series 2016 AR), 5.00%, 5/15/2046 | 1,707,495 |
| 990,000 | | Western Riverside Water & Wastewater Financing Authority, CA, Local Agency Revenue Refunding Bonds (Series 2016A), 5.00%, 9/1/2044 | 1,078,288 |
| | | TOTAL | 53,076,178 |
| | | Colorado—6.0% | |
| 1,500,000 | | Base Village Metropolitan District No. 2, LT GO Refunding Bonds (Series 2016A), 5.75%, 12/1/2046 | 1,513,860 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $2,000,000 | | Castle Oaks, CO Metropolitan District No. 3, LT GO Bonds (Series 2015), 6.25%, 12/1/2044 | $2,053,220 |
| 825,000 | | Castle Oaks, CO Metropolitan District No. 3, LT GO Completion Bonds (Series 2016), 5.50%, 12/1/2045 | 798,105 |
| 2,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 5.625% (Original Issue Yield: 5.79%), 12/1/2038 | 2,228,240 |
| 1,250,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 6.00%, 12/1/2038 | 1,426,062 |
| 1,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2014), 5.00%, 12/1/2043 | 1,015,040 |
| 1,625,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2014), 5.50% (Skyview Academy), 7/1/2049 | 1,674,172 |
| 1,000,000 | 3,4 | Colorado Educational & Cultural Facilities Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2015), 5.00% (University Lab School)/(Original Issue Yield: 5.02%), 12/15/2045 | 980,480 |
| 765,000 | | Colorado Educational & Cultural Facilities Authority, Charter School Revenue Bonds (Series 2007A), 5.75% (Northeast Academy Charter School)/(United States Treasury PRF 5/15/2017@100), 5/15/2037 | 773,193 |
| 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 | 1,030,560 |
| 1,000,000 | 3,4 | Colorado Educational & Cultural Facilities Authority, School Improvement Revenue Bonds (Series 2016), 5.00% (Loveland Classical School), 7/1/2046 | 957,310 |
| 800,000 | | Colorado Health Facilities Authority, Health & Residential Care Facilities Revenue Bonds (Series 2007), 5.30% (Volunteers of America Care Facilities), 7/1/2037 | 771,768 |
| 1,100,000 | | Colorado Health Facilities Authority, Revenue Bonds (Series 2010A), 6.25% (Total Long Term Care National Obligated Group)/(United States Treasury PRF 11/15/2020@100), 11/15/2040 | 1,292,830 |
| 1,500,000 | | Colorado Health Facilities Authority, Revenue Refunding Bonds (Series 2016), 5.00% (Christian Living Communities), 1/1/2037 | 1,531,725 |
| 2,000,000 | | Colorado Springs Urban Renewal Authority, Tax Increment Revenue Bonds (Series 2007), 7.00% (University Village Colorado)/(United States Treasury PRF 12/1/2017@100), 12/1/2029 | 2,092,900 |
| 1,500,000 | | Copperleaf Metropolitan District No. 2, CO, LT GO Refunding Bonds (Series 2015), 5.75%, 12/1/2045 | 1,530,450 |
| 500,000 | | Denver, CO Convention Center Hotel Authority, Senior Revenue Refunding Bonds (Series 2016), 5.00%, 12/1/2040 | 545,955 |
| 435,000 | | Eagle County, CO Air Terminal Corp., Airport Terminal Project Revenue Improvement Bonds (Series 2006B), 5.25%, 5/1/2020 | 435,792 |
| 750,000 | | Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds (Series 2011A), 6.00%, 5/1/2027 | 800,535 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $1,250,000 | | Leyden Rock Metropolitan District No. 10, CO, LT GO Refunding & Improvement Bonds (Series 2016A), 5.00%, 12/1/2045 | $1,163,700 |
| 1,500,000 | | Park 70 Metropolitan District, CO, GO Refunding and Improvement Bonds (Series 2016), 5.00%, 12/1/2046 | 1,569,465 |
| 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 | 2,440,540 |
| 1,500,000 | | Sierra Ridge Metropolitan District No. 2, LT GO Bonds (Series 2016A), 5.50%, 12/1/2046 | 1,502,205 |
| 2,000,000 | | STC Metropolitan District No. 2, CO, LT GO Senior Bonds (Series 2015A), 6.00% (Original Issue Yield: 6.25%), 12/1/2038 | 1,935,660 |
| 1,500,000 | | Sterling Ranch Community Authority Board, CO, LT Supported Revenue Senior Bonds (Series 2015A), 5.75% (Sterling Ranch Metropolitan District No. 2, CO)/(Original Issue Yield: 5.83%), 12/1/2045 | 1,417,440 |
| 1,030,000 | | Tallyn's Reach Metropolitan District No. 3, CO, LT GO Refunding & Improvement Bonds (Series 2013), 5.125%, 11/1/2038 | 1,059,891 |
| 2,000,000 | | Three Springs Metropolitan District No. 3, CO, Property Tax Supported Revenue Bonds (Series 2010), 7.75%, 12/1/2039 | 2,082,560 |
| | | TOTAL | 36,623,658 |
| | | Connecticut—0.5% | |
| 1,000,000 | | Connecticut Development Authority, Airport Facility Revenue Bonds, 7.95% (Bombardier, Inc.), 4/1/2026 | 955,280 |
| 1,835,000 | 3,4 | Mohegan Tribe of Indians of Connecticut Gaming Authority, Priority Distribution Payment Refunding Bonds (Series 2015C), 6.25% (Original Issue Yield: 6.375%), 2/1/2030 | 1,940,623 |
| | | TOTAL | 2,895,903 |
| | | Delaware—0.6% | |
| 1,350,000 | 3,4 | Delaware EDA, Charter School Revenue Bonds (Series 2016A), 5.00% (ASPIRA of Delaware Charter Operations, Inc.), 6/1/2051 | 1,324,498 |
| 1,905,000 | | Delaware EDA, Gas Facilities Refunding Bonds, 5.40% (Delmarva Power and Light Co.), 2/1/2031 | 2,082,070 |
| | | TOTAL | 3,406,568 |
| | | District of Columbia—0.7% | |
| 1,000,000 | | District of Columbia Revenue, Revenue Bonds (Series 2016A), 5.00% (Friendship Public Charter School, Inc.), 6/1/2046 | 1,023,750 |
| 2,000,000 | | District of Columbia, Revenue Bonds (Series 2012A), 5.00% (Friendship Public Charter School, Inc.), 6/1/2042 | 2,036,880 |
| 1,030,000 | | District of Columbia, Revenue Bonds (Series 2013A), 6.00% (KIPP DC), 7/1/2043 | 1,182,831 |
| | | TOTAL | 4,243,461 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—6.1% | |
| $3,000,000 | | Alachua County, FL, IDRBs (Series 2007A), 5.875% (North Florida Retirement Village, Inc.), 11/15/2042 | $3,032,010 |
| 995,000 | | Arborwood, FL Community Development District, Capital Improvement Revenue Bonds (Series 2005A-2), 5.35%, 5/1/2036 | 985,040 |
| 165,000 | | Arborwood, FL Community Development District, Special Assessment Revenue Bonds (Series 2014A-1), 6.90% (Step Coupon 11/1/2016)/(Original Issue Yield: 6.90%), 5/1/2036 | 179,852 |
| 104,232 | 1 | Capital Trust Agency, FL, Housing Revenue Notes, 5.95% (Atlantic Housing Foundation Properties), 1/15/2039 | 2,591 |
| 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 | 3,426,150 |
| 1,000,000 | | Florida State Mid-Bay Authority, First Senior Lien Revenue Bonds (Series 2015A), 5.00%, 10/1/2040 | 1,088,760 |
| 1,000,000 | | Lakewood Ranch Stewardship District, FL, Special Assessment Bonds, 5.375% (Lakewood National & Polo Run)/(Original Issue Yield: 5.40%), 5/1/2047 | 1,001,860 |
| 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 | 986,510 |
| 1,500,000 | | Lakewood Ranch Stewardship District, FL, Special Assessment Revenue Bonds (Series 2016), 5.125% (Villages of Lakewood Ranch South)/(Original Issue Yield: 5.16%), 5/1/2046 | 1,483,095 |
| 2,000,000 | | Lee County, FL IDA, Healthcare Facilities Revenue Refunding Bonds (Series 2012), 6.50% (Cypress Cove at Healthpark), 10/1/2047 | 2,160,940 |
| 2,000,000 | | Martin County, FL Health Facilities Authority, Hospital Revenue Bonds (Series 2012), 5.50% (Martin Memorial Medical Center)/(Original Issue Yield: 5.53%), 11/15/2042 | 2,146,240 |
| 2,000,000 | | Martin County, FL IDA, Industrial Development Revenue Refunding Bonds (Series 2013), 4.20% (Indiantown Cogeneration, L.P.), 12/15/2025 | 2,044,280 |
| 2,000,000 | 3,4 | Miami, FL, SO Non-Ad Valorem Revenue Refunding Bonds (Series 2012), 5.00%, 3/1/2030 | 2,191,560 |
| 1,000,000 | | Miami-Dade County, FL Aviation, Aviation Revenue Refunding Bonds (Series 2014A), 5.00%, 10/1/2036 | 1,090,860 |
| 4,000,000 | | Miami-Dade County, FL Transit System Sales Surtax Revenue Bonds (Series 2012), 5.00%, 7/1/2042 | 4,422,800 |
| 745,000 | | Midtown Miami, FL Community Development District, Special Assessment & Revenue Refunding Bonds (Series 2014A), 5.00% (Original Issue Yield: 5.25%), 5/1/2037 | 763,953 |
| 1,000,000 | | Palm Beach County, FL Health Facilities Authority, Revenue Bonds (Series 2014A), 7.50% (Sinai Residences of Boca Raton)/(Original Issue Yield: 7.625%), 6/1/2049 | 1,183,270 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $1,810,000 | 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 | $1,809,928 |
| 1,405,000 | | Pinellas County, FL Educational Facilities Authority, Revenue Bonds (Series 2011A), 7.125% (Pinellas Preparatory Academy), 9/15/2041 | 1,501,228 |
| 145,000 | 1,2 | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | 1 |
| 160,000 | | Reunion East Community Development District, FL, Special Assessment Refunding Bonds (2015-1), 6.60%, 5/1/2033 | 162,400 |
| 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 | 1,076,780 |
