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 Hermes Municipal Securities Income Trust
_______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, Pennsylvania 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: 08/31/23
Date of Reporting Period: 08/31/23
| Item 1. | Reports to Stockholders |
Annual Shareholder Report
August 31, 2023
|
Share Class | Ticker
|
A | MMIFX
|
Institutional | MMFIX
|
|
|
Federated Hermes Michigan Intermediate Municipal Fund
Fund Established 1991
A Portfolio of Federated Hermes Municipal Securities Income Trust
Dear Valued Shareholder,
We are pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2022 through August 31, 2023. This report includes Management’s Discussion of Fund Performance, a complete listing of your fund’s holdings, performance information and financial statements along with other important fund information.
As a global leader in active, responsible investment management, Federated Hermes is guided by our conviction that responsible investing is the best way to create wealth over the long term. The company provides capabilities across a wide range of asset classes to investors around the world.
In addition, FederatedHermes.com/us offers quick and easy access to valuable resources that include timely fund updates, economic and market insights from our investment strategists and financial planning tools. You can also access many of those insights by following us on Twitter (@FederatedHermes) and LinkedIn.
Thank you for investing with us. We hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
Management’s Discussion of Fund Performance (unaudited)
The total return of Federated Hermes Michigan Intermediate Municipal Fund (the “Fund”), based on net asset value for the 12-month reporting period ended August 31, 2023, was -0.05% for its Class A Shares and 0.20% for Institutional Shares. The 0.20% total return for the Institutional Shares for the reporting period consisted of 2.02% of tax-exempt dividends and price depreciation of -1.82% in the net asset value of the shares.1 The total return of the S&P Municipal Bond Intermediate Index (the “Intermediate Index”),2 the Fund’s broad-based securities market index, was 1.80% during the same period. The total return of the S&P Municipal Bond MI, Investment Grade, 1-15 Years Index (MIIG1-15),3,4 a secondary index for the Fund, was 1.64%. The total return of the Morningstar Muni Single State Intermediate Funds Average (MMSSIFA),5 a peer group average for the Fund, was 0.51% during the same reporting period. The Fund’s and the MMSSIFA’s total returns for the most recently completed fiscal year reflected actual cash flows, transaction costs and expenses, which were not reflected in the total return of the Intermediate Index.
During the reporting period, the Fund’s investment strategy focused on: (a) the selection of securities with different maturities (expressed by a yield curve showing the relative yield of similar securities with different maturities);6 b) the allocation of the Fund’s portfolio among securities of similar issuers (referred to as “sectors”); (c) the credit quality of portfolio securities (which is shown through credit ratings which indicate the risk that securities may default);7 (d) security selection; and (e) the effective duration of the portfolio, which indicates the portfolio’s sensitivity to changes in interest rates.8,9 These were the most significant factors affecting the Fund’s performance relative to the MIIG1-15 during the reporting period.
The following discussion will focus on the performance of the Fund’s Institutional Shares relative to the MIIG1-15.
Market OVERVIEW
Inflation, which first reared its head in 2022, began to abate during the reporting period but remained an issue for fixed-income markets. Following seven moves totaling 4.25% in 2022, the Federal Reserve (the “Fed”) raised rates four more times for an additional 1.00% during the first eight months of 2023. The short part of the yield curve responded most sharply, with the yield on 2-year Treasuries increasing 137 basis points to 4.87% over the fiscal year. The rest of the yield curve saw smaller, parallel increases, with 5-, 10- and 30-year Treasury yields rising 90, 91 and 92 basis points, respectively, over the same period.
Annual Shareholder Report
1
The municipal yield curve also shifted upward although less dramatically. The Municipal Market Data (MMD) AAA 10-year rate increased from 2.59% at the beginning of the period to 3.41% at the end of October 2022. It fell as low as 2.08% in April 2023 before rising again to 2.93% at the end of the fiscal year, a net rise of 34 basis points. The MMD AAA rate rose 86 basis points at 2 years, 56 basis points at 5 years and 59 basis points at 30 years. Municipals richened compared to Treasuries, with the yield ratio falling from 81% to 71% at 10 years and from 100% to 92% at 30 years.
The municipal curve inverted during the fiscal year. As of the end of the period, yields on 1-year AAA bonds were higher than those with 13 years to maturity.
Municipal credit spreads changed little over the reporting period as a whole. The spread between the yield of the S&P Municipal High Yield Index and the S&P Municipal Index widened by just one basis point from the beginning of the period to the end, although this spread widened by as much as 43 basis points in the spring, before tightening through the end of the fiscal year. Underlying credit generally remained good over the last fiscal year. State and local governments, as well as other issuers, continued to benefit from the considerable federal aid that came their way during and after the pandemic. For the first half of 2023, Moody’s upgrades outnumbered downgrades by nearly four to one.
Higher rates continued to depress new issuance. According to The Bond Buyer, total issuance for the 12 months ended August 31, 2023 was 18% lower than the prior 12 months, and 25% lower than the 12 months ending August 31, 2021. Refunding issuance remained at low levels as higher rates make fewer refundings economical.
Over the reporting period, spreads on Michigan State general obligation bonds tightened by one to three basis points compared to the Thomson Municipal Market Data AAA Curve benchmark.
During the reporting period, Michigan’s general obligation credit rating and outlook remained unchanged: Moody’s Aa1 (stable), S&P AA (stable) and Fitch AA+ (stable).
The Bond Buyer reported that issuance of Michigan municipal bonds for the reporting period was 13% lower than during the prior 12-month period. Nationally, issuance increased 18% over the same time frame.
YIELD CURVE and MATURITY
During the reporting period, the Fund had an overweight position versus the MIIG1-15 in bonds with a duration between four and eight years. The Fund’s yield curve positioning had a negative impact on the Fund’s relative performance against the MIIG1-15.
Annual Shareholder Report
2
SECTOR Allocation
During the reporting period, sector selection provided a negative contribution to total return relative to the MIIG1-15. The Fund’s best-performing sectors were Tobacco Settlement, Industrial Development and Pre-Refunded Bonds. Lagging sectors included Public Power, State General Obligations and Water & Sewer bonds.
CREDIT QUALITY
During the reporting period, the A-rated portion of the MIIG1-15 was the best performer. The Fund’s underweight position in A-rated bonds contributed to relative underperformance versus the MIIG1-15.
SECURITY SELECTION
During the reporting period, security-specific factors included credit rating changes, calls and other idiosyncratic occurrences for individual bonds. Collectively, individual items had a slightly negative impact on the Fund’s performance versus the MIIG1-15.
DURATION
The Fund’s dollar-weighted average duration was 3.6 years at the end of the reporting period as compared to 3.4 years at the beginning of the period. Throughout the fiscal year, the Fund’s duration ranged from 86% to 105% of the MIIG1-15. On net, rates rose steadily throughout the period, which had a negative impact on bond prices. During the first half of the fiscal year, the Fund’s duration was short relative to the MIIG1-15, which had a positive impact on the Fund’s relative performance. Conversely, during the latter part of the period, the Fund’s duration was generally long relative to the MIIG1-15, which had a negative impact on the Fund’s relative performance. Overall, duration contributed positively to the Fund’s relative performance.
1
Income may be subject to the federal alternative minimum tax for individuals (AMT).
2
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Intermediate Index.
