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 Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Peter J. Germain, Esquire
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:08/31/20
Date of Reporting Period:Six months ended 02/29/20
| Item 1. | Reports to Stockholders |
Semi-Annual Shareholder Report
February 29, 2020
| Share Class | Ticker | A | MMIFX | | | |
Federated Michigan Intermediate Municipal Trust
Fund Established 1991
A Portfolio of Federated Municipal Securities Income Trust
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee
J. Christopher
Donahue
President
Federated Michigan Intermediate Municipal Trust
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from September 1, 2019 through February 29, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the uncertainty ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At February 29, 2020, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| General Obligation—Local | 30.0% |
| Water & Sewer | 15.0% |
| Hospital | 11.6% |
| Dedicated Tax | 8.5% |
| Higher Education | 7.3% |
| Public Power | 6.8% |
| Refunded | 5.1% |
| Lease | 3.7% |
| Toll Road | 3.3% |
| Airport | 2.8% |
| Other2 | 5.8% |
| Other Assets and Liabilities—Net3 | 0.1% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party 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 94.1% 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. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 29, 2020 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.3% | |
| | | Michigan—98.3% | |
| $1,255,000 | | Ann Arbor, MI, LT GO Capital Improvement Bonds (Series 2019A), 4.000%, 5/1/2033 | $1,525,214 |
| 1,000,000 | | Berkley, MI School District, School Building & Site UT GO Bonds (Series 2015), (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2030 | 1,206,880 |
| 410,000 | | Birmingham, MI Public Schools, School Building & Site UT GO Bonds (Series 2015), 5.000%, 5/1/2027 | 494,948 |
| 1,690,000 | | Bishop, MI International Airport Authority, Refunding LT GO (Series 2010A), (Assured Guaranty Municipal Corp. INS), 4.500%, 12/1/2023 | 1,734,869 |
| 1,425,000 | | Calhoun County, MI Transportation Fund, Revenue Bonds, 4.000%, 11/1/2030 | 1,620,695 |
| 2,000,000 | | Dearborn, MI School District, UT GO School Building & Site Bonds (Series 2014A), (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2025 | 2,304,680 |
| 500,000 | | Detroit, MI Downtown Development Authority, Tax Increment Revenue Refunding Bonds (Catalyst Development Series 2018A), (Assured Guaranty Municipal Corp. INS), 5.000%, 7/1/2035 | 568,210 |
| 375,000 | | Downriver Utility Wastewater Authority, Sewer System Revenue Bonds (Series 2018), (Assured Guaranty Municipal Corp. INS), 5.000%, 4/1/2031 | 471,911 |
| 1,000,000 | | Fennville, MI Public Schools, UT GO School Building and Site Bonds, (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2035 | 1,267,880 |
| 1,000,000 | | Genesee, MI Water Supply System, Revenue Refunding Bonds (Series 2014), (Build America Mutual Assurance INS), 5.000%, 11/1/2025 | 1,158,660 |
| 620,000 | | Grand Rapids, MI Public Schools, School Building & Site & Refunding UT GO Bonds (Series 2016), (Assured Guaranty Municipal Corp. INS), 5.000%, 5/1/2027 | 765,390 |
| 670,000 | | Grand Rapids, MI Public Schools, UT GO Refunding Bonds (Series 2017), (Assured Guaranty Municipal Corp. INS), 5.000%, 5/1/2027 | 851,671 |
| 1,000,000 | | Grand Rapids, MI Sanitary Sewer System, Revenue Refunding Bonds (Series 2016), 5.000%, 1/1/2034 | 1,213,470 |
| 500,000 | | Grand Rapids, MI Sanitary Sewer System, Sanitary Sewer System Revenue Improvement and Refunding Bonds (Series 2014), 5.000%, 1/1/2022 | 537,455 |
| 2,000,000 | | Great Lakes, MI Water Authority (Great Lakes, MI Water Authority Sewage Disposal System), Senior Lien Revenue Refunding Bonds (Series 2018B), 5.000%, 7/1/2029 | 2,671,380 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,500,000 | | Holland, MI Electric Utility System, Revenue Bonds (Series 2014A), 4.000%, 7/1/2022 | $1,563,075 |
| 500,000 | | Hudsonville, MI Public Schools, UT GO School Building and Site Bonds (2020 Series I), (Michigan School Bond Qualification and Loan Program GTD), 4.000%, 5/1/2034 | 611,650 |
| 1,500,000 | | Kent Hospital Finance Authority, MI (Spectrum Health), Revenue Refunding Bonds (Series 2011A), 5.000%, 11/15/2022 | 1,602,210 |
| 1,000,000 | | Kentwood, MI Public Schools, UT GO School Building and Site Bonds (Series 2019 II), 5.000%, 5/1/2032 | 1,305,810 |
| 1,900,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2011A), (United States Treasury PRF 7/1/2021@100), 5.000%, 7/1/2024 | 2,005,678 |
| 2,000,000 | | Lansing, MI Board of Water & Light, Utility System Revenue Bonds (Series 2019A), 5.000%, 7/1/2035 | 2,610,160 |
| 525,000 | | Lansing, MI Community College, College Building and Site Refunding Bonds (Series 2017), 5.000%, 5/1/2030 | 679,061 |
| 1,445,000 | | Mason, MI Public School District, UT GO School Building and Site Bonds (Series 2018I), (Michigan School Bond Qualification and Loan Program GTD), 4.000%, 5/1/2032 | 1,709,695 |
| 1,000,000 | | Michigan Finance Authority Local Government Loan Program (Clean Water Revolving Fund), Revenue Refunding Bonds (Series 2018B), 5.000%, 10/1/2032 | 1,320,290 |
| 1,000,000 | | Michigan Finance Authority Local Government Loan Program (McLaren Health Care Corp.), Revenue Bonds (Series 2019A), 5.000%, 2/15/2035 | 1,287,570 |
| 1,000,000 | | Michigan Public Power Agency, Combustion Turbine No. 1 Project Refunding Revenue Bonds (Series 2011A), (Assured Guaranty Municipal Corp. INS), 5.000%, 1/1/2022 | 1,033,470 |
| 500,000 | | Michigan State Building Authority, Facilities Program Revenue & Refunding Bonds (Series 2013 1-A), 5.000%, 10/15/2022 | 554,135 |
| 1,000,000 | | Michigan State Building Authority, Revenue Refunding Bonds (Series 2015I), 5.000%, 4/15/2027 | 1,224,140 |
| 1,000,000 | | Michigan State Comprehensive Transportation Fund, Refunding Revenue Bonds (Series 2015), 5.000%, 11/15/2026 | 1,193,730 |
| 500,000 | | Michigan State Finance Authority Revenue (Charter County of Wayne Criminal Justice Center Project), Senior Lien State Aid Revenue Bonds (Series 2018), 5.000%, 11/1/2033 | 643,880 |
| 2,000,000 | | Michigan State Finance Authority Revenue (Great Lakes, MI Water Authority Water Supply System), Senior Lien Revenue Bonds (Series 2014 D-2), (Assured Guaranty Municipal Corp. INS), 5.000%, 7/1/2025 | 2,355,120 |
| 250,000 | | Michigan State Finance Authority Revenue (MidMichigan Obligated Group), Hospital Revenue Refunding Bonds (Series 2014), 5.000%, 6/1/2026 | 290,838 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,500,000 | | Michigan State Finance Authority Revenue (Public Lighting Authority), Local Government Loan Program Revenue Bonds (Series 2014B), 5.000%, 7/1/2022 | $1,619,670 |
| 2,000,000 | | Michigan State Hospital Finance Authority (Ascension Health Alliance Senior Credit Group), Revenue Bonds (Series 1999B-3), 4.000%, 11/15/2032 | 2,380,280 |
| 500,000 | | Michigan State Hospital Finance Authority (Henry Ford Health System, MI), Hospital Revenue Refunding Bonds (Series 2016), 5.000%, 11/15/2028 | 625,840 |
| 1,000,000 | | Michigan State Hospital Finance Authority (Trinity Healthcare Credit Group), Hospital Revenue & Refunding Bonds (Series 2015MI), 5.500%, 12/1/2026 | 1,235,270 |
| 250,000 | | Michigan State Hospital Finance Authority (Trinity Healthcare Credit Group), Revenue Refunding Bonds (Series 2017C), 5.000%, 12/1/2031 | 319,513 |
| 1,000,000 | | Michigan State Strategic Fund (Detroit Edison Co.), Ltd Obligation Refunding Revenue Bonds, (AMBAC Financial Group, Inc. INS), 7.000%, 5/1/2021 | 1,067,980 |
| 2,600,000 | | Michigan State Trunk Line, Refunding Revenue Bonds (Series 2009), 5.000%, 11/1/2020 | 2,608,138 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.000%, 11/15/2022 | 535,745 |
| 500,000 | | Michigan State Trunk Line, State Trunk Line Fund Bonds (Series 2011), 5.000%, 11/15/2023 | 535,480 |
| 1,250,000 | | Michigan State University Board of Trustees, General Revenue Bonds (Series 2019B), 5.000%, 2/15/2034 | 1,633,400 |
| 1,000,000 | | Michigan Strategic Fund (Consumers Energy), Variable Rate Limited Obligation Revenue Bonds (Series 2019) TOBs, 1.800%, Mandatory Tender 10/1/2024 | 1,029,630 |
| 2,000,000 | | Michigan Strategic Fund (I-75 Improvement Project), Limited Obligation Revenue Bonds (Series 2018), 5.000%, 6/30/2030 | 2,567,320 |
| 1,000,000 | | Michigan Strategic Fund (Michigan State), LT Obligation Revenue Bonds (Series 2011), 5.250%, 10/15/2022 | 1,071,680 |
| 500,000 | | Michigan Strategic Fund (United Methodist Retirement Community, Inc.), Limited Obligation Revenue Refunding Bonds (Series 2019), 5.000%, 11/15/2034 | 603,280 |
| 1,855,000 | | Orchard View, MI Schools, UT GO Bonds, (United States Treasury PRF 5/1/2021@100), 4.000%, 5/1/2022 | 1,923,895 |
| 1,000,000 | | Roseville, MI Community Schools, UT GO 2018 School Building and Site Bonds, (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2031 | 1,283,680 |
| 1,000,000 | | Royal Oak, MI Hospital Finance Authority (Beaumont Health Credit Group), Hospital Revenue Refunding Bonds (Series 2014D), 5.000%, 9/1/2023 | 1,140,680 |
| 1,670,000 | | Saginaw, MI Water Supply System, Revenue Bonds (Series 2011A), (Assured Guaranty Municipal Corp. INS), 4.750%, 7/1/2025 | 1,762,618 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Michigan—continued | |
| $1,000,000 | | Saline, MI Area Schools, UT GO Refunding Bonds (Series 2018), (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2030 | $1,299,100 |
| 1,085,000 | | Southfield, MI Library Building Authority, Refunding LT GO Bonds, 5.000%, 5/1/2026 | 1,312,242 |
| 1,000,000 | | Southfield, MI, UT GO 2018 Street Improvement Bonds, 4.000%, 5/1/2029 | 1,190,320 |
| 250,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2014A), 5.000%, 4/1/2024 | 292,455 |
| 1,000,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2017A), 5.000%, 4/1/2027 | 1,285,000 |
| 2,000,000 | | University of Michigan (The Regents of), Revenue Bonds (Series 2018A), 4.000%, 4/1/2033 | 2,393,160 |
| 500,000 | | Utica, MI Community Schools, School Building & Site & Refunding UT GO Bonds (Series 2015), (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2029 | 599,330 |
| 2,000,000 | | Wayne County, MI Airport Authority, Airport Revenue Refunding Bonds (Series 2011A-B), 5.000%, 12/1/2021 | 2,140,860 |
| 500,000 | | West Bloomfield, MI School District, UT GO Public Improvement Bonds, (Assured Guaranty Municipal Corp. INS), 5.000%, 5/1/2029 | 630,520 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $69,482,012) | 75,470,911 |
| | 1 | SHORT-TERM MUNICIPALS—1.6% | |
| | | Michigan—1.6% | |
| 600,000 | | Michigan State Housing Development Authority, (Series 2008A) Daily VRDNs, (JPMorgan Chase Bank, N.A. LIQ), 1.370%, 3/2/2020 | 600,000 |
| 600,000 | | Michigan State Strategic Fund (Henry Ford Museum & Greenfield Village) Daily VRDNs, (Comerica Bank LOC), 1.240%, 3/2/2020 | 600,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $1,200,000) | 1,200,000 |
| | | TOTAL INVESTMENT IN SECURITIES—99.9%
(IDENTIFIED COST $70,682,012)2 | 76,670,911 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.1%3 | 85,223 |
| | | TOTAL NET ASSETS—100% | $76,756,134 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 8.3% of the Fund's portfolio as calculated based upon total market value.
| 1 | Current rate and current maturity or next reset date shown for floating rate notes and variable rate notes/demand instruments. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 2 | Also represents cost of investments for federal tax purposes. |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Note: The categories of investments are shown as a percentage of total net assets at February 29, 2020.
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 29, 2020, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
| AMBAC | —American Municipal Bond Assurance Corporation |
| GO | —General Obligation |
| GTD | —Guaranteed |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| TOBs | —Tender Option Bonds |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $11.42 | $10.92 | $11.30 | $11.54 | $11.31 | $11.39 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.13 | 0.27 | 0.25 | 0.25 | 0.28 | 0.29 |
| Net realized and unrealized gain (loss) | 0.12 | 0.53 | (0.38) | (0.20) | 0.26 | (0.08) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.25 | 0.80 | (0.13) | 0.05 | 0.54 | 0.21 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.27) | (0.25) | (0.25) | (0.28) | (0.29) |
| Distributions from net realized gain | (0.01) | (0.03) | — | (0.04) | (0.03) | — |
| TOTAL DISTRIBUTIONS | (0.14) | (0.30) | (0.25) | (0.29) | (0.31) | (0.29) |
| Net Asset Value, End of Period | $11.53 | $11.42 | $10.92 | $11.30 | $11.54 | $11.31 |
| Total Return1 | 2.21% | 7.46% | (1.11)% | 0.52% | 4.82% | 1.88% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.77%2,3 | 0.77%3 | 0.77%3 | 0.77% | 0.75% | 0.75% |
| Net investment income | 2.27%2 | 2.42% | 2.29% | 2.27% | 2.40% | 2.57% |
| Expense waiver/reimbursement4 | 0.30%2 | 0.29% | 0.21% | 0.18% | 0.16% | 0.16% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $76,756 | $78,276 | $88,810 | $110,912 | $130,516 | $129,662 |
| Portfolio turnover | 1% | 21% | 19% | 13% | 12% | 25% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.77% for the six months ended February 29, 2020 and for the years ended August 31, 2019 and 2018, 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 29, 2020 (unaudited)
| Assets: | | |
| Investment in securities, at value (identified cost $70,682,012) | | $76,670,911 |
| Cash | | 21,226 |
| Income receivable | | 841,626 |
| Receivable for shares sold | | 766 |
| TOTAL ASSETS | | 77,534,529 |
| Liabilities: | | |
| Payable for investments purchased | $598,980 | |
| Payable for shares redeemed | 62,046 | |
| Income distribution payable | 10,110 | |
| Payable for portfolio accounting fees | 83,021 | |
| Payable for other service fees (Notes 2 and 5) | 20,211 | |
| Payable for administrative fee (Note 5) | 1,736 | |
| Payable for investment adviser fee (Note 5) | 429 | |
| Accrued expenses (Note 5) | 1,862 | |
| TOTAL LIABILITIES | | 778,395 |
| Net assets for 6,658,814 shares outstanding | | $76,756,134 |
| Net Assets Consists of: | | |
| Paid-in capital | | $70,697,228 |
| Total distributable earnings (loss) | | 6,058,906 |
| TOTAL NET ASSETS | | $76,756,134 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Net asset value per share ($76,756,134÷ 6,658,814 shares outstanding), no par value, unlimited shares authorized | | $11.53 |
| Offering price per share (100/97.00 of $11.53) | | $11.89 |
| Redemption proceeds per share | | $11.53 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 29, 2020 (unaudited)
| Investment Income: | | | |
| Interest | | | $1,168,528 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $153,401 | |
| Administrative fee (Note 5) | | 30,930 | |
| Custodian fees | | 3,102 | |
| Transfer agent fees | | 19,961 | |
| Directors'/Trustees' fees (Note 5) | | 1,072 | |
| Auditing fees | | 14,363 | |
| Legal fees | | 4,606 | |
| Other service fees (Notes 2 and 5) | | 95,876 | |
| Portfolio accounting fees | | 53,921 | |
| Share registration costs | | 12,842 | |
| Printing and postage | | 8,985 | |
| Miscellaneous (Note 5) | | 11,917 | |
| TOTAL EXPENSES | | 410,976 | |
| Waiver and Reduction: | | | |
| Waiver of investment adviser fee (Note 5) | $(113,800) | | |
| Reduction of custodian fees (Note 6) | (316) | | |
| TOTAL WAIVER AND REDUCTION | | (114,116) | |
| Net expenses | | | 296,860 |
| Net investment income | | | 871,668 |
| Realized and Unrealized Gain on Investments: | | | |
| Net realized gain on investments | | | 69,296 |
| Net change in unrealized appreciation of investments | | | 723,467 |
| Net realized and unrealized gain on investments | | | 792,763 |
| Change in net assets resulting from operations | | | $1,664,431 |
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)
2/29/2020 | Year Ended
8/31/2019 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $871,668 | $1,932,206 |
| Net realized gain | 69,296 | 74,467 |
| Net change in unrealized appreciation/depreciation | 723,467 | 3,612,359 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 1,664,431 | 5,619,032 |
| Distributions to Shareholders: | | |
| Distribution to shareholders | (945,866) | (2,190,344) |
| Share Transactions: | | |
| Proceeds from sale of shares | 3,869,147 | 5,999,097 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 860,905 | 1,877,512 |
| Cost of shares redeemed | (6,968,542) | (21,839,316) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (2,238,490) | (13,962,707) |
| Change in net assets | (1,519,925) | (10,534,019) |
| Net Assets: | | |
| Beginning of period | 78,276,059 | 88,810,078 |
| End of period | $76,756,134 | $78,276,059 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 29, 2020 (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 four 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 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.
Effective on or about June 29, 2020, the name of the Trust and Fund will change to Federated Hermes Municipal Securities Income Trust and Federated Hermes Michigan Intermediate Municipal Fund, respectively.
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. |
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 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.
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 (the “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 and reduction of $114,116 is disclosed in Note 5 and Note 6.
Semi-Annual Shareholder Report
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the six months ended February 29, 2020, the Fund incurred $95,876 of other service fees.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue 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 29, 2020, 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 29, 2020, tax years 2016 through 2019 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
2/29/2020 | Year Ended
8/31/2019 |
| Shares sold | 341,653 | 544,726 |
| Shares issued to shareholders in payment of distributions declared | 75,868 | 170,140 |
| Shares redeemed | (614,274) | (1,994,240) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (196,753) | (1,279,374) |
Semi-Annual Shareholder Report
4. FEDERAL TAX INFORMATION
At February 29, 2020, the cost of investments for federal tax purposes was $70,682,012. The net unrealized appreciation of investments for federal tax purposes was $5,988,899, which consisted entirely of net unrealized appreciation from investments having an excess of value over cost.
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 29, 2020, the Adviser voluntarily waived $113,800 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 Hermes 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:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.100% | on assets up to $50 billion |
| 0.075% | on assets over $50 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 29, 2020, the annualized fee paid to FAS was 0.081% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Other Service Fees
For the six months ended February 29, 2020, FSSC received $1,399 of the other service fees disclosed in Note 2.
Sales Charges
Front-end sales charges and contingent deferred sales charges 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 29, 2020, Federated Securities Corp. retained $94 in sales charges from the sale of Class A Shares.
Interfund Transactions
During the six months ended February 29, 2020, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $5,540,000 and $5,340,000, respectively.
Semi-Annual Shareholder Report
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. Effective May 1, 2020, total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares (after the voluntary waivers and reimbursements) will not exceed 0.77% (the “Fee Limit”) up to but not including the later of (the “Termination Date”): (a) May 1, 2021; 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.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent 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. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. EXPENSE REDUCTION
Through arrangements with the Fund's custodian, net credits realized as a result of uninvested cash balances were used to reduce custody expenses. For the six months ended February 29, 2020, the Fund's expenses were reduced by $316 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 29, 2020, were as follows:
| Purchases | $598,980 |
| Sales | $3,073,090 |
8. 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 29, 2020, 29.6% 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, was 13.4% of total investments.
Semi-Annual Shareholder Report
9. LINE OF CREDIT
The Fund participates with certain other Federated Hermes 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 29, 2020, the Fund had no outstanding loans. During the six months ended February 29, 2020, the Fund did not utilize the LOC.
10. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Hermes, 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 29, 2020, there were no outstanding loans. During the six months ended February 29, 2020, the program was not utilized.
11. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains, workflow operations and customer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short term or may last for an extended period of time and result in a substantial economic downturn. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including Fund service providers) and the market in general in significant and unforeseen ways. Any such impact could adversely affect the Fund's performance.
12. SUBSEQUENT EVENT
On or about May 1, 2020, the Fund will offer Institutional Shares.
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, 2019 to February 29, 2020.
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, toestimate 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 anassumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you shouldnot 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 relativetotal costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | Beginning
Account Value
9/1/2019 | Ending
Account Value
2/29/2020 | Expenses Paid
During Period1 |
| Actual | $1,000 | $1,022.10 | $3.87 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,021.03 | $3.87 |
| 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 182/366 (to reflect the one-half-year period). |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2019
Federated Michigan Intermediate Municipal Trust (the “Fund”)
At its meetings in May 2019, the Fund's Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved 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 considering all of the information received on whether to continue the existing arrangements.
At the request of the Independent Trustees, the Fund's Chief Compliance Officer (the CCO) furnished to the Board in advance of its May 2019 meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO's independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund's management fee and in deciding to approve the continuation of the investment advisory contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer,” prior to the elimination of the Senior Officer position in December 2017.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in making its decision. Using these judicial decisions as a guide, the Board observed that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the fund, its benchmark, and comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) 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; (4) 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); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds both internally and externally as well as management fees charged to institutional and other advisory clients of the
Semi-Annual Shareholder Report
adviser for what might be viewed as like services); and (6) the extent of care, conscientiousness and independence with which the fund's 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 align with the factors listed above. 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 factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investment Management Company (the “Adviser”) and its affiliates (collectively, “Federated”) on matters relating to the funds advised by Federated (each, a “Federated Fund”). The Independent Trustees were assisted in their deliberations by independent legal counsel.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings at which the Board's formal approval of the advisory and subadvisory contracts occurred. In this regard, Federated provided much of this information at each regular meeting of the Board, and furnished additional information specifically in connection with the May meetings. In the months preceding the May meetings, the Board requested and reviewed written materials prepared by Federated in response to requests on behalf of the Independent Trustees encompassing a wide variety of topics. 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 such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the advisory and subadvisory contracts. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose.
The Board's consideration of the investment advisory contract included review of the CCO Fee Evaluation Report, accompanying data and additional information covering the following matters, among others: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative 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 and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due
Semi-Annual Shareholder Report
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 and other risks 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 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 too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons 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 an appropriate group of peer funds compiled by Federated using data supplied by independent fund ranking organizations (the “Peer Group”). The Board received a description of the composition and methodology used to select the Peer Group. 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, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, 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 marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund's fee rates relative to its Peer Group. 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.
Semi-Annual Shareholder Report
For comparison, the CCO reviewed the fees charged by Federated for providing advisory services to products other than the Federated Funds (e.g., institutional separate accounts and third-party unaffiliated mutual funds for which Federated serves as sub-adviser) (referenced to as “Comparable Funds/Accounts”). With respect to Comparable Funds/Accounts other than third-party mutual funds, the CCO concluded that they are inherently different products. Those differences include, but are not limited to, different types of targeted investors; different applicable 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, as well as personnel in the Funds Financial Services, Legal, Compliance and Risk Management departments, in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The CCO also reviewed the differences in the nature of the services required for Federated to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution's mutual fund, and that Federated generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The CCO did not consider the fees for providing advisory services to Comparable Funds/Accounts to be determinative in judging the appropriateness of the Federated Funds' advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
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, financial resources, 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 and the Adviser's ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the investment research and company engagement capabilities of the Adviser and its affiliates. The Board also noted the compliance program of the Adviser and the compliance-related resources provided to the Fund by the Adviser, including the Adviser's commitment to respond to rulemaking initiatives of the SEC. 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
Semi-Annual Shareholder Report
program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the 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 considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The CCO also reviewed information regarding the performance of other mutual funds in the Peer Group, noting the CCO's view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds' objectives or investment management techniques, or the costs to implement the funds, even within the same 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 CCO Fee Evaluation Report. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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 and distributor). In this regard, the Board considered that certain Federated subsidiaries provide distribution and shareholder services to the Federated Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. 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 Federated Fund to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or
Semi-Annual Shareholder Report
elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain Federated Funds in response to the CCO's recommendations in the prior year's CCO Fee Evaluation Report.
Federated furnished information, requested by the CCO, 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 CCO. The CCO noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO 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 Federated Fund and may produce unintended consequences. The allocation information, including the CCO's view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board.
The Board and the CCO also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. In this regard, the CCO concluded that Federated's profit margins did not appear to be excessive. The CCO also noted that Federated appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Fund.
The CCO Fee Evaluation Report also discussed the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that Federated 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 investments (as well as any economies of scale, should they exist) were likely to be shared with the Federated Fund family as a whole. The Board noted that Federated's investments in these areas are extensive. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed potential economies of scale to be shared with shareholders. The Board also considered that such waivers and reimbursements can provide protection from an increase in expenses if a Federated Fund's assets decline. Federated, as it does throughout the year, and specifically in connection with the Board's review of the advisory and subadvisory contracts, furnished information relative to revenue sharing or adviser-paid fees. Federated and the CCO 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
Semi-Annual Shareholder Report
appropriateness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the CCO Fee Evaluation Report) 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 CCO stated that his observations and the information accompanying the CCO Fee Evaluation Report 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. The CCO also recognized that the Board's evaluation of the Federated Funds' advisory and subadvisory arrangements is a continuing and on-going process that is informed by the information that the Board requests and receives from management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its on-going oversight of the Federated Funds.
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 summarized 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 view 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 FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund's holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC's website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
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 Hermes 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 (4/20)
© 2020 Federated Hermes, Inc.