| 10,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 1), 6.55%, 5/1/2027 | 10,029 |
| 1,260,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2006), 5.40%, 5/1/2037 | 1,234,132 |
| 290,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-1), 6.10% (Step Coupon 11/1/2021@6.61%)/(Original Issue Yield: 6.93%), 5/1/2040 | 177,349 |
| 175,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-2), 6.10% (Step Coupon 11/1/2024@6.61%)/(Original Issue Yield: 6.752%), 5/1/2040 | 90,164 |
| 190,000 | 1,2 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-3), 6.61%, 5/1/2040 | 2 |
| 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@6.61%), 5/1/2039 | 44,034 |
| 135,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-3), 0.00% (Step Coupon 5/1/2019@6.61%), 5/1/2040 | 80,202 |
| 70,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-4), 0.00% (Step Coupon 5/1/2022@6.61%), 5/1/2040 | 30,730 |
| 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 | 200,076 |
| 945,000 | | Verandah West, FL Community Development District, Capital Improvement Revenue Refunding Bonds (Series 2013), 5.00% (Original Issue Yield: 5.125%), 5/1/2033 | 949,564 |
| 2,000,000 | | Willow Walk, FL Community Development District, Special Assessment Bonds (Series 2015), 5.625%, 5/1/2045 | 1,944,500 |
| | | TOTAL | 37,500,892 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Georgia—1.6% | |
| $4,000,000 | | Atlanta, GA Water & Wastewater, Revenue Bonds (Series 2009A), 6.25% (United States Treasury PRF 11/1/2019@100)/(Original Issue Yield: 6.38%), 11/1/2039 | $4,539,520 |
| 4,000,000 | | Atlanta, GA Water & Wastewater, Revenue Refunding Bonds (Series 2015), 5.00%, 11/1/2040 | 4,514,120 |
| 1,000,000 | | Medical Center Hospital Authority, GA, Revenue Refunding Bonds (Series 2007), 5.25% (Spring Harbor at Green Island), 7/1/2037 | 998,310 |
| | | TOTAL | 10,051,950 |
| | | Guam—0.6% | |
| 645,000 | | Guam Government Business Privilege Tax, Business Privilege Tax Bonds (Series 2012B), 5.00%, 1/1/2037 | 658,855 |
| 500,000 | | Guam Government LO (Section 30), Bonds (Series 2009A), 5.75% (United States Treasury PRF 12/1/2019@100)/(Original Issue Yield: 6.00%), 12/1/2034 | 560,925 |
| 1,000,000 | | Guam Government LO (Section 30), Revenue Refunding Bonds (Series 2016A), 5.00%, 12/1/2046 | 1,064,270 |
| 1,000,000 | | Guam International Airport Authority, General Revenue Bonds (Series 2013C), 6.125% (AGM INS)/(Original Issue Yield: 6.23%), 10/1/2043 | 1,136,280 |
| 500,000 | | Guam Power Authority, Revenue Bonds (Series 2012A), 5.00%, 10/1/2034 | 520,490 |
| | | TOTAL | 3,940,820 |
| | | Hawaii—0.8% | |
| 3,660,000 | | Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds (Series 2009), 6.50% (Hawaiian Electric Co., Inc.), 7/1/2039 | 3,971,210 |
| 1,000,000 | | Hawaii State Department of Budget & Finance, Special Purpose Senior Living Revenue Bonds (Series A), 9.00% (15 Craigside)/(United States Treasury PRF 11/15/2019@100)/(Original Issue Yield: 9.15%), 11/15/2044 | 1,207,260 |
| | | TOTAL | 5,178,470 |
| | | Idaho—0.4% | |
| 2,500,000 | | Idaho Health Facilities Authority, Revenue Bonds (Series 2013A), 8.125% (Terraces of Boise)/(Original Issue Yield: 8.25%), 10/1/2049 | 2,667,750 |
| | | Illinois—7.0% | |
| 500,000 | | Chicago, IL Motor Fuel Tax, Motor Fuel Tax Revenue Refunding Bonds (Series 2013), 5.00% (AGM INS), 1/1/2033 | 529,335 |
| 385,000 | | Chicago, IL O'Hare International Airport, General Airport Senior Lien Revenue Refunding Bonds (Series 2016B), 5.00%, 1/1/2041 | 425,795 |
| 3,000,000 | | Chicago, IL O'Hare International Airport, General Airport Senior Lien Revenue Refunding Bonds (Series 2016D), 5.00%, 1/1/2052 | 3,272,550 |
| 1,750,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011A), 5.75% (Original Issue Yield: 5.94%), 1/1/2039 | 1,969,345 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $2,500,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011C), 6.50% (United States Treasury PRF 1/1/2021@100), 1/1/2041 | $2,984,525 |
| 1,000,000 | | Chicago, IL Sales Tax, Revenue Refunding Bonds (Series 2002), 5.00%, 1/1/2032 | 1,044,770 |
| 1,250,000 | | Chicago, IL Water Revenue, Second Lien Water Revenue Bonds (Series 2014), 5.00%, 11/1/2044 | 1,336,950 |
| 2,000,000 | | Chicago, IL, Refunding UT GO Bonds (Series 2015C), 5.00%, 1/1/2038 | 1,890,940 |
| 3,000,000 | | Chicago, IL, UT GO Bonds (Series 2009C), 5.00% (Original Issue Yield: 5.16%), 1/1/2034 | 2,864,940 |
| 1,500,000 | | Chicago, IL, UT GO Refunding Bonds (Series 2017A), 6.00%, 1/1/2038 | 1,544,790 |
| 415,000 | | DuPage County, IL, Special Tax Bonds (Series 2006), 5.625% (Naperville Campus LLC), 3/1/2036 | 404,832 |
| 1,500,000 | | Illinois Finance Authority, Charter School Refunding & Improvement Revenue Bonds (Series 2011A), 7.125% (Uno Charter School Network, Inc.), 10/1/2041 | 1,642,095 |
| 1,250,000 | | Illinois Finance Authority, Education Revenue Bonds (Series 2015), 5.00% (Noble Network of Charter Schools), 9/1/2032 | 1,287,837 |
| 1,100,000 | | Illinois Finance Authority, Educational Facility Revenue, Senior Revenue Bonds (Series 2014A), 6.125% (Rogers Park Montessori School Project), 2/1/2045 | 1,137,180 |
| 900,000 | | Illinois Finance Authority, MFH Revenue Bonds (Series 2007), 6.10% (Dekalb Supportive Living Facility), 12/1/2041 | 907,623 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2005A), 5.625% (Friendship Village of Schaumburg)/(Original Issue Yield: 5.70%), 2/15/2037 | 975,400 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2010), 7.25% (Friendship Village of Schaumburg)/(Original Issue Yield: 7.375%), 2/15/2045 | 1,041,690 |
| 1,000,000 | | Illinois Finance Authority, Revenue Bonds (Series 2015A), 5.00% (Rush University Medical Center Obligated Group), 11/15/2038 | 1,076,620 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series 2013A), 5.00%, 4/1/2035 | 2,004,080 |
| 1,000,000 | | Illinois State, UT GO Bonds (Series February 2014), 5.00% (Original Issue Yield: 5.04%), 2/1/2039 | 997,320 |
| 2,025,000 | | Illinois State, UT GO Bonds (Series June 2013), 5.50% (Original Issue Yield: 5.65%), 7/1/2038 | 2,106,061 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series May 2014), 5.00%, 5/1/2039 | 1,994,540 |
| 1,410,000 | | Illinois State, UT GO Refunding Bonds (Series May 2012), 5.00%, 8/1/2025 | 1,458,067 |
| 2,000,000 | | Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project Bonds (Series 2015A), 5.50%, 6/15/2053 | 2,116,840 |
| 1,600,000 | | Railsplitter Tobacco Settlement Authority, IL, Tobacco Settlement Revenue Bonds (Series 2010), 6.00% (Original Issue Yield: 6.10%), 6/1/2028 | 1,818,224 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $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 | $2,601,760 |
| 1,400,000 | | Will-Kankakee, IL Regional Development Authority, MFH Revenue Bonds (Series 2007), 7.00% (Senior Estates Supportive Living), 12/1/2042 | 1,441,244 |
| | | TOTAL | 42,875,353 |
| | | Indiana—2.1% | |
| 1,250,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.20%), 11/15/2042 | 1,356,962 |
| 1,000,000 | | Carmel, IN, Revenue Bonds (Series 2012A), 7.125% (Barrington of Carmel)/(Original Issue Yield: 7.30%), 11/15/2047 | 1,083,020 |
| 2,000,000 | | Indiana Municipal Power Agency, Power Supply System Refunding Revenue Bonds (Series 2016C), 5.00%, 1/1/2037 | 2,227,080 |
| 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 | 4,246,560 |
| 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 | 1,014,370 |
| 2,000,000 | | Rockport, IN, Revenue Refunding Bonds (Series 2012-A), 7.00% (AK Steel Corp.), 6/1/2028 | 2,029,100 |
| 1,000,000 | | Whiting, IN Environmental Facilities, Revenue Bonds (Series 2016A), 5.00% TOBs (BP PLC), 3/1/2023 | 1,130,830 |
| | | TOTAL | 13,087,922 |
| | | Iowa—1.6% | |
| 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 | 3,017,700 |
| 1,000,000 | | Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.50% (Iowa Fertilizer Co.), 12/1/2022 | 1,005,740 |
| 994,700 | | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2014A), 2.70% (Deerfield Retirement Community, Inc.), 11/15/2046 | 944,468 |
| 186,592 | 1 | Iowa Finance Authority, Senior Living Facility Revenue Refunding Bonds (Series 2014B), 2.00% (Deerfield Retirement Community, Inc.), 5/15/2056 | 1,956 |
| 3,750,000 | | Tobacco Settlement Authority, IA, Tobacco Settlement Asset-Backed Bonds (Series 2005C), 5.50% (Original Issue Yield: 5.78%), 6/1/2042 | 3,673,950 |
| 1,060,000 | | Xenia Rural Water District, Water Revenue Refunding Capital Loan Notes (Series 2016), 5.00%, 12/1/2041 | 1,143,994 |