3
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the MIIG1-15. The Fund’s secondary index is being used for comparison purposes because, while it is not the Fund’s broad-based securities market index, the Fund’s investment adviser (the “Adviser”) believes it more closely reflects the securities in which the Fund invests.
4
Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Adviser believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard & Poor’s, Moody’s Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by
Annual Shareholder Report
3
the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
5
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” for the definition of, and more information about, the Morningstar peer group.
6
The yield curve is a graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.
7
Credit ratings pertain only to the securities in the portfolio and do not protect the Fund shares against market risk.
8
Duration is a measure of the price sensitivity of a fixed-income security to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management’s Discussion of Fund Performance, duration is determined using a third-party analytical system.
9
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
Annual Shareholder Report
4
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Federated Hermes Michigan Intermediate Municipal Fund (the “Fund”) from August 31, 2013 to August 31, 2023, compared to the S&P Municipal Bond Intermediate Index (Intermediate Index),2 the S&P Municipal Bond MI, Investment Grade, 1-15 Years Index (MIIG1-15),3 and the Morningstar Muni Single State Intermediate Funds Average (MMSSIFA).4 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment
Growth of $10,000 as of August 31, 2023
◾ Total returns shown for Class A Shares include the maximum sales charge of 3.00% ($10,000 investment minus $300 sales charge = $9,700).
Average Annual Total Returns for the Period Ended 8/31/2023
(returns reflect all applicable sales charges as specified below in footnote #1)
|
|
1 Year
|
5 Years
|
10 Years
|
|
Class A Shares
|
-3.02%
|
0.35%
|
1.51%
|
|
Institutional Shares5
|
0.20%
|
1.12%
|
1.91%
|
|
Intermediate Index
|
1.80%
|
1.71%
|
2.62%
|
|
MIIG1-15
|
1.64%
|
1.74%
|
2.42%
|
|
MMSSIFA
|
0.51%
|
0.71%
|
1.92%
|
Annual Shareholder Report
5
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedHermes.com/us or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge for Class A Shares of 3.00% ($10,000 investment minus $300 sales charge = $9,700). The Fund’s performance assumes the reinvestment of all dividends and distributions. The Intermediate Index, MIIG1-15 and the MMSSIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2
The Intermediate Index consists of bonds in the S&P Municipal Bond Index with a minimum maturity of 3 years and a maximum of 15 years. It is a subindex of the S&P Municipal Bond Index which tracks fixed-rate tax-free bonds and bonds subject to the AMT. The index includes bonds of all quality–from “AAA” to non-rated, including defaulted bonds–from all sectors of the municipal bond market. The Intermediate Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. The Intermediate Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
3
The MIIG1-15 represents the portion of the MI Index composed solely of bonds that are rated ”BBB-/Baa3” or higher with remaining maturities from one to fifteen years. The MIIG1-15 Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund’s performance. The MIIG15 Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4
Morningstar figures represent the average of the total returns reported by all the funds designated by Morningstar as falling into the respective category indicated. They do not reflect sales charges. The Morningstar figures in the Growth of a $10,000 Investment line graph are based on historical return information published by Morningstar and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Morningstar as falling into the category can change over time, the Morningstar figures in the line graph may not match the Morningstar figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
5
The Fund’s Institutional Shares commenced operations on April 28, 2020. For the periods prior to commencement of operations of the Fund’s IS class, the performance information shown is for the Fund’s A class. The performance of the A class has not been adjusted to reflect the expenses of the IS class since the IS class has a lower expense ratio than the A class. The performance information shown has been adjusted to reflect differences between the sales loads and charges imposed on the purchase and redemption of the Fund’s IS class and A class.
Annual Shareholder Report
6
Portfolio of Investments Summary Table (unaudited)
At August 31, 2023, the Fund’s sector composition1 was as follows:
|
Sector Composition
|
Percentage of
Total Net Assets
|
|
General Obligation—Local
|
35.7%
|
|
Water & Sewer
|
14.1%
|
|
Higher Education
|
11.7%
|
|
Hospital
|
9.9%
|
|
Pre-refunded
|
5.4%
|
|
General Obligation—State Appropriation
|
5.2%
|
|
Dedicated Tax
|
4.8%
|
|
Airport
|
2.4%
|
|
Electric & Gas
|
2.3%
|
|
Public Power
|
2.3%
|
|
Other2
|
5.6%
|
|
Other Assets and Liabilities—Net3
|
0.6%
|
|
TOTAL
|
100%
|
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. 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 93.8% of the Fund’s total net assets. Remaining sectors have been aggregated under the designation “Other.”
3
Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
7
Portfolio of Investments
August 31, 2023
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—97.8%
|
|
|
|
|
Michigan—97.8%
|
|
|
$1,200,000
|
|
Ann Arbor, MI Public School District, UT GO 2022 School
Building and Site Bonds, 5.000%, 5/1/2040
|
$1,304,828
|
|
500,000
|
|
Ann Arbor, MI Public School District, UT GO School Building and
Site Bonds (Series 2023), 4.000%, 5/1/2034
|
530,204
|
|
1,255,000
|
|
Ann Arbor, MI, LT GO Capital Improvement Bonds
(Series 2019A), 4.000%, 5/1/2033
|
1,298,864
|
|
1,690,000
|
|
Bishop, MI International Airport Authority, Refunding LT GO
(Series 2010A), (Assured Guaranty Municipal Corp. INS),
4.500%, 12/1/2023
|
1,691,427
|
|
400,000
|
|
Bloomfield Hills Schools, MI, UT GO Bonds (Series 2023),
5.000%, 5/1/2031
|
453,244
|
|
1,425,000
|
|
Calhoun County, MI Transportation Fund, Revenue Bonds,
4.000%, 11/1/2030
|
1,438,045
|
|
775,000
|
|
Crawford AuSable, MI School District, UT GO School Building
and Site Bonds (Series 2022-1), (Assured Guaranty Municipal
Corp. INS), 4.000%, 5/1/2030
|
807,011
|
|
830,000
|
|
Dearborn Heights, MI, LT GO Capital Improvement Bonds
(Series 2021), (Build America Mutual Assurance INS),
3.000%, 5/1/2026
|
818,339
|
|
2,000,000
|
|
Dearborn, MI School District, UT GO School Building & Site
Bonds (Series 2014A), (United States Treasury PRF
11/1/2023@100), 5.000%, 5/1/2025
|
2,004,720
|
|
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
|
501,296
|
|
375,000
|
|
Downriver Utility Wastewater Authority, Sewer System Revenue
Bonds (Series 2018), (Assured Guaranty Municipal Corp. INS),
5.000%, 4/1/2031
|
402,394
|
|
450,000
|
|
Forest Hills, MI Public Schools, UT GO School Building and Site
Bonds (Series 2023-III), 5.000%, 5/1/2031
|
507,605
|
|
200,000
|
|
Gerald R. Ford International Airport, LT Revenue Bonds
(Series 2021), (Kent County, MI GTD), 5.000%, 1/1/2026
|
206,489
|
|
125,000
|
|
Gerald R. Ford International Airport, LT Revenue Bonds
(Series 2021), (Kent County, MI GTD), 5.000%, 1/1/2028
|
132,457
|
|
1,000,000
|
|
Grand Rapids, MI Sanitary Sewer System, Revenue Refunding
Bonds (Series 2016), 5.000%, 1/1/2034
|
1,032,895
|
|
500,000
|
|
Great Lakes, MI Water Authority (Great Lakes, MI Water
Authority Water Supply System), Water Supply System Revenue
Senior Lien Bonds (Series 2022A), 5.000%, 7/1/2035
|
558,870
|
|
500,000
|
|
Huron Valley, MI School District, UT GO School Building and Site
Bonds (Series 2023), (Michigan School Bond Qualification and
Loan Program GTD), 4.000%, 5/1/2034
|
535,772
|
Annual Shareholder Report
8
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Michigan—continued
|
|
|
$420,000
|
|
L’Anse Creuse, MI Public Schools, UT GO Refunding Bonds
(Series 2023), (Michigan School Bond Qualification and Loan
Program GTD), 5.000%, 5/1/2032
|
$480,318
|
|
500,000
|
|
Lansing, MI Board of Water & Light, Utility System Revenue
Bonds (Series 2021B), 2.000%, Mandatory Tender 7/1/2026
|
467,637
|
|
400,000
|
|
Livonia, MI Public School District, UT GO School Building and
Site Bonds (Series 2023-II), (Assured Guaranty Municipal Corp.