Semi-Annual Shareholder Report
February 29, 2020
| Share Class | Ticker | A | OMIAX | F | OMIFX | | |
Federated Ohio Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Municipal Securities Income Trust
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee
J. Christopher
Donahue
President
Federated Ohio Municipal Income Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from September 1, 2019 through February 29, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the uncertainty ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At February 29, 2020, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 17.2% |
| Higher Education | 16.2% |
| Dedicated Tax | 12.1% |
| Pre-Refunded | 10.1% |
| General Obligation—Local | 9.0% |
| Water & Sewer | 7.2% |
| General Obligation—State Appropriation | 6.9% |
| General Obligation—State | 5.8% |
| Toll Road | 3.6% |
| Industrial Development/Pollution Control | 3.6% |
| Other2 | 8.0% |
| Other Assets and Liabilities—Net3 | 0.3% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party 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 91.7% 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 29, 2020 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.6% | |
| | | Ohio—98.6% | |
| $2,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District (Children's Hospital Medical Center, Akron), Hospital Improvement & Refunding Revenue Bonds (Series 2012), 5.000%, 11/15/2032 | $2,151,840 |
| 1,000,000 | | Akron, Bath & Copley, OH Joint Township Hospital District (Summa Health System), Hospital Facilities Revenue Bonds (Series 2016), 5.250%, 11/15/2041 | 1,209,100 |
| 1,000,000 | | Akron, OH (Akron, OH Community Learning Centers), Income Tax Revenue Refunding Bonds (Series 2012A), 5.000%, 12/1/2031 | 1,088,570 |
| 2,000,000 | | Akron, OH (Akron, OH Community Learning Centers), Income Tax Revenue Refunding Bonds (Series 2012A), 5.000%, 12/1/2033 | 2,174,340 |
| 500,000 | | Akron, OH (Akron, OH Community Learning Centers), Revenue Refunding Bonds (Series A), 5.000%, 12/1/2023 | 546,160 |
| 1,000,000 | | Allen County, OH (Mercy Health), Hospital Facilities Revenue Refunding Bonds, 5.000%, 11/1/2043 | 1,150,360 |
| 1,000,000 | | American Municipal Power-Ohio, Inc. (American Municipal Power, Prairie State Energy Campus Project), Refunding Revenue Bonds (Series 2015A), 5.000%, 2/15/2042 | 1,132,570 |
| 2,250,000 | | American Municipal Power-Ohio, Inc. (American Municipal Power, Prairie State Energy Campus Project), Revenue Bonds (Series 2015A), 5.000%, 2/15/2029 | 2,596,365 |
| 1,000,000 | | American Municipal Power-Ohio, Inc. (Combined Hydroelectric Projects), Revenue Refunding Bonds (Series 2020A), 5.000%, 2/15/2029 | 1,329,120 |
| 2,000,000 | | Bowling Green State University, OH, General Receipts Bonds (Series 2016A), 5.000%, 6/1/2044 | 2,354,900 |
| 890,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2020B-2 Class 2), 5.000%, 6/1/2055 | 1,004,846 |
| 2,000,000 | | Butler County, OH Hospital Facilities Authority (UC Health), Revenue Bonds (Series 2016), 5.000%, 11/15/2045 | 2,355,280 |
| 3,000,000 | | Cincinnati, OH Water System, Revenue Bonds (Series 2015A), 5.000%, 12/1/2040 | 3,605,490 |
| 2,000,000 | | Cincinnati, OH, UT Various Purpose GO Improvement & Refunding Bonds (Series 2014A), (United States Treasury PRF 6/1/2022@100), 5.000%, 12/1/2032 | 2,189,280 |
| 1,255,000 | | Cleveland Heights & University Heights, OH City School District, School Improvement UT GO Bonds (Series 2014), (United States Treasury PRF 6/1/2023@100), 5.000%, 12/1/2051 | 1,421,300 |
| 850,000 | | Cleveland Heights & University Heights, OH City School District, School Improvement UT GO Bonds (Series 2014), 5.000%, 12/1/2051 | 937,848 |
| 1,500,000 | | Cleveland State University, OH, General Receipts Bonds (Series 2012), 5.000%, 6/1/2037 | 1,597,845 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Cleveland, OH Income Tax (Cleveland, OH), Subordinate Lien Income Tax Public Facilities Improvements Refunding Bonds (Series 2017B), 5.000%, 10/1/2030 | $1,286,040 |
| 1,000,000 | | Cleveland, OH Municipal School District, School Improvement UT GO Bonds (Series 2015A), (Ohio School District Credit Enhancement GTD), 5.000%, 12/1/2033 | 1,118,820 |
| 1,000,000 | | Cleveland, OH Water, Senior Lien Revenue Bonds (Series 2012X), 5.000%, 1/1/2042 | 1,066,630 |
| 500,000 | | Cleveland, OH, Various Purpose GO Bonds (Series 2019A), 4.000%, 12/1/2035 | 601,960 |
| 3,000,000 | | Cleveland-Cuyahoga County, OH Port Authority (Euclid Avenue Development Corporation), Revenue Bonds (Series 2014), 5.000%, 8/1/2039 | 3,419,520 |
| 2,000,000 | | Columbus, OH City School District, School Facilities Construction & Improvement UT GO Bonds (Series 2017), 5.000%, 12/1/2047 | 2,433,120 |
| 1,000,000 | | Columbus, OH Sewer System, Revenue Refunding Bonds (Series 2014), 5.000%, 6/1/2031 | 1,185,720 |
| 1,500,000 | | Columbus, OH, Various Purpose LT GO Bonds (Series 2013B), (United States Treasury PRF 8/15/2023@100), 5.000%, 8/15/2028 | 1,716,705 |
| 1,270,000 | | Cuyahoga County, OH Hospital Authority (MetroHealth System), Hospital Revenue Bonds (Series 2017), 5.500%, 2/15/2057 | 1,522,933 |
| 1,340,000 | | Cuyahoga County, OH Sales Tax, Various Purpose Sales Tax Revenue Bonds (Series 2014), 5.000%, 12/1/2034 | 1,581,669 |
| 1,000,000 | | Cuyahoga County, OH, LT GO Convention Hotel Project, 5.000%, 12/1/2036 | 1,143,040 |
| 220,000 | | Cuyahoga, OH Community College District, General Receipts Revenue Bonds (Series 2012D), 5.000%, 8/1/2026 | 241,080 |
| 1,335,000 | | Dayton, OH Airport (James M. Cox Dayton International Airport), Airport Revenue Refunding Bonds (Series 2014A), (Assured Guaranty Municipal Corp. INS), 5.000%, 12/1/2026 | 1,445,778 |
| 2,000,000 | | Fairfield County, OH, LT GO Bonds (Series 2015), 4.000%, 12/1/2040 | 2,219,620 |
| 1,000,000 | | Franklin County, OH Convention Facilities Authority (Greater Columbus Convention Center Hotel), Hotel Project Revenue Bonds (Series 2019), 5.000%, 12/1/2044 | 1,237,160 |
| 2,000,000 | | Franklin County, OH Convention Facilities Authority, Tax & Lease Revenue Anticipation & Refunding Bonds (Series 2014), 5.000%, 12/1/2035 | 2,344,600 |
| 1,000,000 | | Franklin County, OH Health Care Facilities (Friendship Village of Dublin, OH, Inc.), Refunding & Improvement Bonds (Series 2014), 5.000%, 11/15/2044 | 1,119,040 |
| 1,000,000 | | Franklin County, OH Hospital Facility Authority (Nationwide Children's Hospital), Hospital Improvement Revenue Bonds (Series 2017A), 5.000%, 11/1/2029 | 1,279,960 |
| 1,000,000 | | Franklin County, OH Hospital Facility Authority (OhioHealth Corp.), Hospital Facilities Revenue Bonds (Series 2015), 5.000%, 5/15/2040 | 1,185,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $2,000,000 | | Franklin County, OH Revenue (Trinity Healthcare Credit Group), Revenue Bonds (Series 2017A), 5.000%, 12/1/2047 | $2,481,960 |
| 3,015,000 | | Franklin County, OH Sales Tax Revenue, Various Purpose Sales Tax Revenue Bonds (Series 2018), 5.000%, 6/1/2048 | 3,804,568 |
| 500,000 | | Hamilton County, OH (Life Enriching Communities), Healthcare Improvement and Refunding Revenue Bonds (Series 2016), 5.000%, 1/1/2036 | 581,515 |
| 500,000 | | Hamilton County, OH (Life Enriching Communities), Healthcare Improvement and Refunding Revenue Bonds (Series 2016), 5.000%, 1/1/2051 | 571,170 |
| 2,000,000 | | Hamilton County, OH Convention Facilities Authority, Convention Facilities Authority Revenue & Refunding Bonds (Series 2014), 5.000%, 12/1/2032 | 2,273,340 |
| 2,000,000 | | Hamilton County, OH Hospital Facilities Authority (Cincinnati Children's Hospital Medical Center), Hospital Facilities Revenue Bonds (Series 2019CC), 5.000%, 11/15/2041 | 3,070,500 |
| 2,850,000 | | Hamilton County, OH Sales Tax, Revenue Refunding Bonds (Series 2011A), 5.000%, 12/1/2032 | 3,046,165 |
| 1,075,000 | | Hamilton County, OH, LT GO Improvement and Refunding Bonds (Series 2017A), 5.000%, 12/1/2033 | 1,379,494 |
| 1,000,000 | | Hamilton County, OH, LT GO Refunding Bonds (Series 20017A), 5.000%, 12/1/2037 | 1,272,420 |
| 1,555,000 | | JobsOhio Beverage System, OH, Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds (Series 2013A), (United States Treasury PRF 1/1/2023@100), 5.000%, 1/1/2038 | 1,737,697 |
| 1,000,000 | | Kent State University, OH, General Receipts Bonds (Series 2020A), 5.000%, 5/1/2050 | 1,289,890 |
| 1,000,000 | | Lucas County, OH (ProMedica Healthcare Obligated Group), Hospital Revenue Bonds (Series 2018A), 5.250%, 11/15/2048 | 1,216,920 |
| 1,000,000 | | Miami County, OH Hospital Facility (Kettering Health Network Obligated Group), Hospital Facilities Revenue Refunding and Improvement Bonds (Series 2019), 5.000%, 8/1/2049 | 1,232,950 |
| 2,000,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.000%, 9/1/2031 | 2,120,240 |
| 500,000 | | Miami University, OH, General Receipts Revenue & Refunding Bonds (Series 2011), 5.000%, 9/1/2036 | 528,680 |
| 1,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue & Refunding Bonds (Series 2014), (United States Treasury PRF 11/15/2024@100), 5.000%, 11/15/2049 | 1,195,900 |
| 2,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue Bonds (Series 2013), (United States Treasury PRF 5/15/2023@100), 5.000%, 11/15/2038 | 2,268,240 |
| 1,200,000 | 1 | Ohio Air Quality Development Authority (AMG Vanadium LLC), Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049 | 1,388,676 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $500,000 | | Ohio Air Quality Development Authority (Pratt Paper, LLC), Exempt Facilities Revenue Bonds (Series 2017), 4.250%, 1/15/2038 | $567,090 |
| 500,000 | | Ohio Air Quality Development Authority (Pratt Paper, LLC), Exempt Facilities Revenue Bonds (Series 2017), 4.500%, 1/15/2048 | 569,850 |
| 105,000 | | Ohio HFA Single Family Mortgage, Revenue Bond (Series 1), (GNMA Collateralized Home Mortgage Program COL), 3.250%, 5/1/2020 | 105,307 |
| 990,000 | | Ohio HFA, Residential Mortgage Revenue Bonds (Series 2019A), (GNMA Collateralized Home Mortgage Program COL), 4.000%, 3/1/2049 | 1,103,929 |
| 1,000,000 | | Ohio State Air Quality Development Authority (American Electric Power Co., Inc.), Air Quality Revenue Bonds (Series 2007B) TOBs, 2.500%, Mandatory Tender 10/1/2029 | 1,062,460 |
| 2,000,000 | | Ohio State Capital Facilities (Ohio State), Parks and Recreation Improvement Fund Projects (Series 2016C), 5.000%, 12/1/2031 | 2,500,420 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission (Case Western Reserve University, OH), Revenue Refunding Bonds (Series 2016), 5.000%, 12/1/2040 | 1,220,990 |
| 1,500,000 | | Ohio State Higher Educational Facility Commission (Cleveland Clinic), Revenue Bonds (Series 2019B), 4.000%, 1/1/2042 | 1,770,345 |
| 1,000,000 | | Ohio State Higher Educational Facility Commission (Denison University), Revenue Bonds (Series 2019), 5.000%, 11/1/2044 | 1,290,530 |
| 2,000,000 | | Ohio State Higher Educational Facility Commission (Kenyon College, OH), Higher Educational Facility Revenue Bonds (Series 2015), 5.000%, 7/1/2041 | 2,356,320 |
| 1,830,000 | | Ohio State Higher Educational Facility Commission (University of Dayton), Revenue Bonds (Series 2013), 5.000%, 12/1/2031 | 2,021,345 |
| 2,000,000 | | Ohio State Hospital Revenue (University Hospitals Health System, Inc.), Hospital Revenue Bonds (Series 2016A), 5.000%, 1/15/2046 | 2,331,500 |
| 3,325,000 | | Ohio State Treasurer Private Activity (Portsmouth Gateway Group LLC), Revenue Bonds (Series 2015), 5.000%, 12/31/2039 | 3,833,924 |
| 350,000 | | Ohio State Turnpike & Infrastructure Commission, Revenue Refunding Bonds (Series 2017A), 5.000%, 2/15/2028 | 445,312 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Junior Lien Revenue Bonds (Series 2013A-1), (Original Issue Yield: 5.050%), (United States Treasury PRF 2/15/2023@100), 5.000%, 2/15/2048 | 1,120,960 |
| 1,000,000 | | Ohio State Turnpike & Infrastructure Commission, Turnpike Revenue Refunding Bonds (Series 1998A), (National Re Holdings Corp. INS), 5.500%, 2/15/2024 | 1,135,160 |
| 1,000,000 | | Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.000%, 6/1/2038 | 1,117,800 |
| 2,000,000 | | Ohio State Water Development Authority Pollution Control Facilities (Ohio State Water Development Authority), Loan Fund Revenue Bonds (Series 2017A), 5.000%, 12/1/2030 | 2,549,120 |
| 1,000,000 | | Ohio State Water Development Authority, Water Development Revenue Bonds (Fresh Water Series 2016B), 5.000%, 6/1/2037 | 1,247,860 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Ohio—continued | |
| $1,000,000 | | Ohio State, Capital Facilities Lease Appropriation Bonds Adult Correctional Building Fund Project (Series 2019B), 5.000%, 10/1/2032 | $1,416,640 |
| 3,000,000 | | Ohio State, Capital Facilities Lease-Appropriation Bonds (Series 2016A), 5.000%, 2/1/2030 | 3,676,500 |
| 750,000 | | Ohio State, Capital Facilities Lease-Appropriation Bonds Adult Correctional Building Fund (Series 2017A), 5.000%, 10/1/2034 | 950,565 |
| 1,460,000 | | Ohio State, Capital Facilities Lease-Appropriation Bonds Adult Correctional Building Fund (Series 2017A), 5.000%, 10/1/2035 | 1,847,061 |
| 3,000,000 | | Ohio State, Higher Education UT GO Bonds (Series 2015C), 5.000%, 11/1/2033 | 3,608,490 |
| 3,000,000 | | Ohio State, Higher Education UT GO Bonds (Series 2019A), 5.000%, 5/1/2035 | 3,779,970 |
| 1,000,000 | | Ohio State, Higher Education UT GO Bonds (Series 2019A), 5.000%, 5/1/2039 | 1,249,230 |
| 2,000,000 | | Ohio University, General Receipts Bonds (Series 2013), 5.000%, 12/1/2043 | 2,228,120 |
| 1,500,000 | | Olentangy, OH Local School District, UT GO Refunding Bonds (Series 2016), 5.000%, 12/1/2030 | 1,841,325 |
| 470,000 | | River Valley, OH Local School District, UT GO School Facilities Bonds, (School District Credit Program GTD), 5.250%, 11/1/2023 | 540,495 |
| 700,000 | | South Euclid, OH, LT GO Real Estate Acquisition and Urban Development Bonds, (United States Treasury PRF 6/1/2022@100), 5.000%, 6/1/2032 | 764,603 |
| 1,250,000 | | Southeastern Ohio Port Authority, OH (Memorial Health System, OH), Hospital Facilities Revenue Refunding & Improvement Bonds (Series 2012), (Original Issue Yield: 6.020%), 6.000%, 12/1/2042 | 1,360,088 |
| 500,000 | | Switzerland, OH Local School District, UT GO School Improvement Refunding Bonds, (United States Treasury PRF 6/1/2023@100), 5.000%, 12/1/2027 | 567,120 |
| 1,000,000 | | Toledo, OH Water System, Revenue Improvement and Refunding Bonds (Series 2013), 5.000%, 11/15/2032 | 1,119,910 |
| 1,500,000 | | Toledo-Lucas County, OH Port Authority (CSX Corp.), Revenue Bonds, 6.450%, 12/15/2021 | 1,628,745 |
| 1,020,000 | | University of Akron, OH, General Receipts Bonds (Series 2015A), 5.000%, 1/1/2030 | 1,202,182 |
| 1,000,000 | | University of Akron, OH, General Receipts Bonds (Series 2016A), 5.000%, 1/1/2036 | 1,212,490 |
| 1,000,000 | | University of Cincinnati, OH, General Receipts Bonds (Series 2014C), 5.000%, 6/1/2041 | 1,159,480 |
| 1,000,000 | | University of Cincinnati, OH, General Receipts Bonds (Series 2019A), 4.000%, 6/1/2038 | 1,194,690 |
| | | TOTAL | 148,152,840 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $137,249,122) | 148,152,840 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | 2 | SHORT-TERM MUNICIPALS—1.1% | |
| | | Ohio—1.1% | |
| $200,000 | | Allen County, OH (Mercy Health), (Series 2010C) Daily VRDNs, (BMO Harris Bank, N.A. LOC), 1.190%, 3/2/2020 | $200,000 |
| 1,100,000 | | Franklin County, OH Hospital Facility Authority (Nationwide Children's Hospital), (Series 2008B) Weekly VRDNs, 1.100%, 3/5/2020 | 1,100,000 |
| 300,000 | | Ohio State Higher Educational Facility Commission (Cleveland Clinic), (Series 2013B-2) Daily VRDNs, (Bank of New York Mellon, N.A. LIQ), 1.200%, 3/2/2020 | 300,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $1,600,000) | 1,600,000 |
| | | TOTAL INVESTMENT IN SECURITIES—99.7%
(IDENTIFIED COST $138,849,122)3 | 149,752,840 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.3%4 | 505,739 |
| | | TOTAL NET ASSETS—100% | $150,258,579 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 5.2% 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 availing of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 29, 2020, this restricted security amounted to $1,388,676, which represented 0.9% of total net assets. |
| 2 | Current rate and current maturity or next reset date shown for floating rate notes and variable rate notes/demand instruments. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 3 | The cost of investments for federal tax purposes amounts to $138,848,795. |
| 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 29, 2020.
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 29, 2020, 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:
| COL | —Collateralized |
| GNMA | —Government National Mortgage Association |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HFA | —Housing Finance Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| TOBs | —Tender Option Bonds |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $11.44 | $10.95 | $11.23 | $11.56 | $11.16 | $11.28 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.13 | 0.30 | 0.32 | 0.32 | 0.34 | 0.36 |
| Net realized and unrealized gain (loss) | 0.18 | 0.49 | (0.29) | (0.32) | 0.39 | (0.14) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.31 | 0.79 | 0.03 | 0.00 | 0.73 | 0.22 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.30) | (0.31) | (0.32) | (0.33) | (0.34) |
| Distributions from net realized gain | (0.03) | — | — | (0.01) | — | — |
| TOTAL DISTRIBUTIONS | (0.16) | (0.30) | (0.31) | (0.33) | (0.33) | (0.34) |
| Net Asset Value, End of Period | $11.59 | $11.44 | $10.95 | $11.23 | $11.56 | $11.16 |
| Total Return1 | 2.71% | 7.32% | 0.27% | 0.02% | 6.65% | 2.00% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.77%2,3 | 0.77%3 | 0.77%3 | 0.76% | 0.75% | 0.75% |
| Net investment income | 2.31%2 | 2.67% | 2.81% | 2.84% | 2.96% | 3.16% |
| Expense waiver/reimbursement4 | 0.18%2 | 0.19% | 0.17% | 0.16% | 0.15% | 0.14% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $59,727 | $57,065 | $53,438 | $59,865 | $66,884 | $67,469 |
| Portfolio turnover | 3% | 15% | 9% | 9% | 13% | 25% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.77% for the six months ended February 29, 2020 and 0.77% and 0.77% for the years ended August 31, 2019 and 2018, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $11.44 | $10.95 | $11.23 | $11.57 | $11.16 | $11.28 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.12 | 0.28 | 0.29 | 0.30 | 0.32 | 0.34 |
| Net realized and unrealized gain (loss) | 0.18 | 0.49 | (0.28) | (0.33) | 0.40 | (0.13) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.30 | 0.77 | 0.01 | (0.03) | 0.72 | 0.21 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.12) | (0.28) | (0.29) | (0.30) | (0.31) | (0.33) |
| Distributions from net realized gain | (0.03) | — | — | (0.01) | — | — |
| TOTAL DISTRIBUTIONS | (0.15) | (0.28) | (0.29) | (0.31) | (0.31) | (0.33) |
| Net Asset Value, End of Period | $11.59 | $11.44 | $10.95 | $11.23 | $11.57 | $11.16 |
| Total Return1 | 2.64% | 7.15% | 0.12% | (0.22)% | 6.58% | 1.84% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.92%2,3 | 0.92%3 | 0.92%3 | 0.91% | 0.90% | 0.90% |
| Net investment income | 2.16%2 | 2.53% | 2.66% | 2.69% | 2.81% | 3.01% |
| Expense waiver/reimbursement4 | 0.43%2 | 0.44% | 0.42% | 0.41% | 0.40% | 0.39% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $90,531 | $87,597 | $92,665 | $101,620 | $111,156 | $107,450 |
| Portfolio turnover | 3% | 15% | 9% | 9% | 13% | 25% |
| 1 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 2 | Computed on an annualized basis. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.92% for the six months ended February 29, 2020 and 0.92% and 0.92% for the years ended August 31, 2019 and 2018, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 29, 2020 (unaudited)
| Assets: | | |
| Investment in securities, at value (identified cost $138,849,122) | | $149,752,840 |
| Cash | | 94,552 |
| Income receivable | | 1,466,534 |
| Receivable for shares sold | | 77,985 |
| Receivable for investments sold | | 10,000 |
| TOTAL ASSETS | | 151,401,911 |
| Liabilities: | | |
| Payable for investments purchased | $973,927 | |
| Payable for shares redeemed | 37,350 | |
| Payable for portfolio accounting fees | 81,550 | |
| Payable for other service fees (Notes 2 and 5) | 28,612 | |
| Payable for distribution services fee (Note 5) | 10,663 | |
| Payable for administrative fee (Note 5) | 2,584 | |
| Payable for investment adviser fee (Note 5) | 1,930 | |
| Accrued expenses (Note 5) | 6,716 | |
| TOTAL LIABILITIES | | 1,143,332 |
| Net assets for 12,961,478 shares outstanding | | $150,258,579 |
| Net Assets Consists of: | | |
| Paid-in capital | | $139,238,644 |
| Total distributable earnings (loss) | | 11,019,935 |
| TOTAL NET ASSETS | | $150,258,579 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Class A Shares: | | |
Net asset value per share ($59,727,292 ÷ 5,152,821 shares outstanding),
no par value, unlimited shares authorized | | $11.59 |
| Offering price per share (100/95.50 of $11.59) | | $12.14 |
| Redemption proceeds per share | | $11.59 |
| Class F Shares: | | |
Net asset value per share ($90,531,287 ÷ 7,808,657 shares outstanding),
no par value, unlimited shares authorized | | $11.59 |
| Offering price per share (100/99.00 of $11.59) | | $11.71 |
| Redemption proceeds per share (99.00/100 of $11.59) | | $11.47 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 29, 2020 (unaudited)
| Investment Income: | | | |
| Interest | | | $2,229,684 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $288,797 | |
| Administrative fee (Note 5) | | 58,054 | |
| Custodian fees | | 4,744 | |
| Transfer agent fees | | 39,397 | |
| Directors'/Trustees' fees (Note 5) | | 1,296 | |
| Auditing fees | | 14,363 | |
| Legal fees | | 4,370 | |
| Distribution services fee (Note 5) | | 174,428 | |
| Other service fees (Notes 2 and 5) | | 180,498 | |
| Portfolio accounting fees | | 52,355 | |
| Share registration costs | | 17,987 | |
| Printing and postage | | 11,717 | |
| Miscellaneous (Note 5) | | 12,252 | |
| TOTAL EXPENSES | | 860,258 | |
| Waivers and Reduction: | | | |
| Waiver of investment adviser fee (Note 5) | $(126,358) | | |
| Waiver of other operating expenses (Note 5) | (109,018) | | |
| Reduction of custodian fees (Note 6) | (282) | | |
| TOTAL WAIVERS AND REDUCTION | | (235,658) | |
| Net expenses | | | 624,600 |
| Net investment income | | | 1,605,084 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized gain on investments | | | 96,738 |
| Net change in unrealized appreciation of investments | | | 2,200,888 |
| Net realized and unrealized gain (loss) on investments | | | 2,297,626 |
| Change in net assets resulting from operations | | | $3,902,710 |
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)
2/29/2020 | Year Ended
8/31/2019 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,605,084 | $3,672,793 |
| Net realized gain | 96,738 | 731,905 |
| Net change in unrealized appreciation/depreciation | 2,200,888 | 5,542,777 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 3,902,710 | 9,947,475 |
| Distributions to Shareholders: | | |
| Class A Shares | (791,661) | (1,445,000) |
| Class F Shares | (1,140,492) | (2,234,142) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,932,153) | (3,679,142) |
| Share Transactions: | | |
| Proceeds from sale of shares | 8,831,633 | 16,512,128 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 1,587,929 | 2,980,186 |
| Cost of shares redeemed | (6,793,844) | (27,201,115) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 3,625,718 | (7,708,801) |
| Change in net assets | 5,596,275 | (1,440,468) |
| Net Assets: | | |
| Beginning of period | 144,662,304 | 146,102,772 |
| End of period | $150,258,579 | $144,662,304 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 29, 2020 (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 four 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.
Effective on or about June 29, 2020, the name of the Trust and Fund will change to Federated Hermes Municipal Securities Income Trust and Federated Hermes Ohio Municipal Income Fund, respectively.
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,
Semi-Annual Shareholder Report
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 (the “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 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 select classes will bear certain expenses unique to those classes. The detail of the total fund expense waivers and reduction of $235,658 is disclosed in various locations in Note 5 and Note 6.
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 F Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the six months ended February 29, 2020, other service fees for the Fund were as follows:
| | Other Service
Fees Incurred |
| Class A Shares | $71,480 |
| Class F Shares | 109,018 |
| TOTAL | $180,498 |
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue 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 29, 2020, 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 29, 2020, tax years 2016 through 2019 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 held at February 29, 2020, is as follows:
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| Ohio Air Quality Development Authority (AMG Vanadium LLC), Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049 | 6/27/2019 | $1,268,722 | $1,388,676 |
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
2/29/2020 | Year Ended
8/31/2019 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 351,758 | $3,997,793 | 858,536 | $9,483,875 |
| Shares issued to shareholders in payment of distributions declared | 43,210 | 490,407 | 76,240 | 841,141 |
| Shares redeemed | (229,825) | (2,609,605) | (828,952) | (9,121,837) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 165,143 | $1,878,595 | 105,824 | $1,203,179 |
| | Six Months Ended
2/29/2020 | Year Ended
8/31/2019 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 425,411 | $4,833,840 | 580,550 | $6,387,160 |
| Shares issued to shareholders in payment of distributions declared | 96,686 | 1,097,522 | 193,990 | 2,139,045 |
| Shares redeemed | (368,094) | (4,184,239) | (1,583,833) | (17,438,185) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | 154,003 | $1,747,123 | (809,293) | $(8,911,980) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | 319,146 | $3,625,718 | (703,469) | $(7,708,801) |
4. FEDERAL TAX INFORMATION
At February 29, 2020, the cost of investments for federal tax purposes was $138,848,795. The net unrealized appreciation of investments for federal tax purposes was $10,904,045. This consisted entirely of net unrealized appreciation from investments for those securities having an excess of value over cost.
Semi-Annual Shareholder Report
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 29, 2020, the Adviser voluntarily waived $126,358 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 Hermes 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:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.100% | on assets up to $50 billion |
| 0.075% | on assets over $50 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 29, 2020, the annualized fee paid to FAS was 0.080% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| Share Class Name | Percentage of Average Daily
Net Assets of Class |
| Class A Shares | 0.05% |
| Class F Shares | 0.40% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended February 29, 2020, distribution services fees for the Fund were as follows:
| | Distribution
Services Fees
Incurred | Distribution
Services Fees
Waived |
| Class F Shares | $174,428 | $(109,018) |
Semi-Annual Shareholder Report
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 29, 2020, FSC retained $65,410 of fees paid by the Fund. For the six months ended February 29, 2020, 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 29, 2020, FSC retained $3,095 in sales charges from the sale of Class A Shares. FSC also retained $70 and $3,164 of CDSC relating to redemptions of Class A Shares and Class F Shares, respectively.