| | | TOTAL | 9,787,808 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Kansas—0.8% | |
| $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 | $2,197,080 |
| 1,000,000 | | Manhattan, KS IDRBs, Industrial Revenue Bonds (Series 2007), 5.50% (Farrar Corp. Project)/(Original Issue Yield: 5.55%), 8/1/2021 | 899,900 |
| 2,015,000 | | Norwich, KS, Industrial Revenue Bonds (Series 2006), 5.90% (Farrar Corp. Project), 8/1/2021 | 1,813,299 |
| 10,000 | | Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1), 6.95% (GNMA Home Mortgage Program COL), 6/1/2029 | 10,443 |
| | | TOTAL | 4,920,722 |
| | | Kentucky—0.7% | |
| 3,000,000 | | Kentucky EDFA , Revenue Bonds (Series 2016A), 5.00%
(Miralea), 5/15/2046 | 2,772,690 |
| 1,250,000 | | Kentucky EDFA, Revenue Bonds (Series 2011A), 7.375% (Miralea)/(United States Treasury PRF 5/15/2021@100)/(Original Issue Yield: 7.40%), 5/15/2046 | 1,550,812 |
| | | TOTAL | 4,323,502 |
| | | Louisiana—1.3% | |
| 1,500,000 | | Jefferson Parish, LA Hospital Service District No. 1, Hospital Revenue Refunding Bonds (Series 2011A), 6.00% (West Jefferson Medical Center)/(United States Treasury PRF 1/1/2021@100)/(Original Issue Yield: 6.05%), 1/1/2039 | 1,757,160 |
| 1,000,000 | | Louisiana Public Facilities Authority, Refunding Revenue Bonds (Series 2016), 5.00% (Ochsner Clinic Foundation), 5/15/2047 | 1,065,960 |
| 1,000,000 | | Louisiana Public Facilities Authority, Revenue Bonds (Series 2011), 6.50% (Ochsner Clinic Foundation)/(United States Treasury PRF 5/15/2021@100)/(Original Issue Yield: 6.65%), 5/15/2037 | 1,206,840 |
| 2,000,000 | | Louisiana State Citizens Property Insurance Corp., Assessment Revenue Bonds (Series 2006C), 6.125% (United States Treasury PRF 6/1/2018@100)/(Original Issue Yield: 6.33%), 6/1/2025 | 2,132,260 |
| 1,500,000 | | Tobacco Settlement Financing Corp., LA, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2013A), 5.25%, 5/15/2035 | 1,629,840 |
| | | TOTAL | 7,792,060 |
| | | Maine—0.7% | |
| 1,335,000 | | Maine Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2011), 7.50% (Maine General Medical Center), 7/1/2032 | 1,512,889 |
| 1,000,000 | | Maine Health & Higher Educational Facilities Authority, Revenue Bonds (Series 2016A), 5.00% (Eastern Maine Healthcare Systems Obligated Group), 7/1/2046 | 1,009,600 |
| 2,000,000 | 3,4 | Maine State Finance Authority Solid Waste Disposal, Revenue Bonds (Series 2005R-3), 5.25% (Casella Waste Systems, Inc.), 1/1/2025 | 2,001,900 |
| | | TOTAL | 4,524,389 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Maryland—1.5% | |
| $500,000 | | Baltimore, MD, SO Refunding Bonds (Series 2016), 5.125% (Harbor Point)/(Original Issue Yield: 5.16%), 6/1/2043 | $484,870 |
| 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 | 2,177,180 |
| 1,060,000 | | Maryland State EDC, Port Facilities Revenue Refunding Bonds (Series 2010), 5.75% (CONSOL Energy, Inc.), 9/1/2025 | 1,047,800 |
| 1,000,000 | | Maryland State EDC, Private Activity Revenue Bonds (Series 2016D Green Bonds), 5.00% (Purple Line Transit Partners LLC), 3/31/2051 | 1,062,570 |
| 2,385,000 | | Maryland State EDC, Revenue Bonds (Series B), 5.75% (Ports America Chesapeake, Inc.)/(Original Issue Yield: 5.875%), 6/1/2035 | 2,561,299 |
| 1,000,000 | | Prince Georges County, MD Revenue Authority, SO Bonds (Series 2016), 5.00% (Suitland-Naylor Road Project), 7/1/2046 | 954,380 |
| 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 | 1,071,510 |
| | | TOTAL | 9,359,609 |
| | | Massachusetts—0.8% | |
| 2,500,000 | | Commonwealth of Massachusetts, UT GO Bonds (Consolidated Loan of 2016 Series A), 5.00%, 3/1/2046 | 2,798,825 |
| 2,000,000 | | Massachusetts Development Finance Agency, Revenue Bonds (Series 2011I), 7.25% (Tufts Medical Center), 1/1/2032 | 2,329,860 |
| | | TOTAL | 5,128,685 |
| | | Michigan—4.6% | |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2028 | 1,081,710 |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), 5.00% (Q-SBLF GTD), 5/1/2031 | 1,071,860 |
| 1,500,000 | | Detroit, MI Sewage Disposal System, Revenue Refunding Senior Lien Bonds (Series 2012A), 5.25% (Great Lakes, MI Sewage Disposal System)/(Original Issue Yield: 5.30%), 7/1/2039 | 1,617,720 |
| 2,000,000 | | Great Lakes, MI Water Authority, Water Supply System Revenue Second Lien Bonds (Series 2016B), 5.00%, 7/1/2046 | 2,161,000 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue Refunding Bonds (Series 2016I), 5.00%, 10/15/2051 | 553,085 |
| 2,000,000 | | Michigan State Finance Authority Revenue, Local Government Loan Program Revenue Bonds (Series 2014B), 5.00% (Public Lighting Authority), 7/1/2044 | 2,128,660 |
| 1,900,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-5), 5.00% (Great Lakes, MI Sewage Disposal System)/(National Public Finance Guarantee Corp. INS), 7/1/2020 | 2,098,892 |
| 1,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-7), 5.00% (Great Lakes, MI Sewage Disposal System)/(National Public Finance Guarantee Corp. INS), 7/1/2032 | 1,103,820 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 D-6), 5.00% (Great Lakes, MI Water Supply System)/(National Public Finance Guarantee Corp. INS), 7/1/2036 | $1,088,900 |
| 4,000,000 | | Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 2016), 5.00% (Henry Ford Health System, MI), 11/15/2041 | 4,339,240 |
| 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 | 4,656,200 |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035 | 1,023,555 |
| 1,000,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2015), 5.00%, 4/1/2040 | 1,147,800 |
| 2,500,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2017A), 5.00%, 4/1/2042 | 2,899,450 |
| 1,000,000 | | Warren, MI Consolidated School District, 2016 School Building & Site UT GO Bonds, 5.00% (Michigan School Bond Qualification and Loan Program GTD), 5/1/2036 | 1,108,520 |
| | | TOTAL | 28,080,412 |
| | | Minnesota—1.9% | |
| 750,000 | | Baytown Township, MN, Charter School Lease Revenue Refunding Bonds (Series 2016A), 4.00% (St. Croix Preparatory Academy), 8/1/2041 | 619,073 |
| 1,100,000 | | Baytown Township, MN, Charter School Lease Revenue Refunding Bonds (Series 2016A), 4.25% (St. Croix Preparatory Academy), 8/1/2046 | 930,237 |
| 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 | 2,166,280 |
| 1,700,000 | | Forest Lake, MN, Charter School Lease Revenue Bonds (Series 2014A), 5.75% (Lakes International Language Academy), 8/1/2044 | 1,815,192 |
| 2,000,000 | | St. Cloud, MN Charter School, Lease Revenue Bonds (Series 2016A), 5.00% (Stride Academy), 4/1/2046 | 1,664,320 |
| 2,000,000 | | St. Paul and Ramsey County, MN Housing and Redevelopment Authority, Charter School Lease Revenue Bonds (Series 2015A), 5.375% (Twin Cities Academy), 7/1/2050 | 2,015,220 |
| 500,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 9/1/2026 | 514,845 |
| 930,000 | | St. Paul, MN Housing & Redevelopment Authority, Tax Increment Revenue Refunding Bonds (Series 2012), 5.00% (Upper Landing Project), 3/1/2029 | 951,269 |
| 325,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2016A), 4.50% (Bluffview Montessori School Project), 6/1/2036 | 289,507 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Minnesota—continued | |
| $750,000 | | Winona, MN Port Authority, Lease Revenue Bonds (Series 2016A), 4.75% (Bluffview Montessori School Project), 6/1/2046 | $658,717 |
| | | TOTAL | 11,624,660 |
| | | 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 | 1,038,640 |
| | | Missouri—1.1% | |
| 1,000,000 | | Kirkwood, MO IDA, Retirement Community Revenue Bonds (Series 2010A), 8.25% (Aberdeen Heights Project)/(United States Treasury PRF 5/15/2020@100) /(Original Issue Yield: 8.40%), 5/15/2039 | 1,214,700 |
| 3,000,000 | | Kirkwood, MO IDA, Retirement Community Revenue Bonds (Series 2010A), 8.25% (Aberdeen Heights Project)/(United States Treasury PRF 5/15/2020@100) /(Original Issue Yield: 8.50%), 5/15/2045 | 3,644,100 |
| 1,000,000 | | Kirkwood, MO IDA, Retirement Community Revenue Bonds (Series 2017A), 5.25% (Aberdeen Heights Project), 5/15/2050 | 1,024,810 |
| 1,000,000 | | St. Joseph, MO IDA, Healthcare Revenue Bonds, 7.00% (Living Community St. Joseph Project), 8/15/2032 | 1,000,470 |
| | | TOTAL | 6,884,080 |
| | | Nebraska—0.4% | |
| 2,500,000 | | Central Plains Energy Project, NE, Gas Project Revenue Bonds (Project No. 3) (Series 2012), 5.25% (Goldman Sachs Group, Inc. GTD), 9/1/2037 | 2,714,850 |
| | | Nevada—0.4% | |
| 1,500,000 | | Las Vegas, NV Redevelopment Agency, Tax Increment Revenue Refunding Bonds (Series 2016), 5.00%, 6/15/2045 | 1,634,880 |