INS), 5.000%, 5/1/2031
|
451,205
|
|
1,000,000
|
|
Michigan State Building Authority, Revenue Refunding Bonds
(Series 2015I), 5.000%, 4/15/2027
|
1,032,379
|
|
500,000
|
|
Michigan State Building Authority, Revenue Refunding Bonds
Facilities Program (Series 2023-II), 5.000%, 10/15/2029
|
554,522
|
|
1,000,000
|
|
Michigan State Comprehensive Transportation Fund, Refunding
Revenue Bonds (Series 2015), 5.000%, 11/15/2026
|
1,018,831
|
|
750,000
|
|
Michigan State Finance Authority (Beaumont Health Spectrum
Health System), Hospital Revenue Refunding Bonds
(Series 2022A), 5.000%, 4/15/2030
|
824,046
|
|
500,000
|
|
Michigan State Finance Authority (Charter County of Wayne
Criminal Justice Center Project), Senior Lien State Aid Revenue
Bonds (Series 2018), 5.000%, 11/1/2033
|
533,385
|
|
250,000
|
|
Michigan State Finance Authority (Clean Water Revolving Fund),
Drinking Water Revolving Fund Revenue Bonds (Series 2021B),
5.000%, 10/1/2027
|
268,553
|
|
1,000,000
|
|
Michigan State Finance Authority (Clean Water Revolving Fund),
Revenue Refunding Bonds (Series 2018B), 5.000%, 10/1/2032
|
1,088,450
|
|
2,000,000
|
|
Michigan State Finance Authority (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
|
2,020,255
|
|
1,000,000
|
|
Michigan State Finance Authority (Trinity Healthcare Credit
Group), Hospital Revenue & Refunding Bonds (Series 2015MI),
5.500%, 12/1/2026
|
1,030,702
|
|
500,000
|
|
Michigan State Finance Authority, Drinking Water Revolving Fund
Revenue Bonds (Series 2023A), 5.000%, 10/1/2031
|
575,305
|
|
2,000,000
|
|
Michigan State Hospital Finance Authority (Ascension Health
Alliance Senior Credit Group), Revenue Bonds (Series 1999B-3),
4.000%, 11/15/2032
|
2,031,633
|
|
250,000
|
|
Michigan State Hospital Finance Authority (Trinity Healthcare
Credit Group), Revenue Refunding Bonds (Series 2017C),
5.000%, 12/1/2031
|
265,554
|
|
150,000
|
|
Michigan State Trunk Line, State Trunk Line Fund Bonds
(Series 2023), 5.000%, 11/15/2033
|
173,872
|
|
455,000
|
|
Michigan State Trunk Line, State Trunk Line Fund Refunding
Bonds (Series 2020B), 5.000%, 11/15/2028
|
499,377
|
Annual Shareholder Report
9
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Michigan—continued
|
|
|
$585,000
|
|
Michigan State Trunk Line, State Trunk Line Fund Revenue Bonds
(Series 2020B), 5.000%, 11/15/2033
|
$662,283
|
|
1,250,000
|
|
Michigan State University Board of Trustees, General Revenue
Bonds (Series 2019B), 5.000%, 2/15/2034
|
1,356,476
|
|
400,000
|
|
Michigan State University Board of Trustees, General Revenue
Bonds (Series 2023A), 5.000%, 2/15/2031
|
451,568
|
|
1,000,000
|
|
Michigan Strategic Fund (Consumers Energy), Variable Rate
Limited Obligation Revenue Bonds (Series 2019), 1.800%,
Mandatory Tender 10/1/2024
|
973,104
|
|
500,000
|
|
Michigan Strategic Fund (DTE Electric Co.), Limited Obligation
Revenue Bonds (Series 2023DT), 3.875%, Mandatory
Tender 6/3/2030
|
489,733
|
|
500,000
|
|
Michigan Strategic Fund (United Methodist Retirement
Community, Inc.), Limited Obligation Revenue Refunding Bonds
(Series 2019), 5.000%, 11/15/2034
|
484,546
|
|
250,000
|
|
Michigan Tobacco Settlement Finance Authority, Tobacco
Settlement Asset-Backed Senior Current Interest Bonds
(Series 2020A Class 1), 5.000%, 6/1/2025
|
254,945
|
|
595,000
|
|
Oxford, MI Area Community Schools, UT GO Bonds
(Series 2018I), (Michigan School Bond Qualification and Loan
Program GTD), 4.000%, 11/1/2032
|
614,689
|
|
1,000,000
|
|
Royal Oak, MI Hospital Finance Authority (Beaumont Health
Credit Group), Hospital Revenue Refunding Bonds
(Series 2014D), (United States Treasury PRF 9/1/2023@100),
5.000%, 9/1/2023
|
1,000,000
|
|
500,000
|
|
Saginaw, MI City School District, UT GO School Building and Site
Bonds (Series 2021), (Michigan School Bond Qualification and
Loan Program GTD), 4.000%, 5/1/2027
|
512,464
|
|
500,000
|
|
Saline, MI Area Schools, School Building and Site Bonds
(Series 2023-I), (Michigan School Bond Qualification and Loan
Program GTD), 5.000%, 5/1/2031
|
564,733
|
|
1,085,000
|
|
Southfield, MI Library Building Authority, Refunding LT GO
Bonds, 5.000%, 5/1/2026
|
1,110,736
|
|
1,000,000
|
|
Southfield, MI, UT GO 2018 Street Improvement Bonds,
4.000%, 5/1/2029
|
1,034,020
|
|
250,000
|
|
Troy, MI School District, UT GO School Building & Site Bonds
(Series 2023), (Q-SBLF GTD), 5.000%, 5/1/2031
|
285,294
|
|
1,000,000
|
|
University of Michigan (The Regents of), General Revenue Bonds
(Series 2017A), 5.000%, 4/1/2027
|
1,066,936
|
|
2,000,000
|
|
University of Michigan (The Regents of), Revenue Bonds
(Series 2018A), 4.000%, 4/1/2033
|
2,049,943
|
|
675,000
|
|
Warren, MI, LT GO Bonds (Series 2021), 4.000%, 6/1/2032
|
708,446
|
Annual Shareholder Report
10
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Michigan—continued
|
|
|
$1,000,000
|
|
Wayne County, MI Airport Authority, Airport Revenue Refunding
Bonds (Series 2015F), 5.000%, 12/1/2027
|
$1,018,668
|
|
|
|
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $43,114,629)
|
42,179,068
|
|
|
1
|
SHORT-TERM MUNICIPALS—1.6%
|
|
|
|
|
Michigan—1.6%
|
|
|
350,000
|
|
Green Lake Township, MI (Interlochen Center), (Series 2004) Daily
VRDNs, (PNC Bank, N.A. LOC), 3.950%, 9/1/2023
|
350,000
|
|
350,000
|
|
Michigan Strategic Fund (Air Products & Chemicals, Inc.),
(Series 2007) Daily VRDNs, 3.890%, 9/1/2023
|
350,000
|
|
|
|
TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $700,000)
|
700,000
|
|
|
|
TOTAL INVESTMENT IN SECURITIES—99.4%
(IDENTIFIED COST $43,814,629)2
|
42,879,068
|
|
|
|
OTHER ASSETS AND LIABILITIES - NET—0.6%3
|
240,862
|
|
|
|
TOTAL NET ASSETS—100%
|
$43,119,930
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 6.6% of the Fund’s portfolio as calculated based upon total market value (Unaudited).