Other Service Fees
For the six months ended February 29, 2020, FSSC received $16,455 of the other service fees disclosed in Note 2.
Interfund Transactions
During the six months ended February 29, 2020, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $11,435,000 and $11,785,000, 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. Effective May 1, 2020, total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses, and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares and Class F Shares (after the voluntary waivers and reimbursements) will not exceed 0.77% and 0.92% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) May 1, 2021; 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.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent 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. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
Semi-Annual Shareholder Report
6. EXPENSE REDUCTION
Through arrangements with the Fund's custodian, net credits realized as a result of uninvested cash balances were used to reduce custody expenses. For the six months ended February 29, 2020, the Fund's expenses were reduced by $282 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 29, 2020, were as follows:
| Purchases | $8,702,927 |
| Sales | $4,541,257 |
8. 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 29, 2020, 4.1% of the securities in the Portfolio of Investments is backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies.
9. LINE OF CREDIT
The Fund participates with certain other Federated Hermes 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 29, 2020, the Fund had no outstanding loans. During the six months ended February 29, 2020, the Fund did not utilize the LOC.
10. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Hermes, 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 29, 2020, there were no outstanding loans. During the six months ended February 29, 2020, the program was not utilized.
Semi-Annual Shareholder Report
11. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains, workflow operations and customer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short term or may last for an extended period of time and result in a substantial economic downturn. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including Fund service providers) and the market in general in significant and unforeseen ways. Any such impact could adversely affect the Fund's performance.
12. Subsequent Event
On or about May 1, 2020, the Fund will offer Institutional Shares.
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, 2019 to February 29, 2020.
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, toestimate 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 anassumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you shouldnot 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 relativetotal costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | Beginning
Account Value
9/1/2019 | Ending
Account Value
2/29/2020 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,027.10 | $3.88 |
| Class F Shares | $1,000 | $1,026.40 | $4.64 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,021.03 | $3.87 |
| Class F Shares | $1,000 | $1,020.29 | $4.62 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.77% |
| Class F Shares | 0.92% |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2019
Federated Ohio Municipal Income Fund (the “Fund”)
At its meetings in May 2019, the Fund's Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved 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 considering all of the information received on whether to continue the existing arrangements.
At the request of the Independent Trustees, the Fund's Chief Compliance Officer (the CCO) furnished to the Board in advance of its May 2019 meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO's independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund's management fee and in deciding to approve the continuation of the investment advisory contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer,” prior to the elimination of the Senior Officer position in December 2017.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in making its decision. Using these judicial decisions as a guide, the Board observed that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the fund, its benchmark, and comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) 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; (4) 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); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds both internally and externally as well as management fees charged to institutional and other advisory clients of the
Semi-Annual Shareholder Report
adviser for what might be viewed as like services); and (6) the extent of care, conscientiousness and independence with which the fund's 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 align with the factors listed above. 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 factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investment Management Company (the “Adviser”) and its affiliates (collectively, “Federated”) on matters relating to the funds advised by Federated (each, a “Federated Fund”). The Independent Trustees were assisted in their deliberations by independent legal counsel.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings at which the Board's formal approval of the advisory and subadvisory contracts occurred. In this regard, Federated provided much of this information at each regular meeting of the Board, and furnished additional information specifically in connection with the May meetings. In the months preceding the May meetings, the Board requested and reviewed written materials prepared by Federated in response to requests on behalf of the Independent Trustees encompassing a wide variety of topics. 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 such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the advisory and subadvisory contracts. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose.
The Board's consideration of the investment advisory contract included review of the CCO Fee Evaluation Report, accompanying data and additional information covering the following matters, among others: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative 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 and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due
Semi-Annual Shareholder Report
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 and other risks 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 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 too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons 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 an appropriate group of peer funds compiled by Federated using data supplied by independent fund ranking organizations (the “Peer Group”). The Board received a description of the composition and methodology used to select the Peer Group. 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, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, 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 marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund's fee rates relative to its Peer Group. 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.
Semi-Annual Shareholder Report
For comparison, the CCO reviewed the fees charged by Federated for providing advisory services to products other than the Federated Funds (e.g., institutional separate accounts and third-party unaffiliated mutual funds for which Federated serves as sub-adviser) (referenced to as “Comparable Funds/Accounts”). With respect to Comparable Funds/Accounts other than third-party mutual funds, the CCO concluded that they are inherently different products. Those differences include, but are not limited to, different types of targeted investors; different applicable 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, as well as personnel in the Funds Financial Services, Legal, Compliance and Risk Management departments, in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The CCO also reviewed the differences in the nature of the services required for Federated to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution's mutual fund, and that Federated generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The CCO did not consider the fees for providing advisory services to Comparable Funds/Accounts to be determinative in judging the appropriateness of the Federated Funds' advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
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, financial resources, 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 and the Adviser's ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the investment research and company engagement capabilities of the Adviser and its affiliates. The Board also noted the compliance program of the Adviser and the compliance-related resources provided to the Fund by the Adviser, including the Adviser's commitment to respond to rulemaking initiatives of the SEC. 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
Semi-Annual Shareholder Report
program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the 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 considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The CCO also reviewed information regarding the performance of other mutual funds in the Peer Group, noting the CCO's view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds' objectives or investment management techniques, or the costs to implement the funds, even within the same 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 CCO Fee Evaluation Report. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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 and distributor). In this regard, the Board considered that certain Federated subsidiaries provide distribution and shareholder services to the Federated Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. 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 Federated Fund to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or
Semi-Annual Shareholder Report
elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain Federated Funds in response to the CCO's recommendations in the prior year's CCO Fee Evaluation Report.
Federated furnished information, requested by the CCO, 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 CCO. The CCO noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO 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 Federated Fund and may produce unintended consequences. The allocation information, including the CCO's view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board.
The Board and the CCO also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. In this regard, the CCO concluded that Federated's profit margins did not appear to be excessive. The CCO also noted that Federated appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Fund.
The CCO Fee Evaluation Report also discussed the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that Federated 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 investments (as well as any economies of scale, should they exist) were likely to be shared with the Federated Fund family as a whole. The Board noted that Federated's investments in these areas are extensive. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed potential economies of scale to be shared with shareholders. The Board also considered that such waivers and reimbursements can provide protection from an increase in expenses if a Federated Fund's assets decline. Federated, as it does throughout the year, and specifically in connection with the Board's review of the advisory and subadvisory contracts, furnished information relative to revenue sharing or adviser-paid fees. Federated and the CCO 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
Semi-Annual Shareholder Report
appropriateness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the CCO Fee Evaluation Report) 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 CCO stated that his observations and the information accompanying the CCO Fee Evaluation Report 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. The CCO also recognized that the Board's evaluation of the Federated Funds' advisory and subadvisory arrangements is a continuing and on-going process that is informed by the information that the Board requests and receives from management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its on-going oversight of the Federated Funds.
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 summarized 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 view 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 FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund's holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC's website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
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 Hermes 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 (4/20)
© 2020 Federated Hermes, Inc.
Semi-Annual Shareholder Report
February 29, 2020
| Share Class | Ticker | A | PAMFX | | | |
Federated Pennsylvania Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Municipal Securities Income Trust
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee
J. Christopher
Donahue
President
Federated Pennsylvania Municipal Income Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from September 1, 2019 through February 29, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the uncertainty ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At February 29, 2020, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Hospital | 19.9% |
| General Obligation—Local | 18.6% |
| Higher Education | 12.3% |
| Refunded | 10.7% |
| Water & Sewer | 10.0% |
| Toll Road | 7.8% |
| General Obligation—State | 4.1% |
| Senior Care | 3.9% |
| General Obligation—State Appropriation | 2.2% |
| Incremental Tax | 1.5% |
| Other2 | 8.1% |
| Derivative Contracts3 | 0.1% |
| Other Assets and Liabilities—Net4 | 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 91.0% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this report. |
| 4 | Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 29, 2020 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—96.4% | |
| | | Pennsylvania—96.4% | |
| $1,550,000 | | Allegheny County, PA Airport Authority (Pittsburgh International Airport), Airport Revenue Bonds (Series 2012A-1), (United States Treasury PRF 1/1/2022@100), 5.000%, 1/1/2024 | $ 1,660,825 |
| 2,000,000 | | Allegheny County, PA Hospital Development Authority (Allegheny Health Network Obligated Group), Revenue Bonds (Series 2018A), 5.000%, 4/1/2047 | 2,450,380 |
| 1,000,000 | | Allegheny County, PA Sanitation Authority, Sewer Revenue Bonds (Series 2015), 5.000%, 12/1/2040 | 1,189,640 |
| 2,000,000 | | Allegheny County, PA Sanitation Authority, Sewer Revenue Bonds (Series 2015), 5.000%, 12/1/2045 | 2,363,300 |
| 1,000,000 | | Allegheny County, PA, UT GO Bonds (Series C-77), 5.000%, 11/1/2043 | 1,262,320 |
| 2,000,000 | | Allegheny County, PA, UT GO Refunding Bonds (Series C-76), 5.000%, 11/1/2041 | 2,425,400 |
| 2,250,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.000%, 5/1/2035 | 2,409,322 |
| 1,000,000 | | Berks County, PA IDA (Highlands at Wyomissing), Healthcare Facilities Revenue Bonds (Series 2017C), 5.000%, 5/15/2042 | 1,131,030 |
| 600,000 | | Berks County, PA IDA (Highlands at Wyomissing), Healthcare Facilities Revenue Bonds (Series 2017A), 5.000%, 5/15/2047 | 696,444 |
| 2,000,000 | | Bethlehem, PA Authority (Bethlehem, PA), Guaranteed Water Revenue Bonds (Series 2014), (Build America Mutual Assurance INS), 5.000%, 11/15/2030 | 2,214,760 |
| 1,450,000 | | Bucks County, PA IDA (Pennswood Village), Revenue Bonds (Series 2018A), 5.000%, 10/1/2037 | 1,669,791 |
| 1,000,000 | | Canon McMillan, PA School District, General Obligation Bonds (Series 2017), (Assured Guaranty Municipal Corp. INS)/(Pennsylvania School District Intercept Program GTD), 5.000%, 12/1/2041 | 1,220,110 |
| 1,000,000 | | Capital Region Water, PA, Water Revenue Refunding Bonds (Series 2018), 5.000%, 7/15/2032 | 1,271,210 |
| 500,000 | | Centre County, PA Hospital Authority (Mount Nittany Medical Center), Hospital Revenue Bonds (Series 2016A), 5.000%, 11/15/2046 | 580,270 |
| 500,000 | | Centre County, PA Hospital Authority (Mount Nittany Medical Center), Hospital Revenue Bonds (Series 2018A), 5.000%, 11/15/2042 | 610,185 |
| 1,000,000 | | Chartiers Valley, PA School District, UT GO Bonds (Series 2015B), (Pennsylvania School District Intercept Program GTD), 5.000%, 10/15/2040 | 1,178,570 |
| 2,530,000 | | Cheltenham Twp, PA School District, LT GO Bonds (Series 2014), (Pennsylvania School District Intercept Program GTD), 5.000%, 2/15/2040 | 2,817,787 |
| 1,000,000 | | Chester County, PA HEFA (Main Line Health Systems), Revenue Bonds (Series 2017A), 5.000%, 10/1/2052 | 1,220,150 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,250,000 | | Chester County, PA IDA (Avon Grove Charter School), Revenue Bonds (Series 2017A), (Original Issue Yield: 4.820%), 4.750%, 12/15/2037 | $1,440,700 |
| 2,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), 5.000%, 12/1/2037 | 2,189,060 |
| 2,000,000 | | Commonwealth Financing Authority of PA (Commonwealth of Pennsylvania), Revenue Bonds (Series 2013B), (United States Treasury PRF 6/1/2022@100), 5.000%, 6/1/2036 | 2,186,920 |
| 3,000,000 | | Commonwealth Financing Authority of PA (Commonwealth of Pennsylvania), Tobacco Master Settlement Payment Revenue Bonds (Series 2018), (Original Issue Yield: 4.035%), (Assured Guaranty Municipal Corp. INS), 4.000%, 6/1/2039 | 3,443,850 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Bonds (2nd Series 2016), 5.000%, 9/15/2026 | 2,510,820 |
| 2,000,000 | | Commonwealth of Pennsylvania, UT GO Refunding Bonds (Series 2019), 5.000%, 7/15/2027 | 2,566,800 |
| 1,000,000 | | Commonwealth of Pennsylvania, UT GO Refunding Bonds (Series 2019), 5.000%, 7/15/2029 | 1,346,200 |
| 905,000 | | Cumberland County, PA Municipal Authority (Diakon Lutheran Social Ministries), Revenue Bonds (Series 2015), 5.000%, 1/1/2038 | 1,021,501 |
| 1,000,000 | | Cumberland County, PA Municipal Authority (Dickinson College), Revenue Bonds (Series 2016), 5.000%, 5/1/2030 | 1,218,390 |
| 2,000,000 | | Cumberland County, PA Municipal Authority (Penn State Health Obligated Group), Revenue Bonds (Series 2019), 4.000%, 11/1/2044 | 2,294,720 |
| 2,500,000 | | Dauphin County, PA General Authority (Pinnacle Health System), Health System Revenue Bonds (Series 2012A), 5.000%, 6/1/2042 | 2,694,725 |
| 1,700,000 | | Delaware County, PA Authority (Haverford College), Revenue Bonds (Series 2017A), 5.000%, 10/1/2042 | 2,079,542 |
| 1,000,000 | | Delaware County, PA Authority (Villanova University), Revenue Bonds (Series 2015), 5.000%, 8/1/2045 | 1,170,650 |
| 1,000,000 | | Delaware County, PA IDA (Covanta Energy Corp.), Solid Waste Disposal Revenue Bonds (Series 2015), 5.000%, 7/1/2043 | 1,012,140 |
| 1,250,000 | | Delaware County, PA Regional Water Quality Control Authority, Sewer Revenue Bonds (Series 2015), 5.000%, 5/1/2040 | 1,465,863 |
| 1,750,000 | | Delaware River Joint Toll Bridge Commission, Revenue Bonds (Series 2017), 5.000%, 7/1/2042 | 2,168,215 |
| 1,130,000 | | Delaware River Port Authority Revenue (Delaware River Port Authority), Revenue Bonds (Series 2018A), 5.000%, 1/1/2033 | 1,474,526 |
| 250,000 | | Delaware River Port Authority Revenue (Delaware River Port Authority), Revenue Bonds (Series 2018A), 5.000%, 1/1/2038 | 322,425 |
| 200,000 | | Delaware River Port Authority Revenue (Delaware River Port Authority), Revenue Bonds (Series 2018A), 5.000%, 1/1/2039 | 257,130 |
| 500,000 | | Delaware River Port Authority Revenue (Delaware River Port Authority), Revenue Bonds (Series 2018A), 5.000%, 1/1/2040 | 640,915 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Erie, PA Water Authority, Water Revenue Bonds (Series 2016), 5.000%, 12/1/2043 | $1,204,580 |
| 2,260,000 | | Geisinger Authority, PA Health System (Geisinger Health System), Revenue Bonds (Series 2014A), 5.000%, 6/1/2041 | 2,577,620 |
| 1,215,000 | | Lancaster County, PA Hospital Authority (Lancaster General Hospital), Health System Revenue Bonds (Series 2012B), (United States Treasury PRF 1/1/2022@100), 5.000%, 7/1/2042 | 1,306,477 |
| 785,000 | | Lancaster County, PA Hospital Authority (Masonic Villages), Health Center Revenue Bonds (Series 2015), 5.000%, 11/1/2035 | 900,105 |
| 500,000 | | Lancaster County, PA Hospital Authority (St. Anne's Retirement Community, Inc.), Revenue Bonds (Series 2020), 5.000%, 3/1/2050 | 576,285 |
| 1,000,000 | | Lancaster County, PA Solid Waste Management Authority, Guaranteed Authority Bonds (Series 2013B), (Dauphin County, PA GTD), 5.000%, 12/15/2033 | 1,146,710 |
| 1,000,000 | | Lancaster, PA, UT GO Bonds (Series 2018), (Build America Mutual Assurance INS), 4.000%, 11/1/2043 | 1,143,260 |
| 500,000 | | Luzerne County, PA IDA (Luzerne County, PA), Guaranteed Lease Revenue Bonds (Series 2017), (Assured Guaranty Municipal Corp. INS), 5.000%, 12/15/2022 | 550,260 |
| 1,000,000 | | Luzerne County, PA, UT GO Guaranteed Bonds (Series 2017A), (Assured Guaranty Municipal Corp. INS), 5.000%, 12/15/2029 | 1,248,140 |
| 1,500,000 | | Montgomery County, PA Higher Education & Health Authority Hospital (Thomas Jefferson University), Revenue Refunding Bonds (Series 2019), 4.000%, 9/1/2049 | 1,720,275 |
| 2,000,000 | | Montgomery County, PA, UT GO (Series 2019A), 5.000%, 7/1/2039 | 2,635,000 |
| 1,000,000 | | Mount Lebanon, PA Hospital Authority (St. Clair Memorial Hospital), Hospital Revenue Bonds (Series 2018), 5.000%, 7/1/2038 | 1,247,850 |
| 750,000 | | Northampton County, PA General Purpose Authority (Lafayette College), College Refunding and Revenue Bonds (Series 2017), 5.000%, 11/1/2047 | 928,373 |
| 1,000,000 | | Northampton County, PA General Purpose Authority (St. Luke's University Health Network), Hospital Revenue Bonds (Series 2018A), (Original Issue Yield: 4.090%), 4.000%, 8/15/2048 | 1,129,850 |
| 1,000,000 | | Pennsylvania Economic Development Financing Authority (Amtrak), Exempt Facilities Revenue Bonds (Series 2012A), 5.000%, 11/1/2041 | 1,082,260 |
| 2,000,000 | | Pennsylvania Economic Development Financing Authority (Pennsylvania Rapid Bridge Replacement), Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.000%, 6/30/2042 | 2,361,460 |
| 2,000,000 | | Pennsylvania Economic Development Financing Authority, Junior Guaranteed Parking Revenue Bonds (Series 2013B-1), (Dauphin County, PA GTD), 6.000%, 7/1/2053 | 2,340,220 |
| 1,000,000 | | Pennsylvania EDFA (National Gypsum Co.), Exempt Facilities Refunding Revenue Bonds (Series 2014), 5.500%, 11/1/2044 | 1,080,810 |
| 1,500,000 | | Pennsylvania EDFA (UPMC Health System), Revenue Bonds (Series 2014A), 5.000%, 2/1/2045 | 1,724,895 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Pennsylvania State Higher Education Facilities Authority (Temple University), Revenue Bonds (First Series of 2012), 5.000%, 4/1/2035 | $2,155,120 |
| 1,950,000 | | Pennsylvania State Higher Education Facilities Authority (University of Pennsylvania Health System), Revenue Bonds (Series 2017A), 5.000%, 8/15/2042 | 2,415,133 |
| 1,000,000 | | Pennsylvania State Higher Education Facilities Authority (University of Pennsylvania), Refunding Revenue Bonds (Series 2015A), (United States Treasury COL), 5.000%, 10/1/2036 | 1,228,050 |
| 500,000 | | Pennsylvania State Higher Education Facilities Authority (University of Pennsylvania), Revenue Bonds (Series 2017A), 5.000%, 8/15/2046 | 614,305 |
| 1,630,000 | | Pennsylvania State Higher Education Facilities Authority (University of the Sciences in Philadelphia), Revenue Bonds (Series 2015), 5.000%, 11/1/2036 | 1,894,696 |
| 2,440,000 | | Pennsylvania State Turnpike Commission, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), (Original Issue Yield: 5.550%), (United States Treasury PRF 12/1/2020@100), 5.500%, 12/1/2041 | 2,526,230 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), (United States Treasury PRF 12/1/2020@100), 6.000%, 12/1/2036 | 2,077,920 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2011E), (United States Treasury PRF 12/1/2021@100), 5.000%, 12/1/2030 | 1,072,960 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2015B), 5.000%, 12/1/2045 | 1,184,660 |
| 2,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2018A), 5.000%, 12/1/2048 | 2,505,560 |
| 1,000,000 | | Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds (Series 2019A), 5.000%, 12/1/2044 | 1,283,510 |
| 1,970,000 | | Pennsylvania State University, Revenue Bonds (Series 2017A), 5.000%, 9/1/2037 | 2,488,937 |
| 1,000,000 | | Pennsylvania State University, Revenue Bonds (Series 2018), 5.000%, 9/1/2035 | 1,298,480 |
| 2,000,000 | | Philadelphia, PA Airport System, Refunding Revenue Bonds (Series 2017B), 5.000%, 7/1/2047 | 2,406,440 |
| 1,210,000 | | Philadelphia, PA Authority for Industrial Development (New Foundations Charter School), Revenue Bonds (Series 2012), (United States Treasury PRF 12/15/2022@100), 6.625%, 12/15/2041 | 1,397,429 |
| 1,435,000 | | Philadelphia, PA Authority for Industrial Development (PresbyHomes Germantown/Morrisville), Senior Living Revenue Bonds (Series 2005A), 5.625%, 7/1/2035 | 1,437,353 |
| 1,000,000 | | Philadelphia, PA Gas Works, 1998 General Ordinance-Fifteenth Series Revenue Refunding Bonds, 5.000%, 8/1/2042 | 1,213,280 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $2,000,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), Hospital Revenue Bonds (Series 2011D), 5.000%, 7/1/2028 | $2,108,800 |
| 1,040,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), Hospital Revenue Bonds (Series 2014A), 5.000%, 7/1/2042 | 1,202,895 |
| 1,000,000 | | Philadelphia, PA School District, LT GO Bonds (Series 2018B), (Pennsylvania School District Intercept Program GTD), 5.000%, 9/1/2043 | 1,233,200 |
| 1,000,000 | | Philadelphia, PA Water & Wastewater System, Revenue Bonds (Series 2019B), 5.000%, 11/1/2049 | 1,274,840 |
| 500,000 | | Philadelphia, PA, GO Bonds (Series 2019B), 5.000%, 2/1/2038 | 648,475 |
| 1,000,000 | | Philadelphia, PA, UT GO Bonds (Series 2017A), 5.000%, 8/1/2033 | 1,249,780 |
| 655,000 | | Pittsburgh & Allegheny County, PA Sports & Exhibition Authority, Parking System Revenue Bonds (Series 2017), 5.000%, 12/15/2037 | 798,393 |
| 1,000,000 | | Pittsburgh, PA Public Parking Authority, Parking System Revenue Refunding Bonds (Series 2015A), 5.000%, 12/1/2025 | 1,191,170 |
| 1,500,000 | | Pittsburgh, PA Water & Sewer Authority, Water and Sewer System First Lien Revenue Bonds (Series 2019A), (Assured Guaranty Municipal Corp. INS), 5.000%, 9/1/2044 | 1,904,160 |
| 2,000,000 | | Pittsburgh, PA, UT GO Bonds (Series 2012B), 5.000%, 9/1/2026 | 2,198,200 |
| 1,075,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), (Original Issue Yield: 5.080%), 5.000%, 12/1/2031 | 1,152,164 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), (Original Issue Yield: 5.270%), 5.250%, 12/1/2036 | 1,613,535 |
| 1,000,000 | | Scranton, PA School District, GO Bonds (Series 2017E), (Build America Mutual Assurance GTD), 5.000%, 12/1/2035 | 1,237,830 |
| 1,000,000 | | South Fork Municipal Authority, PA (Conemaugh Valley Memorial Hospital), Hospital Revenue Bonds (Series 2010), (Original Issue Yield: 5.720%), (United States Treasury PRF 7/1/2020@100), 5.500%, 7/1/2029 | 1,015,070 |
| 1,140,000 | | Southcentral PA, General Authority (Wellspan Health Obligated Group), Revenue Bonds (Series 2014A), 5.000%, 6/1/2026 | 1,328,282 |
| 1,000,000 | | Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), (United States Treasury PRF 6/1/2021@100), 5.000%, 6/1/2028 | 1,052,150 |
| 1,750,000 | | St. Mary Hospital Authority, PA (Trinity Healthcare Credit Group), Revenue Refunding Bonds, 5.000%, 11/15/2028 | 2,244,532 |
| 1,000,000 | | Swarthmore Boro Authority PA (Swarthmore College), Revenue Bonds (Series 2018), 5.000%, 9/15/2048 | 1,278,300 |
| 1,000,000 | | Union County, PA Higher Educational Facilities Financing Authority (Bucknell University), University Revenue Bonds (Series 2015B), 5.000%, 4/1/2032 | 1,191,360 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | West View, PA Municipal Authority Water Revenue, Revenue Bonds (Series 2014), (United States Treasury PRF 11/15/2024@100), 5.000%, 11/15/2039 | $1,195,900 |
| 1,685,000 | | Wilkes-Barre, PA Finance Authority (University of Scranton), Revenue Bonds (Series 2015A), 5.000%, 11/1/2033 | 1,999,960 |
| 825,000 | | Wilkes-Barre, PA Finance Authority (University of Scranton), Revenue Bonds (Series 2015A), 5.000%, 11/1/2034 | 976,751 |
| 2,895,000 | | York County, PA, UT GO Bonds (Series 2013), 5.000%, 6/1/2037 | 3,260,002 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $139,648,880) | 151,336,828 |
| | 1 | SHORT-TERM MUNICIPALS—2.7% | |
| | | Pennsylvania—2.7% | |
| 200,000 | | Bucks County, PA IDA (Grand View Hospital), (Series A of 2008) Weekly VRDNs, (TD Bank, N.A. LOC), 1.120%, 3/5/2020 | 200,000 |
| 1,850,000 | | Geisinger Authority, PA Health System (Geisinger Health System), (Series 2013A) Daily VRDNs, (TD Bank, N.A. LIQ), 1.150%, 3/2/2020 | 1,850,000 |
| 200,000 | | Lancaster County, PA Hospital Authority (Masonic Villages), (Series D of 2008) Daily VRDNs, (JPMorgan Chase Bank, N.A. LOC), 1.220%, 3/2/2020 | 200,000 |
| 300,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), (Series 2002-A) Daily VRDNs, (Wells Fargo Bank, N.A. LIQ), 1.190%, 3/2/2020 | 300,000 |
| 250,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), (Series 2002-B) Daily VRDNs, (Wells Fargo Bank, N.A. LIQ), 1.190%, 3/2/2020 | 250,000 |
| 400,000 | | Philadelphia, PA, (Series 2009B) Weekly VRDNs, (Barclays Bank plc LOC), 1.150%, 3/5/2020 | 400,000 |
| 1,100,000 | | Southcentral PA, General Authority (Wellspan Health Obligated Group), (Series 2019E) Daily VRDNs, (U.S. Bank, N.A. LIQ), 1.160%, 3/2/2020 | 1,100,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $4,300,000) | 4,300,000 |
| | | TOTAL INVESTMENT IN SECURITIES—99.1%
(IDENTIFIED COST $143,948,880)2 | 155,636,828 |
| | | OTHER ASSETS AND LIABILITIES - NET—0.9%3 | 1,372,307 |
| | | TOTAL NET ASSETS—100% | $157,009,135 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 6.0% of the Fund's portfolio as calculated based upon total market value.
Semi-Annual Shareholder Report
At February 29, 2020, the Fund had the following outstanding futures contracts:
| Description | Number of
Contracts | Notional
Value | Expiration
Date | Value and
Unrealized
Appreciation |
| 4United States Treasury Note 10-Year Long Futures | 30 | $4,042,500 | June 2020 | $81,964 |
Net Unrealized Appreciation on Futures Contracts is included in “Other Assets and Liabilities—Net”.
| 1 | Current rate and current maturity or next reset date shown for floating rate notes and variable rate notes/demand instruments. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 2 | Also represents cost of investments for federal tax purposes. |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 4 | Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at February 29, 2020.