| 1,000,000 | | Las Vegas, NV, Local Improvement Bonds (Series 2015), 5.00% (Summerlin Village 24 SID No. 812), 12/1/2035 | 991,630 |
| | | TOTAL | 2,626,510 |
| | | New Jersey—3.2% | |
| 1,000,000 | | Essex County, NJ Improvement Authority, Solid Waste Disposal Revenue Bonds (Series 2015), 5.25% (Covanta Energy Corp.), 7/1/2045 | 988,300 |
| 1,000,000 | | New Jersey EDA, Energy Facility Revenue Bonds (Series 2012A), 5.125% (UMM Energy Partners LLC)/(Original Issue Yield: 5.19%), 6/15/2043 | 1,024,600 |
| 650,000 | | New Jersey EDA, Kapkowski Road Landfill Revenue Bonds, 6.50% (New Jersey Metromall Urban Renewal, Inc.)/(Original Issue Yield: 6.55%), 4/1/2018 | 670,332 |
| 3,000,000 | | New Jersey EDA, School Facilites Construction Revenue Refunding Bonds (Series 2013NN), 5.00% (New Jersey State), 3/1/2030 | 3,069,480 |
| 3,255,000 | | New Jersey EDA, School Facilities Construction Bonds (Series 2015WW), 5.25% (New Jersey State), 6/15/2040 | 3,302,848 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New Jersey—continued | |
| $2,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 1999), 5.25% (United Airlines, Inc.), 9/15/2029 | $2,633,975 |
| 1,125,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 2000B), 5.625% (United Airlines, Inc.), 11/15/2030 | 1,222,470 |
| 1,500,000 | | New Jersey EDA, Special Facility Revenue Bonds (Series 2003), 5.50% (United Airlines, Inc.), 6/1/2033 | 1,609,500 |
| 1,200,000 | | New Jersey State Transportation Trust Fund Authority, Transportation System Bonds (Series 2011A), 6.00% (New Jersey State), 6/15/2035 | 1,298,784 |
| 4,000,000 | | Tobacco Settlement Financing Corp., NJ, Tobacco Settlement Asset-Backed Bonds (Series 2007-1), 5.00% (Original Issue Yield: 5.015%), 6/1/2041 | 3,848,000 |
| | | TOTAL | 19,668,289 |
| | | New Mexico—0.5% | |
| 1,000,000 | | New Mexico State Hospital Equipment Loan Council, Hospital Improvement and Revenue Refunding Bonds (Series 2012A), 5.50% (Gerald Champion Regional Medical Center)/(Original Issue Yield: 5.70%), 7/1/2042 | 1,065,500 |
| 2,000,000 | 3,4 | Winrock Town Center, NM Tax Increment Development District 1, Senior Lien Gross Receipts Tax Increment Bonds (Series 2015), 6.00% (Original Issue Yield: 6.12%), 5/1/2040 | 2,045,060 |
| | | TOTAL | 3,110,560 |
| | | New York—7.0% | |
| 1,495,000 | | Brooklyn Arena Local Development Corp., NY, PILOTs Revenue Bonds (Series 2009), 6.375% (United States Treasury PRF 1/15/2020@100)/(Original Issue Yield: 6.476%), 7/15/2043 | 1,715,004 |
| 1,000,000 | | Brooklyn Arena Local Development Corp., NY, PILOTs Revenue Refunding Bonds (Series 2016A), 5.00%, 7/15/2042 | 1,091,150 |
| 1,000,000 | 3,4 | Build NYC Resource Corp., Revenue Bonds (Series 2015), 5.50% (Albert Einstein School of Medicine, Inc.), 9/1/2045 | 1,075,970 |
| 5,000,000 | 5 | Glen Cove, NY Local Economic Assistance Corp., Capital Appreciation Revenue Bonds (Series 2016B) (Garvies Point Public Improvement Project)/(Original Issue Yield 6.00%), 0.00%, 1/1/2045 | 954,050 |
| 1,550,000 | | Glen Cove, NY Local Economic Assistance Corp., Revenue Bonds (Series 2016A), 5.00% (Garvies Point Public Improvement Project)/(Original Issue Yield: 5.08%), 1/1/2056 | 1,442,461 |
| 1,285,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), 5.75%, 2/15/2047 | 1,460,325 |
| 2,000,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2014D-1), 5.00% (MTA Transportation Revenue), 11/15/2039 | 2,257,380 |
| 5,405,000 | | Metropolitan Transportation Authority, NY, Revenue Bonds (Series 2015A), 5.00% (MTA Transportation Revenue), 11/15/2045 | 6,019,981 |
| 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 | 1,480,380 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $564,798 | | Nassau County, NY IDA, Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2014C), 2.00% (Amsterdam at Harborside), 1/1/2049 | $94,434 |
| 2,500,000 | | New York City, NY TFA, Building Aid Revenue Bonds (Fiscal 2015 Series S-1), 5.00%, 7/15/2043 | 2,796,400 |
| 1,400,000 | | New York City, NY TFA, Future Tax Secured Subordinate Bonds (Fiscal 2017 Subseries A-1), 4.00%, 5/1/2042 | 1,446,690 |
| 5,000,000 | | New York City, NY, LT GO Bonds (Series 2017 A-1), 4.00%, 8/1/2039 | 5,170,700 |
| 1,000,000 | | New York Counties Tobacco Trust VI, Tobacco Settlement Pass-Through Bonds (Series 201A-2B), 5.00%, 6/1/2051 | 1,023,300 |
| 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 | 2,090,020 |
| 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 | 1,085,520 |
| 2,900,000 | | New York Transportation Development Corp., Special Facility Revenue Refunding Bonds (Series 2016), 5.00% (American Airlines, Inc.), 8/1/2031 | 3,018,842 |
| 1,120,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.25% (Original Issue Yield: 5.40%), 6/15/2029 | 1,208,805 |
| 1,185,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), 5.50%, 6/15/2030 | 1,290,311 |
| 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 | 1,006,390 |
| 1,000,000 | | Onondaga, NY Civic Development Corp., Tax Exempt Revenue Bonds (Series 2014A), 5.125% (St. Joseph's Hospital Health Center)/(United States Treasury PRF 7/1/2019@100)/(Original Issue Yield: 5.375%), 7/1/2031 | 1,093,030 |
| 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 | 2,810,000 |
| 1,000,000 | | TSASC, Inc. NY, Tobacco Settlement Asset Backed Senior Refunding Bonds (Series 2017A), 5.00%, 6/1/2041 | 1,083,320 |
| | | TOTAL | 42,714,463 |
| | | North Carolina—0.6% | |
| 2,250,000 | | North Carolina Department of Transportation, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (I-77 HOT Lanes), 6/30/2054 | 2,342,295 |
| 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 | 1,100,860 |
| | | TOTAL | 3,443,155 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—3.6% | |
| $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 | $1,097,810 |
| 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 | 1,925,000 |
| 3,655,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series A-2), 6.50%, 6/1/2047 | 3,627,734 |
| 1,500,000 | | Hamilton County, OH, Healthcare Revenue Bonds (Series 2011A), 6.625% (Life Enriching Communities)/(United States Treasury PRF 1/1/2021@100)/(Original Issue Yield: 6.75%), 1/1/2046 | 1,793,655 |
| 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 | 2,067,180 |
| 4,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue & Refunding Bonds (Series 2014), 5.00%, 11/15/2044 | 4,500,160 |
| 2,910,000 | | Ohio State Air Quality Development Authority, Revenue Bonds (Series 2009A), 5.70% (FirstEnergy Solutions Corp.), 8/1/2020 | 1,018,500 |
| 825,000 | | Ohio State Higher Educational Facility Commission, Hospital Facilities Revenue Bonds (Series 2010), 5.75% (Summa Health System), 11/15/2040 | 888,723 |
| 1,530,000 | | Ohio State Higher Educational Facility Commission, Hospital Facilities Revenue Bonds (Series 2010), 5.75% (Summa Health System)/(United States Treasury PRF 5/15/2020@100), 11/15/2040 | 1,745,959 |
| 1,125,000 | | Ohio State Hospital Revenue, Hospital Revenue Bonds (Series 2016A), 5.00% (University Hospitals Health System, Inc.), 1/15/2041 | 1,218,848 |
| 1,000,000 | | Ohio State Treasurer Private Activity, Revenue Bonds (Series 2015), 5.00% (Portsmouth Gateway Group LLC), 6/30/2053 | 1,052,140 |
| 802,477 | 1,3 | 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 | 8 |
| 110,159 | 1,3 | Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 1 |
| 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 | 820,770 |
| | | TOTAL | 21,756,488 |
| | | Oklahoma—1.4% | |
| 1,000,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.00% (Concordia Life Care Community)/(Original Issue Yield: 6.15%), 11/15/2038 | 966,370 |
| 920,000 | | Oklahoma County, OK Finance Authority, Retirement Facility Revenue Bonds (Series 2005), 6.125% (Concordia Life Care Community), 11/15/2025 | 910,855 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Oklahoma—continued | |
| $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 | $2,121,380 |
| 3,000,000 | | Tulsa, OK Municipal Airport Trust, Revenue Refunding Bonds (Series 2000B), 5.50% (American Airlines, Inc.), 6/1/2035 | 3,143,670 |
| 1,500,000 | | Tulsa, OK Municipal Airport Trust, Revenue Refunding Bonds (Series 2015), 5.00% TOBs (American Airlines, Inc.), Mandatory Tender 6/1/2025 | 1,571,715 |
| | | TOTAL | 8,713,990 |
| | | Oregon—0.3% | |
| 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 | 1,001,310 |
| 250,000 | | Yamhill County, OR Hospital Authority, Revenue Refunding Bonds (Series 2016A), 5.00% (Friendsview Retirement Community), 11/15/2036 | 256,328 |