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.
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2023.
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 August 31, 2023, all investments of the Fund utilized Level 2 inputs in valuing the Fund’s assets carried at fair value.
Annual Shareholder Report
11
The following acronym(s) are used throughout this portfolio:
|
GO
|
—General Obligation
|
|
GTD
|
—Guaranteed
|
|
INS
|
—Insured
|
|
LOC
|
—Letter of Credit
|
|
LT
|
—Limited Tax
|
|
PRF
|
—Pre-refunded
|
|
UT
|
—Unlimited Tax
|
|
VRDNs
|
—Variable Rate Demand Notes
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
12
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$10.46
|
$11.34
|
$11.46
|
$11.42
|
$10.92
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.19
|
0.15
|
0.20
|
0.25
|
0.27
|
|
Net realized and unrealized gain (loss)
|
(0.19)
|
(0.83)
|
(0.05)
|
0.05
|
0.53
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
(0.00)1
|
(0.68)
|
0.15
|
0.30
|
0.80
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.19)
|
(0.15)
|
(0.21)
|
(0.25)
|
(0.27)
|
|
Distributions from net realized gain
|
(0.08)
|
(0.05)
|
(0.06)
|
(0.01)
|
(0.03)
|
|
TOTAL DISTRIBUTIONS
|
(0.27)
|
(0.20)
|
(0.27)
|
(0.26)
|
(0.30)
|
|
Net Asset Value, End of Period
|
$10.19
|
$10.46
|
$11.34
|
$11.46
|
$11.42
|
|
Total Return2
|
(0.05)%
|
(6.05)%
|
1.26%
|
2.67%
|
7.46%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.78%4
|
0.77%
|
0.77%
|
0.77%4
|
0.77%4
|
|
Net investment income
|
1.78%
|
1.42%
|
1.80%
|
2.20%
|
2.42%
|
|
Expense waiver/reimbursement5
|
0.49%
|
0.36%
|
0.32%
|
0.32%
|
0.29%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$34,408
|
$50,484
|
$66,554
|
$72,959
|
$78,276
|
|
Portfolio turnover6
|
15%
|
17%
|
20%
|
11%
|
21%
|
1
Represents less than $0.01.
2
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratios are calculated without reduction for expense offset arrangements. The net expense ratios are 0.78%, 0.77% and 0.77% for the years ended August 31, 2023, 2020 and 2019, respectively, after taking into account these expense reductions.
5
This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
13
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
|
Year Ended August 31,
|
Period
Ended
8/31/20201,2
|
||
|
2023
|
2022
|
2021
|
||
|
Net Asset Value, Beginning of Period
|
$10.46
|
$11.34
|
$11.46
|
$11.15
|
|
Income From Investment Operations:
|
|
|
|
|
|
Net investment income
|
0.21
|
0.18
|
0.23
|
0.09
|
|
Net realized and unrealized gain (loss)
|
(0.19)
|
(0.83)
|
(0.06)
|
0.31
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.02
|
(0.65)
|
0.17
|
0.40
|
|
Less Distributions:
|
|
|
|
|
|
Distributions from net investment income
|
(0.21)
|
(0.18)
|
(0.23)
|
(0.09)
|
|
Distributions from net realized gain
|
(0.08)
|
(0.05)
|
(0.06)
|
—
|
|
TOTAL DISTRIBUTIONS
|
(0.29)
|
(0.23)
|
(0.29)
|
(0.09)
|
|
Net Asset Value, End of Period
|
$10.19
|
$10.46
|
$11.34
|
$11.46
|
|
Total Return3
|
0.20%
|
(5.81)%
|
1.50%
|
3.56%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
Net expenses4
|
0.53%5
|
0.52%
|
0.52%
|
0.52%5,6
|
|
Net investment income
|
2.03%
|
1.66%
|
2.03%
|
2.23%6
|
|
Expense waiver/reimbursement7
|
0.49%
|
0.36%
|
0.32%
|
0.40%6
|
|
Supplemental Data:
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$8,712
|
$14,465
|
$10,675
|
$3,273
|
|
Portfolio turnover8
|
15%
|
17%
|
20%
|
11%9
|
1
Reflects operations for the period from April 28, 2020 (commencement of operations) to August 31, 2020.
2
Certain ratios included in Ratios to Average Net Assets and per share amounts may be inflated or deflated as compared to the fee structure for each respective share class as a result of daily systematic allocations being rounded to the nearest penny for fund level income, expense and realized gain/loss amounts. Such differences are immaterial.
3
Based on net asset value. Total returns for periods of less than one year are not annualized.
4
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
5
The net expense ratios are calculated without reduction for expense offset arrangements. The net expense ratios are 0.53% for the year ended August 31, 2023 and 0.52% for the period ended August 31, 2020, after taking into account these expense reductions.
6
Computed on an annualized basis.
7
This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
8
Securities that mature are considered sales for purposes of this calculation.