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
The following is a summary of the inputs used, as of February 29, 2020, in valuing the Fund's assets carried at fair value.
| Valuation Inputs | | | | |
| | Level 1—
Quoted
Prices | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | Total |
| Debt Securities: | | | | |
| Municipal Bonds | $— | $151,336,828 | $— | $151,336,828 |
| Short-Term Municipals | — | 4,300,000 | — | 4,300,000 |
| TOTAL SECURITIES | $— | $155,636,828 | $— | $155,636,828 |
| Other Financial Instruments:1 | | | | |
| Assets | $81,964 | $— | $— | $81,964 |
| Liabilities | — | — | — | — |
| OTHER FINANCIAL INSTRUMENTS | $81,964 | $— | $— | $81,964 |
| 1 | Other financial instruments are futures contracts. |
The following acronyms are used throughout this portfolio:
| COL | —Collateralized |
| EDFA | —Economic Development Finance Authority |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HEFA | —Health and Education Facilities Authority |
| IDA | —Industrial Development Authority |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| PRF | —Pre-refunded |
| UT | —Unlimited Tax |
| VRDNs | —Variable Rate Demand Notes |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $11.19 | $10.69 | $10.96 | $11.28 | $10.88 | $10.94 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.14 | 0.31 | 0.32 | 0.33 | 0.33 | 0.36 |
| Net realized and unrealized gain (loss) | 0.16 | 0.51 | (0.27) | (0.32) | 0.40 | (0.07) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.30 | 0.82 | 0.05 | 0.01 | 0.73 | 0.29 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.14) | (0.31) | (0.32) | (0.33) | (0.33) | (0.35) |
| Distributions from net realized gain | (0.08) | (0.01) | — | — | — | — |
| TOTAL DISTRIBUTIONS | (0.22) | (0.32) | (0.32) | (0.33) | (0.33) | (0.35) |
| Net Asset Value, End of Period | $11.27 | $11.19 | $10.69 | $10.96 | $11.28 | $10.88 |
| Total Return1 | 2.69% | 7.85% | 0.51% | 0.11% | 6.85% | 2.65% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.76%2,3 | 0.76%3 | 0.76%3 | 0.76% | 0.75%3 | 0.75% |
| Net investment income | 2.49%2 | 2.85% | 2.98% | 2.98% | 3.01% | 3.25% |
| Expense waiver/reimbursement4 | 0.16%2 | 0.17% | 0.14% | 0.14% | 0.13% | 0.12% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $157,009 | $159,471 | $163,819 | $178,935 | $199,403 | $202,057 |
| Portfolio turnover | 2% | 16% | 21% | 6% | 14% | 29% |
| 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 0.76% for the six months ended February 29, 2020, and 0.76%, 0.76% and 0.75% for the years ended August 31, 2019, 2018 and 2016, respectively, after taking into account these expense reductions. |
| 4 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 29, 2020 (unaudited)
| Assets: | | |
| Investment in securities, at value (identified cost $143,948,880) | | $155,636,828 |
| Cash | | 94,152 |
| Due from broker | | 34,500 |
| Income receivable | | 1,708,401 |
| Receivable for shares sold | | 205,820 |
| Receivable for variation margin on futures contracts | | 42,656 |
| TOTAL ASSETS | | 157,722,357 |
| Liabilities: | | |
| Payable for investments purchased | $569,425 | |
| Payable for shares redeemed | 18,263 | |
| Payable for portfolio accounting fees | 82,032 | |
| Payable for other service fees (Notes 2 and 5) | 32,308 | |
| Payable for administrative fee (Note 5) | 3,050 | |
| Payable for investment adviser fee (Note 5) | 2,213 | |
| Accrued expenses (Note 5) | 5,931 | |
| TOTAL LIABILITIES | | 713,222 |
| Net assets for 13,936,514 shares outstanding | | $157,009,135 |
| Net Assets Consists of: | | |
| Paid-in capital | | $145,432,359 |
| Total distributable earnings (loss) | | 11,576,776 |
| TOTAL NET ASSETS | | $157,009,135 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | | |
| Net asset value per share ($157,009,135 ÷ 13,936,514 shares outstanding), no par value, unlimited shares authorized | | $11.27 |
| Offering price per share (100/95.50 of $11.27) | | $11.80 |
| Redemption proceeds per share | | $11.27 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 29, 2020 (unaudited)
| Investment Income: | | | |
| Interest | | | $2,525,048 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $310,738 | |
| Administrative fee (Note 5) | | 62,686 | |
| Custodian fees | | 4,621 | |
| Transfer agent fees | | 39,572 | |
| Directors'/Trustees' fees (Note 5) | | 1,304 | |
| Auditing fees | | 14,363 | |
| Legal fees | | 4,370 | |
| Other service fees (Notes 2 and 5) | | 194,066 | |
| Portfolio accounting fees | | 52,769 | |
| Share registration costs | | 12,916 | |
| Printing and postage | | 11,351 | |
| Miscellaneous (Note 5) | | 11,963 | |
| TOTAL EXPENSES | | 720,719 | |
| Waiver, Reimbursement and Reduction: | | | |
| Waiver of investment adviser fee (Note 5) | $(111,118) | | |
| Reimbursement of other operating expenses (Notes 2 and 5) | (15,392) | | |
| Reduction of custodian fees (Note 6) | (310) | | |
| TOTAL WAIVER, REIMBURSEMENT AND REDUCTION | | (126,820) | |
| Net expenses | | | 593,899 |
| Net investment income | | | 1,931,149 |
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | | | |
| Net realized gain on investments | | | 263,485 |
| Net realized gain on futures contracts | | | 15,848 |
| Net change in unrealized appreciation of investments | | | 1,696,059 |
| Net change in unrealized appreciation of futures contracts | | | 81,964 |
| Net realized and unrealized gain (loss) on investments and futures contracts | | | 2,057,356 |
| Change in net assets resulting from operations | | | $3,988,505 |
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)
2/29/2020 | Year Ended
8/31/2019 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $1,931,149 | $4,496,968 |
| Net realized gain | 279,333 | 893,694 |
| Net change in unrealized appreciation/depreciation | 1,778,023 | 6,403,518 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 3,988,505 | 11,794,180 |
| Distributions to Shareholders | (3,027,340) | (4,705,580) |
| Share Transactions: | | |
| Proceeds from sale of shares | 4,804,917 | 10,393,322 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,328,780 | 3,581,686 |
| Cost of shares redeemed | (10,556,375) | (25,412,403) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,422,678) | (11,437,395) |
| Change in net assets | (2,461,513) | (4,348,795) |
| Net Assets: | | |
| Beginning of period | 159,470,648 | 163,819,443 |
| End of period | $157,009,135 | $159,470,648 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 29, 2020 (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 four 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 Class A Shares. The investment objective of the Fund is to provide current income exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax (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.
On March 30, 2017, the Fund's T Share class became effective with the Securities and Exchange Commission (SEC), but is not yet offered for sale.
Effective on or about June 29, 2020, the name of the Trust and Fund will change to Federated Hermes Municipal Securities Income Trust and Federated Hermes Pennsylvania Municipal Income Fund, respectively.
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 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.
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 (the “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 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. The detail of the total fund expense waiver, reimbursement and reduction of $126,820 is disclosed in various locations in this Note 2, Note 5 and Note 6.
Semi-Annual Shareholder Report
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Class A Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the six months ended February 29, 2020, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred | Other
Service Fees
Reimbursed |
| Class A Shares | $194,066 | $(15,392) |
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue 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 29, 2020, 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 29, 2020, tax years 2016 through 2019 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
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk. Upon entering into a financial futures contract with a broker, the Fund is required to deposit with a broker, either U.S. government securities or a specified amount of cash, which is shown as due from broker in the Statement of Assets and Liabilities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. 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.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional values of long futures contracts held by the Fund throughout the period was $577,500. This is based on amounts held as of each month end throughout the six month fiscal period.
Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments |
| | Assets |
| Derivatives not accounted for as hedging instruments under ASC Topic 815 | Statement of
Assets and
Liabilities
Location | Fair
Value |
| Interest rate contracts | Receivable for
variation margin on
futures contracts | $81,964* |
| * | Includes cumulative net appreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended February 29, 2020
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income |
| | Futures
Contracts |
| Interest rate contracts | $15,848 |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income |
| | Futures
Contracts |
| Interest rate contracts | $81,964 |
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
2/29/2020 | Year Ended
8/31/2019 |
| Shares sold | 433,147 | 965,485 |
| Shares issued to shareholders in payment of distributions declared | 210,837 | 333,171 |
| Shares redeemed | (955,448) | (2,369,158) |
| NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (311,464) | (1,070,502) |
4. FEDERAL TAX INFORMATION
At February 29, 2020, the cost of investments for federal tax purposes was $143,948,880. The net unrealized appreciation of investments for federal tax purposes was $11,769,912, which consisted entirely of net unrealized appreciation from investments having an excess of value over cost. The amounts presented are inclusive of derivative contracts.
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 29, 2020, the Adviser voluntarily waived $111,118 of its fee.
Semi-Annual Shareholder Report
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Hermes 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:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.100% | on assets up to $50 billion |
| 0.075% | on assets over $50 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 29, 2020, the annualized fee paid to FAS was 0.081% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to 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 to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at 0.05% of average daily net assets annually to compensate FSC. Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee.
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended February 29, 2020, 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 29, 2020, FSSC received $11,528 and reimbursed $15,392 of other service fees disclosed in Note 2.
Sales Charges
Front-end sales charges and contingent deferred sales charges 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 29, 2020, FSC retained $5,038 in sales charges from the sale of Class A Shares.
Interfund Transactions
During the six months ended February 29, 2020, 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 $14,150,000 and $12,550,000, respectively.
Semi-Annual Shareholder Report
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. Effective May 1, 2020, total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares (after the voluntary waivers and reimbursements) will not exceed 0.76% (the “Fee Limit”), up to but not including the later of (the “Termination Date”): (a) May 1, 2021; 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.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent 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. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. EXPENSE REDUCTION
Through arrangements with the Fund's custodian, net credits realized as a result of uninvested cash balances were used to reduce custody expenses. For the six months ended February 29, 2020, the Fund's expenses were reduced by $310 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding short-term obligations, for the six months ended February 29, 2020, were as follows:
| Purchases | $2,748,065 |
| Sales | $7,840,583 |
8. 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 29, 2020, 14.4% of the securities in the Portfolio of Investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies.
9. LINE OF CREDIT
The Fund participates with certain other Federated Hermes 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
Semi-Annual Shareholder Report
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 29, 2020, the Fund had no outstanding loans. During the six months ended February 29, 2020, the Fund did not utilize the LOC.
10. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds advised by subsidiaries of Federated Hermes, 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 29, 2020, there were no outstanding loans. During the six months ended February 29, 2020, the program was not utilized.
11. OTHER mATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains, workflow operations and customer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short term or may last for an extended period of time and result in a substantial economic downturn. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including Fund service providers) and the market in general in significant and unforeseen ways. Any such impact could adversely affect the Fund's performance.
12. SUBSEQUENT EVENT
On or about May 1, 2020, the Fund will offer Institutional Shares.
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, 2019 to February 29, 2020.
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, toestimate 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 anassumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you shouldnot 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 relativetotal costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | Beginning
Account Value
9/1/2019 | Ending
Account Value
2/29/2020 | Expenses Paid
During Period1 |
| Actual | $1,000 | $1,026.90 | $3.83 |
Hypothetical (assuming a 5% return
before expenses) | $1,000 | $1,021.08 | $3.82 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.76%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half-year period). |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2019
Federated Pennsylvania Municipal Income Fund (the “Fund”)
At its meetings in May 2019, the Fund's Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved 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 considering all of the information received on whether to continue the existing arrangements.
At the request of the Independent Trustees, the Fund's Chief Compliance Officer (the CCO) furnished to the Board in advance of its May 2019 meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO's independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund's management fee and in deciding to approve the continuation of the investment advisory contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer,” prior to the elimination of the Senior Officer position in December 2017.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in making its decision. Using these judicial decisions as a guide, the Board observed that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the fund, its benchmark, and comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) 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; (4) 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); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds both internally and externally as well as management fees charged to institutional and other advisory clients of the
Semi-Annual Shareholder Report
adviser for what might be viewed as like services); and (6) the extent of care, conscientiousness and independence with which the fund's 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 align with the factors listed above. 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 factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investment Management Company (the “Adviser”) and its affiliates (collectively, “Federated”) on matters relating to the funds advised by Federated (each, a “Federated Fund”). The Independent Trustees were assisted in their deliberations by independent legal counsel.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings at which the Board's formal approval of the advisory and subadvisory contracts occurred. In this regard, Federated provided much of this information at each regular meeting of the Board, and furnished additional information specifically in connection with the May meetings. In the months preceding the May meetings, the Board requested and reviewed written materials prepared by Federated in response to requests on behalf of the Independent Trustees encompassing a wide variety of topics. 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 such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the advisory and subadvisory contracts. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose.
The Board's consideration of the investment advisory contract included review of the CCO Fee Evaluation Report, accompanying data and additional information covering the following matters, among others: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative 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 and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due
Semi-Annual Shareholder Report
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 and other risks 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 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 too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons 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 an appropriate group of peer funds compiled by Federated using data supplied by independent fund ranking organizations (the “Peer Group”). The Board received a description of the composition and methodology used to select the Peer Group. 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, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, 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 marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund's fee rates relative to its Peer Group. 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.
Semi-Annual Shareholder Report
For comparison, the CCO reviewed the fees charged by Federated for providing advisory services to products other than the Federated Funds (e.g., institutional separate accounts and third-party unaffiliated mutual funds for which Federated serves as sub-adviser) (referenced to as “Comparable Funds/Accounts”). With respect to Comparable Funds/Accounts other than third-party mutual funds, the CCO concluded that they are inherently different products. Those differences include, but are not limited to, different types of targeted investors; different applicable 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, as well as personnel in the Funds Financial Services, Legal, Compliance and Risk Management departments, in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The CCO also reviewed the differences in the nature of the services required for Federated to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution's mutual fund, and that Federated generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The CCO did not consider the fees for providing advisory services to Comparable Funds/Accounts to be determinative in judging the appropriateness of the Federated Funds' advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
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, financial resources, 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 and the Adviser's ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the investment research and company engagement capabilities of the Adviser and its affiliates. The Board also noted the compliance program of the Adviser and the compliance-related resources provided to the Fund by the Adviser, including the Adviser's commitment to respond to rulemaking initiatives of the SEC. 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
Semi-Annual Shareholder Report
program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the 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 considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The CCO also reviewed information regarding the performance of other mutual funds in the Peer Group, noting the CCO's view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds' objectives or investment management techniques, or the costs to implement the funds, even within the same 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 CCO Fee Evaluation Report. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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 and distributor). In this regard, the Board considered that certain Federated subsidiaries provide distribution and shareholder services to the Federated Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. 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 Federated Fund to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or
Semi-Annual Shareholder Report
elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain Federated Funds in response to the CCO's recommendations in the prior year's CCO Fee Evaluation Report.
Federated furnished information, requested by the CCO, 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 CCO. The CCO noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO 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 Federated Fund and may produce unintended consequences. The allocation information, including the CCO's view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board.
The Board and the CCO also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. In this regard, the CCO concluded that Federated's profit margins did not appear to be excessive. The CCO also noted that Federated appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Fund.
The CCO Fee Evaluation Report also discussed the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that Federated 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 investments (as well as any economies of scale, should they exist) were likely to be shared with the Federated Fund family as a whole. The Board noted that Federated's investments in these areas are extensive. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed potential economies of scale to be shared with shareholders. The Board also considered that such waivers and reimbursements can provide protection from an increase in expenses if a Federated Fund's assets decline. Federated, as it does throughout the year, and specifically in connection with the Board's review of the advisory and subadvisory contracts, furnished information relative to revenue sharing or adviser-paid fees. Federated and the CCO 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
Semi-Annual Shareholder Report
appropriateness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the CCO Fee Evaluation Report) 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 CCO stated that his observations and the information accompanying the CCO Fee Evaluation Report 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. The CCO also recognized that the Board's evaluation of the Federated Funds' advisory and subadvisory arrangements is a continuing and on-going process that is informed by the information that the Board requests and receives from management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its on-going oversight of the Federated Funds.
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 summarized 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 view 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 FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund's holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC's website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
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 Hermes 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
2032304 (4/20)
© 2020 Federated Hermes, Inc.
Semi-Annual Shareholder Report
February 29, 2020
| 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
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee
J. Christopher
Donahue
President
Federated Municipal High Yield Advantage Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from September 1, 2019 through February 29, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the uncertainty ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At February 29, 2020, the Fund's sector composition1 was as follows:
| Sector Composition | Percentage of
Total Net Assets |
| Dedicated Tax | 11.2% |
| Senior Care | 11.1% |
| Primary/Secondary Education | 9.8% |
| Industrial Development Bond/Pollution Control Revenue Bond | 9.3% |
| Hospital | 8.7% |
| Incremental Tax | 7.9% |
| Tobacco | 5.9% |
| Toll Road | 4.9% |
| Pre-refunded | 4.8% |
| General Obligation- State | 4.0% |
| Other2 | 23.1% |
| Other Assets and Liabilities—Net3 | (0.7)% |
| TOTAL | 100.0% |
| 1 | Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third-party 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 77.6% of the Fund's total net assets. Remaining sectors have been aggregated under the designation “Other.” |
| 3 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
February 29, 2020 (unaudited)
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—98.6% | |
| | | Alabama—1.2% | |
| $500,000 | 1 | Huntsville, AL Special Care Facilities Financing Authority (Redstone Village), Retirement Facilities Revenue Bonds (Series 2011A), (Original Issue Yield: 7.625%), 7.500%, 1/1/2047 | $403,645 |
| 1,500,000 | 1 | Huntsville, AL Special Care Facilities Financing Authority (Redstone Village), Retirement Facility Revenue Bonds (Series 2007), (Original Issue Yield: 5.600%), 5.500%, 1/1/2043 | 1,062,195 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer Revenue Current Interest Warrants (Series 2013-A), (Original Issue Yield: 5.650%), (Assured Guaranty Municipal Corp. INS), 5.500%, 10/1/2053 | 2,329,320 |
| 2,000,000 | | Jefferson County, AL Sewer System, Senior Lien Sewer Revenue Current Interest Warrants (Series 2013A), (Original Issue Yield: 5.450%), (Assured Guaranty Municipal Corp. INS), 5.250%, 10/1/2048 | 2,312,540 |
| 835,000 | | Selma, AL IDB (International Paper Co.), Gulf Opportunity Zone Bonds (Series 2010A), 5.800%, 5/1/2034 | 841,304 |
| 790,000 | 2 | Tuscaloosa County, AL IDA (Hunt Refining Co.), Gulf Opportunity Zone Refunding Bonds (Series 2019A), 5.250%, 5/1/2044 | 942,597 |
| | | TOTAL | 7,891,601 |
| | | Alaska—0.0% | |
| 1,000,000 | 1,3 | Alaska Industrial Development and Export Authority (Boys & Girls Home & Family Services, Inc.), Community Provider Revenue Bonds (Series 2007C), 6.000%, 12/1/2036 | 50,000 |
| | | Arizona—3.3% | |