| 550,000 | | Yamhill County, OR Hospital Authority, Revenue Refunding Bonds (Series 2016A), 5.00% (Friendsview Retirement Community), 11/15/2051 | 527,846 |
| | | TOTAL | 1,785,484 |
| | | Pennsylvania—4.8% | |
| 1,715,000 | | Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 | 1,976,126 |
| 3,715,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.00%, 5/1/2042 | 3,853,495 |
| 2,000,000 | | Bucks County, PA IDA, (Series 2016A), 5.125% (School Lane Charter School), 3/15/2046 | 2,029,920 |
| 500,000 | | Butler County, PA Hospital Authority, Hospital Revenue Bonds (Series 2015A), 5.00% (Butler Health System), 7/1/2035 | 539,555 |
| 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 | 1,532,805 |
| 2,000,000 | | Chester County, PA IDA, Revenue Refunding Bonds (Series 2012A), 5.375% (Collegium Charter School)/(Original Issue Yield: 5.50%), 10/15/2042 | 1,940,340 |
| 1,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.00% (Original Issue Yield: 5.05%), 12/1/2042 | 1,078,100 |
| 3,000,000 | | Harrisburg, PA Authority, Water Revenue Refunding Bonds (Series 2008), 5.25% (Original Issue Yield: 5.35%), 7/15/2031 | 3,052,560 |
| 2,000,000 | | Pennsylvania EDFA, Exempt Facilities Revenue Refunding Bonds (Series 2014), 5.50% (National Gypsum Co.), 11/1/2044 | 2,113,160 |
| 1,250,000 | | Pennsylvania EDFA, Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.00% (Pennsylvania Rapid Bridge Replacement), 12/31/2038 | 1,341,513 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2010), 6.375% (Global Leadership Academy Charter School), 11/15/2040 | $1,051,340 |
| 1,205,000 | | Philadelphia, PA Authority for Industrial Development, Revenue Bonds (Series 2012), 6.625% (New Foundations Charter School), 12/15/2041 | 1,311,859 |
| 895,000 | | Philadelphia, PA Authority for Industrial Development, Senior Living Revenue Bonds (Series 2005A), 5.625% (PresbyHomes Germantown/Morrisville), 7/1/2035 | 898,661 |
| 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 | 1,777,038 |
| 2,000,000 | | Philadelphia, PA, GO Bonds (Series 2011), 6.50% (United States Treasury PRF 8/1/2020@100), 8/1/2041 | 2,351,420 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), 5.25% (Original Issue Yield: 5.27%), 12/1/2036 | 1,692,345 |
| 555,000 | | Washington County, PA Redevelopment Authority, Redevelopment Bonds (Series 2006A), 5.45% (Victory Centre Project-Tanger Outlet Development), 7/1/2035 | 554,983 |
| | | TOTAL | 29,095,220 |
| | | Puerto Rico—0.9% | |
| 995,000 | | Puerto Rico Electric Power Authority, 5.05% (Original Issue Yield: 5.08%), 7/1/2042 | 646,750 |
| 195,000 | | Puerto Rico Electric Power Authority, 7.00% (Original Issue Yield: 7.07%), 7/1/2040 | 126,750 |
| 4,000,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2010XX), 5.25% (Original Issue Yield: 5.40%), 7/1/2040 | 2,600,000 |
| 310,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00%, 7/1/2033 | 201,500 |
| 2,500,000 | | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A), 7.00% (Original Issue Yield: 7.12%), 7/1/2043 | 1,625,000 |
| | | TOTAL | 5,200,000 |
| | | Rhode Island—0.8% | |
| 500,000 | | Rhode Island State Health and Educational Building Corp., Hospital Financing Revenue Refunding Bonds (Series 2016), 5.00% (Lifespan Obligated Group), 5/15/2039 | 526,755 |
| 1,375,000 | | Rhode Island State Health and Educational Building Corp., Hospital Financing Revenue Refunding Bonds (Series 2016B), 5.00% (Care New England), 9/1/2036 | 1,378,094 |
| 2,730,000 | | Tobacco Settlement Financing Corp., RI, Tobacco Settlement Asset-Backed Bonds (Series 2015B), 5.00%, 6/1/2050 | 2,759,238 |
| | | TOTAL | 4,664,087 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | South Carolina—0.3% | |
| $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 | $2,107,020 |
| | | South Dakota—0.1% | |
| 800,000 | | Educational Enhancement Funding Corp., SD, Tobacco Settlement Revenue Bonds (Series 2013B), 5.00%, 6/1/2025 | 887,680 |
| | | Tennessee—1.2% | |
| 1,200,000 | | Blount County, TN Health and Educational Facilities Board, Revenue Refunding and Improvement Bonds (Series 2016A), 5.00% (Asbury, Inc.), 1/1/2047 | 1,200,840 |
| 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 | 1,090,490 |
| 1,500,000 | | Johnson City, TN Health & Education Facilities Board, Hospital Revenue Bonds (Series 2010), 6.50% (Mountain States Health Alliance), 7/1/2038 | 1,661,145 |
| 2,725,000 | | Tennessee Energy Acquisition Corp., Gas Revenue Bonds (Series 2006A), 5.25% (Goldman Sachs Group, Inc. GTD), 9/1/2023 | 3,124,948 |
| | | TOTAL | 7,077,423 |
| | | Texas—9.8% | |
| 1,100,000 | | Arlington, TX Higher Education Finance Corp., Revenue Bonds (Series 2016A), 5.00% (Uplift Education), 12/1/2046 | 1,145,628 |
| 500,000 | | Austin, TX Airport System, Airport System Revenue Bonds (Series 2014), 5.00%, 11/15/2044 | 544,295 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2024 | 1,001,180 |
| 1,000,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2006B), 5.75%, 1/1/2034 | 985,710 |
| 755,000 | | Bexar County, HFDC, Revenue Bonds (Series 2010), 6.20% (Army Retirement Residence Foundation)/(United States Treasury PRF 7/1/2020@100), 7/1/2045 | 876,389 |
| 1,000,000 | | Board of Managers, Joint Guadalupe County-City of Seguin, TX, Hospital Mortgage Revenue Refunding & Improvement Bonds (Series 2015), 5.00% (Original Issue Yield: 5.08%), 12/1/2045 | 1,017,810 |
| 2,000,000 | | Cass County, TX IDC, Environmental Improvement Revenue Bonds (Series 2009A), 9.50% (International Paper Co.), 3/1/2033 | 2,278,280 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.00% (United States Treasury PRF 1/1/2021@100)/(Original Issue Yield: 6.13%), 1/1/2041 | 1,171,440 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Bonds (Series 2011), 6.25% (United States Treasury PRF 1/1/2021@100)/(Original Issue Yield: 6.30%), 1/1/2046 | 1,180,760 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Refunding Bonds (Series 2016), 5.00%, 1/1/2046 | $1,081,550 |
| 2,000,000 | | Clifton Higher Education Finance Corp., TX, 6.00% (Idea Public Schools), 8/15/2043 | 2,269,660 |
| 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 | 805,695 |
| 500,000 | | Clifton Higher Education Finance Corp., TX, Education Revenue Bonds (Series 2012), 5.00% (Idea Public Schools), 8/15/2042 | 512,955 |
| 1,000,000 | | Clifton Higher Education Finance Corp., TX, Revenue Bonds (Series 2014), 5.00% (Idea Public Schools)/(PSFG GTD), 8/15/2039 | 1,125,020 |
| 2,000,000 | | Clifton Higher Education Finance Corp., TX, Revenue Bonds (Series 2015A), 5.00% (Uplift Education), 12/1/2050 | 2,061,240 |
| 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 | 1,561,785 |
| 515,000 | | Decatur, TX Hospital Authority, Revenue Bonds, 6.375% (Wise Regional Health System), 9/1/2042 | 576,187 |
| 2,775,000 | | Grand Parkway Transportation Corp., TX, Subordinate Tier Toll Revenue Bonds (Series 2013B TELA Supported), 5.25%, 10/1/2051 | 3,194,192 |
| 1,500,000 | | Houston, TX Airport System, Special Facilities Revenue & Refunding Bonds (Series 2011), 6.625% (United Airlines, Inc.)/(Original Issue Yield: 6.875%), 7/15/2038 | 1,653,210 |
| 2,000,000 | | Houston, TX Airport System, Special Facilities Revenue Bonds (Series 2015B-1), 5.00% (United Airlines, Inc.), 7/15/2035 | 2,089,680 |
| 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 | 529,635 |
| 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 | 1,050,420 |
| 1,000,000 | | Houston, TX Airport System, Subordinate Lien Revenue Refunding Bonds (Series 2012A), 5.00%, 7/1/2032 | 1,077,000 |
| 535,000 | | Houston, TX Higher Education Finance Corp., Education Revenue Bonds (Series 2011A), 6.875% (Cosmos Foundation, Inc.)/(United States Treasury PRF 5/15/2021@100), 5/15/2041 | 653,470 |
| 2,000,000 | | Lavernia, TX Higher Education Finance Corp., Education Revenue Bonds (Series 2015A), 5.50% (Meridian World School), 8/15/2045 | 2,056,600 |
| 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 | 2,202,440 |
| 1,000,000 | | Matagorda County, TX Navigation District No. 1, PCR Refunding Bonds (Series 2001A), 6.30% (AEP Texas Central Co.), 11/1/2029 | 1,093,210 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $1,000,000 | | New Hope Cultural Education Facilities Finance Corp., Retirement Facilities Revenue Bonds (Series 2016A), 5.50% (MRC Langford)/(Original Issue Yield: 5.53%), 11/15/2052 | $900,410 |
| 700,000 | | New Hope Cultural Education Facilities Finance Corp., Retirement Facility Revenue Bonds (Series 2016), 5.00% (MRC Crestview), 11/15/2046 | 686,147 |