9
Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal period ended August 31, 2020.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
14
Statement of Assets and Liabilities
August 31, 2023
August 31, 2023
|
Assets:
|
|
|
|
Investment in securities, at value (identified cost $43,814,629)
|
|
$42,879,068
|
|
Cash
|
|
38,761
|
|
Income receivable
|
|
556,855
|
|
Receivable for shares sold
|
|
2,215
|
|
TOTAL ASSETS
|
|
43,476,899
|
|
Liabilities:
|
|
|
|
Payable for investments purchased
|
$172,434
|
|
|
Payable for shares redeemed
|
96,145
|
|
|
Income distribution payable
|
13,316
|
|
|
Payable for portfolio accounting fees
|
48,201
|
|
|
Payable for share registration costs
|
12,167
|
|
|
Payable for other service fees (Notes 2 and 5)
|
7,583
|
|
|
Payable for administrative fee (Note 5)
|
328
|
|
|
Accrued expenses (Note 5)
|
6,795
|
|
|
TOTAL LIABILITIES
|
|
356,969
|
|
Net assets for 4,230,650 shares outstanding
|
|
$43,119,930
|
|
Net Assets Consists of:
|
|
|
|
Paid-in capital
|
|
$45,222,501
|
|
Total distributable earnings (loss)
|
|
(2,102,571)
|
|
TOTAL NET ASSETS
|
|
$43,119,930
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
|
|
|
|
Class A Shares:
|
|
|
|
Net asset value per share ($34,408,325 ÷ 3,376,075 shares outstanding),
no par value, unlimited shares authorized
|
|
$10.19
|
|
Offering price per share (100/97.00 of $10.19)
|
|
$10.51
|
|
Redemption proceeds per share
|
|
$10.19
|
|
Institutional Shares:
|
|
|
|
Net asset value per share ($8,711,605 ÷ 854,575 shares outstanding), no
par value, unlimited shares authorized
|
|
$10.19
|
|
Offering price per share
|
|
$10.19
|
|
Redemption proceeds per share
|
|
$10.19
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
15
Statement of Operations
Year Ended August 31, 2023
Year Ended August 31, 2023
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$1,329,429
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$208,109
|
|
|
Administrative fee (Note 5)
|
|
41,617
|
|
|
Transfer agent fees
|
|
31,662
|
|
|
Directors’/Trustees’ fees (Note 5)
|
|
2,059
|
|
|
Auditing fees
|
|
31,930
|
|
|
Legal fees
|
|
11,637
|
|
|
Other service fees (Notes 2 and 5)
|
|
102,260
|
|
|
Portfolio accounting fees
|
|
119,655
|
|
|
Share registration costs
|
|
40,161
|
|
|
Printing and postage
|
|
21,944
|
|
|
Miscellaneous (Note 5)
|
|
22,789
|
|
|
TOTAL EXPENSES
|
|
633,823
|
|
|
Waiver, Reimbursement and Reduction:
|
|
|
|
|
Waiver of investment adviser fee (Note 5)
|
$(189,161)
|
|
|
|
Reimbursement of other operating expenses (Note 5)
|
(68,296)
|
|
|
|
Reduction of custodian fees (Note 6)
|
(735)
|
|
|
|
TOTAL WAIVER, REIMBURSEMENT AND REDUCTION
|
|
(258,192)
|
|
|
Net expenses
|
|
|
375,631
|
|
Net investment income
|
|
|
953,798
|
|
Realized and Unrealized Gain (Loss) on Investments:
|
|
|
|
|
Net realized loss on investments
|
|
|
(1,168,051)
|
|
Net change in unrealized depreciation of investments
|
|
|
182,743
|
|
Net realized and unrealized gain (loss) on investments
|
|
|
(985,308)
|
|
Change in net assets resulting from operations
|
|
|
$(31,510)
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
16
Statement of Changes in Net Assets
|
Year Ended August 31
|
2023
|
2022
|
|
Increase (Decrease) in Net Assets
|
|
|
|
Operations:
|
|
|
|
Net investment income
|
$953,798
|
$999,326
|
|
Net realized gain (loss)
|
(1,168,051)
|
630,946
|
|
Net change in unrealized appreciation/depreciation
|
182,743
|
(5,806,022)
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
(31,510)
|
(4,175,750)
|
|
Distributions to Shareholders:
|
|
|
|
Class A Shares
|
(1,063,689)
|
(939,304)
|
|
Institutional Shares
|
(313,537)
|
(361,203)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS
|
(1,377,226)
|
(1,300,507)
|
|
Share Transactions:
|
|
|
|
Proceeds from sale of shares
|
6,889,023
|
23,250,144
|
|
Net asset value of shares issued to shareholders in payment of
distributions declared
|
1,126,820
|
983,180
|
|
Cost of shares redeemed
|
(28,436,178)
|
(31,037,061)
|
|
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
|
(20,420,335)
|
(6,803,737)
|
|
Change in net assets
|
(21,829,071)
|
(12,279,994)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
64,949,001
|
77,228,995
|
|
End of period
|
$43,119,930
|
$64,949,001
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
17
Notes to Financial Statements
August 31, 2023
1. ORGANIZATION
Federated Hermes 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 Hermes Michigan Intermediate Municipal Fund (the “Fund”). 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 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 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.
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 Federated Investment Management Company (the “Adviser”).
◾ Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.
◾ 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 ask quotations.
◾ Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Adviser.
◾ For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, 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.
Annual Shareholder Report
18
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 Adviser’s valuation policies and procedures for the Fund, or if information furnished by a pricing service, in the opinion of the Adviser’s 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, and the actual value obtained could be materially different.
Fair Valuation Procedures
Pursuant to Rule 2a-5 under the Act, the Fund’s Board of Trustees (the “Trustees”) has designated the Adviser as the Fund’s valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees’ oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser’s fair value determinations.
The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services 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 Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser’s fair valuation and significant events procedures as part of the Fund’s compliance program and will review 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 ask 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
Annual Shareholder Report
19
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 Adviser.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that select classes will bear certain expenses unique to those classes. The detail of the total fund expense waiver, reimbursement and reduction of $258,192 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 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 year ended August 31, 2023, the Fund’s Class A Shares incurred $102,260 of other service fees.
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2023, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2023, tax years 2020 through 2023 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.
Annual Shareholder Report
20
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration and yield curve risks. 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 clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.
At August 31, 2023, the Fund had no outstanding futures contracts.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ materially from those estimated. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class A Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
568,223
|
$5,846,046
|
1,147,335
|
$12,135,149
|
|
Shares issued to shareholders in payment of
distributions declared
|
99,003
|
1,021,617
|
79,867
|
871,641
|
|
Shares redeemed
|
(2,118,766)
|
(21,844,947)
|
(2,268,964)
|
(24,995,448)
|
|
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS
|
(1,451,540)
|
$(14,977,284)
|
(1,041,762)
|
$(11,988,658)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Institutional Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
100,568
|
$1,042,977
|
989,321
|
$11,114,995
|
|
Shares issued to shareholders in payment of
distributions declared
|
10,194
|
105,203
|
10,208
|
111,539
|
|
Shares redeemed
|
(639,132)
|
(6,591,231)
|
(557,955)
|
(6,041,613)
|
|
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS
|
(528,370)
|
$(5,443,051)
|
441,574
|
$5,184,921
|
|
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS
|
(1,979,910)
|
$(20,420,335)
|
(600,188)
|
$(6,803,737)
|
Annual Shareholder Report
21
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2023 and 2022, was as follows:
|
|
2023
|
2022
|
|
Tax-exempt income
|
$952,848
|
$1,000,305
|
|
Ordinary income1
|
$2,368
|
$17,219
|
|
Long-term capital gains
|
$422,010
|
$282,983
|
1
For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of August 31, 2023, the components of distributable earnings on a tax-basis were as follows:
|
Undistributed tax-exempt income
|
$1,041
|
|
Net unrealized depreciation
|
$(935,561)
|
|
Capital loss carryforwards
|
$(1,168,051)
|
|
TOTAL
|
$(2,102,571)
|
At August 31, 2023, the cost of investments for federal tax purposes was $43,814,629. The net unrealized depreciation of investments for federal tax purposes was $935,561. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $10,837 and unrealized depreciation from investments for those securities having an excess of cost over value of $946,398.
As of August 31, 2023, the Fund had a capital loss carryforward of $1,168,051 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.