| 650,000 | 2 | Arizona State Industrial Development Authority Education Revenue (Basis Schools, Inc. Obligated Group), (Series 2017D), 5.000%, 7/1/2051 | 736,749 |
| 500,000 | 2 | Arizona State Industrial Development Authority Education Revenue (Basis Schools, Inc. Obligated Group), Education Revenue Bonds (Series 2017G), 5.000%, 7/1/2051 | 566,730 |
| 1,000,000 | 2 | Arizona State Industrial Development Authority Education Revenue (Doral Academy of Nevada FMMR), Revenue Bonds (Series 2019A), 5.000%, 7/15/2049 | 1,124,240 |
| 1,750,000 | 2 | Arizona State Industrial Development Authority Education Revenue (Pinecrest Academy of Nevada), Horizon, Inspirada and St. Rose Campus Education Revenue Bonds (Series 2018A), 5.750%, 7/15/2048 | 2,068,098 |
| 4,000,000 | | Maricopa County, AZ Pollution Control Corp. (Public Service Co., NM), PCR Refunding Bonds (Series 2003A), 6.250%, 1/1/2038 | 4,056,040 |
| 1,000,000 | 2 | Maricopa County, AZ, IDA (Paradise Schools), Revenue Refunding Bonds, 5.000%, 7/1/2047 | 1,108,360 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Arizona—continued | |
| $1,500,000 | | Phoenix, AZ IDA (GreatHearts Academies), Education Facility Revenue Bonds (Series 2014A), 5.000%, 7/1/2044 | $1,648,770 |
| 1,000,000 | | Phoenix, AZ IDA (GreatHearts Academies), Education Facility Revenue Bonds (Series 2016A), 5.000%, 7/1/2046 | 1,119,750 |
| 2,450,000 | | Salt River Project, AZ Agricultural Improvement & Power District, Electric System Revenue Bonds (Series 2019A), 4.000%, 1/1/2039 | 2,963,324 |
| 3,000,000 | | Salt Verde Financial Corp., AZ, Senior Gas Revenue Bonds (Series 2007), (Original Issue Yield: 5.100%), (Citigroup, Inc. GTD), 5.000%, 12/1/2037 | 4,293,120 |
| 1,000,000 | | Tempe, AZ IDA (Mirabella at ASU), Revenue Bonds (Series 2017A), 6.125%, 10/1/2047 | 1,186,540 |
| 430,000 | 2 | Verrado Community Facilities District No. 1, AZ, District GO Refunding Bonds (Series 2013A), 6.000%, 7/15/2027 | 468,261 |
| | | TOTAL | 21,339,982 |
| | | California—6.7% | |
| 750,000 | 2 | California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2014A), 5.125%, 7/1/2044 | 852,585 |
| 565,000 | 2 | California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2015A), 5.000%, 7/1/2045 | 649,518 |
| 500,000 | 2 | California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2017A), 5.000%, 7/1/2047 | 596,350 |
| 2,000,000 | | California State Municipal Finance Authority (LINXS APM Project), Senior Lien Revenue Bonds (Series 2018A), 5.000%, 6/1/2048 | 2,435,740 |
| 1,000,000 | 2 | California State School Finance Authority Charter School Revenue (Bright Star Schools-Obligated Group), Charter School Revenue Bonds (Series 2017), 5.000%, 6/1/2047 | 1,132,790 |
| 500,000 | 2 | California State School Finance Authority Charter School Revenue (Rocketship Public Schools), Revenue Bonds (Series 2017G), 5.000%, 6/1/2047 | 553,670 |
| 1,100,000 | 2 | California State School Finance Authority Charter School Revenue (Summit Public Schools Obligated Group), (Series 2017), 5.000%, 6/1/2053 | 1,292,544 |
| 500,000 | | California State, Various Purpose GO Bonds, 4.000%, 4/1/2049 | 598,165 |
| 2,250,000 | 2 | California Statewide Communities Development Authority (Loma Linda University Medical Center), Revenue Bonds (Series 2016A), 5.250%, 12/1/2056 | 2,597,940 |
| 1,555,000 | | Community Facilities District No. 2016 of the County of Orange (CFD 2016-1 (Village of Esencia)), Special Tax Revenue Bonds (Series 2016A), 5.000%, 8/15/2046 | 1,825,570 |
| 1,000,000 | | Community Facilities District No. 2017 of the County of Orange (CFD 2017-1 (Village of Esencia)), Improvement Area No.1 Special Tax Revenue Bonds (Series 2018A), 5.000%, 8/15/2047 | 1,222,110 |
| 500,000 | | Corona-Norco USD Community Facilities District No. 98-1, CA, 2013 Special Tax Refunding Bonds, 5.000%, 9/1/2032 | 567,010 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $3,000,000 | | Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Refunding Revenue Bonds (Series 2013A), (Original Issue Yield: 6.400%), (United States Treasury PRF 1/15/2024@100), 6.000%, 1/15/2053 | $3,610,590 |
| 95,000 | | Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited Obligation Improvement Bonds, 5.000%, 9/2/2028 | 107,728 |
| 365,000 | | Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited Obligation Improvement Bonds, 5.000%, 9/2/2029 | 413,457 |
| 180,000 | | Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited Obligation Improvement Bonds, 5.000%, 9/2/2030 | 203,362 |
| 1,300,000 | | Irvine, CA Community Facilities District No. 2013-3 (Great Park Improvement Area No. 4), Special Tax Bonds (Series 2016), 4.000%, 9/1/2049 | 1,413,880 |
| 1,000,000 | | Irvine, CA Community Facilities District No. 2013-3 (Great Park Improvement Area No.1), Special Tax Bonds (Series 2014), 5.000%, 9/1/2049 | 1,123,220 |
| 3,000,000 | | Los Angeles Department of Water & Power (Los Angeles, CA Department of Water & Power (Electric/Power System)), Revenue Refunding Bonds (Series 2017B), 5.000%, 7/1/2038 | 3,771,180 |
| 850,000 | | Los Angeles, CA Department of Airports (Los Angeles International Airport), Subordinate Revenue Bonds (Series 2017A), 5.000%, 5/15/2047 | 1,037,884 |
| 1,000,000 | | Los Angeles, CA Harbor Department, Revenue Refunding Bonds (Series 2014A), 5.000%, 8/1/2044 | 1,155,080 |
| 2,500,000 | | M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), (Citigroup, Inc. GTD), 7.000%, 11/1/2034 | 4,035,875 |
| 1,000,000 | | Palomar Health, CA Revenue, (Series 2016), 5.000%, 11/1/2039 | 1,180,490 |
| 480,000 | | Poway, CA Unified School District (Community Facilities District No. 6 (4S Ranch)), Special Tax Bonds (Series 2012), 5.000%, 9/1/2033 | 527,818 |
| 1,000,000 | | Roseville, CA Special Tax (Fiddyment Ranch CFD No. 1), Special Tax Refunding Revenue Bonds (Series 2017), 5.000%, 9/1/2034 | 1,223,960 |
| 1,250,000 | | San Buenaventura, CA (Community Memorial Health System), Revenue Bonds (Series 2011), 8.000%, 12/1/2031 | 1,383,238 |
| 2,000,000 | | San Francisco, CA City & County Airport Commission, Second Series Revenue Bonds (Series 2019E), 5.000%, 5/1/2040 | 2,565,700 |
| 1,280,000 | | San Francisco, CA City & County Redevelopment Financing Agency (Mission Bay North Redevelopment), Tax Allocation Refunding Bonds (Series 2016A), (National Public Finance Guarantee Corporation INS), 5.000%, 8/1/2041 | 1,534,669 |
| 500,000 | | San Francisco, CA City & County Redevelopment Financing Agency (Mission Bay South Redevelopment), Tax Allocation Refunding Bonds (Series 2016C), (National Public Finance Guarantee Corporation INS), 5.000%, 8/1/2041 | 599,145 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | California—continued | |
| $1,200,000 | | Santa Margarita, CA Water District Community Facilities District No. 2013-1, Special Tax Bonds (Series 2013), (Original Issue Yield: 5.700%), 5.625%, 9/1/2043 | $1,342,620 |
| 990,000 | | Western Riverside Water & Wastewater Financing Authority, CA, Local Agency Revenue Refunding Bonds (Series 2016A), 5.000%, 9/1/2044 | 1,182,882 |
| | | TOTAL | 42,736,770 |
| | | Colorado—7.4% | |
| 750,000 | | Arista, CO Metropolitan District, Special Revenue Refunding and Improvement Bonds (Series 2018A), 5.000%, 12/1/2038 | 823,972 |
| 1,000,000 | | Banning Lewis Ranch Metropolitan District No.4, LT GO Bonds (Series 2018A), 5.750%, 12/1/2048 | 1,076,610 |
| 1,000,000 | | Banning Lewis Ranch Regional Metropolitan District, LT GO Bonds (Series 2018A), 5.375%, 12/1/2048 | 1,079,020 |
| 1,500,000 | | Base Village Metropolitan District No. 2, LT GO Refunding Bonds (Series 2016A), 5.750%, 12/1/2046 | 1,597,035 |
| 2,750,000 | | Castle Oaks, CO Metropolitan District No. 3, LT GO Tax Refunding Bonds (Series 2017), 5.000%, 12/1/2047 | 2,853,840 |
| 1,500,000 | | Centerra Metropolitian District No. 1, CO, Special Revenue Refunding and Improvement Bonds (Series 2017), (Original Issue Yield: 5.100%), 5.000%, 12/1/2047 | 1,609,920 |
| 2,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 5.625%, 12/1/2038 | 2,290,140 |
| 1,250,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2013A), 6.000%, 12/1/2038 | 1,457,225 |
| 1,000,000 | | Central Platte Valley, CO Metropolitan District, GO Refunding Bonds (Series 2014), 5.000%, 12/1/2043 | 1,096,680 |
| 1,000,000 | 2 | Colorado Educational & Cultural Facilities Authority (Loveland Classical School), School Improvement Revenue Bonds (Series 2016), 5.000%, 7/1/2046 | 1,087,980 |
| 1,625,000 | | Colorado Educational & Cultural Facilities Authority (Skyview Academy), Charter School Refunding & Improvement Revenue Bonds (Series 2014), 5.500%, 7/1/2049 | 1,756,414 |
| 1,000,000 | | Colorado Educational & Cultural Facilities Authority (University Lab School), Charter School Refunding & Improvement Revenue Bonds (Series 2015), (Original Issue Yield: 5.020%), 5.000%, 12/15/2045 | 1,122,880 |
| 1,500,000 | | Colorado Health Facilities Authority (Christian Living Communities), Revenue Refunding Bonds (Series 2016), 5.000%, 1/1/2037 | 1,664,475 |
| 2,000,000 | | Colorado State Health Facilities Authority Revenue (Frasier Meadows Manor, Inc.), (Series 2017A), 5.250%, 5/15/2047 | 2,318,840 |
| 1,500,000 | | Copperleaf Metropolitan District No. 2, CO, LT GO Refunding Bonds (Series 2015), 5.750%, 12/1/2045 | 1,574,190 |
| 1,250,000 | | Denver Connection West Metropolitan District, LT GO Bonds (Series 2017A), 5.375%, 8/1/2047 | 1,328,825 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Colorado—continued | |
| $1,000,000 | | Denver, CO City & County Department of Aviation (Denver, CO City & County Airport Authority), Airport System Revenue Bonds (Series 2018A), (Original Issue Yield: 4.070%), 4.000%, 12/1/2048 | $1,148,040 |
| 500,000 | | Denver, CO Convention Center Hotel Authority, Senior Revenue Refunding Bonds (Series 2016), 5.000%, 12/1/2040 | 590,465 |
| 1,000,000 | 2 | Denver, CO Health & Hospital Authority, Revenue Refunding Bonds (Series 2017A), 5.000%, 12/1/2034 | 1,239,390 |
| 750,000 | | Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds (Series 2011A), 6.000%, 5/1/2027 | 791,482 |
| 1,500,000 | | Lakes at Centerra Metropolitan District No. 2, LT GO Refunding and Improvement Bonds (Series 2018A), 5.250%, 12/1/2047 | 1,624,155 |
| 1,250,000 | | Leyden Rock Metropolitan District No. 10, CO, LT GO Refunding & Improvement Bonds (Series 2016A), 5.000%, 12/1/2045 | 1,320,025 |
| 2,500,000 | | North Range, CO Metropolitan District No. 2, LT GO and Special Revenue Refunding and Improvement Bonds (Series 2017A), 5.750%, 12/1/2047 | 2,669,575 |
| 1,500,000 | | Park 70 Metropolitan District, CO, General Obligation Refunding and Improvement Bonds (Series 2016), 5.000%, 12/1/2046 | 1,709,820 |
| 2,000,000 | | Public Authority for Colorado Energy, Natural Gas Purchase Revenue Bonds (Series 2008), (Original Issue Yield: 6.630%), (Bank of America Corp. GTD), 6.250%, 11/15/2028 | 2,614,940 |
| 1,500,000 | | Sierra Ridge Metropolitan District No. 2, LT GO Bonds (Series 2016A), 5.500%, 12/1/2046 | 1,585,485 |
| 2,500,000 | | St. Vrain Lakes, CO Metropolitan District No.2, Limited Tax GO Senior Bonds (Series 2017A), 5.125%, 12/1/2047 | 2,656,450 |
| 1,500,000 | | Sterling Ranch Community Authority Board, CO (Sterling Ranch Metropolitan District No. 2, CO), Limited Tax Supported Revenue Senior Bonds (Series 2015A), (Original Issue Yield: 5.830%), 5.750%, 12/1/2045 | 1,573,740 |
| 1,030,000 | | Tallyn's Reach Metropolitan District No. 3, CO, LT GO Refunding & Improvement Bonds (Series 2013), 5.125%, 11/1/2038 | 1,113,760 |
| 2,000,000 | | Three Springs Metropolitan District No. 3, CO, Property Tax Supported Revenue Bonds (Series 2010), 7.750%, 12/1/2039 | 2,035,800 |
| | | TOTAL | 47,411,173 |
| | | Connecticut—0.8% | |
| 1,000,000 | | Connecticut Development Authority (Bombardier, Inc.), Airport Facility Revenue Bonds, 7.950%, 4/1/2026 | 999,840 |
| 1,500,000 | | Connecticut State Special Transportation Fund, Special Tax Obligation Bonds Transportation Infrastructure Purpose (Series 2018B), 5.000%, 10/1/2038 | 1,883,850 |
| 1,835,000 | 2 | Mohegan Tribe of Indians of Connecticut Gaming Authority, Priority Distribution Payment Refunding Bonds (Series 2015C), (Original Issue Yield: 6.375%), 6.250%, 2/1/2030 | 2,121,352 |
| | | TOTAL | 5,005,042 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Delaware—1.6% | |
| $1,350,000 | 2 | Delaware Economic Development Authority (ASPIRA of Delaware Charter Operations, Inc.), Charter School Revenue Bonds (Series 2016A), 5.000%, 6/1/2051 | $1,502,644 |
| 1,905,000 | | Delaware Economic Development Authority (Delmarva Power and Light Co.), Gas Facilities Refunding Bonds, 5.400%, 2/1/2031 | 1,939,500 |
| 3,000,000 | | Delaware Health Facilities Authority (Christiana Care Health Services), Revenue and Refunding Bonds (Series 2020A), 4.000%, 10/1/2049 | 3,539,520 |
| 3,000,000 | 2 | Millsboro, DE Special Obligations (Plantation Lakes Special Development District), Special Tax Revenue Refunding Bonds (Series 2018), (Original Issue Yield: 5.300%), 5.250%, 7/1/2048 | 3,356,130 |
| | | TOTAL | 10,337,794 |
| | | District of Columbia—2.2% | |
| 1,030,000 | | District of Columbia (KIPP DC), Revenue Bonds (Series 2013A), (United States Treasury PRF 7/1/2023@100), 6.000%, 7/1/2043 | 1,205,151 |
| 1,000,000 | | District of Columbia (KIPP DC), Revenue Bonds (Series 2019), 4.000%, 7/1/2039 | 1,146,180 |
| 2,000,000 | | District of Columbia Revenue (Friendship Public Charter School, Inc.), Revenue Bonds (Series 2012A), 5.000%, 6/1/2042 | 2,151,260 |
| 1,000,000 | | District of Columbia Revenue (Friendship Public Charter School, Inc.), Revenue Bonds (Series 2016A), 5.000%, 6/1/2046 | 1,156,950 |
| 1,000,000 | | District of Columbia Revenue (Ingleside at Rock Creek), Project Revenue Bonds (Series 2017A), (Original Issue Yield: 5.250%), 5.000%, 7/1/2052 | 1,083,410 |
| 1,000,000 | | Metropolitan Washington, DC Airports Authority (Dulles Metrorail and Capital Improvement Project), Dulles Toll Road Subordinate Lien Revenue Refunding Bonds (Series 2019B), 4.000%, 10/1/2053 | 1,165,920 |
| 1,000,000 | | Metropolitan Washington, DC Airports Authority, Airport System Revenue Refunding Bonds (Series 2018A), 5.000%, 10/1/2038 | 1,264,990 |
| 1,000,000 | | Metropolitan Washington, DC Airports Authority, Revenue Refunding Bonds (Series 2017A), 5.000%, 10/1/2047 | 1,220,390 |
| 3,000,000 | | Metropolitan Washington, DC Airports Authority, Revenue Refunding Bonds (Series 2019A), 5.000%, 10/1/2039 | 3,871,290 |
| | | TOTAL | 14,265,541 |
| | | Florida—5.0% | |
| 1,250,000 | | Alta Lakes, FL Community Development District, Special Assessment Bonds (Series 2019), 4.625%, 5/1/2049 | 1,328,600 |
| 145,000 | | Arborwood, FL Community Development District, Special Assessment Revenue Bonds (Series 2014A-1), (Original Issue Yield: 6.900%), 6.900%, 5/1/2036 | 157,260 |
| 3,000,000 | 1,2,3 | Collier County, FL IDA (Arlington of Naples), Continuing Care Community Revenue Bonds (Series 2013A), (Original Issue Yield: 8.375%), 8.250%, 5/15/2049 | 2,820,000 |
| 1,000,000 | | Florida State Mid-Bay Authority, First Senior Lien Revenue Bonds (Series 2015A), 5.000%, 10/1/2040 | 1,165,490 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $2,500,000 | | Greater Orlando, FL Aviation Authority, Airport Facilities Revenue Bonds (Series 2019A), 4.000%, 10/1/2039 | $2,964,700 |
| 1,000,000 | | Harbor Bay, FL Community Development District, Special Assessment District Area One (Series 2019A-1), (Original Issue Yield: 4.140%), 4.100%, 5/1/2048 | 1,032,370 |
| 555,000 | | Lakewood Ranch Stewardship District, FL (Indigo Expansion Area Project), Special Assessment Revenue Bonds (Series 2019), 4.000%, 5/1/2049 | 576,878 |
| 1,000,000 | | Lakewood Ranch Stewardship District, FL (Lakewood Centre North), Special Assessment Revenue Bonds (Series 2015), (Original Issue Yield: 4.960%), 4.875%, 5/1/2045 | 1,068,260 |
| 1,000,000 | | Lakewood Ranch Stewardship District, FL (Lakewood National & Polo Run), Special Assessment Bonds, (Original Issue Yield: 5.400%), 5.375%, 5/1/2047 | 1,124,550 |
| 1,000,000 | | Lakewood Ranch Stewardship District, FL (Northeast Sector Project—Phase 1B), Special Assessment Revenue Bonds (Series 2018), 5.450%, 5/1/2048 | 1,141,130 |
| 1,280,000 | | Lakewood Ranch Stewardship District, FL (Villages of Lakewood Ranch South), Special Assessment Revenue Bonds (Series 2016), (Original Issue Yield: 5.160%), 5.125%, 5/1/2046 | 1,394,662 |
| 2,000,000 | | Lee County, FL IDA (Cypress Cove at Healthpark), Healthcare Facilities Refunding Revenue Bonds (Series 2012), 6.500%, 10/1/2047 | 2,218,580 |
| 1,840,000 | | LT Ranch, FL CDD, Capital Improvement Revenue Bonds (Series 2019), 4.000%, 5/1/2050 | 1,914,833 |
| 1,000,000 | | Miami-Dade County, FL Aviation, Aviation Revenue Refunding Bonds (Series 2014A), 5.000%, 10/1/2036 | 1,157,040 |
| 745,000 | | Midtown Miami, FL Community Development District, Special Assessment & Revenue Refunding Bonds (Series 2014A), (Original Issue Yield: 5.250%), 5.000%, 5/1/2037 | 793,298 |
| 1,000,000 | | Palm Beach County, FL Health Facilities Authority (Sinai Residences of Boca Raton), Revenue Bonds (Series 2014A), (Original Issue Yield: 7.625%), 7.500%, 6/1/2049 | 1,134,200 |
| 1,405,000 | | Pinellas County, FL Educational Facilities Authority (Pinellas Preparatory Academy), Revenue Bonds (Series 2011A), (United States Treasury PRF 9/15/2021@100), 7.125%, 9/15/2041 | 1,532,448 |
| 145,000 | 1,3 | Reunion East Community Development District, FL, Special Assessment Bonds (Series 2002A-1), 7.375%, 5/1/2033 | 1 |
| 45,000 | | Reunion East Community Development District, FL, Special Assessment Refunding Bonds (2015-1), 6.600%, 5/1/2033 | 48,725 |
| 1,000,000 | | Seminole County, FL IDA (Legacy Pointe at UCF), Retirement Facilities Revenue Bonds (Series 2019A), 5.750%, 11/15/2054 | 1,057,800 |
| 585,000 | | Southern Grove, FL Community Development District #5, Special Assessment District Revenue Refunding Bonds (Series 2019), 4.000%, 5/1/2043 | 612,881 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Florida—continued | |
| $495,000 | | Talavera, FL Community Development District, Capital Improvement Revenue Bonds (Series 2019), 4.350%, 5/1/2040 | $523,735 |
| 770,000 | | Talavera, FL Community Development District, Capital Improvement Revenue Bonds (Series 2019), 4.500%, 5/1/2050 | 814,390 |
| 1,000,000 | | Tolomato Community Development District, FL, Special Assessment Refunding Bonds (Series 2019C), 4.400%, 5/1/2040 | 1,061,120 |
| 1,000,000 | | Tolomato Community Development District, FL, Special Assessment Refunding Bonds Subordinate Lien (Series 2019A-2), 4.250%, 5/1/2037 | 1,060,770 |
| 290,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-1), 0.000%, (Original Issue Yield: 6.930%), (Step Coupon 11/1/2021@6.610%), 5/1/2040 | 255,838 |
| 175,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-2), 0.000%, (Original Issue Yield: 6.752%), (Step Coupon 11/1/2024@6.610%), 5/1/2040 | 126,943 |
| 190,000 | 1,3 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 2015-3), 6.610%, 5/1/2040 | 2 |
| 155,000 | 1,3 | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series 3), 6.550%, 5/1/2027 | 2 |
| 70,000 | | Tolomato Community Development District, FL, Special Assessment Revenue Bonds (Series A-4), 0.000%, (Original Issue Yield: 6.610%), (Step Coupon 5/1/2022@6.610%), 5/1/2040 | 61,785 |
| 995,000 | | Verandah West, FL Community Development District, Capital Improvement Revenue Refunding Bonds (Series 2013), (Original Issue Yield: 5.125%), 5.000%, 5/1/2033 | 1,049,009 |
| 2,000,000 | | Willow Walk, FL Community Development District, Special Assessment Bonds (Series 2015), 5.625%, 5/1/2045 | 2,174,880 |
| | | TOTAL | 32,372,180 |
| | | Georgia—0.3% | |
| 1,000,000 | | Atlanta, GA Water & Wastewater, Revenue Refunding Bonds (Series 2015), 5.000%, 11/1/2040 | 1,191,540 |
| 500,000 | | Rockdale County, GA Development Authority (Pratt Paper, LLC), Revenue Refunding Bonds (Series 2018), 4.000%, 1/1/2038 | 557,905 |
| | | TOTAL | 1,749,445 |
| | | Hawaii—0.2% | |
| 1,000,000 | | Hawaii State Airports System Revenue Bonds (Series 2018A), 5.000%, 7/1/2048 | 1,239,600 |
| | | Idaho—0.5% | |
| 3,000,000 | | Idaho Health Facilities Authority (Terraces of Boise), Revenue Bonds (Series 2013A), (Original Issue Yield: 8.250%), 8.125%, 10/1/2049 | 3,299,580 |
| | | Illinois—10.1% | |
| 1,875,000 | | Chicago, IL Board of Education, UT GO Dedicated Refunding Bonds (Series 2018D), (Original Issue Yield: 5.210%), 5.000%, 12/1/2046 | 2,277,412 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $3,300,000 | | Chicago, IL Board of Education, UT GO Dedicated Revenue Bonds (Series 2017A), (Original Issue Yield: 7.650%), 7.000%, 12/1/2046 | $4,434,012 |
| 1,200,000 | | Chicago, IL Board of Education, UT GO Dedicated Revenue Bonds (Series 2017H), 5.000%, 12/1/2046 | 1,431,552 |
| 1,000,000 | | Chicago, IL Board of Education, UT GO Dedicated Revenue Refunding Bonds (Series 2018A), 5.000%, 12/1/2030 | 1,258,010 |
| 1,000,000 | | Chicago, IL Board of Education, UT GO Dedicated Revenue Refunding Bonds (Series 2018A), 5.000%, 12/1/2031 | 1,254,820 |
| 500,000 | | Chicago, IL Motor Fuel Tax, Motor Fuel Tax Revenue Refunding Bonds (Series 2013), (Assured Guaranty Municipal Corp. INS), 5.000%, 1/1/2033 | 557,380 |
| 1,125,000 | | Chicago, IL O'Hare International Airport (Trips Obligated Group), Senior Special Facilities Revenue Bonds (Series 2018), 5.000%, 7/1/2048 | 1,353,206 |
| 385,000 | | Chicago, IL O'Hare International Airport, General Airport Senior Lien Revenue Refunding Bonds (Series 2016B), 5.000%, 1/1/2041 | 459,909 |
| 275,000 | | Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011A), (Original Issue Yield: 5.940%), 5.750%, 1/1/2039 | 285,456 |
| 1,000,000 | | Chicago, IL Sales Tax, Revenue Refunding Bonds (Series 2002), (United States Treasury PRF 1/1/2025@100), 5.000%, 1/1/2032 | 1,198,500 |
| 1,250,000 | | Chicago, IL Water Revenue, Second Lien Water Revenue Bonds (Series 2014), 5.000%, 11/1/2044 | 1,414,838 |
| 3,000,000 | | Chicago, IL, UT GO Bonds (Series 2015A), (Original Issue Yield: 5.640%), 5.500%, 1/1/2033 | 3,511,770 |
| 2,500,000 | | Chicago, IL, UT GO Refunding Bonds (Series 2017A), (Original Issue Yield: 6.200%), 6.000%, 1/1/2038 | 3,147,325 |
| 1,250,000 | | Chicago, IL, UT GO Refunding Bonds (Series 2019A), 5.000%, 1/1/2044 | 1,506,500 |
| 314,000 | | DuPage County, IL (Naperville Campus LLC), Special Tax Bonds (Series 2006), 5.625%, 3/1/2036 | 316,455 |
| 2,000,000 | | Illinois Finance Authority (Admiral at the Lake), Revenue Refunding Bonds (Series 2017), 5.500%, 5/15/2054 | 2,150,220 |
| 800,000 | | Illinois Finance Authority (Dekalb Supportive Living Facility), Multi-Family Housing Revenue Bonds (Series 2007), 6.100%, 12/1/2041 | 800,328 |
| 1,000,000 | | Illinois Finance Authority (Lutheran Life Communities), Revenue Bonds (Series 2019A), 5.000%, 11/1/2049 | 1,097,070 |
| 1,250,000 | | Illinois Finance Authority (Noble Network of Charter Schools), Education Revenue Bonds (Series 2015), 5.000%, 9/1/2032 | 1,399,713 |
| 1,500,000 | | Illinois Finance Authority (Uno Charter School Network, Inc.), Charter School Refunding & Improvement Revenue Bonds (Series 2011A), 7.125%, 10/1/2041 | 1,591,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Illinois—continued | |
| $1,100,000 | | Illinois Finance Authority Educational Facility Revenue (Rogers Park Montessori School Project), Senior Revenue Bonds (Series 2014A), 6.125%, 2/1/2045 | $1,209,714 |
| 1,700,000 | | Illinois State Toll Highway Authority, Toll Highway Senior Revenue Bonds (Series 2019 A), 4.000%, 1/1/2039 | 2,023,272 |
| 2,000,000 | | Illinois State, UT GO Bonds (Series 2013A), 5.000%, 4/1/2035 | 2,204,200 |
| 8,000,000 | | Illinois State, UT GO Bonds (Series 2017D), 5.000%, 11/1/2027 | 9,956,080 |
| 2,025,000 | | Illinois State, UT GO Bonds (Series June 2013), (Original Issue Yield: 5.650%), 5.500%, 7/1/2038 | 2,272,637 |
| 1,485,000 | | Illinois State, UT GO Bonds (Series May 2014), 5.000%, 5/1/2023 | 1,659,473 |
| 1,000,000 | | Illinois State, UT GO Bonds (Series of February 2014), (Original Issue Yield: 5.040%), 5.000%, 2/1/2039 | 1,119,480 |
| 3,000,000 | | Illinois State, UT GO Rebuild Illinois Bonds (Series 2019B), 4.000%, 11/1/2035 | 3,503,010 |
| 3,000,000 | | Illinois State, UT GO Refunding Bonds (Series 2018A), 5.000%, 10/1/2032 | 3,762,510 |
| 410,000 | | Illinois State, UT GO Refunding Bonds (Series May 2012), 5.000%, 8/1/2025 | 447,257 |
| 2,000,000 | | Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project Bonds (Series 2015A), 5.500%, 6/15/2053 | 2,329,300 |
| 2,000,000 | 4 | Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project Bonds (Series 2017A), (Original Issue Yield: 5.250%), 12/15/2056 | 653,460 |
| 1,000,000 | | Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project Bonds (Series 2017A), 5.000%, 6/15/2057 | 1,178,380 |
| 1,000,000 | | Sales Tax Securitization Corp., IL, Sales Tax Revenue Bonds (Series 2017A), 5.000%, 1/1/2030 | 1,262,880 |
| | | TOTAL | 65,028,109 |
| | | Indiana—1.2% | |
| 1,250,000 | 1,3 | Carmel, IN (Barrington of Carmel), Revenue Bonds (Series 2012A), (Original Issue Yield: 7.200%), 7.125%, 11/15/2042 | 33,125 |
| 1,000,000 | 1,3 | Carmel, IN (Barrington of Carmel), Revenue Bonds (Series 2012A), (Original Issue Yield: 7.300%), 7.125%, 11/15/2047 | 26,500 |
| 4,000,000 | | Indiana State Finance Authority (Ohio River Bridges East End Crossing), Tax-Exempt Private Activity Bonds (Series 2013), 5.250%, 1/1/2051 | 4,486,040 |
| 1,000,000 | 2 | Indiana State Finance Authority (Res Polyflow Indiana Project), Exempt Facility Revenue Bonds (Series 2019 Green Bonds), (Original Issue Yield: 7.125%), 7.000%, 3/1/2039 | 1,032,960 |
| 2,000,000 | | Rockport, IN (AK Steel Corp.), Revenue Refunding Bonds (Series 2012-A), 7.000%, 6/1/2028 | 2,145,900 |
| | | TOTAL | 7,724,525 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Iowa—1.6% | |
| $950,478 | | Iowa Finance Authority (Deerfield Retirement Community, Inc.), Lifespace GTD Senior Living Facility Revenue Refunding Bonds (Series 2014A), 5.400%, 11/15/2046 | $1,031,069 |
| 206,686 | 3 | Iowa Finance Authority (Deerfield Retirement Community, Inc.), Senior Living Facility Revenue Refunding Bonds (Series 2014B), 2.000%, 5/15/2056 | 2,583 |
| 995,000 | | Iowa Finance Authority (Iowa Fertilizer Co. LLC), Midwestern Disaster Area Revenue Bonds (Series 2013) Exchange Bonds (Series B) TOBs, 5.250%, Mandatory Tender 12/1/2037 | 1,120,768 |
| 3,000,000 | | Iowa Finance Authority (Iowa Fertilizer Co. LLC), Midwestern Disaster Area Revenue Bonds (Series 2013), (Original Issue Yield: 5.300%), 5.250%, 12/1/2025 | 3,378,870 |
| 3,750,000 | | Tobacco Settlement Financing Corp., IA, Tobacco Settlement Asset-Backed Bonds (Series 2005C), (Original Issue Yield: 5.780%), 5.500%, 6/1/2042 | 3,789,900 |
| 1,060,000 | | Xenia Rural Water District, Water Revenue Refunding Capital Loan Notes (Series 2016), 5.000%, 12/1/2041 | 1,239,893 |
| | | TOTAL | 10,563,083 |
| | | Kentucky—0.7% | |
| 1,250,000 | | Kentucky Economic Development Finance Authority (Miralea), Revenue Bonds (Series 2011A), (Original Issue Yield: 7.400%), (United States Treasury PRF 5/15/2021@100), 7.375%, 5/15/2046 | 1,346,525 |
| 3,000,000 | | Kentucky Economic Development Finance Authority (Miralea), Revenue Bonds (Series 2016A), 5.000%, 5/15/2046 | 3,183,420 |