| 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 | 1,757,430 |
| 1,500,000 | | North Texas Tollway Authority, System First Tier Revenue Refunding Bonds (Series 2016A), 5.00%, 1/1/2026 | 1,732,395 |
| 600,000 | | North Texas Tollway Authority, System First Tier Revenue Refunding Bonds (Series 2016A), 5.00%, 1/1/2039 | 668,874 |
| 2,000,000 | | Red River, TX HFDC, Retirement Facility Revenue Bonds (Series 2014A), 8.00% (MRC The Crossings), 11/15/2049 | 2,281,080 |
| 1,000,000 | | San Juan Higher Education Finance Authority, TX, Education Revenue Bonds (Series 2010A), 6.70% (Idea Public Schools)/(United States Treasury PRF 8/15/2020@100), 8/15/2040 | 1,182,400 |
| 1,000,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Hospital Revenue Bonds (Series 2016A), 5.00% (Baylor Scott & White Health Care System), 11/15/2045 | 1,101,480 |
| 1,500,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp., Retirement Facility Revenue Bonds (Series 2015A Fixed Rate Bonds), 5.50% (Buckingham Senior Living Community), 11/15/2045 | 1,545,915 |
| 2,000,000 | | Texas Private Activity Bonds Surface Transportation Corp., Senior Lien Revenue Bonds (Series 2016), 5.00% (Blueridge Transportation Group, LLC SH 288 Toll Lanes), 12/31/2055 | 2,093,380 |
| 2,000,000 | | Texas State Public Finance Authority Charter School Finance Corp., Education Revenue Bonds (Series 2010A), 6.20% (Cosmos Foundation, Inc.)/(United States Treasury PRF 2/15/2020@100), 2/15/2040 | 2,278,700 |
| 2,000,000 | | Texas State Transportation Commission, Highway Improvement UT GO Bonds (Series 2016), 5.00% (Texas State), 4/1/2046 | 2,273,540 |
| 2,680,000 | | Texas State Transportation Commission, Second Tier Revenue Refunding Bonds (Series 2015-C), 5.00% (Central Texas Turnpike System), 8/15/2042 | 2,901,743 |
| 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 | 2,719,300 |
| | | TOTAL | 59,918,235 |
| | | Utah—0.2% | |
| 1,315,000 | 3,4 | Utah State Charter School Finance Authority, Charter School Revenue Bonds (Series 2007A), 6.00% (Channing Hall), 7/15/2037 | 1,331,648 |
| | | Virginia—1.7% | |
| 1,800,000 | | Chesapeake Bay Bridge & Tunnel District, VA, First Tier General Resolution Revenue Bonds (Series 2016), 5.00%, 7/1/2051 | 1,952,208 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Virginia—continued | |
| $1,500,000 | | Chesterfield County, VA EDA, PCR Refunding Bonds (Series 2009A), 5.00% (Virginia Electric & Power Co.), 5/1/2023 | $1,620,195 |
| 1,500,000 | 3,4 | Embrey Mill CDA, VA, Special Assessment Revenue Bonds (Series 2015), 5.60%, 3/1/2045 | 1,493,685 |
| 1,380,000 | | Mosaic District CDA, VA, Revenue Bonds (Series 2011A), 6.875% (Original Issue Yield: 6.93%), 3/1/2036 | 1,521,298 |
| 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 | 3,933,375 |
| | | TOTAL | 10,520,761 |
| | | 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 | 1,036,040 |
| 925,000 | | Tobacco Settlement Authority, WA, Tobacco Settlement Revenue Refunding Bonds (Series 2013), 5.25%, 6/1/2031 | 998,362 |
| 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 | 1,528,995 |
| 2,500,000 | 3,4 | Washington State Housing Finance Commission, Nonprofit Housing Revenue & Revenue Refunding Bonds (Series 2014A), 7.50% (Rockwood Retirement Communities), 1/1/2049 | 2,825,700 |
| 1,000,000 | 3,4 | Washington State Housing Finance Commission, Nonprofit Housing Revenue Bonds (Series 2015A), 7.00% (Heron's Key Senior Living), 7/1/2045 | 999,140 |
| 1,000,000 | 3,4 | Washington State Housing Finance Commission, Nonprofit Housing Revenue Bonds (Series 2015A), 7.00% (Heron's Key Senior Living)/(Original Issue Yield: 7.05%), 7/1/2050 | 992,460 |
| | | TOTAL | 8,380,697 |
| | | Wisconsin—1.3% | |
| 1,000,000 | | Public Finance Authority, WI, Exempt Facilities Refunding Revenue Bonds (Series 2016), 4.00% (National Gypsum Co.), 8/1/2035 | 935,300 |
| 4,895,000 | | Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 5.75% (Wisconsin State), 5/1/2033 | 5,350,627 |
| 440,000 | | Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 5.75% (Wisconsin State)/(United States Treasury PRF 5/1/2019@100), 5/1/2033 | 484,418 |
| 800,000 | | Wisconsin State HEFA, Revenue Refunding Bonds (Series 2015), 5.00% (ProHealth Care, Inc.), 8/15/2039 | 873,816 |
| | | TOTAL | 7,644,161 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $562,058,077) | 580,279,048 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | 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) | $278,760 |
| | | SHORT-TERM MUNICIPALS—4.1%6 | |
| | | Florida—0.5% | |
| 1,300,000 | | Manatee County, FL, Pollution Control Revenue Refunding Bonds (Series 1994) Daily VRDNs (Florida Power & Light Co.), 0.64%, 3/1/2017 | 1,300,000 |
| 1,500,000 | | Martin County, FL PCRBs, (Series 2000) Daily VRDNs (Florida Power & Light Co.), 0.62%, 3/1/2017 | 1,500,000 |
| | | TOTAL | 2,800,000 |
| | | Louisiana—0.3% | |
| 1,700,000 | | Louisiana Public Facilities Authority, (Series 2008A) Daily VRDNs (Air Products & Chemicals, Inc.), 0.61%, 3/1/2017 | 1,700,000 |
| | | Michigan—0.3% | |
| 100,000 | | Kent Hospital Finance Authority, MI, (Series 2008B-3) Weekly VRDNs (Spectrum Health), (Wells Fargo Bank, N.A. LIQ), 0.64%, 3/1/2017 | 100,000 |
| 1,800,000 | | Michigan Higher Education Facilities Authority, (Series 2006) Weekly VRDNs (Albion College)/(JPMorgan Chase Bank, N.A. LOC), 0.63%, 3/2/2017 | 1,800,000 |
| | | TOTAL | 1,900,000 |
| | | New York—1.4% | |
| 400,000 | | New York City, NY Municipal Water Finance Authority, (2014 Series AA-1) Daily VRDNs (JPMorgan Chase Bank, N.A. LIQ), 0.58%, 3/1/2017 | 400,000 |
| 3,800,000 | | New York City, NY Municipal Water Finance Authority, Second General Resolution (Fiscal 2011 Series FF-2) Daily VRDNs, (Landesbank Hessen-Thuringen LIQ), 0.61%, 3/1/2017 | 3,800,000 |
| 500,000 | | New York City, NY, (Fiscal 2006 Series H-2) Daily VRDNs, (JPMorgan Chase Bank, N.A. LIQ), 0.58%, 3/1/2017 | 500,000 |
| 150,000 | | New York City, NY, (Series 2013D-3) Daily VRDNs, (JPMorgan Chase Bank, N.A. LIQ), 0.58%, 3/1/2017 | 150,000 |
| 2,450,000 | | New York City, NY, 2015 Series F (Subseries F-5) Daily VRDNs (Barclays Bank PLC LIQ), 0.57%, 3/1/2017 | 2,450,000 |
| 150,000 | | New York State HFA, (Series 2009B: 505 West 37th Street Housing) Daily VRDNs (Midtown West B LLC)/(Landesbank Hessen-Thuringen LOC), 0.61%, 3/1/2017 | 150,000 |
| 1,000,000 | | Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2002F) Daily VRDNs (Landesbank Hessen-Thuringen LOC), 0.62%, 3/1/2017 | 1,000,000 |
| | | TOTAL | 8,450,000 |
| | | Ohio—0.3% | |
| 950,000 | | Allen County, OH, (Series 2010C) Daily VRDNs (Mercy Health)/(MUFG Union Bank, N.A. LOC), 0.59%, 3/1/2017 | 950,000 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | SHORT-TERM MUNICIPALS—continued6 | |
| | | Ohio—continued | |
| $100,000 | | Alliance, OH, (Series 2003) Daily VRDNs (Alliance Community Hospital), (JPMorgan Chase Bank, N.A. LOC), 0.57%, 3/1/2017 | $100,000 |
| 1,100,000 | | Ohio State Higher Educational Facility Commission, (Series 2008 B-4) Daily VRDNs (Cleveland Clinic), (Barclays Bank PLC LIQ), 0.57%, 3/1/2017 | 1,100,000 |
| | | TOTAL | 2,150,000 |
| | | Pennsylvania—0.1% | |
| 800,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority, (Series 2002-A) Daily VRDNs (Children's Hospital of Philadelphia)/(Wells Fargo Bank, N.A. LIQ), 0.56%, 3/1/2017 | 800,000 |
| | | Texas—1.2% | |
| 200,000 | | Harris County, TX Education Facilities Finance Corp., (Series 2008C-1) Daily VRDNs (Methodist Hospital, Harris County, TX), 0.57%, 3/1/2017 | 200,000 |
| 7,200,000 | | Harris County, TX IDC, (Series 1984-B) Daily VRDNs (Exxon Mobil Corp.), 0.56%, 3/1/2017 | 7,200,000 |
| | | TOTAL | 7,400,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $25,200,000) | 25,200,000 |
| | | TOTAL INVESTMENTS—99.0%
(IDENTIFIED COST $591,247,077)7 | 605,757,808 |
| | | OTHER ASSETS AND LIABILITIES - NET—1.0%8 | 6,366,697 |
| | | TOTAL NET ASSETS—100% | $612,124,505 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 9.5% of the Fund's portfolio as calculated based upon total market value.
| 1 | Non-income-producing security. |
| 2 | Security in default. |
| 3 | Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 28, 2017, these restricted securities amounted to $39,919,730, which represented 6.5% 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, 2017, these liquid restricted securities amounted to $39,640,961, which represented 6.1% 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 $590,818,675. |
| 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, 2017.