The following schedule summarizes the Fund’s capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$240,300
|
$927,751
|
$1,168,051
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund for competitive reasons such as to maintain the Fund’s expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the year ended August 31, 2023, the Adviser voluntarily waived $189,161 of its fee and voluntarily reimbursed $68,296 of other operating expenses.
Annual Shareholder Report
22
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 year ended August 31, 2023, 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.
Other Service Fees
For the year ended August 31, 2023, FSSC received $8,278 of the other service fees disclosed in Note 2.
Sales Charges
Front-end sales charges do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment. For the year ended August 31, 2023, FSC did not retain any sales charges. FSC retained $133 of CDSC relating to redemptions of Class A Shares.
Interfund Transactions
During the year ended August 31, 2023, 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 $24,400,000 and $25,600,000, respectively. Net realized gain (loss) recognized on these transactions was $0.
Expense Limitation
The Adviser and certain of its affiliates (which may include FAS and FSSC) on their own initiative agreed to waive certain amounts of their respective fees and/or reimburse expenses. Prior to November 1, 2023, 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 Institutional Shares (after the voluntary waivers and reimbursements) did not exceed 0.77% and 0.52% (the “Fee Limit”). Effective November 1, 2023, the Fee Limit was eliminated.
Annual Shareholder Report
23
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 offset custody expenses. For the year ended August 31, 2023, the Fund’s expenses were offset by $735 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2023, were as follows:
|
Purchases
|
$7,608,211
|
|
Sales
|
$26,648,314
|
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 August 31, 2023, 16.4% 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.
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 dated June 21, 2023. The LOC was made available to temporarily finance 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 (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of a commitment fee based on the amount of the lenders’ commitment that has not been utilized, quarterly in arrears and at maturity. As of August 31, 2023, the Fund had no outstanding loans. During the year ended August 31, 2023, the Fund did not utilize the LOC.
Annual Shareholder Report
24
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 August 31, 2023, there were no outstanding loans. During the year ended August 31, 2023, the program was not utilized.
11. Indemnifications
Under the Fund’s organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party’s actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.
12. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in, and may continue to result in, closed borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus has resulted in substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. In addition, governments, their regulatory agencies, or self-regulatory organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect the instruments in which the Fund invests or the issuers of such investments. Any such impact could adversely affect the Fund’s performance.
13. SUBSEQUENT EVENTS
On August 11, 2023, the Trustees approved a Plan of Liquidation for the Fund pursuant to which the Fund is anticipated to be liquidated the first quarter of 2024 pending shareholder approval.
Annual Shareholder Report
25
14. FEDERATED HERMES TAX INFORMATION (UNAUDITED)
For the year ended August 31, 2023, the amount of long-term capital gain designated by the Fund was $422,010. For the fiscal year ended August 31, 2023, 100% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
26
Report of Independent Registered Public Accounting Firm
To The Board of Trustees of Federated HERMES Municipal Securities Income Trust and the Shareholders of Federated HERMES Michigan Intermediate Municipal FUND:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Federated Hermes Michigan Intermediate Municipal Fund (the Fund), a portfolio of Federated Hermes Municipal Securities Income Trust, including the portfolio of investments, as of August 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of August 31, 2023, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Annual Shareholder Report
27
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of August 31, 2023, by correspondence with custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Hermes’ investment companies since 2006.
Boston, Massachusetts
October 24, 2023
October 24, 2023
Annual Shareholder Report
28
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 March 1, 2023 to August 31, 2023.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
29
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
|
Beginning
Account Value
3/1/2023
|
Ending
Account Value
8/31/2023
|
Expenses Paid
During Period1
|
|
Actual:
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,001.50
|
$3.88
|
|
Institutional Shares
|
$1,000
|
$1,002.70
|
$2.62
|
|
Hypothetical (assuming a 5% return
before expenses):
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,021.32
|
$3.92
|
|
Institutional Shares
|
$1,000
|
$1,022.58
|
$2.65
|
1
Expenses are equal to the Fund’s annualized net expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized expense ratios are as follows:
|
Class A Shares
|
0.77%
|
|
Institutional Shares
|
0.52%
|
Annual Shareholder Report
30
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2022, the Trust comprised four portfolio(s), and the Federated Hermes Fund Family consisted of 33 investment companies (comprising 102 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Hermes Fund Family and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400, Option #4.
Interested TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Indefinite Term
Began serving: August 1990
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of the Funds in the Federated Hermes Fund Family; President,
Chief Executive Officer and Director, Federated Hermes, Inc.;
Chairman and Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and Director,
Federated Global Investment Management Corp.; Chairman and
Trustee, Federated Equity Management Company of Pennsylvania;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Previous Positions: President, Federated Investment Counseling;
President and Chief Executive Officer, Federated Investment
Management Company, Federated Global Investment Management
Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.
|
Annual Shareholder Report
31
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
John B. Fisher*
Birth Date: May 16, 1956
Trustee
Indefinite Term
Began serving: May 2016
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of certain of the Funds in the Federated Hermes Fund Family;
Director and Vice President, Federated Hermes, Inc.; President,
Director/Trustee and CEO, Federated Advisory Services Company,
Federated Equity Management Company of Pennsylvania, Federated
Global Investment Management Corp., Federated Investment
Counseling, Federated Investment Management Company, and
Federated MDTA LLC; Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales
Division of Federated Securities Corp.; President and CEO of Passport
Research, Ltd.; Director and President, Technology, Federated
Services Company.
|
*
Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold with Federated Hermes, Inc. and its subsidiaries.
INDEPENDENT TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee, and Chair of the Board
of Directors or Trustees, of the Federated Hermes Fund Family;
formerly, Chairman and CEO, The Collins Group, Inc. (a private equity
firm) (Retired).
Other Directorships Held: Director, KLX Energy Services Holdings,
Inc. (oilfield services); former Director of KLX Corp. (aerospace).
Qualifications: Mr. Collins has served in several business and financial
management roles and directorship positions throughout his career.
Mr. Collins previously served as Chairman and CEO of The Collins
Group, Inc. (a private equity firm) and as a Director of KLX Corp.
Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins
previously served as Director and Audit Committee Member, Bank of
America Corp.; Director, FleetBoston Financial Corp.; and Director,
Beth Israel Deaconess Medical Center (Harvard University
Affiliate Hospital).
|
Annual Shareholder Report
32
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
|
Principal Occupations: Director or Trustee, Chair of the Audit
Committee of the Federated Hermes Fund Family; formerly, Vice
Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee,
Equifax, Inc.; Lead Director, Member of the Audit and Nominating and
Corporate Governance Committees, Haverty Furniture Companies,
Inc.; formerly, Director, Member of Governance and Compensation
Committees, Publix Super Markets, Inc.
Qualifications: Mr. Hough has served in accounting, business
management and directorship positions throughout his career.
Mr. Hough most recently held the position of Americas Vice Chair of
Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough
serves on the President’s Cabinet and Business School Board of
Visitors for the University of Alabama. Mr. Hough previously served on
the Business School Board of Visitors for Wake Forest University, and
he previously served as an Executive Committee member of the
United States Golf Association.
|
|
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Adjunct Professor Emerita of Law, Duquesne University
School of Law; formerly, Dean of the Duquesne University School of
Law and Professor of Law and Interim Dean of the Duquesne
University School of Law; formerly, Associate General Secretary and
Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation
(natural gas).