| | | TOTAL | 4,529,945 |
| | | Louisiana—0.8% | |
| 1,000,000 | | Calcasieu Parish, LA Memorial Hospital Service District (Lake Charles Memorial Hospital), Hospital Revenue Refunding Bonds (Series 2019), 5.000%, 12/1/2039 | 1,226,040 |
| 30,000 | | Louisiana Public Facilities Authority (Ochsner Clinic Foundation), Refunding Revenue Bonds (Series 2016), (United States Treasury PRF 5/15/2026@100), 5.000%, 5/15/2047 | 37,095 |
| 970,000 | | Louisiana Public Facilities Authority (Ochsner Clinic Foundation), Refunding Revenue Bonds (Series 2016), 5.000%, 5/15/2047 | 1,155,551 |
| 1,000,000 | | Louisiana Public Facilities Authority (Ochsner Clinic Foundation), Revenue Bonds (Series 2011), (Original Issue Yield: 6.650%), (United States Treasury PRF 5/15/2021@100), 6.500%, 5/15/2037 | 1,067,300 |
| 1,500,000 | | Tobacco Settlement Financing Corp., LA, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2013A), 5.250%, 5/15/2035 | 1,666,860 |
| | | TOTAL | 5,152,846 |
| | | Maine—0.8% | |
| 1,000,000 | | Maine Health & Higher Educational Facilities Authority (Eastern Maine Healthcare Systems Obligated Group), Revenue Bonds (Series 2016A), 5.000%, 7/1/2046 | 1,142,980 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Maine—continued | |
| $1,335,000 | | Maine Health & Higher Educational Facilities Authority (MaineGeneral Medical Center), Revenue Bonds (Series 2011), 7.500%, 7/1/2032 | $1,442,414 |
| 2,000,000 | 2 | Maine State Finance Authority Solid Waste Disposal (Casella Waste Systems, Inc.), Revenue Bonds (Series 2005R-3), 5.250%, 1/1/2025 | 2,279,860 |
| | | TOTAL | 4,865,254 |
| | | Maryland—2.0% | |
| 500,000 | | Baltimore, MD (Harbor Point), Special Obligation Refunding Bonds (Series 2016), (Original Issue Yield: 5.160%), 5.125%, 6/1/2043 | 547,835 |
| 1,500,000 | | Baltimore, MD Convention Center Hotel Revenue (Baltimore Hotel Corp.), Convention Center Hotel Revenue Refunding Bonds (Series 2017), 5.000%, 9/1/2046 | 1,779,420 |
| 955,000 | | Baltimore, MD Special Obligation (East Baltimore Research Park), Special Obligation Revenue Refunding Bonds (Series 2017A), 5.000%, 9/1/2038 | 1,091,985 |
| 1,980,000 | | Frederick County, MD (Jefferson Technology Park), Tax Increment & Special Tax B Limited Obligation Bonds (Series 2013B), (Original Issue Yield: 7.300%), 7.125%, 7/1/2043 | 2,007,403 |
| 1,060,000 | | Maryland State Economic Development Corp. (CONSOL Energy, Inc.), Port Facilities Refunding Revenue Bonds (Series 2010), 5.750%, 9/1/2025 | 1,080,840 |
| 200,000 | | Maryland State Economic Development Corp. (Ports America Chesapeake, Inc.), Transportation Facilities Revenue Refunding Bonds (Series 2017A), 5.000%, 6/1/2032 | 251,628 |
| 450,000 | | Maryland State Economic Development Corp. (Ports America Chesapeake, Inc.), Transportation Facilities Revenue Refunding Bonds (Series 2017A), 5.000%, 6/1/2035 | 562,495 |
| 1,000,000 | | Maryland State Economic Development Corp. (Purple Line Transit Partners LLC), Private Activity Revenue Bonds (Series 2016D Green Bonds), 5.000%, 3/31/2051 | 1,154,280 |
| 1,000,000 | 2 | Prince Georges County, MD (Westphalia Town Center), Special Obligation Revenue Bonds (Series 2018), (Original Issue Yield: 5.330%), 5.250%, 7/1/2048 | 1,143,940 |
| 1,000,000 | | Prince Georges County, MD Revenue Authority (Suitland-Naylor Road Project), Special Obligation Bonds (Series 2016), 5.000%, 7/1/2046 | 1,092,320 |
| 1,000,000 | | Rockville, MD Mayor & City Council Economic Development Revenue (Ingleside at King Farm), (Series 2017B), 5.000%, 11/1/2047 | 1,110,610 |
| 1,000,000 | | Westminster, MD (Lutheran Village at Miller's Grant, Inc.), Revenue Bonds (Series 2014A), (Original Issue Yield: 6.300%), 6.250%, 7/1/2044 | 1,123,590 |
| | | TOTAL | 12,946,346 |
| | | Massachusetts—0.7% | |
| 2,000,000 | | Massachusetts Development Finance Agency (Mass General Brigham), Revenue Refunding Bonds (Series 2016Q), 5.000%, 7/1/2047 | 2,405,780 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Massachusetts—continued | |
| $1,000,000 | 2 | Massachusetts Development Finance Agency (Newbridge on the Charles), Revenue Refunding Bonds (Series 2017), 5.000%, 10/1/2057 | $1,105,420 |
| 800,000 | | Massachusetts Development Finance Agency (Tufts Medical Center), Revenue Bonds (Series 2011I), (United States Treasury PRF 1/1/2021@100), 7.250%, 1/1/2032 | 842,544 |
| | | TOTAL | 4,353,744 |
| | | Michigan—2.3% | |
| 1,000,000 | | Detroit, MI City School District, School Building & Site Improvement Refunding Bonds (Series 2012A), (Michigan School Bond Qualification and Loan Program GTD), 5.000%, 5/1/2031 | 1,086,830 |
| 1,500,000 | | Detroit, MI Sewage Disposal System (Great Lakes, MI Water Authority Sewage Disposal System), Senior Lien Revenue Refunding Bonds (Series 2012A), (Original Issue Yield: 5.300%), 5.250%, 7/1/2039 | 1,645,815 |
| 1,000,000 | | Michigan State Finance Authority Revenue (Great Lakes, MI Water Authority Sewage Disposal System), Senior Lien Revenue Bonds (Series 2014 C-7), (National Public Finance Guarantee Corporation INS), 5.000%, 7/1/2032 | 1,154,640 |
| 1,000,000 | | Michigan State Finance Authority Revenue (Great Lakes, MI Water Authority Water Supply System), Senior Lien Revenue Bonds (Series 2014 D-6), (National Public Finance Guarantee Corporation INS), 5.000%, 7/1/2036 | 1,149,030 |
| 2,000,000 | | Michigan State Finance Authority Revenue (Public Lighting Authority), Local Government Loan Program Revenue Bonds (Series 2014B), 5.000%, 7/1/2044 | 2,232,260 |
| 5,000,000 | | Michigan Tobacco Settlement Finance Authority, Tobacco Settlement Asset-Backed Bonds (Series 2007A), (Original Issue Yield: 6.250%), 6.000%, 6/1/2048 | 5,102,850 |
| 1,500,000 | | Plymouth, MI Educational Center Charter School, Public School Academy Revenue Refunding Bonds, Series 2005, 5.625%, 11/1/2035 | 976,695 |
| 1,000,000 | | University of Michigan (The Regents of), General Revenue Bonds (Series 2015), 5.000%, 4/1/2040 | 1,216,430 |
| | | TOTAL | 14,564,550 |
| | | Minnesota—2.3% | |
| 750,000 | | Baytown Township, MN (St. Croix Preparatory Academy), Charter School Lease Revenue Refunding Bonds (Series 2016A), 4.000%, 8/1/2041 | 785,843 |
| 1,100,000 | | Baytown Township, MN (St. Croix Preparatory Academy), Charter School Lease Revenue Refunding Bonds (Series 2016A), 4.250%, 8/1/2046 | 1,163,822 |
| 2,000,000 | | Duluth, MN EDA (St. Luke's Hospital of Duluth Obligated Group), Health Care Facilities Revenue Bonds (Series 2012), 6.000%, 6/15/2039 | 2,198,280 |
| 1,700,000 | | Forest Lake, MN (Lakes International Language Academy), Charter School Lease Revenue Bonds (Series 2014A), 5.750%, 8/1/2044 | 1,837,479 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Minnesota—continued | |
| $1,000,000 | | Forest Lake, MN (Lakes International Language Academy), Charter School Lease Revenue Bonds (Series 2018A), 5.375%, 8/1/2050 | $1,147,530 |
| 3,000,000 | 2 | Minneapolis, MN Charter School Lease Revenue (Twin Cities International School), (Series 2017A), (Original Issue Yield: 5.150%), 5.000%, 12/1/2047 | 3,136,890 |
| 2,000,000 | | St. Cloud, MN Charter School (Stride Academy), Lease Revenue Bonds (Series 2016A), 5.000%, 4/1/2046 | 1,369,100 |
| 2,000,000 | | St. Paul and Ramsey County, MN Housing and Redevelopment Authority (Twin Cities Academy), Charter School Lease Revenue Bonds (Series 2015A), 5.375%, 7/1/2050 | 2,196,020 |
| 325,000 | | Winona, MN Port Authority (Bluffview Montessori School Project), Lease Revenue Bonds (Series 2016A), 4.500%, 6/1/2036 | 332,543 |
| 750,000 | | Winona, MN Port Authority (Bluffview Montessori School Project), Lease Revenue Bonds (Series 2016A), 4.750%, 6/1/2046 | 769,950 |
| | | TOTAL | 14,937,457 |
| | | Mississippi—0.2% | |
| 945,000 | | Warren County, MS Gulf Opportunity Zone (International Paper Co.), Gulf Opportunity Zone Bonds (Series 2011A), 5.375%, 12/1/2035 | 1,013,267 |
| | | Missouri—0.7% | |
| 1,000,000 | | Kansas City, MO IDA, Airport Special Obligation Bonds (Kansas City International Airport Terminal Modernization Project) Series 2019B, 5.000%, 3/1/2035 | 1,272,730 |
| 2,000,000 | 2 | Kansas City, MO Redevelopment Authority (Kansas City Convention Center Headquarters Hotel CID), Revenue Bonds (Series 2018B), (Original Issue Yield: 5.079%), 5.000%, 2/1/2050 | 2,281,300 |
| 1,000,000 | | Kirkwood, MO IDA (Aberdeen Heights Project), Retirement Community Revenue Bonds (Series 2017A), 5.250%, 5/15/2050 | 1,153,780 |
| | | TOTAL | 4,707,810 |
| | | Montana—0.4% | |
| 900,000 | | Kalispell, MT Housing and Healthcare Facilities (Immanuel Lutheran Corp.), Revenue Bonds (Series 2017A), 5.250%, 5/15/2047 | 985,203 |
| 1,250,000 | | Kalispell, MT Housing and Healthcare Facilities (Immanuel Lutheran Corp.), Revenue Bonds (Series 2017A), 5.250%, 5/15/2052 | 1,365,213 |
| | | TOTAL | 2,350,416 |
| | | Nebraska—1.5% | |
| 2,500,000 | | Central Plains Energy Project, NE, Gas Project Revenue Bonds (Project No. 3) (Series 2012), (Goldman Sachs Group, Inc. GTD), 5.250%, 9/1/2037 | 2,748,075 |
| 4,700,000 | | Central Plains Energy Project, NE, Gas Project Revenue Bonds (Project No. 3) (Series 2017A), (Goldman Sachs Group, Inc. GTD), 5.000%, 9/1/2042 | 6,957,927 |
| | | TOTAL | 9,706,002 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Nevada—1.1% | |
| $905,000 | 2 | Director of the State of Nevada Department of Business and Industry (Doral Academy of Nevada CS), Charter School Revenue Bonds (Series 2017A), 5.000%, 7/15/2047 | $994,070 |
| 1,000,000 | 2 | Director of the State of Nevada Department of Business and Industry (Somerset Academy of Las Vegas), Charter School Lease Revenue Bonds (Series 2018A), 5.000%, 12/15/2048 | 1,080,590 |
| 995,000 | | Las Vegas, NV (Summerlin Village 24 SID No. 812), Local Improvement Bonds (Series 2015), 5.000%, 12/1/2035 | 1,109,813 |
| 1,500,000 | | Las Vegas, NV Redevelopment Agency, Tax Increment Revenue Refunding Bonds (Series 2016), 5.000%, 6/15/2045 | 1,736,310 |
| 1,000,000 | | Las Vegas, NV Special Improvement District No. 814 (Summerlin Villages 21 & 24A), Local Improvement Bonds (Series 2019), 4.000%, 6/1/2044 | 1,073,450 |
| 700,000 | | North Las Vegas, NV Special Improvement District No. 64 (Valley Vista), Local Improvement Bonds (Series 2019), 4.625%, 6/1/2049 | 767,081 |
| | | TOTAL | 6,761,314 |
| | | New Hampshire—0.3% | |
| 1,500,000 | 2 | New Hampshire Health and Education Facilities Authority (Hillside Village), Revenue Bonds (Series 20017A), (Original Issue Yield: 6.375%), 6.125%, 7/1/2052 | 1,674,180 |
| | | New Jersey—4.3% | |
| 1,000,000 | | Essex County, NJ Improvement Authority (Covanta Energy Corp.), Solid Waste Disposal Revenue Bonds (Series 2015), 5.250%, 7/1/2045 | 1,012,950 |
| 180,000 | | New Jersey EDA (New Jersey State), School Facilities Construction Bonds (Series 2015 WW), (United States Treasury PRF 6/15/2025@100), 5.250%, 6/15/2040 | 221,249 |
| 3,075,000 | | New Jersey EDA (New Jersey State), School Facilities Construction Bonds (Series 2015 WW), 5.250%, 6/15/2040 | 3,578,131 |
| 580,000 | | New Jersey EDA (New Jersey State), School Facilities Construction Refunding Bonds (Series 2017 DDD), 5.000%, 6/15/2042 | 690,548 |
| 3,000,000 | | New Jersey EDA (New Jersey State), School Facilities Construction Revenue Refunding Bonds (Series 2013NN), 5.000%, 3/1/2030 | 3,310,050 |
| 1,335,000 | | New Jersey EDA (Port Newark Container Terminal LLC), Special Facilities Revenue and Refunding Bonds (Series 2017), 5.000%, 10/1/2047 | 1,571,402 |
| 1,000,000 | | New Jersey EDA (UMM Energy Partners LLC), Energy Facility Revenue Bonds (Series 2012A), (Original Issue Yield: 5.190%), 5.125%, 6/15/2043 | 1,070,190 |
| 1,500,000 | | New Jersey EDA (United Airlines, Inc.), Special Facilities Revenue Bonds (Series 2003), 5.500%, 6/1/2033 | 1,687,365 |
| 2,500,000 | | New Jersey EDA (United Airlines, Inc.), Special Facility Revenue Bonds (Series 1999), 5.250%, 9/15/2029 | 2,750,625 |
| 1,125,000 | | New Jersey EDA (United Airlines, Inc.), Special Facility Revenue Bonds (Series 2000B), 5.625%, 11/15/2030 | 1,304,325 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New Jersey—continued | |
| $1,280,000 | | New Jersey EDA Motor Vehicle Surcharge Revenue, Subordinate Revenue Refunding Bonds (Series 2017A), 5.000%, 7/1/2033 | $1,555,789 |
| 1,200,000 | | New Jersey State Transportation Trust Fund Authority (New Jersey State), Transportation System Bonds (Series 2011A), (United States Treasury PRF 6/15/2021@100), 6.000%, 6/15/2035 | 1,279,656 |
| 1,000,000 | | New Jersey State Transportation Trust Fund Authority (New Jersey State), Transportation System Bonds (Series 2018A), 5.000%, 12/15/2036 | 1,246,090 |
| 500,000 | | South Jersey Port Corp., Subordinate Marine Terminal Revenue Bonds (Series 2017B), 5.000%, 1/1/2048 | 591,840 |
| 4,610,000 | | Tobacco Settlement Financing Corp., NJ, Tobacco Settlement Asset-Backed Subordinate Refunding Bonds (Series 2018B), 5.000%, 6/1/2046 | 5,426,108 |
| | | TOTAL | 27,296,318 |
| | | New Mexico—0.5% | |
| 1,000,000 | | New Mexico State Hospital Equipment Loan Council (Gerald Champion Regional Medical Center), Hospital Improvement and Refunding Revenue Bonds (Series 2012A), (Original Issue Yield: 5.700%), 5.500%, 7/1/2042 | 1,081,110 |
| 2,000,000 | 2 | Winrock Town Center, NM Tax Increment Development District 1, Senior Lien Gross Receipts Tax Increment Bonds (Series 2015), (Original Issue Yield: 6.120%), 6.000%, 5/1/2040 | 2,064,200 |
| | | TOTAL | 3,145,310 |
| | | New York—5.2% | |
| 1,000,000 | 2 | Build NYC Resource Corporation (Albert Einstein School of Medicine, Inc.), Revenue Bonds (Series 2015), 5.500%, 9/1/2045 | 1,168,780 |
| 5,000,000 | 4 | Glen Cove, NY Local Economic Assistance Corp. (Garvies Point Public Improvement Project), Capital Appreciation Revenue Bonds (Series 2016B), (Original Issue Yield: 6.000%), 1/1/2045 | 2,092,200 |
| 1,550,000 | | Glen Cove, NY Local Economic Assistance Corp. (Garvies Point Public Improvement Project), Revenue Bonds (Series 2016A), (Original Issue Yield: 5.080%), 5.000%, 1/1/2056 | 1,732,946 |
| 20,000 | | Hudson Yards Infrastructure Corp. NY, Hudson Yards Senior Revenue Bonds (Series 2012A), (United States Treasury PRF 2/15/2021@100), 5.750%, 2/15/2047 | 20,955 |
| 2,000,000 | | Metropolitan Transportation Authority, NY (MTA Transportation Revenue), Revenue Bonds (Series 2014D-1), 5.000%, 11/15/2039 | 2,320,940 |
| 5,000,000 | 2,6 | Metropolitan Transportation Authority, NY (MTA Transportation Revenue), Trust Receipts/Certificates (Series 2019-FG0227) MUNINVs, (Assured Guaranty Municipal Corp. INS), 7.551%, 11/15/2046 | 6,619,400 |
| 1,500,000 | | Nassau County, NY IDA (Amsterdam at Harborside), Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2014A), 6.700%, 1/1/2049 | 1,504,965 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | New York—continued | |
| $599,544 | | Nassau County, NY IDA (Amsterdam at Harborside), Continuing Care Retirement Community Fixed Rate Revenue Bonds (Series 2014C), 2.000%, 1/1/2049 | $89,932 |
| 1,000,000 | | New York Counties Tobacco Trust VI, Tobacco Settlement Pass-Through Bonds (Series 201A-2B), 5.000%, 6/1/2051 | 1,066,090 |
| 2,000,000 | 2 | New York Liberty Development Corporation (3 World Trade Center), Revenue Bonds (Series 2014 Class 1), 5.000%, 11/15/2044 | 2,251,540 |
| 1,000,000 | 2 | New York Liberty Development Corporation (3 World Trade Center), Revenue Bonds (Series 2014 Class 2), 5.375%, 11/15/2040 | 1,147,740 |
| 1,500,000 | | New York State Thruway Authority (New York State Thruway Authority—General Revenue), General Revenue Junior Indebtedness Obligations (Series 2019B), 4.000%, 1/1/2039 | 1,808,235 |
| 2,900,000 | | New York Transportation Development Corporation (American Airlines, Inc.), Special Facility Revenue Refunding Bonds (Series 2016), 5.000%, 8/1/2031 | 3,036,271 |
| 1,000,000 | | New York Transportation Development Corporation (Delta Air Lines, Inc.), LaGuardia Airport Terminals Special Facilities Revenue Bonds (Series 2018), 5.000%, 1/1/2034 | 1,237,040 |
| 1,120,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), (Original Issue Yield: 5.400%), (United States Treasury PRF 6/15/2022@100), 5.250%, 6/15/2029 | 1,226,904 |
| 1,185,000 | | Newburgh, NY, UT GO Bonds (Series 2012A), (United States Treasury PRF 6/15/2022@100), 5.500%, 6/15/2030 | 1,304,780 |
| 1,000,000 | | Niagara Area Development Corporation, NY (Covanta Energy Corp.), Solid Waste Disposal Facility Revenue Refunding Bonds (Series 2018A), 4.750%, 11/1/2042 | 1,079,030 |
| 2,500,000 | | Port Authority of New York and New Jersey (JFK International Air Terminal LLC), Special Project Bonds (Series 8), (Original Issue Yield: 6.150%), 6.000%, 12/1/2042 | 2,594,725 |
| 1,000,000 | | TSASC, Inc. NY, Tobacco Settlement Asset Backed Senior Refunding Bonds (Series 2017A), 5.000%, 6/1/2041 | 1,158,940 |
| | | TOTAL | 33,461,413 |
| | | North Carolina—0.9% | |
| 2,250,000 | | North Carolina Department of Transportation (I-77 HOT Lanes), Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.000%, 6/30/2054 | 2,560,297 |
| 1,000,000 | | North Carolina Medical Care Commission (United Methodist Retirement Homes), Revenue Refunding Bonds (Series 2017A), 5.000%, 10/1/2037 | 1,136,870 |
| 1,000,000 | | North Carolina Medical Care Commission (United Methodist Retirement Homes), Revenue Refunding Bonds (Series 2017A), 5.000%, 10/1/2047 | 1,127,380 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | North Carolina—continued | |
| $1,000,000 | | North Carolina Medical Care Commission (Whitestone Project), Retirement Facilities First Mortgage Revenue Bonds (Series 2011A), (Original Issue Yield: 8.000%), (United States Treasury PRF 3/1/2021@100), 7.750%, 3/1/2041 | $1,066,730 |
| | | TOTAL | 5,891,277 |
| | | Ohio—4.7% | |
| 1,000,000 | | American Municipal Power-Ohio, Inc. (American Municipal Power, Prairie State Energy Campus Project), Refunding Revenue Bonds (Series 2015A), 5.000%, 2/15/2039 | 1,136,540 |
| 8,610,000 | | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Refunding Bonds (Series 2020B-2 Class 2), 5.000%, 6/1/2055 | 9,721,034 |
| 20,000,000 | 4 | Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Senior Capital Appreciation Refunding Bonds (Series 2020B-3 Class 2), (Original Issue Yield: 5.625%), 6/1/2057 | 2,810,000 |
| 1,000,000 | | Cuyahoga County, OH Hospital Authority (MetroHealth System), Hospital Revenue Bonds (Series 2017), 5.500%, 2/15/2057 | 1,199,160 |
| 1,500,000 | | Hamilton County, OH (Life Enriching Communities), Healthcare Revenue Bonds (Series 2011A), (Original Issue Yield: 6.750%), (United States Treasury PRF 1/1/2021@100), 6.625%, 1/1/2046 | 1,571,280 |
| 2,000,000 | | Muskingum County, OH (Genesis Healthcare Corp.), Hospital Facilities Revenue Bonds (Series 2013), (Original Issue Yield: 5.080%), 5.000%, 2/15/2044 | 2,171,360 |
| 4,000,000 | | Northeast OH Regional Sewer District, Wastewater Improvement Revenue & Refunding Bonds (Series 2014), (United States Treasury PRF 11/15/2024@100), 5.000%, 11/15/2044 | 4,783,600 |
| 1,800,000 | 2 | Ohio Air Quality Development Authority (AMG Vanadium LLC), Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049 | 2,083,014 |
| 1,000,000 | | Ohio Air Quality Development Authority (Pratt Paper, LLC), Exempt Facilities Revenue Bonds (Series 2017), 4.500%, 1/15/2048 | 1,139,700 |
| 1,125,000 | | Ohio State Hospital Revenue (University Hospitals Health System, Inc.), Hospital Revenue Bonds (Series 2016A), 5.000%, 1/15/2041 | 1,320,345 |
| 1,000,000 | | Ohio State Treasurer Private Activity (Portsmouth Gateway Group LLC), Revenue Bonds (Series 2015), 5.000%, 6/30/2053 | 1,138,980 |
| 750,000 | | Southeastern Ohio Port Authority, OH (Memorial Health System, OH), Hospital Facilities Revenue Refunding & Improvement Bonds (Series 2012), (Original Issue Yield: 6.020%), 6.000%, 12/1/2042 | 816,053 |
| | | TOTAL | 29,891,066 |
| | | Oklahoma—1.6% | |
| 1,000,000 | | Oklahoma Development Finance Authority (OU Medicine), Hospital Revenue Bonds (Series 2018B), 5.500%, 8/15/2057 | 1,236,290 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Oklahoma—continued | |
| $2,000,000 | | Tulsa, OK Industrial Authority (Montereau, Inc.), Senior Living Community Revenue Bonds (Series 2010A), (Original Issue Yield: 7.500%), (United States Treasury PRF 5/1/2020@100), 7.250%, 11/1/2045 | $2,020,220 |
| 1,750,000 | | Tulsa, OK Industrial Authority (Montereau, Inc.), Senior Living Community Revenue Refunding Bonds (Series 2017), 5.250%, 11/15/2045 | 2,012,255 |
| 3,000,000 | | Tulsa, OK Municipal Airport Trust (American Airlines, Inc.), Refunding Revenue Bonds (Series 2000B), 5.500%, 6/1/2035 | 3,330,900 |
| 1,500,000 | | Tulsa, OK Municipal Airport Trust (American Airlines, Inc.), Refunding Revenue Bonds (Series 2015) TOBs, 5.000%, Mandatory Tender 6/1/2025 | 1,721,115 |
| | | TOTAL | 10,320,780 |
| | | Oregon—0.5% | |
| 440,000 | | Clackamas County, OR Hospital Facilities Authority (Mary's Woods at Marylhurst, Inc.), Senior Living Revenue Bonds (Series2018A), 5.000%, 5/15/2038 | 499,655 |
| 635,000 | | Clackamas County, OR Hospital Facilities Authority (Mary's Woods at Marylhurst, Inc.), Senior Living Revenue Bonds (Series2018A), 5.000%, 5/15/2043 | 716,102 |
| 400,000 | | Clackamas County, OR Hospital Facilities Authority (Mary's Woods at Marylhurst, Inc.), Senior Living Revenue Bonds (Series2018A), 5.000%, 5/15/2048 | 449,424 |
| 500,000 | | Clackamas County, OR Hospital Facilities Authority (Mary's Woods at Marylhurst, Inc.), Senior Living Revenue Bonds (Series2018A), 5.000%, 5/15/2052 | 560,745 |
| 250,000 | | Yamhill County, OR Hospital Authority (Friendsview Retirement Community), Revenue Refunding Bonds (Series 2016A), 5.000%, 11/15/2036 | 282,470 |
| 550,000 | | Yamhill County, OR Hospital Authority (Friendsview Retirement Community), Revenue Refunding Bonds (Series 2016A), 5.000%, 11/15/2051 | 614,383 |
| | | TOTAL | 3,122,779 |
| | | Pennsylvania—3.5% | |
| 3,715,000 | | Allentown, PA Neighborhood Improvement Zone Development Authority, Tax Revenue Bonds (Series 2012A), 5.000%, 5/1/2042 | 3,963,794 |
| 2,000,000 | | Bucks County, PA IDA (School Lane Charter School), (Series 2016A), 5.125%, 3/15/2046 | 2,315,060 |
| 500,000 | | Butler County, PA Hospital Authority (Butler Health System), Hospital Revenue Bonds (Series 2015A), 5.000%, 7/1/2035 | 581,610 |
| 1,200,000 | | Chester County, PA IDA (Avon Grove Charter School), Revenue Bonds (Series 2017A), 5.000%, 12/15/2047 | 1,388,880 |
| 800,000 | | Chester County, PA IDA (Avon Grove Charter School), Revenue Bonds (Series 2017A), 5.000%, 12/15/2051 | 923,360 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Pennsylvania—continued | |
| $1,000,000 | | Clairton Municipal Authority, PA, Sewer Revenue Bonds (Series 2012B), (Original Issue Yield: 5.050%), 5.000%, 12/1/2042 | $1,089,230 |
| 1,250,000 | | Pennsylvania Economic Development Financing Authority (Pennsylvania Rapid Bridge Replacement), Tax-Exempt Private Activity Revenue Bonds (Series 2015), 5.000%, 12/31/2038 | 1,484,937 |
| 2,000,000 | | Pennsylvania EDFA (National Gypsum Co.), Exempt Facilities Refunding Revenue Bonds (Series 2014), 5.500%, 11/1/2044 | 2,161,620 |
| 1,000,000 | | Philadelphia, PA Authority for Industrial Development (Global Leadership Academy Charter School), Revenue Bonds (Series 2010), 6.375%, 11/15/2040 | 1,021,180 |
| 1,205,000 | | Philadelphia, PA Authority for Industrial Development (New Foundations Charter School), Revenue Bonds (Series 2012), (United States Treasury PRF 12/15/2022@100), 6.625%, 12/15/2041 | 1,391,655 |
| 810,000 | | Philadelphia, PA Authority for Industrial Development (PresbyHomes Germantown/Morrisville), Senior Living Revenue Bonds (Series 2005A), 5.625%, 7/1/2035 | 811,328 |
| 1,665,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Temple University Health System Obligated Group), Hospital Revenue Bonds (Series 2012A), (Original Issue Yield: 5.875%), 5.625%, 7/1/2042 | 1,810,754 |
| 500,000 | | Philadelphia, PA School District, GO Bonds (Series 2019A), (Pennsylvania School District Intercept Program GTD), 4.000%, 9/1/2039 | 578,665 |
| 1,000,000 | | Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2017A), 5.000%, 10/1/2052 | 1,219,360 |
| 1,500,000 | | Reading Area Water Authority, PA, Water Revenue Bonds (Series 2011), (Original Issue Yield: 5.270%), 5.250%, 12/1/2036 | 1,613,535 |
| | | TOTAL | 22,354,968 |
| | | Puerto Rico—3.0% | |
| 4,000,000 | 1,3 | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2010XX-RSA-1), 5.250%, 7/1/2040 | 3,195,000 |
| 995,000 | 1,3 | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2012A-RSA-1), 5.050%, 7/1/2042 | 792,269 |
| 310,000 | 1,3 | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A-RSA-1), 7.000%, 7/1/2033 | 253,813 |
| 195,000 | 1,3 | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A-RSA-1), 7.000%, 7/1/2040 | 159,656 |
| 2,500,000 | 1,3 | Puerto Rico Electric Power Authority, Power Revenue Bonds (Series 2013A-RSA-1), 7.000%, 7/1/2043 | 2,046,875 |
| 8,000,000 | | Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax Bonds (Series 2019A), (Original Issue Yield: 5.154%), 5.000%, 7/1/2058 | 9,154,960 |
| 3,338,000 | | Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax Bonds (Series 2019A-1), 4.550%, 7/1/2040 | 3,755,817 |
| | | TOTAL | 19,358,390 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Rhode Island—0.8% | |
| $1,375,000 | | Rhode Island State Health and Educational Building Corp. (Care New England), Hospital Financing Revenue Refunding Bonds (Series 2016B), 5.000%, 9/1/2036 | $1,596,843 |
| 500,000 | | Rhode Island State Health and Educational Building Corp. (Lifespan Obligated Group), Hospital Financing Revenue Refunding Bonds (Series 2016), 5.000%, 5/15/2039 | 587,375 |
| 2,730,000 | | Tobacco Settlement Financing Corp., RI, Tobacco Settlement Asset-Backed Bonds (Series 2015B), 5.000%, 6/1/2050 | 2,987,466 |
| | | TOTAL | 5,171,684 |
| | | South Carolina—0.5% | |
| 1,000,000 | | Berkeley County, SC (Nexton Improvement District), Assessment Revenue Bonds (Series 2019), 4.375%, 11/1/2049 | 1,044,030 |
| 1,000,000 | | South Carolina Jobs-EDA (South Carolina Episcopal Home at Still Hopes), Residential Care Facilities Revenue Bonds (Series 2017), 5.000%, 4/1/2047 | 1,118,780 |
| 1,000,000 | | South Carolina Jobs-EDA (South Carolina Episcopal Home at Still Hopes), Residential Care Facilities Revenue Bonds (Series 2017), 5.000%, 4/1/2052 | 1,116,250 |
| | | TOTAL | 3,279,060 |
| | | South Dakota—0.3% | |
| 1,000,000 | | Sioux Falls, SD Health Facilities Revenue (Dow Rummel Village), (Series 2017), (Original Issue Yield: 5.050%), 5.000%, 11/1/2042 | 1,084,060 |
| 1,000,000 | | Sioux Falls, SD Health Facilities Revenue (Dow Rummel Village), (Series 2017), (Original Issue Yield: 5.200%), 5.125%, 11/1/2047 | 1,087,090 |
| | | TOTAL | 2,171,150 |
| | | Tennessee—1.6% | |
| 1,200,000 | | Blount County, TN Health and Educational Facilities Board (Asbury, Inc.), Revenue Refunding and Improvement Bonds (Series 2016A), 5.000%, 1/1/2047 | 1,256,400 |
| 3,500,000 | | Greenville, TN Health and Educational Facilities Board (Ballad Health), Hospital Revenue Bonds (Series 2018A), 5.000%, 7/1/2036 | 4,321,170 |
| 1,000,000 | | Greenville, TN Health and Educational Facilities Board (Ballad Health), Hospital Revenue Bonds (Series 2018A), 5.000%, 7/1/2037 | 1,228,920 |