Semi-Annual Shareholder Report
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
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, 2017, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| 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 |
| 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 |
| IDRBs | —Industrial Development Revenue Bonds |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LO | —Limited Obligation |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| MFH | —Multi-Family Housing |
| PCR | —Pollution Control Revenue |
| PCRBs | —Pollution Control Revenue Bonds |
| PILOTs | —Payment in Lieu of Taxes |
| 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 |
| TOBs | —Tender Option Bonds |
| USDT | —Unified School District |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value,
Beginning of Period | $9.28 | $8.86 | $8.85 | $8.11 | $8.95 | $8.21 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.18 | 0.37 | 0.39 | 0.41 | 0.40 | 0.42 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.51) | 0.42 | 0.01 | 0.74 | (0.84) | 0.74 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.33) | 0.79 | 0.40 | 1.15 | (0.44) | 1.16 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.17) | (0.37) | (0.39) | (0.41) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $8.78 | $9.28 | $8.86 | $8.85 | $8.11 | $8.95 |
| Total Return1 | (3.53)% | 9.17% | 4.63% | 14.54% | (5.17)% | 14.58% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.88%2 | 0.89% | 0.89% | 0.89% | 0.89% | 0.89% |
| Net investment income | 3.96%2 | 4.12% | 4.42% | 4.84% | 4.53% | 4.88% |
| Expense waiver/reimbursement3 | 0.16%2 | 0.14% | 0.15% | 0.17% | 0.15% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $217,207 | $270,092 | $230,664 | $224,298 | $215,101 | $239,911 |
| Portfolio turnover | 10% | 10% | 12% | 19% | 17% | 14% |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $9.27 | $8.85 | $8.84 | $8.11 | $8.95 | $8.21 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.16 | 0.31 | 0.35 | 0.36 | 0.36 | 0.36 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.52) | 0.42 | (0.01) | 0.71 | (0.86) | 0.74 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.36) | 0.73 | 0.34 | 1.07 | (0.50) | 1.10 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.14) | (0.31) | (0.33) | (0.34) | (0.34) | (0.36) |
| Net Asset Value, End of Period | $8.77 | $9.27 | $8.85 | $8.84 | $8.11 | $8.95 |
| Total Return1 | (3.89)% | 8.35% | 3.85% | 13.56% | (5.88)% | 13.72% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.63%2 | 1.64% | 1.64% | 1.64% | 1.64% | 1.64% |
| Net investment income | 3.21%2 | 3.38% | 3.66% | 4.09% | 3.76% | 4.15% |
| Expense waiver/reimbursement3 | 0.16%2 | 0.14% | 0.15% | 0.17% | 0.15% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $10,246 | $12,241 | $11,528 | $13,424 | $15,620 | $22,783 |
| Portfolio turnover | 10% | 10% | 12% | 19% | 17% | 14% |
| 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $9.28 | $8.85 | $8.85 | $8.11 | $8.95 | $8.21 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.14 | 0.31 | 0.33 | 0.35 | 0.34 | 0.36 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.51) | 0.43 | (0.00)1 | 0.74 | (0.84) | 0.74 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.37) | 0.74 | 0.33 | 1.09 | (0.50) | 1.10 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.14) | (0.31) | (0.33) | (0.35) | (0.34) | (0.36) |
| Net Asset Value, End of Period | $8.77 | $9.28 | $8.85 | $8.85 | $8.11 | $8.95 |
| Total Return2 | (3.99)% | 8.47% | 3.73% | 13.69% | (5.88)% | 13.72% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.63%3 | 1.64% | 1.64% | 1.64% | 1.64% | 1.64% |
| Net investment income | 3.21%3 | 3.37% | 3.67% | 4.09% | 3.78% | 4.13% |
| Expense waiver/reimbursement4 | 0.16%3 | 0.14% | 0.15% | 0.17% | 0.15% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $68,801 | $77,213 | $61,093 | $56,208 | $53,002 | $61,295 |
| Portfolio turnover | 10% | 10% | 12% | 19% | 17% | 14% |
| 1 | Represents less than $0.005. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | This expense decrease is reflected in both the net expense and 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)
2/28/2017 | Year Ended August 31, |
| 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value,
Beginning of Period | $9.28 | $8.86 | $8.85 | $8.11 | $8.95 | $8.21 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.17 | 0.37 | 0.39 | 0.41 | 0.40 | 0.42 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.51) | 0.42 | 0.01 | 0.74 | (0.84) | 0.74 |
| TOTAL FROM INVESTMENT OPERATIONS | (0.34) | 0.79 | 0.40 | 1.15 | (0.44) | 1.16 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.17) | (0.37) | (0.39) | (0.41) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $8.77 | $9.28 | $8.86 | $8.85 | $8.11 | $8.95 |
| Total Return1 | (3.64)% | 9.17% | 4.63% | 14.54% | (5.17)% | 14.58% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.88%2 | 0.89% | 0.89% | 0.89% | 0.89% | 0.89% |
| Net investment income | 3.97%2 | 4.12% | 4.41% | 4.84% | 4.53% | 4.89% |
| Expense waiver/reimbursement3 | 0.16%2 | 0.14% | 0.15% | 0.17% | 0.15% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $198,915 | $213,796 | $189,216 | $187,704 | $178,932 | $203,396 |
| Portfolio turnover | 10% | 10% | 12% | 19% | 17% | 14% |
| 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)
2/28/2017 | Year Ended August 31, | Period
Ended
08/31/20131 |
| 2016 | 2015 | 2014 |
| Net Asset Value, Beginning of Period | $9.27 | $8.85 | $8.84 | $8.11 | $8.88 |
| Income From Investment Operations: | | | | | |
| Net investment income | 0.18 | 0.40 | 0.42 | 0.42 | 0.09 |
| Net realized and unrealized gain (loss) on investments and futures contracts | (0.51) | 0.42 | 0.01 | 0.74 | (0.78) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.33) | 0.82 | 0.43 | 1.16 | (0.69) |
| Less Distributions: | | | | | |
| Distributions from net investment income | (0.18) | (0.40) | (0.42) | (0.43) | (0.08) |
| Net Asset Value, End of Period | $8.76 | $9.27 | $8.85 | $8.84 | $8.11 |
| Total Return2 | (3.52)% | 9.45% | 4.90% | 14.71% | (7.83)% |
| Ratios to Average Net Assets: | | | | | |
| Net expenses | 0.63%3 | 0.64% | 0.64% | 0.64% | 0.64%3 |
| Net investment income | 4.21%3 | 4.35% | 4.67% | 5.01% | 6.05%3 |
| Expense waiver/reimbursement4 | 0.16%3 | 0.14% | 0.15% | 0.16% | 0.21%3 |
| Supplemental Data: | | | | | |
| Net assets, end of period (000 omitted) | $116,956 | $106,699 | $63,857 | $48,577 | $2,426 |
| Portfolio turnover | 10% | 10% | 12% | 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, 2017 (unaudited)
| Assets: | | |
| Total investment in securities, at value (identified cost $591,247,077) | | $605,757,808 |
| Cash | | 95,297 |
| Income receivable | | 7,869,249 |
| Receivable for shares sold | | 574,811 |
| Receivable for investments sold | | 10,300 |
| TOTAL ASSETS | | 614,307,465 |
| Liabilities: | | |
| Payable for investments purchased | $1,016,430 | |
| Payable for shares redeemed | 891,425 | |
| Payable for other service fees (Notes 2 and 5) | 105,566 | |
| Payable for portfolio accounting fees | 70,536 | |
| Payable for distribution services fee (Note 5) | 45,501 | |
| Payable for investment adviser fee (Note 5) | 7,483 | |
| Payable for administrative fee (Note 5) | 1,313 | |
| Accrued expenses (Note 5) | 44,706 | |
| TOTAL LIABILITIES | | 2,182,960 |
| Net assets for 69,781,513 shares outstanding | | $612,124,505 |
| Net Assets Consists of: | | |
| Paid-in capital | | $676,670,253 |
| Net unrealized appreciation of investments | | 14,510,731 |
| Accumulated net realized loss on investments | | (79,644,837) |
| Undistributed net investment income | | 588,358 |
| TOTAL NET ASSETS | | $612,124,505 |
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 ($217,207,042 ÷ 24,752,862 shares outstanding), no par value, unlimited shares authorized | | $8.78 |
| Offering price per share (100/95.50 of $8.78) | | $9.19 |
| Redemption proceeds per share | | $8.78 |
| Class B Shares: | | |
| Net asset value per share ($10,246,249 ÷ 1,168,621 shares outstanding), no par value, unlimited shares authorized | | $8.77 |
| Offering price per share | | $8.77 |
| Redemption proceeds per share (94.50/100 of $8.77) | | $8.29 |
| Class C Shares: | | |
| Net asset value per share ($68,800,576 ÷ 7,845,769 shares outstanding), no par value, unlimited shares authorized | | $8.77 |
| Offering price per share | | $8.77 |
| Redemption proceeds per share (99.00/100 of $8.77) | | $8.68 |
| Class F Shares: | | |
| Net asset value per share ($198,914,911 ÷ 22,669,701 shares outstanding), no par value, unlimited shares authorized | | $8.77 |
| Offering price per share (100/99.00 of $8.77) | | $8.86 |
| Redemption proceeds per share (99.00/100 of $8.77) | | $8.68 |
| Institutional Shares: | | |
| Net asset value per share ($116,955,727 ÷ 13,344,560 shares outstanding), no par value, unlimited shares authorized | | $8.76 |
| Offering price per share | | $8.76 |
| Redemption proceeds per share | | $8.76 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 28, 2017 (unaudited)
| Investment Income: | | | |
| Interest | | | $15,216,994 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $1,883,777 | |
| Administrative fee (Note 5) | | 245,720 | |
| Custodian fees | | 13,526 | |
| Transfer agent fees | | 179,562 | |
| Directors'/Trustees' fees (Note 5) | | 3,413 | |
| Auditing fees | | 16,290 | |
| Legal fees | | 4,695 | |
| Distribution services fee (Note 5) | | 311,069 | |
| Other service fees (Notes 2 and 5) | | 654,174 | |
| Portfolio accounting fees | | 71,353 | |
| Share registration costs | | 45,643 | |
| Printing and postage | | 20,229 | |
| Miscellaneous (Note 5) | | 14,066 | |
| TOTAL EXPENSES | | 3,463,517 | |
| Waiver and Reimbursement: | | | |
| Waiver of investment adviser fee (Note 5) | $(466,945) | | |
| Reimbursement of other operating expenses (Note 2) | (41,076) | | |
| TOTAL WAIVER AND REIMBURSEMENT | | (508,021) | |
| Net expenses | | | 2,955,496 |
| Net investment income | | | 12,261,498 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized gain on investments | | | 1,011,824 |
| Net change in unrealized appreciation of investments | | | (38,172,092) |
| Net realized and unrealized loss on investments | | | (37,160,268) |
| Change in net assets resulting from operations | | | $(24,898,770) |
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)
2/28/2017 | Year Ended
8/31/2016 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $12,261,498 | $24,956,932 |
| Net realized gain (loss) on investments | 1,011,824 | (5,725,997) |
| Net change in unrealized appreciation/depreciation of investments | (38,172,092) | 34,602,926 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (24,898,770) | 53,833,861 |
| Distributions to Shareholders: | | |
| Distributions from net investment income | | |
| Class A Shares | (4,750,399) | (10,375,106) |
| Class B Shares | (175,060) | (405,912) |
| Class C Shares | (1,147,917) | (2,334,994) |
| Class F Shares | (3,966,266) | (8,158,364) |
| Institutional Shares | (2,157,420) | (3,589,323) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (12,197,062) | (24,863,699) |
| Share Transactions: | | |
| Proceeds from sale of shares | 91,821,481 | 175,791,364 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 10,947,637 | 22,222,500 |
| Cost of shares redeemed | (133,588,976) | (103,301,725) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (30,819,858) | 94,712,139 |
| Change in net assets | (67,915,690) | 123,682,301 |
| Net Assets: | | |
| Beginning of period | 680,040,195 | 556,357,894 |
| End of period (including undistributed net investment income of $588,358 and $523,922, respectively) | $612,124,505 | $680,040,195 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 28, 2017 (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 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. |
| ■ | 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. |
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, 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, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not
Semi-Annual Shareholder Report
representative of the fair value of such security, 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 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. Amortization/accretion of premium and discount is included in investment income. 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. The detail of the total fund expense waiver and reimbursement of $508,021 is disclosed in this Note 2 and Note 5.