Qualifications: Judge Lally-Green has served in various legal and
business roles and directorship positions throughout her career. Judge
Lally-Green previously held the position of Dean of the School of Law
of Duquesne University (as well as Interim Dean). Judge Lally-Green
previously served as Associate General Secretary of the Diocese of
Pittsburgh, a member of the Superior Court of Pennsylvania and as a
Professor of Law, Duquesne University School of Law. Judge
Lally-Green was appointed by the Supreme Court of Pennsylvania to
serve on the Supreme Court’s Board of Continuing Judicial Education
and the Supreme Court’s Appellate Court Procedural Rules
Committee. Judge Lally-Green also currently holds the positions on
not for profit or for profit boards of directors as follows: Director
and Chair, UPMC Mercy Hospital; Regent, Saint Vincent Seminary;
Member, Pennsylvania State Board of Education (public); Director,
Catholic Charities, Pittsburgh; and Director CNX Resources
Corporation (natural gas). Judge Lally-Green has held the positions of:
Director, Auberle; Director, Epilepsy Foundation of Western and
Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director,
Saint Thomas More Society; Director and Chair, Catholic High Schools
of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute;
Director, St. Vincent College; Director and Chair, North Catholic High
School, Inc.; Director and Vice Chair, Our Campaign for the Church
Alive!, Inc.; and Director and Vice Chair, Saint Francis University.
|
Annual Shareholder Report
33
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
Thomas M. O’Neill
Birth Date: June 14, 1951
Trustee
Indefinite Term
Began serving: August 2006
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Sole Proprietor, Navigator Management Company
(investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O’Neill has served in several business, mutual fund
and financial management roles and directorship positions throughout
his career. Mr. O’Neill serves as Director, Medicines for Humanity.
Mr. O’Neill previously served as Chief Executive Officer and President,
Managing Director and Chief Investment Officer, Fleet Investment
Advisors; President and Chief Executive Officer, Aeltus Investment
Management, Inc.; General Partner, Hellman, Jordan Management
Co., Boston, MA; Chief Investment Officer, The Putnam Companies,
Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director
and Consultant, EZE Castle Software (investment order management
software); Director, Midway Pacific (lumber); and Director, The
Golisano Children’s Museum of Naples, Florida.
|
|
Madelyn A. Reilly
Birth Date: February 2, 1956
Trustee
Indefinite Term
Began serving:
November 2020
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; formerly, Senior Vice President for Legal Affairs,
General Counsel and Secretary of Board of Directors, Duquesne
University (Retired).
Other Directorships Held: None.
Qualifications: Ms. Reilly has served in various business and legal
management roles throughout her career. Ms. Reilly previously served
as Senior Vice President for Legal Affairs, General Counsel and
Secretary of Board of Directors and Director of Risk Management and
Associate General Counsel, Duquesne University. Prior to her work at
Duquesne University, Ms. Reilly served as Assistant General Counsel
of Compliance and Enterprise Risk as well as Senior Counsel of
Environment, Health and Safety, PPG Industries. Ms. Reilly currently
serves as a member of the Board of Directors of UPMC
Mercy Hospital.
|
Annual Shareholder Report
34
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Retired; formerly, Senior Vice Chancellor and Chief Legal
Officer, University of Pittsburgh and Executive Vice President and
Chief Legal Officer, CONSOL Energy Inc. (now split into two separate
publicly traded companies known as CONSOL Energy Inc. and CNX
Resources Corp.).
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal
management roles and directorship positions throughout his career.
Mr. Richey most recently held the positions of Senior Vice Chancellor
and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously
served as Chairman of the Board, Epilepsy Foundation of Western
Pennsylvania and Chairman of the Board, World Affairs Council of
Pittsburgh. Mr. Richey previously served as Chief Legal Officer and
Executive Vice President, CONSOL Energy Inc. and CNX Gas
Company; and Board Member, Ethics Counsel and Shareholder,
Buchanan Ingersoll & Rooney PC (a law firm).
|
|
John S. Walsh
Birth Date:
November 28, 1957
Trustee
Indefinite Term
Began serving: June 1999
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; President and Director, Heat Wagon, Inc. (manufacturer
of construction temporary heaters); President and Director,
Manufacturers Products, Inc. (distributor of portable construction
heaters); President, Portable Heater Parts, a division of Manufacturers
Products, Inc.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management
roles and directorship positions throughout his career. Mr. Walsh
previously served as Vice President, Walsh & Kelly, Inc.
(paving contractors).
|
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35
OFFICERS
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Hermes Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp.; and Assistant Treasurer, Federated
Investors Trust Company. Ms. Hensler has received the Certified
Public Accountant designation.
Previous Positions: Controller of Federated Hermes, Inc.; Senior Vice
President and Assistant Treasurer, Federated Investors Management
Company; Treasurer, Federated Investors Trust Company; Assistant
Treasurer, Federated Administrative Services, Federated
Administrative Services, Inc., Federated Securities Corp., Edgewood
Services, Inc., Federated Advisory Services Company, Federated
Equity Management Company of Pennsylvania, Federated Global
Investment Management Corp., Federated Investment Counseling,
Federated Investment Management Company, Passport Research,
Ltd., and Federated MDTA, LLC; Financial and Operations Principal for
Federated Securities Corp., Edgewood Services, Inc. and Southpointe
Distribution Services, Inc.
|
|
Peter J. Germain
Birth Date:
September 3, 1959
CHIEF LEGAL OFFICER,
SECRETARY and EXECUTIVE
VICE PRESIDENT
Officer since: January 2005
|
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary
and Executive Vice President of the Federated Hermes Fund Family.
He is General Counsel, Chief Legal Officer, Secretary and Executive
Vice President, Federated Hermes, Inc.; Trustee and Senior Vice
President, Federated Investors Management Company; Trustee and
President, Federated Administrative Services; Director and President,
Federated Administrative Services, Inc.; Director and Vice President,
Federated Securities Corp.; Director and Secretary, Federated Private
Asset Management, Inc.; Secretary, Federated Shareholder Services
Company; and Secretary, Retirement Plan Service Company of
America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a
member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel,
Managing Director of Mutual Fund Services, Federated Hermes, Inc.;
Senior Vice President, Federated Services Company; and Senior
Corporate Counsel, Federated Hermes, Inc.
|
|
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE
OFFICER AND SENIOR
VICE PRESIDENT
Officer since: July 2015
|
Principal Occupations: Senior Vice President and Chief Compliance
Officer of the Federated Hermes Fund Family; Vice President and
Chief Compliance Officer of Federated Hermes, Inc. and Chief
Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined
Federated Hermes, Inc. in October 2011. He holds FINRA licenses
under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of
Compliance Operating Officer, Federated Hermes, Inc. Prior to joining
Federated Hermes, Inc., Mr. Van Meter served at the United States
Securities and Exchange Commission in the positions of Senior
Counsel, Office of Chief Counsel, Division of Investment Management
and Senior Counsel, Division of Enforcement.
|
Annual Shareholder Report
36
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Officer since: February 2010
|
Principal Occupations: Robert J. Ostrowski joined Federated Hermes,
Inc. in 1987 as an Investment Analyst and became a Portfolio Manager
in 1990. He was named Chief Investment Officer of Federated
Hermes, Inc. taxable fixed-income products in 2004 and also serves as
a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice
President of the Fund’s Adviser in 2009 and served as a Senior Vice
President of the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has
received the Chartered Financial Analyst designation. He received his
M.S. in Industrial Administration from Carnegie Mellon University.
|
Annual Shareholder Report
37
Evaluation and Approval of Advisory Contract–May 2023
Federated Hermes Michigan Intermediate Municipal Fund (the “Fund”)
At its meetings in May 2023 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including 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 investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to approve the continuation of the existing arrangement. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation of the Fund’s management fee (the “CCO Fee Evaluation Report”). The Board considered the CCO Fee Evaluation Report, along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the 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.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed
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reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; Federated Hermes’ business and operations; the Adviser’s investment philosophy, personnel and processes; the Fund’s investment objectives and strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate); the Fund’s fees and expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the financial condition of Federated Hermes; the Adviser’s profitability with respect to managing the Fund; distribution and sales activity for the Fund; and the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any).