| 500,000 | | Metropolitan Nashville Tennessee Airport Authority, Subordinate Airport Revenue Bonds (Series 2019B), 4.000%, 7/1/2049 | 585,380 |
| 2,725,000 | | Tennessee Energy Acquisition Corp., Gas Revenue Bonds (Series 2006A), (Goldman Sachs Group, Inc. GTD), 5.250%, 9/1/2023 | 3,094,428 |
| | | TOTAL | 10,486,298 |
| | | Texas—8.8% | |
| 1,100,000 | | Arlington, TX Higher Education Finance Corp. (Uplift Education), Revenue Bonds (Series 2016A), 5.000%, 12/1/2046 | 1,258,972 |
| 500,000 | | Austin, TX Airport System, Airport System Revenue Bonds (Series 2014), 5.000%, 11/15/2044 | 572,940 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $250,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel First Tier Revenue Refunding Bonds (Series 2017A), 5.000%, 1/1/2034 | $300,170 |
| 250,000 | | Austin, TX Convention Center Enterprises, Inc., Convention Center Hotel Second Tier Revenue Refunding Bonds (Series 2017B), 5.000%, 1/1/2034 | 294,900 |
| 1,000,000 | | Board of Managers, Joint Guadalupe County-City of Seguin, TX, Hospital Mortgage Revenue Refunding & Improvement Bonds (Series 2015), (Original Issue Yield: 5.080%), 5.000%, 12/1/2045 | 1,097,570 |
| 1,000,000 | | Central Texas Regional Mobility Authority, Senior Lien Revenue Refunding Bonds (Series 2016), 5.000%, 1/1/2046 | 1,183,470 |
| 2,000,000 | | Clifton Higher Education Finance Corporation, TX (Idea Public Schools), 6.000%, 8/15/2043 | 2,299,320 |
| 750,000 | | Clifton Higher Education Finance Corporation, TX (Idea Public Schools), Education Revenue Bonds (Series 2011), (Original Issue Yield: 6.000%), (United States Treasury PRF 8/15/2021@100), 5.750%, 8/15/2041 | 803,640 |
| 500,000 | | Clifton Higher Education Finance Corporation, TX (Idea Public Schools), Education Revenue Bonds (Series 2012), 5.000%, 8/15/2042 | 538,275 |
| 1,000,000 | | Clifton Higher Education Finance Corporation, TX (Idea Public Schools), Revenue Bonds (Series 2014), (Texas Permanent School Fund Guarantee Program GTD), 5.000%, 8/15/2039 | 1,147,920 |
| 2,000,000 | | Clifton Higher Education Finance Corporation, TX (Uplift Education), Revenue Bonds (Series 2015A), 5.000%, 12/1/2050 | 2,216,040 |
| 1,500,000 | | Decatur, TX Hospital Authority (Wise Regional Health System), Hospital Revenue Bonds (Series 2014A), (Original Issue Yield: 5.300%), 5.250%, 9/1/2044 | 1,674,540 |
| 515,000 | | Decatur, TX Hospital Authority (Wise Regional Health System), Revenue Bonds, 6.375%, 9/1/2042 | 591,750 |
| 3,000,000 | | Grand Parkway Transportation Corp., TX, First Tier Toll Revenue Refunding Bonds (Series 2020C), 4.000%, 10/1/2049 | 3,552,990 |
| 1,110,000 | | Grand Parkway Transportation Corp., TX, Subordinate Tier Toll Revenue Bonds (Series 2013B TELA Supported), (United States Treasury PRF 10/1/2023@100), 5.250%, 10/1/2051 | 1,279,619 |
| 1,500,000 | | Houston, TX Airport System (United Airlines, Inc.), Special Facilities Revenue & Refunding Bonds (Series 2011), (Original Issue Yield: 6.875%), 6.625%, 7/15/2038 | 1,596,075 |
| 2,000,000 | | Houston, TX Airport System (United Airlines, Inc.), Special Facilities Revenue Bonds (Series 2015B-1), 5.000%, 7/15/2035 | 2,297,640 |
| 500,000 | | Houston, TX Airport System (United Airlines, Inc.), Special Facilities Revenue Refunding Bonds (Series 2014), (Original Issue Yield: 4.900%), 4.750%, 7/1/2024 | 544,940 |
| 1,000,000 | | Houston, TX Airport System (United Airlines, Inc.), Special Facilities Revenue Refunding Bonds (Series 2014), (Original Issue Yield: 5.150%), 5.000%, 7/1/2029 | 1,130,520 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $1,000,000 | | Houston, TX Airport System, Subordinate Lien Revenue Refunding Bonds (Series 2012A), 5.000%, 7/1/2032 | $1,086,980 |
| 535,000 | | Houston, TX Higher Education Finance Corp. (Cosmos Foundation, Inc.), Education Revenue Bonds (Series 2011A), (United States Treasury PRF 5/15/2021@100), 6.875%, 5/15/2041 | 573,392 |
| 1,500,000 | | Irving, TX Hospital Authority (Baylor Scott & White Medical Center, Irving), Hospital Revenue Bonds (Series 2017A), 5.000%, 10/15/2044 | 1,749,600 |
| 2,000,000 | | La Vernia, TX Higher Education Finance Corporation (Meridian World School), Education Revenue Bonds (Series 2015A), 5.500%, 8/15/2045 | 2,246,680 |
| 1,500,000 | 2 | Mission, TX Economic Development Corporation (Natgasoline), Senior Lien Revenue Bonds (Series 2018), (Original Issue Yield: 4.716%), 4.625%, 10/1/2031 | 1,628,790 |
| 2,000,000 | | New Hope Cultural Education Facilities Finance Corporation (Longhorn Village), Retirement Facilities Revenue Bonds (Series 2017), 5.000%, 1/1/2047 | 2,192,480 |
| 700,000 | | New Hope Cultural Education Facilities Finance Corporation (MRC Crestview), Retirement Facility Revenue Bonds (Series 2016), 5.000%, 11/15/2046 | 780,290 |
| 1,000,000 | | New Hope Cultural Education Facilities Finance Corporation (MRC Langford), Retirement Facilities Revenue Bonds (Series 2016A), (Original Issue Yield: 5.530%), 5.500%, 11/15/2052 | 1,081,850 |
| 1,500,000 | | North Texas Tollway Authority, First Tier Revenue Refunding Bonds (Series 2016A), 5.000%, 1/1/2026 | 1,735,725 |
| 600,000 | | North Texas Tollway Authority, First Tier Revenue Refunding Bonds (Series 2016A), 5.000%, 1/1/2039 | 722,766 |
| 2,000,000 | | Red River, TX HFDC (MRC The Crossings), Retirement Facility Revenue Bonds (Series 2014A), 8.000%, 11/15/2049 | 2,403,100 |
| 2,500,000 | | San Antonio, TX Electric & Gas System, Revenue Refunding Bonds (Series 2017), 5.000%, 2/1/2042 | 3,063,725 |
| 1,000,000 | | San Juan Higher Education Finance Authority, TX (Idea Public Schools), Education Revenue Bonds (Series 2010A), (United States Treasury PRF 8/15/2020@100), 6.700%, 8/15/2040 | 1,025,980 |
| 1,500,000 | 1,3 | Tarrant County, TX Cultural Education Facilities Finance Corp. (Buckingham Senior Living Community), Retirement Facility Revenue Bonds (Series 2015A Fixed Rate Bonds), 5.500%, 11/15/2045 | 1,050,000 |
| 2,655,000 | | Tarrant County, TX Cultural Education Facilities Finance Corp. (Buckner Senior Living-Ventana Project), Retirement Facility Revenue Bonds (Series 2017A), (Original Issue Yield: 6.770%), 6.750%, 11/15/2052 | 3,194,177 |
| 2,000,000 | | Texas Private Activity Bonds Surface Transportation Corporation (Blueridge Transportation Group, LLC SH 288 Toll Lanes), Senior Lien Revenue Bonds (Series 2016), 5.000%, 12/31/2055 | 2,318,380 |
| 2,680,000 | | Texas State Transportation Commission (Central Texas Turnpike System), Second Tier Revenue Refunding Bonds (Series 2015-C), 5.000%, 8/15/2042 | 3,092,077 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Texas—continued | |
| $545,000 | | Texas State Transportation Commission (State Highway 249 System), First Tier Toll Revenue Bonds (Series 2019A), 5.000%, 8/1/2057 | $668,639 |
| 1,500,000 | | Texas Water Development Board, State Revolving Fund Revenue Bonds (Series 2018), 4.000%, 8/1/2036 | 1,771,545 |
| | | TOTAL | 56,767,467 |
| | | Utah—0.5% | |
| 1,000,000 | | Salt Lake City, UT Airport Revenue, Airport Revenue Bonds (Series 2018A), 5.000%, 7/1/2048 | 1,230,940 |
| 2,000,000 | 2 | Utah State Charter School Finance Authority (Freedom Academy Foundation), Charter School Revenue Refunding Bonds (Series 2017), (Original Issue Yield: 5.500%), 5.375%, 6/15/2048 | 2,147,300 |
| | | TOTAL | 3,378,240 |
| | | Vermont—0.2% | |
| 1,000,000 | 2 | Vermont EDA (Casella Waste Systems, Inc.), Solid Waste Disposal Revenue Bonds (Series 2013) TOBs, 4.625%, Mandatory Tender 4/3/2028 | 1,158,600 |
| | | Virginia—1.7% | |
| 1,800,000 | | Chesapeake Bay Bridge & Tunnel District, VA, First Tier General Resolution Revenue Bonds (Series 2016), 5.000%, 7/1/2051 | 2,134,962 |
| 1,500,000 | 2 | Embrey Mill Community Development Authority, VA, Special Assessment Revenue Bonds (Series 2015), 5.600%, 3/1/2045 | 1,597,890 |
| 1,380,000 | | Mosaic District CDA, VA, Revenue Bonds (Series 2011A), (Original Issue Yield: 6.930%), 6.875%, 3/1/2036 | 1,440,458 |
| 1,000,000 | | Norfolk, VA Redevelopment and Housing Authority (Harbor's Edge), Fort Norfolk Retirement Community Revenue Bond (Series 2019B), 5.250%, 1/1/2054 | 1,104,440 |
| 4,250,000 | | Tobacco Settlement Financing Corp., VA, Tobacco Settlement Asset-Backed Bonds (Series 2007B-1), (Original Issue Yield: 5.120%), 5.000%, 6/1/2047 | 4,345,710 |
| 370,000 | | Virginia Small Business Financing Authority (Covanta Energy Corp.), Solid Waste Disposal Revenue Bonds (Series 2018) TOBs, 5.000%, Mandatory Tender 7/1/2038 | 402,064 |
| | | TOTAL | 11,025,524 |
| | | Washington—2.2% | |
| 1,000,000 | | Port of Seattle, WA IDC (Delta Air Lines, Inc.), Special Facilities Revenue Refunding Bonds (Series 2012), (Original Issue Yield: 5.310%), 5.000%, 4/1/2030 | 1,099,960 |
| 5,000,000 | 2,6 | Seattle, WA Municipal Light & Power, Trust Receipts/Certificates (Series 2019-FG0226B) MUNINVs, 7.581%, 1/1/2047 | 6,515,050 |
| 1,000,000 | | Washington State Health Care Facilities Authority (Virginia Mason Medical Center), Revenue Bonds (Series 2017), 5.000%, 8/15/2037 | 1,207,630 |
| 1,000,000 | 2 | Washington State Housing Finance Commission (Heron's Key Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A), (Original Issue Yield: 7.050%), 7.000%, 7/1/2050 | 1,147,240 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | | MUNICIPAL BONDS—continued | |
| | | Washington—continued | |
| $1,000,000 | 2 | Washington State Housing Finance Commission (Heron's Key Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A), 7.000%, 7/1/2045 | $1,149,840 |
| 2,500,000 | 2 | Washington State Housing Finance Commission (Rockwood Retirement Communities), Nonprofit Housing Revenue & Refunding Revenue Bonds (Series 2014A), 7.500%, 1/1/2049 | 2,875,475 |
| | | TOTAL | 13,995,195 |
| | | Wisconsin—1.9% | |
| 3,000,000 | 2 | Public Finance Authority, WI (American Dream at Meadowlands), Limited Obligation PILOT Revenue Bonds (Series 2017), 7.000%, 12/1/2050 | 3,663,390 |
| 750,000 | | Public Finance Authority, WI (Mountain Island Charter School), Education Revenue Refunding Bonds (Series 2017), 5.000%, 7/1/2047 | 822,435 |
| 1,000,000 | | Public Finance Authority, WI (Mountain Island Charter School), Education Revenue Refunding Bonds (Series 2017), 5.000%, 7/1/2052 | 1,091,270 |
| 1,000,000 | | Public Finance Authority, WI (National Gypsum Co.), Exempt Facilities Refunding Revenue Bonds (Series 2016), 4.000%, 8/1/2035 | 1,060,910 |
| 3,000,000 | 2 | Public Finance Authority, WI (Southminster), Retirement Facilities First Mortgage Revenue Bonds (Series 2018), 5.000%, 10/1/2053 | 3,398,880 |
| 800,000 | | Wisconsin State HEFA (ProHealth Care, Inc.), Revenue Refunding Bonds (Series 2015), 5.000%, 8/15/2039 | 905,440 |
| 1,000,000 | | Wisconsin State HEFA (St. Camillus Health System, Inc.), Revenue Bonds (Series 2019A), 5.000%, 11/1/2054 | 1,109,660 |
| | | TOTAL | 12,051,985 |
| | | TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $574,412,297) | 632,905,060 |
| | 5 | SHORT-TERM MUNICIPALS—2.1% | |
| | | Alabama—0.2% | |
| 400,000 | | Mobile, AL IDB (Alabama Power Co.), (Series 2001-A) Daily VRDNs, 1.320%, 3/2/2020 | 400,000 |
| 200,000 | | Walker County, AL Economic IDA (Alabama Power Co.), (Series 2007) Daily VRDNs, 1.320%, 3/2/2020 | 200,000 |
| 750,000 | | West Jefferson, AL IDB Solid Waste Disposal (Alabama Power Co.), (Series 2008) Daily VRDNs, 1.320%, 3/2/2020 | 750,000 |
| 200,000 | | Wilsonville, AL IDB (Alabama Power Co.), (Series 2008) Daily VRDNs, 1.320%, 3/2/2020 | 200,000 |
| | | TOTAL | 1,550,000 |
| | | Michigan—0.1% | |
| 500,000 | | Michigan State Housing Development Authority, (Series 2008A) Daily VRDNs, (JPMorgan Chase Bank, N.A. LIQ), 1.370%, 3/2/2020 | 500,000 |
| | | Ohio—0.2% | |
| 1,000,000 | | Allen County, OH (Mercy Health), (Series 2010C) Daily VRDNs, (BMO Harris Bank, N.A. LOC), 1.190%, 3/2/2020 | 1,000,000 |
Semi-Annual Shareholder Report
Principal
Amount | | | Value |
| | 5 | SHORT-TERM MUNICIPALS—continued | |
| | | Pennsylvania—0.1% | |
| $100,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), (Series 2002-A) Daily VRDNs, (Wells Fargo Bank, N.A. LIQ), 1.190%, 3/2/2020 | $100,000 |
| 200,000 | | Philadelphia, PA Hospitals & Higher Education Facilities Authority (Children's Hospital of Philadelphia), (Series 2002-B) Daily VRDNs, (Wells Fargo Bank, N.A. LIQ), 1.190%, 3/2/2020 | 200,000 |
| | | TOTAL | 300,000 |
| | | Texas—0.0% | |
| 150,000 | | Harris County, TX HFDC (Methodist Hospital, Harris County, TX), (Subseries 2008A-2) Daily VRDNs, 1.220%, 3/2/2020 | 150,000 |
| | | Utah—1.5% | |
| 9,800,000 | | Weber County, UT (IHC Health Services, Inc.), (Series 2000C) Daily VRDNs, (Bank of New York Mellon, N.A. LIQ), 1.210%, 3/2/2020 | 9,800,000 |
| | | TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $13,300,000) | 13,300,000 |
| | | TOTAL INVESTMENT IN SECURITIES—100.7%
(IDENTIFIED COST $587,712,297)6 | 646,205,060 |
| | | OTHER ASSETS AND LIABILITIES - NET—(0.7)%7 | (4,474,303) |
| | | TOTAL NET ASSETS—100% | $641,730,757 |
Securities that are subject to the federal alternative minimum tax (AMT) represent 12.9% of the Fund's portfolio as calculated based upon total market value.
| 1 | Security in default. |
| 2 | Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or availing of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At February 29, 2020, these restricted securities amounted to $82,164,267, which represented 12.8% of total net assets. |
| 3 | Non-income-producing security. |
| 4 | Zero coupon bond. |
| 5 | Current rate and current maturity or next reset date shown for floating rate notes and variable rate notes/demand instruments. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 6 | The cost of investments for federal tax purposes amounts to $587,311,055. |
| 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 29, 2020.
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 29, 2020, 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:
| CDA | —Community Development Authority |
| EDA | —Economic Development Authority |
| EDFA | —Economic Development Finance Authority |
| GO | —General Obligation |
| GTD | —Guaranteed |
| HEFA | —Health and Education Facilities Authority |
| HFDC | —Health Facility Development Corporation |
| IDA | —Industrial Development Authority |
| IDB | —Industrial Development Bond |
| IDC | —Industrial Development Corporation |
| INS | —Insured |
| LIQ | —Liquidity Agreement |
| LOC | —Letter of Credit |
| LT | —Limited Tax |
| MUNINVs | —Municipal Inverse Floater |
| PCR | —Pollution Control Revenue |
| PILOT | —Payment in Lieu of Taxes |
| PRF | —Pre-refunded |
| SID | —Special Improvement District |
| TELA | —Toll Equity Loan Agreement |
| TOBs | —Tender Option Bonds |
| USD | —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)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value,
Beginning of Period | $9.30 | $8.88 | $8.98 | $9.28 | $8.86 | $8.85 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.161 | 0.331 | 0.341 | 0.35 | 0.37 | 0.39 |
Net realized and unrealized
gain (loss) | 0.20 | 0.43 | (0.10) | (0.30) | 0.42 | 0.01 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.36 | 0.76 | 0.24 | 0.05 | 0.79 | 0.40 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.34) | (0.34) | (0.35) | (0.37) | (0.39) |
| Net Asset Value, End of Period | $9.50 | $9.30 | $8.88 | $8.98 | $9.28 | $8.86 |
| Total Return2 | 3.95% | 8.76% | 2.71% | 0.67% | 9.17% | 4.63% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.89%3,4 | 0.89%4 | 0.90%4 | 0.89% | 0.89% | 0.89% |
| Net investment income | 3.51%3 | 3.77% | 3.81% | 3.96% | 4.12% | 4.42% |
| Expense waiver/reimbursement5 | 0.15%3 | 0.16% | 0.15% | 0.15% | 0.14% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $224,155 | $218,050 | $222,108 | $221,586 | $270,092 | $230,664 |
| Portfolio turnover | 6% | 11% | 24% | 24% | 10% | 12% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.89% for the six months ended February 29, 2020 and 0.89% and 0.90% for the years ended August 31, 2019 and 2018, respectively, after taking into account these expense reductions. |
| 5 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $9.29 | $8.87 | $8.97 | $9.27 | $8.85 | $8.84 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.131 | 0.271 | 0.271 | 0.32 | 0.31 | 0.35 |
| Net realized and unrealized gain (loss) | 0.20 | 0.42 | (0.11) | (0.34) | 0.42 | (0.01) |
| TOTAL FROM INVESTMENT OPERATIONS | 0.33 | 0.69 | 0.16 | (0.02) | 0.73 | 0.34 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.27) | (0.26) | (0.28) | (0.31) | (0.33) |
| Net Asset Value, End of Period | $9.49 | $9.29 | $8.87 | $8.97 | $9.27 | $8.85 |
| Total Return2 | 3.57% | 7.96% | 1.92% | (0.09)% | 8.35% | 3.85% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%3,4 | 1.64%4 | 1.65%4 | 1.64% | 1.64% | 1.64% |
| Net investment income | 2.76%3 | 3.02% | 3.05% | 3.21% | 3.38% | 3.66% |
| Expense waiver/reimbursement5 | 0.15%3 | 0.16% | 0.15% | 0.15% | 0.14% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $4,220 | $4,622 | $6,504 | $9,446 | $12,241 | $11,528 |
| Portfolio turnover | 6% | 11% | 24% | 24% | 10% | 12% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 1.64% for the six months ended February 29, 2020 and 1.64% and 1.65% for the years ended August 31, 2019 and 2018, respectively, after taking into account these expense reductions. |
| 5 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class C Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
| Net Asset Value, Beginning of Period | $9.29 | $8.87 | $8.97 | $9.28 | $8.85 | $8.85 |
| Income From Investment Operations: | | | | | | |
| Net investment income | 0.131 | 0.271 | 0.271 | 0.29 | 0.31 | 0.33 |
| Net realized and unrealized gain (loss) | 0.20 | 0.42 | (0.10) | (0.32) | 0.43 | (0.00)2 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.33 | 0.69 | 0.17 | (0.03) | 0.74 | 0.33 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.13) | (0.27) | (0.27) | (0.28) | (0.31) | (0.33) |
| Net Asset Value, End of Period | $9.49 | $9.29 | $8.87 | $8.97 | $9.28 | $8.85 |
| Total Return3 | 3.56% | 7.97% | 1.94% | (0.20)% | 8.47% | 3.73% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 1.64%4,5 | 1.64%5 | 1.65%5 | 1.64% | 1.64% | 1.64% |
| Net investment income | 2.76%4 | 3.01% | 3.06% | 3.21% | 3.37% | 3.67% |
| Expense waiver/reimbursement6 | 0.15%4 | 0.16% | 0.15% | 0.15% | 0.14% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $46,826 | $48,130 | $50,262 | $68,461 | $77,213 | $61,093 |
| Portfolio turnover | 6% | 11% | 24% | 24% | 10% | 12% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Represents less than $0.01. |
| 3 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 4 | Computed on an annualized basis. |
| 5 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 1.64% for the six months ended February 29, 2020 and 1.64% and 1.65% for the years ended August 31, 2019 and 2018, respectively, after taking into account these expense reductions. |
| 6 | 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)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value,
Beginning of Period | $9.30 | $8.88 | $8.98 | $9.28 | $8.86 | $8.85 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.161 | 0.331 | 0.341 | 0.35 | 0.37 | 0.39 |
Net realized and unrealized
gain (loss) | 0.20 | 0.42 | (0.10) | (0.30) | 0.42 | 0.01 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.36 | 0.75 | 0.24 | 0.05 | 0.79 | 0.40 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.16) | (0.33) | (0.34) | (0.35) | (0.37) | (0.39) |
| Net Asset Value, End of Period | $9.50 | $9.30 | $8.88 | $8.98 | $9.28 | $8.86 |
| Total Return2 | 3.95% | 8.76% | 2.71% | 0.66% | 9.17% | 4.63% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.89%3,4 | 0.89%4 | 0.90%4 | 0.89% | 0.89% | 0.89% |
| Net investment income | 3.50%3 | 3.76% | 3.81% | 3.96% | 4.12% | 4.41% |
| Expense waiver/reimbursement5 | 0.15%3 | 0.16% | 0.15% | 0.15% | 0.14% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $202,244 | $195,691 | $194,464 | $207,266 | $213,796 | $189,216 |
| Portfolio turnover | 6% | 11% | 24% | 24% | 10% | 12% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| 3 | Computed on an annualized basis. |
| 4 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.89% for the six months ended February 29, 2020 and 0.89% and 0.90% for the years ended August 31, 2019 and 2018, respectively, after taking into account these expense reductions. |
| 5 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
| | Six Months
Ended
(unaudited)
2/29/2020 | Year Ended August 31, |
| 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value,
Beginning of Period | $9.29 | $8.87 | $8.97 | $9.27 | $8.85 | $8.84 |
Income From
Investment Operations: | | | | | | |
| Net investment income | 0.171 | 0.361 | 0.361 | 0.37 | 0.40 | 0.42 |
| Net realized and unrealized gain (loss) | 0.19 | 0.42 | (0.10) | (0.30) | 0.42 | 0.01 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.36 | 0.78 | 0.26 | 0.07 | 0.82 | 0.43 |
| Less Distributions: | | | | | | |
| Distributions from net investment income | (0.17) | (0.36) | (0.36) | (0.37) | (0.40) | (0.42) |
| Net Asset Value, End of Period | $9.48 | $9.29 | $8.87 | $8.97 | $9.27 | $8.85 |
| Total Return2 | 3.98% | 9.04% | 2.97% | 0.92% | 9.45% | 4.90% |
| Ratios to Average Net Assets: | | | | | | |
| Net expenses | 0.64%3,4 | 0.64%4 | 0.65%4 | 0.64% | 0.64% | 0.64% |
| Net investment income | 3.75%3 | 4.01% | 4.06% | 4.21% | 4.35% | 4.67% |
| Expense waiver/reimbursement5 | 0.15%3 | 0.16% | 0.15% | 0.15% | 0.14% | 0.15% |
| Supplemental Data: | | | | | | |
| Net assets, end of period (000 omitted) | $164,286 | $155,444 | $155,902 | $137,235 | $106,699 | $63,857 |
| Portfolio turnover | 6% | 11% | 24% | 24% | 10% | 12% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 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 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.64% for the six months ended February 29, 2020 and 0.64% and 0.65% for the years ended August 31, 2019 and 2018, respectively, after taking into account these expense reductions. |
| 5 | This expense decrease is reflected in both the net expense and net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and Liabilities
February 29, 2020 (unaudited)
| Assets: | | |
| Investment in securities, at value (identified cost $587,712,297) | | $646,205,060 |
| Cash | | 44,086 |
| Income receivable | | 7,614,306 |
| Receivable for shares sold | | 610,976 |
| Receivable for investments sold | | 6,150 |
| TOTAL ASSETS | | 654,480,578 |
| Liabilities: | | |
| Payable for investments purchased | $11,955,923 | |
| Payable for shares redeemed | 465,101 | |
| Payable for other service fees (Notes 2 and 5) | 91,028 | |
| Payable for distribution services fee (Note 5) | 30,092 | |
| Payable for investment adviser fee (Note 5) | 16,072 | |
| Payable for administrative fee (Note 5) | 13,282 | |
| Accrued expenses (Note 5) | 178,323 | |
| TOTAL LIABILITIES | | 12,749,821 |
| Net assets for 67,594,212 shares outstanding | | $641,730,757 |
| Net Assets Consists of: | | |
| Paid-in capital | | $615,846,574 |
| Total distributable earnings (loss) | | 25,884,183 |
| TOTAL NET ASSETS | | $641,730,757 |
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 ($224,154,878 ÷ 23,598,859 shares outstanding), no par value, unlimited shares authorized | | $9.50 |
| Offering price per share (100/95.50 of $9.50) | | $9.95 |
| Redemption proceeds per share | | $9.50 |
| Class B Shares: | | |
| Net asset value per share ($4,219,800 ÷ 444,799 shares outstanding), no par value, unlimited shares authorized | | $9.49 |
| Offering price per share | | $9.49 |
| Redemption proceeds per share (94.50/100 of $9.49) | | $8.97 |
| Class C Shares: | | |
| Net asset value per share ($46,825,954 ÷ 4,934,437 shares outstanding), no par value, unlimited shares authorized | | $9.49 |
| Offering price per share | | $9.49 |
| Redemption proceeds per share (99.00/100 of $9.49) | | $9.40 |
| Class F Shares: | | |
| Net asset value per share ($202,243,733 ÷ 21,294,192 shares outstanding), no par value, unlimited shares authorized | | $9.50 |
| Offering price per share (100/99.00 of $9.50) | | $9.60 |
| Redemption proceeds per share (99.00/100 of $9.50) | | $9.40 |
| Institutional Shares: | | |
| Net asset value per share ($164,286,392 ÷ 17,321,925 shares outstanding), no par value, unlimited shares authorized | | $9.48 |
| Offering price per share | | $9.48 |
| Redemption proceeds per share | | $9.48 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Operations
Six Months Ended February 29, 2020 (unaudited)
| Investment Income: | | | |
| Interest | | | $13,591,918 |
| Expenses: | | | |
| Investment adviser fee (Note 5) | | $1,853,674 | |
| Administrative fee (Note 5) | | 246,570 | |
| Custodian fees | | 11,867 | |
| Transfer agent fees | | 160,208 | |
| Directors'/Trustees' fees (Note 5) | | 2,607 | |
| Auditing fees | | 16,626 | |
| Legal fees | | 4,540 | |
| Distribution services fee (Note 5) | | 191,640 | |
| Other service fees (Notes 2 and 5) | | 577,054 | |
| Portfolio accounting fees | | 75,525 | |
| Share registration costs | | 37,818 | |
| Printing and postage | | 20,358 | |
| Miscellaneous (Note 5) | | 15,877 | |
| TOTAL EXPENSES | | 3,214,364 | |
| Waiver and Reduction: | | | |
| Waiver of investment adviser fee (Note 5) | $(453,279) | | |
| Reduction of custodian fees (Note 6) | (287) | | |
| TOTAL WAIVER AND REDUCTION | | (453,566) | |
| Net expenses | | | 2,760,798 |
| Net investment income | | | 10,831,120 |
| Realized and Unrealized Gain (Loss) on Investments: | | | |
| Net realized gain on investments | | | 1,998,154 |
| Net change in unrealized appreciation of investments | | | 11,354,159 |
| Net realized and unrealized gain (loss) on investments | | | 13,352,313 |
| Change in net assets resulting from operations | | | $24,183,433 |
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)
2/29/2020 | Year Ended
8/31/2019 |
| Increase (Decrease) in Net Assets | | |
| Operations: | | |
| Net investment income | $10,831,120 | $22,432,320 |
| Net realized gain | 1,998,154 | 565,669 |
| Net change in unrealized appreciation/depreciation | 11,354,159 | 26,696,442 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 24,183,433 | 49,694,431 |
| Distributions to Shareholders: | | |
| Class A Shares | (3,798,997) | (7,920,068) |
| Class B Shares | (59,180) | (160,766) |
| Class C Shares | (645,740) | (1,414,248) |
| Class F Shares | (3,412,072) | (7,121,493) |
| Institutional Shares | (2,927,107) | (5,886,961) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (10,843,096) | (22,503,536) |
| Share Transactions: | | |
| Proceeds from sale of shares | 43,782,631 | 99,194,910 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 9,995,322 | 20,629,956 |
| Cost of shares redeemed | (47,324,831) | (154,318,080) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 6,453,122 | (34,493,214) |
| Change in net assets | 19,793,459 | (7,302,319) |
| Net Assets: | | |
| Beginning of period | 621,937,298 | 629,239,617 |
| End of period | $641,730,757 | $621,937,298 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
February 29, 2020 (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 four 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 the federal regular income tax. Interest income from the Fund's investments may be subject to the federal AMT for individuals and state and local taxes.