For the six months ended February 28, 2017, the Fund's former custodian reimbursed $41,076 of custody fees.
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. For the six months ended February 28, 2017, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred |
| Class A Shares | $298,345 |
| Class B Shares | 13,694 |
| Class C Shares | 89,996 |
| Class F Shares | 252,139 |
| TOTAL | $654,174 |
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, 2017, 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, 2017, tax years 2013 through 2016 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in
Semi-Annual Shareholder Report
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, 2017, 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 | $278,760 |
| 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 | 12/23/2004 | $797,831 | $8 |
| Port Authority for Columbiana County, OH, Solid Waste Facility Revenue Bonds (Series 2012D), 10.82% (Apex Environmental LLC), 8/1/2034 | 8/1/2014 - 8/1/2015 | $110,159 | $1 |
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
2/28/2017 | Year Ended
8/31/2016 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 2,354,046 | $20,863,901 | 7,488,898 | $67,738,359 |
| Shares issued to shareholders in payment of distributions declared | 482,575 | 4,303,663 | 1,046,627 | 9,444,663 |
| Shares redeemed | (7,183,045) | (63,754,032) | (5,472,829) | (49,637,970) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (4,346,424) | $(38,586,468) | 3,062,696 | $27,545,052 |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 25,963 | $229,299 | 268,233 | $2,426,365 |
| Shares issued to shareholders in payment of distributions declared | 18,143 | 161,639 | 41,981 | 378,522 |
| Shares redeemed | (195,378) | (1,733,349) | (292,574) | (2,653,276) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (151,272) | $(1,342,411) | 17,640 | $151,611 |
Semi-Annual Shareholder Report
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 673,149 | $5,993,271 | 2,416,214 | $21,820,337 |
| Shares issued to shareholders in payment of distributions declared | 109,066 | 971,388 | 219,208 | 1,977,956 |
| Shares redeemed | (1,260,747) | (11,082,417) | (1,211,625) | (10,971,588) |
| NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (478,532) | $(4,117,758) | 1,423,797 | $12,826,705 |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,166,789 | $10,419,696 | 2,967,384 | $26,974,645 |
| Shares issued to shareholders in payment of distributions declared | 403,310 | 3,593,679 | 809,181 | 7,299,565 |
| Shares redeemed | (1,936,602) | (17,185,643) | (2,099,780) | (18,963,305) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | (366,503) | $(3,172,268) | 1,676,785 | $15,310,905 |
| | Six Months Ended
2/28/2017 | Year Ended
8/31/2016 |
| Institutional Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 6,151,998 | $54,315,314 | 6,274,225 | $56,831,658 |
| Shares issued to shareholders in payment of distributions declared | 215,304 | 1,917,268 | 345,789 | 3,121,794 |
| Shares redeemed | (4,531,473) | (39,833,535) | (2,326,858) | (21,075,586) |
| NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 1,835,829 | $16,399,047 | 4,293,156 | $38,877,866 |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (3,506,902) | $(30,819,858) | 10,474,074 | $94,712,139 |
4. FEDERAL TAX INFORMATION
At February 28, 2017, the cost of investments for federal tax purposes was $590,818,675. The net unrealized appreciation of investments for federal tax purposes was $14,939,133. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $31,592,384 and net unrealized depreciation from investments for those securities having an excess of cost over value of $16,653,251.
At August 31, 2016, the Fund had a capital loss carryforward of $80,363,882 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
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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 | $5,446,629 | $32,289,486 | $37,736,115 |
| 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, 2017, the Adviser voluntarily waived $466,945 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, 2017, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
Semi-Annual Shareholder Report
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| Share Class Name | Percentage of Average Daily
Net Assets of Class |
| Class A Shares | 0.05% |
| Class B Shares | 0.75% |
| Class C Shares | 0.75% |
| Class F Shares | 0.05% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended February 28, 2017, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $41,083 |
| Class C Shares | 269,986 |
| TOTAL | $311,069 |
For the six months ended February 28, 2017, FSC retained $78,038 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, 2017, 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.
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, 2017, FSC retained $22,195 in sales charges from the sale of Class A Shares. FSC also retained $99, $16,636, $3,015 and $15,453 of CDSC relating to redemptions of Class A Shares, Class B Shares, Class C Shares and Class F Shares, respectively.
Other Service Fees
For the six months ended February 28, 2017, FSSC received $18,592 of the other service fees disclosed in Note 2.
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Interfund Transactions
During the six months ended February 28, 2017, 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 $43,650,000 and $42,100,000, 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 interest expense, extraordinary expenses, line of credit 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, 2017; 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, 2017, were as follows:
| Purchases | $60,788,429 |
| Sales | $109,748,819 |
7. CONCENTRATION OF RISK
The Fund has 40.4% 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.
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8. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of February 28, 2017, the Fund had no outstanding loans. During the six months ended February 28, 2017, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (“SEC”), 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, 2017, there were no outstanding loans. During the six months ended February 28, 2017, the program was not utilized.
10. REGULATORY UPDATES
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. These amendments relate to Regulation S-X which sets forth the form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompanying notes.
11. Subsequent Event
On March 30, 2017, the Fund's T Share class became effective with the SEC, but is not yet offered for sale.
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, 2016 to February 28, 2017.
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
9/1/2016 | Ending
Account Value
2/28/2017 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $964.70 | $4.29 |
| Class B Shares | $1,000 | $961.10 | $7.93 |
| Class C Shares | $1,000 | $960.10 | $7.92 |
| Class F Shares | $1,000 | $963.60 | $4.28 |
| Institutional Shares | $1,000 | $964.80 | $3.07 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,020.43 | $4.41 |
| Class B Shares | $1,000 | $1,016.71 | $8.15 |
| Class C Shares | $1,000 | $1,016.71 | $8.15 |
| Class F Shares | $1,000 | $1,020.43 | $4.41 |
| Institutional Shares | $1,000 | $1,021.67 | $3.16 |
| 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 | 0.88% |
| Class B Shares | 1.63% |
| Class C Shares | 1.63% |
| Class F Shares | 0.88% |
| Institutional Shares | 0.63% |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2016
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 of Trustees (the “Board”) reviewed and unanimously approved at its May 2016 meetings the continuation of 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 after consideration of all of the information received on whether to continue the existing arrangements.
The 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 “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment 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 an adviser to a fund and its shareholders, including the performance and fees and expenses of the fund and of comparable funds; an adviser's cost of providing the services, including the profitability to an adviser of providing advisory services to a fund; the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale 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 an 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 an adviser for services rendered to a fund); comparative fee and expense structures, including a comparison of fees paid to an adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which 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 an adviser's services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment 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 Federated Investment Management Company (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 investment 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 Investors, Inc. and its affiliates (“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 meetings at which the Board's formal review of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, 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 investment 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 Fund; 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 funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and
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audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
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 to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the 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 in the context of other factors considered by the Board.
By contrast, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated 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 the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
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Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract with respect to the Fund.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. 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 investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also 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 the 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 Senior Officer's Evaluation, the Fund's performance for the three-year and five-year periods was above the median of the relevant peer group, and the Fund's performance was at the median of the relevant peer group for the one-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of the other factors considered relevant by the Board.
Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the investment advisory contract with respect to the Fund.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts,
Semi-Annual Shareholder Report
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. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
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. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
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 funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, and risk management functions, as well as systems technology (including technology relating to cybersecurity), and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and again in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information
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should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints at higher levels and should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. 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 a fund attains a certain size.
The Senior Officer noted that, subject to the comments and recommendations made within the Senior Officer's Evaluation, his observations and the information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment 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 investment 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 investment 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 investment advisory contract was appropriate.
The Board based its decision to approve the investment 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 continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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 (4/17)
Federated is a registered trademark of Federated Investors, Inc.
2017 ©Federated Investors, Inc.
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 |
Not Applicable
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not Applicable
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
Not Applicable
| Item 10. | Submission of Matters to a Vote of Security Holders |
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.
(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 24, 2017
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 24, 2017
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date April 24, 2017