On March 30, 2017, the Fund's T Share class became effective with the Securities and Exchange Commission (SEC), but is not yet offered for sale.
Class B Shares are closed to new accounts, new investors and new purchases by existing shareholders (excluding reinvestment of dividends and capital gains). Class B Shares of the Fund may be exchanged for Class B Shares of any other Federated fund.
Effective on or about June 29, 2020, the name of the Trust and Fund will change to Federated Hermes Municipal Securities Income Trust and Federated Hermes Municipal High Yield Advantage Fund, respectively.
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 |
Semi-Annual Shareholder Report
| | 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.
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 (the “Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Semi-Annual Shareholder Report
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, 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 select classes will bear certain expenses unique to those classes. The detail of the total fund expense waiver and reduction of $453,566 is disclosed in Note 5 and Note 6.
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 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 29, 2020, other service fees for the Fund were as follows:
| | Other
Service Fees
Incurred |
| Class A Shares | $ 270,131 |
| Class B Shares | 5,348 |
| Class C Shares | 58,533 |
| Class F Shares | 243,042 |
| TOTAL | $577,054 |
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 29, 2020, 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 29, 2020, tax years 2016 through 2019 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
Semi-Annual Shareholder Report
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities held at February 29, 2020, is as follows:
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| Arizona State Industrial Development Authority Education Revenue (Basis Schools, Inc. Obligated Group), (Series 2017D), 5.000%, 7/1/2051 | 10/12/2017 | $663,559 | $736,749 |
| Arizona State Industrial Development Authority Education Revenue (Basis Schools, Inc. Obligated Group), Education Revenue Bonds (Series 2017G), 5.000%, 7/1/2051 | 12/15/2017 | $517,038 | $566,730 |
| Arizona State Industrial Development Authority Education Revenue (Doral Academy of Nevada FMMR), Revenue Bonds (Series 2019A), 5.000%, 7/15/2049 | 4/3/2019 | $1,046,796 | $1,124,240 |
| Arizona State Industrial Development Authority Education Revenue (Pinecrest Academy of Nevada), Horizon, Inspirada and St. Rose Campus Education Revenue Bonds (Series 2018A), 5.750%, 7/15/2048 | 12/14/2018 | $1,806,352 | $2,068,098 |
| Build NYC Resource Corporation (Albert Einstein School of Medicine, Inc.), Revenue Bonds (Series 2015), 5.500%, 9/1/2045 | 1/14/2016 | $1,000,000 | $1,168,780 |
| California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2014A), 5.125%, 7/1/2044 | 6/13/2014 | $750,000 | $852,585 |
Semi-Annual Shareholder Report
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2015A), 5.000%, 7/1/2045 | 8/27/2015 | $580,941 | $649,518 |
| California School Finance Authority (KIPP LA), School Facility Revenue Bonds (Series 2017A), 5.000%, 7/1/2047 | 8/4/2017 | $548,132 | $596,350 |
| California State School Finance Authority Charter School Revenue (Bright Star Schools-Obligated Group), Charter School Revenue Bonds (Series 2017), 5.000%, 6/1/2047 | 12/13/2017 | $1,034,372 | $1,132,790 |
| California State School Finance Authority Charter School Revenue (Rocketship Public Schools), Revenue Bonds (Series 2017G), 5.000%, 6/1/2047 | 12/4/2017 | $515,624 | $553,670 |
| California State School Finance Authority Charter School Revenue (Summit Public Schools Obligated Group), (Series 2017), 5.000%, 6/1/2053 | 10/5/2017 | $1,174,816 | $1,292,544 |
| California Statewide Communities Development Authority (Loma Linda University Medical Center ), Revenue Bonds (Series 2016A), 5.250%, 12/1/2056 | 4/28/2016 | $2,316,304 | $2,597,940 |
| Collier County, FL IDA (Arlington of Naples), Continuing Care Community Revenue Bonds (Series 2013A), (Original Issue Yield: 8.375%), 8.250%, 5/15/2049 | 12/16/2013 | $2,958,794 | $2,820,000 |
| Colorado Educational & Cultural Facilities Authority (Loveland Classical School), School Improvement Revenue Bonds (Series 2016), 5.000%, 7/1/2046 | 8/11/2016 | $1,026,147 | $1,087,980 |
| Delaware Economic Development Authority (ASPIRA of Delaware Charter Operations, Inc.), Charter School Revenue Bonds (Series 2016A), 5.000%, 6/1/2051 | 7/15/2016 | $1,423,951 | $1,502,644 |
| Denver, CO Health & Hospital Authority, Revenue Refunding Bonds (Series 2017A), 5.000%, 12/1/2034 | 8/23/2017 | $1,085,451 | $1,239,390 |
| Director of the State of Nevada Department of Business and Industry (Doral Academy of Nevada CS), Charter School Revenue Bonds (Series 2017A), 5.000%, 7/15/2047 | 8/31/2017 | $920,938 | $994,070 |
| Director of the State of Nevada Department of Business and Industry (Somerset Academy of Las Vegas), Charter School Lease Revenue Bonds (Series 2018A), 5.000%, 12/15/2048 | 4/6/2018 | $1,002,437 | $1,080,590 |
Semi-Annual Shareholder Report
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| Embrey Mill Community Development Authority, VA, Special Assessment Revenue Bonds (Series 2015), 5.600%, 3/1/2045 | 10/22/2015 | $1,500,000 | $1,597,890 |
| Indiana State Finance Authority (Res Polyflow Indiana Project), Exempt Facility Revenue Bonds (Series 2019 Green Bonds, (Original Issue Yield: 7.125%), 7.000%, 3/1/2039 | 3/28/2019 | $986,993 | $1,032,960 |
| Kansas City, MO Redevelopment Authority (Kansas City Convention Center Headquarters Hotel CID), Revenue Bonds (Series 2018B), (Original Issue Yield: 5.079%), 5.000%, 2/1/2050 | 1/10/2018 | $1,975,703 | $2,281,300 |
| Maine State Finance Authority Solid Waste Disposal (Casella Waste Systems, Inc.), Revenue Bonds (Series 2005R-3), 5.250%, 1/1/2025 | 1/27/2017 | $2,000,000 | $2,279,860 |
| Maricopa County, AZ, IDA (Paradise Schools), Revenue Refunding Bonds, 5.000%, 7/1/2047 | 10/6/2016 | $1,039,532 | $1,108,360 |
| Massachusetts Development Finance Agency (Newbridge on the Charles), Revenue Refunding Bonds (Series 2017), 5.000%, 10/1/2057 | 12/7/2017 | $1,061,195 | $1,105,420 |
| Metropolitan Transportation Authority, NY (MTA Transportation Revenue), Trust Receipts/Certificates (Series 2019-FG0227) MUNINVs, (Assured Guaranty Municipal Corp. INS), 7.551%, 11/15/2046 | 2/12/2019 | $5,209,350 | $6,619,400 |
| Millsboro, DE Special Obligations (Plantation Lakes Special Development District), Special Tax Revenue Refunding Bonds (Series 2018), (Original Issue Yield: 5.300%), 5.250%, 7/1/2048 | 11/15/2018 | $2,977,972 | $3,356,130 |
| Minneapolis, MN Charter School Lease Revenue (Twin Cities International School), (Series 2017A), (Original Issue Yield: 5.150%), 5.000%, 12/1/2047 | 12/8/2017 | $2,933,828 | $3,136,890 |
| Mission, TX Economic Development Corporation (Natgasoline), Senior Lien Revenue Bonds (Series 2018), (Original Issue Yield: 4.716%), 4.625%, 10/1/2031 | 10/30/2018 | $1,487,867 | $1,628,790 |
| Mohegan Tribe of Indians of Connecticut Gaming Authority, Priority Distribution Payment Refunding Bonds (Series 2015C), (Original Issue Yield: 6.375%), 6.250%, 2/1/2030 | 11/25/2015 | $1,818,223 | $2,121,352 |
| New Hampshire Health and Education Facilities Authority (Hillside Village), Revenue Bonds (Series 20017A), (Original Issue Yield: 6.375%), 6.125%, 7/1/2052 | 6/8/2017 | $1,448,855 | $1,674,180 |
Semi-Annual Shareholder Report
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| New York Liberty Development Corporation (3 World Trade Center), Revenue Bonds (Series 2014 Class 1), 5.000%, 11/15/2044 | 10/29/2014 | $2,000,000 | $2,251,540 |
| New York Liberty Development Corporation (3 World Trade Center), Revenue Bonds (Series 2014 Class 2), 5.375%, 11/15/2040 | 10/29/2014 | $1,000,000 | $1,147,740 |
| Ohio Air Quality Development Authority (AMG Vanadium LLC), Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049 | 6/27/2019 | $1,898,843 | $2,083,014 |
| Prince Georges County, MD (Westphalia Town Center), Special Obligation Revenue Bonds (Series 2018), (Original Issue Yield: 5.330%), 5.250%, 7/1/2048 | 11/16/2018 | $988,317 | $1,143,940 |
| Public Finance Authority, WI (American Dream at Meadowlands), Limited Obligation PILOT Revenue Bonds (Series 2017), 7.000%, 12/1/2050 | 6/22/2017 | $3,067,160 | $3,663,390 |
| Public Finance Authority, WI (Southminster), Retirement Facilities First Mortgage Revenue Bonds (Series 2018), 5.000%, 10/1/2053 | 6/28/2018 | $3,139,345 | $3,398,880 |
| Seattle, WA Municipal Light & Power, Trust Receipts/Certificates (Series 2019-FG0226B) MUNINVs, 7.581%, 1/1/2047 | 2/1/2019 | $5,258,256 | $6,515,050 |
| Tuscaloosa County, AL IDA (Hunt Refining Co.), Gulf Opportunity Zone Refunding Bonds (Series 2019A), 5.250%, 5/1/2044 | 4/17/2019 | $790,000 | $942,597 |
| Utah State Charter School Finance Authority (Freedom Academy Foundation), Charter School Revenue Refunding Bonds (Series 2017), (Original Issue Yield: 5.500%), 5.375%, 6/15/2048 | 8/31/2017 | $1,972,677 | $2,147,300 |
| Vermont EDA (Casella Waste Systems, Inc.), Solid Waste Disposal Revenue Bonds (Series 2013) TOBs, 4.625%, Mandatory Tender 4/3/2028 | 3/28/2018 | $1,000,000 | $1,158,600 |
| Verrado Community Facilities District No. 1, AZ, District GO Refunding Bonds (Series 2013A), 6.000%, 7/15/2027 | 7/3/2013 | $437,198 | $468,261 |
| Washington State Housing Finance Commission (Heron's Key Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A), (Original Issue Yield: 7.050%), 7.000%, 7/1/2050 | 7/22/2015 | $993,679 | $1,147,240 |
| Washington State Housing Finance Commission (Heron's Key Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A), 7.000%, 7/1/2045 | 7/22/2015 | $1,006,549 | $1,149,840 |
Semi-Annual Shareholder Report
| Security | Acquisition
Date | Acquisition
Cost | Market
Value |
| Washington State Housing Finance Commission (Rockwood Retirement Communities), Nonprofit Housing Revenue & Refunding Revenue Bonds (Series 2014A), 7.500%, 1/1/2049 | 1/31/2014 | $2,500,000 | $2,875,475 |
| Winrock Town Center, NM Tax Increment Development District 1, Senior Lien Gross Receipts Tax Increment Bonds (Series 2015), (Original Issue Yield: 6.120%), 6.000%, 5/1/2040 | 6/30/2015 | $1,971,076 | $2,064,200 |
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
2/29/2020 | Year Ended
8/31/2019 |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,269,762 | $11,743,221 | 3,017,315 | $26,898,967 |
| Shares issued to shareholders in payment of distributions declared | 381,433 | 3,522,546 | 828,026 | 7,333,015 |
| Shares redeemed | (1,493,945) | (13,809,730) | (5,415,672) | (47,837,022) |
| NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 157,250 | $1,456,037 | (1,570,331) | $(13,605,040) |
| | Six Months Ended
2/29/2020 | Year Ended
8/31/2019 |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 214 | $1,978 | 25,980 | $226,634 |
| Shares issued to shareholders in payment of distributions declared | 5,900 | 54,423 | 16,784 | 148,337 |
| Shares redeemed | (58,770) | (542,715) | (278,610) | (2,458,398) |
| NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (52,656) | $(486,314) | (235,846) | $(2,083,427) |
Semi-Annual Shareholder Report
| | Six Months Ended
2/29/2020 | Year Ended
8/31/2019 |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 275,502 | $2,545,434 | 880,999 | $7,871,908 |
| Shares issued to shareholders in payment of distributions declared | 60,619 | 559,508 | 137,593 | 1,217,771 |
| Shares redeemed | (580,877) | (5,383,130) | (1,503,908) | (13,302,165) |
| NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (244,756) | $(2,278,188) | (485,316) | $(4,212,486) |
| | Six Months Ended
2/29/2020 | Year Ended
8/31/2019 |
| Class F Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,003,200 | $9,277,746 | 1,222,280 | $10,920,243 |
| Shares issued to shareholders in payment of distributions declared | 344,185 | 3,178,054 | 745,057 | 6,598,244 |
| Shares redeemed | (1,093,022) | (10,116,775) | (2,828,276) | (25,028,829) |
| NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS | 254,363 | $2,339,025 | (860,939) | $(7,510,342) |
| | Six Months Ended
2/29/2020 | Year Ended
8/31/2019 |
| Institutional Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 2,188,867 | $20,214,252 | 6,018,397 | $53,277,158 |
| Shares issued to shareholders in payment of distributions declared | 290,758 | 2,680,791 | 602,919 | 5,332,589 |
| Shares redeemed | (1,893,201) | (17,472,481) | (7,466,813) | (65,691,666) |
| NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 586,424 | $5,422,562 | (845,497) | $(7,081,919) |
| NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | 700,625 | $6,453,122 | (3,997,929) | $(34,493,214) |
4. FEDERAL TAX INFORMATION
At February 29, 2020, the cost of investments for federal tax purposes was $587,311,055. The net unrealized appreciation of investments for federal tax purposes was $58,894,005. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $63,215,910 and net unrealized depreciation from investments for those securities having an excess of cost over value of $4,321,905.
At August 31, 2019, the Fund had a capital loss carryforward of $35,404,992 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, these net capital losses retain their character as either short-term or long-term, and do not expire.
Semi-Annual Shareholder Report
The following schedule summarizes the Fund's capital loss carryforwards:
| Short-Term | Long-Term | Total |
| $8,157,899 | $27,247,093 | $35,404,992 |
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 29, 2020, the Adviser voluntarily waived $453,279 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 Hermes 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:
| Administrative Fee | Average Daily Net Assets
of the Investment Complex |
| 0.100% | on assets up to $50 billion |
| 0.075% | on assets over $50 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 29, 2020, the annualized fee paid to FAS was 0.080% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
| | 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% |
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 29, 2020, distribution services fees for the Fund were as follows:
| | Distribution
Services Fee
Incurred |
| Class B Shares | $16,042 |
| Class C Shares | 175,598 |
| TOTAL | $191,640 |
For the six months ended February 29, 2020, FSC retained $33,662 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 29, 2020, 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 29, 2020, FSC retained $12,723 in sales charges from the sale of Class A Shares. FSC also retained $155, $1,288, $1,433 and $11,370 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 29, 2020, FSSC received $815 of the other service fees disclosed in Note 2.
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, 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, 2020; 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.
Interfund Transactions
During the six months ended February 29, 2020, 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 $30,450,000 and $43,600,000, respectively.
Semi-Annual Shareholder Report
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent 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. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. EXPENSE REDUCTION
Through arrangements with the Fund's custodian, net credits realized as a result of uninvested cash balances were used to reduce custody expenses. For the six months ended February 29, 2020, the Fund's expenses were reduced by $287 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended February 29, 2020, were as follows:
| Purchases | $53,315,858 |
| Sales | $38,369,495 |
8. CONCENTRATION OF RISK
The Fund has 51.0% 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.
9. LINE OF CREDIT
The Fund participates with certain other Federated Hermes 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 29, 2020, the Fund had no outstanding loans. During the six months ended February 29, 2020, the Fund did not utilize the LOC.
Semi-Annual Shareholder Report
10. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds advised by subsidiaries of Federated Hermes, 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 29, 2020, there were no outstanding loans. During the six months ended February 29, 2020, the program was not utilized.
11. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains, workflow operations and customer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short term or may last for an extended period of time and result in a substantial economic downturn. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including Fund service providers) and the market in general in significant and unforeseen ways. Any such impact could adversely affect the Fund's performance.
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, 2019 to February 29, 2020.
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, toestimate 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 anassumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you shouldnot 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 relativetotal costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | Beginning
Account Value
9/1/2019 | Ending
Account Value
2/29/2020 | Expenses Paid
During Period1 |
| Actual: | | | |
| Class A Shares | $1,000 | $1,039.50 | $4.51 |
| Class B Shares | $1,000 | $1,035.70 | $8.30 |
| Class C Shares | $1,000 | $1,035.60 | $8.30 |
| Class F Shares | $1,000 | $1,039.50 | $4.51 |
| Institutional Shares | $1,000 | $1,039.80 | $3.25 |
Hypothetical (assuming a 5% return
before expenses): | | | |
| Class A Shares | $1,000 | $1,020.44 | $4.47 |
| Class B Shares | $1,000 | $1,016.71 | $8.22 |
| Class C Shares | $1,000 | $1,016.71 | $8.22 |
| Class F Shares | $1,000 | $1,020.44 | $4.47 |
| Institutional Shares | $1,000 | $1,021.68 | $3.22 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| | |
| Class A Shares | 0.89% |
| Class B Shares | 1.64% |
| Class C Shares | 1.64% |
| Class F Shares | 0.89% |
| Institutional Shares | 0.64% |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2019
Federated Municipal High Yield Advantage Fund (the “Fund”)
At its meetings in May 2019, the Fund's Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved 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 considering all of the information received on whether to continue the existing arrangements.
At the request of the Independent Trustees, the Fund's Chief Compliance Officer (the CCO) furnished to the Board in advance of its May 2019 meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO's independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund's management fee and in deciding to approve the continuation of the investment advisory contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer,” prior to the elimination of the Senior Officer position in December 2017.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in making its decision. Using these judicial decisions as a guide, the Board observed that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the fund, its benchmark, and comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) 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; (4) 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); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds both internally and externally as well as management fees charged to institutional and other advisory clients of the
Semi-Annual Shareholder Report
adviser for what might be viewed as like services); and (6) the extent of care, conscientiousness and independence with which the fund's 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 align with the factors listed above. 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 factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investment Management Company (the “Adviser”) and its affiliates (collectively, “Federated”) on matters relating to the funds advised by Federated (each, a “Federated Fund”). The Independent Trustees were assisted in their deliberations by independent legal counsel.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings at which the Board's formal approval of the advisory and subadvisory contracts occurred. In this regard, Federated provided much of this information at each regular meeting of the Board, and furnished additional information specifically in connection with the May meetings. In the months preceding the May meetings, the Board requested and reviewed written materials prepared by Federated in response to requests on behalf of the Independent Trustees encompassing a wide variety of topics. 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 such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the advisory and subadvisory contracts. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose.
The Board's consideration of the investment advisory contract included review of the CCO Fee Evaluation Report, accompanying data and additional information covering the following matters, among others: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative 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 and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due
Semi-Annual Shareholder Report
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 and other risks 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 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 too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons 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 an appropriate group of peer funds compiled by Federated using data supplied by independent fund ranking organizations (the “Peer Group”). The Board received a description of the composition and methodology used to select the Peer Group. 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, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, 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 marketplace in which the Fund competes.
Semi-Annual Shareholder Report
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund's fee rates relative to its Peer Group. 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.
For comparison, the CCO reviewed the fees charged by Federated for providing advisory services to products other than the Federated Funds (e.g., institutional separate accounts and third-party unaffiliated mutual funds for which Federated serves as sub-adviser) (referenced to as “Comparable Funds/Accounts”). With respect to Comparable Funds/Accounts other than third-party mutual funds, the CCO concluded that they are inherently different products. Those differences include, but are not limited to, different types of targeted investors; different applicable 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, as well as personnel in the Funds Financial Services, Legal, Compliance and Risk Management departments, in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The CCO also reviewed the differences in the nature of the services required for Federated to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution's mutual fund, and that Federated generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The CCO did not consider the fees for providing advisory services to Comparable Funds/Accounts to be determinative in judging the appropriateness of the Federated Funds' advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
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, financial resources, 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 and the Adviser's ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the investment research and company engagement capabilities of the Adviser and its affiliates. The Board also noted the compliance program of the
Semi-Annual Shareholder Report
Adviser and the compliance-related resources provided to the Fund by the Adviser, including the Adviser's commitment to respond to rulemaking initiatives of the SEC. 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. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the 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 considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The CCO also reviewed information regarding the performance of other mutual funds in the Peer Group, noting the CCO's view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds' objectives or investment management techniques, or the costs to implement the funds, even within the same 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 CCO Fee Evaluation Report. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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 and distributor). In this regard, the Board considered that certain Federated subsidiaries provide distribution and shareholder services to the Federated Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. 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 Federated Fund to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Fund investors
Semi-Annual Shareholder Report
and/or indicated to the Board their intention to do so in the future. 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 Federated Funds in response to the CCO's recommendations in the prior year's CCO Fee Evaluation Report.
Federated furnished information, requested by the CCO, 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 CCO. The CCO noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO 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 Federated Fund and may produce unintended consequences. The allocation information, including the CCO's view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board.
The Board and the CCO also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. In this regard, the CCO concluded that Federated's profit margins did not appear to be excessive. The CCO also noted that Federated appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Fund.
The CCO Fee Evaluation Report also discussed the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that Federated 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 investments (as well as any economies of scale, should they exist) were likely to be shared with the Federated Fund family as a whole. The Board noted that Federated's investments in these areas are extensive. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed potential economies of scale to be shared with shareholders. The Board also considered that such waivers and reimbursements can provide protection from an increase in expenses if a Federated Fund's assets decline. Federated, as it does throughout the year, and specifically in connection with the Board's review of the advisory and subadvisory contracts, furnished information relative to revenue sharing or adviser-paid fees. Federated and the CCO noted that this information should be
Semi-Annual Shareholder Report
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. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the CCO Fee Evaluation Report) 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 CCO stated that his observations and the information accompanying the CCO Fee Evaluation Report 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. The CCO also recognized that the Board's evaluation of the Federated Funds' advisory and subadvisory arrangements is a continuing and on-going process that is informed by the information that the Board requests and receives from management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its on-going oversight of the Federated Funds.
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 summarized 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 view 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 FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund's holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC's website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
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 Hermes 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 (4/20)
© 2020 Federated Hermes, 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 registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies |
Not Applicable
(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.
RegistrantFederated Municipal Securities Income Trust
By/S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
DateApril 22, 2020
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
DateApril 22, 2020
By/S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
DateApril 22, 2020