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. 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 the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser’s cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize “economies of scale” as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any “fall-out” benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fee and expense structures, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same 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 the adviser’s services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements
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regarding the basis for a fund board’s approval of the fund’s investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation of the 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 Hermes on matters relating to the oversight of the other funds advised by Federated Hermes (each, a “Federated Hermes Fund” and, collectively, the “Federated Hermes Funds”).
In addition, the Board considered the preferences and expectations of Fund shareholders and 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 the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes’ industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund’s shareholders and such shareholders in the marketplace, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.
In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to approve the continuation of the Contract was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Contract. The Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. The Independent Trustees were assisted throughout the evaluation process by independent legal counsel. In connection with their deliberations at the May Meetings, the Independent Trustees met separately in executive session with their independent legal counsel and without management present to review the relevant materials and consider their responsibilities under applicable laws. In addition, senior management representatives of Federated Hermes also met with the Independent Trustees and their independent legal counsel to discuss the materials and presentations furnished to the Board at the May Meetings. The Board considered the approval of the Contract for the Fund as part of its consideration of agreements for funds across the family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.
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Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the range of services provided to the Fund by Federated Hermes. The Board considered the Adviser’s personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. 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 Federated Hermes’ ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser’s ability to deliver competitive investment performance for the Fund when compared to the Fund’s Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund’s investment program.
In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted that the significant acquisition of Hermes Fund Managers Limited by Federated Hermes has deepened Federated Hermes’ investment management expertise and capabilities and its access to analytical resources related to environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters. The Board considered Federated Hermes’ oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes’ communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds’ officers.
The Board received and evaluated information regarding Federated Hermes’ regulatory and compliance environment. The Board considered Federated Hermes’ compliance program and compliance history and reports from the CCO about Federated Hermes’ compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes’ support of the Federated Hermes Funds’ compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund’s obligations pursuant to Rule 38a-1 under the
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Investment Company Act of 1940, including Federated Hermes’ commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes’ approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds’ compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes’ oversight in this regard, including in connection with the implementation of new rules on derivatives risk management and fair valuation.
The Board also considered the implementation of Federated Hermes’ business continuity plans. In addition, the Board noted Federated Hermes’ commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.
The Board considered Federated Hermes’ efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.
Fund Investment Performance
The Board considered the investment performance of the Fund. In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser’s analysis of, the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance compared to one or more relevant categories or groups of peer funds and the Fund’s benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain
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Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.
The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”). The Board noted 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 the CCO’s view that, in evaluating such comparisons, 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 Performance Peer Group.
The Board considered that for the one-year, three-year and five-year periods ended December 31, 2022, the Fund’s performance was above the median of the Performance Peer Group.
Based on these considerations, the Board concluded that it had continued confidence in the Adviser’s overall capabilities to manage the Fund.
Fund Expenses
The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. 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, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category.
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund’s fees and expenses. The Board focused on comparisons with other registered funds with comparable investment programs more heavily than non-registered fund products or services because such comparisons are believed to be more relevant. The Board considered that other registered funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the
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Fund’s shareholders. The Board noted that the range of such other registered funds’ fees and expenses, therefore, appears to be a relevant indicator of what investors 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 Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was below the median of the Expense Peer Group, and the Board was satisfied that the overall expense structure of the Fund remained competitive.
The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-registered fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing and fund liquidity; (vi) different administrative responsibilities; (vii) different degrees of risk associated with management; and (viii) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s registered fund, noting the CCO’s view that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party registered fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.
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Profitability
The Board received and considered profitability information furnished by Federated Hermes, as requested by the CCO. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs on a fund-by-fund basis continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. In addition, the Board considered the CCO’s view that the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO’s view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.
Economies of Scale
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of determining 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 Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information
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security programs; internal audit and risk management functions; and technology and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.
The Board also received and considered information on adviser-paid fees (commonly referred to as “revenue sharing” payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.
Other Benefits
The Board considered information regarding the compensation and other ancillary (or “fall-out”) benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds’ investment advisory contracts, Federated Hermes’ affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds’ administrator and distributor. In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.
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Conclusions
The Board considered: (i) the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and sub-advisory arrangements is a continuing and ongoing 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 ongoing oversight of the Federated Hermes Funds.
On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative.
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Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness
Annual Evaluation of Adequacy and Effectiveness
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Federated Hermes Municipal Securities Income Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Michigan Intermediate Municipal Fund (the “Fund” and, collectively with the other non-money market open-end funds advised by Federated Hermes, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of each Federated Hermes Fund’s investment adviser as the administrator for the Program (the “Administrator”) with respect to that Fund. The Administrator, in turn, has delegated day-to-day responsibility for the administration of the Program to multiple Liquidity Risk Management Committees, which are comprised of representatives from certain divisions within Federated Hermes.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2023, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from April 1, 2022 through March 31, 2023 (the “Period”). The Report addressed the operation of the Program and assessed the adequacy and effectiveness of its implementation, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and
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the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
◾ confirmation that it was not necessary for the Fund to utilize, and the Fund did not utilize, any alternative funding sources that were available to the Federated Hermes Funds during the Period, such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind, reverse repurchase agreement transactions, redemptions delayed beyond the normal T+1 settlement but within seven days of the redemption request, and committed lines of credit;
◾ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
◾ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments, and the results of the Administrator’s evaluation of the services performed by the vendor in support of this process, including the Administrator’s view that the methodologies utilized by the vendor continue to be appropriate;
◾ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the operation of the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
◾ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period, and the operation of the procedures for monitoring this limit;
◾ the fact that there were no liquidity events during the Period that materially affected the Fund’s liquidity risk;
◾ the impact on liquidity and management of liquidity risk, if any, caused by extended non-U.S. market closures and confirmation that there were no issues for any of the affected Federated Hermes Funds in meeting shareholder redemptions at any time during these temporary non-U.S. market closures.
Based on this review, the Administrator concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
Annual Shareholder Report
49
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, Option #4. 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 FederatedHermes.com/us/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 FederatedHermes.com/us.
Annual Shareholder Report
50
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Trust’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Hermes Michigan Intermediate Municipal Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923302
CUSIP 313923773
CUSIP 313923773
G01106-03 (10/23)
© 2023 Federated Hermes, Inc.
Annual Shareholder Report
August 31, 2023
|
Share Class | Ticker
|
A | FMOAX
|
C | FMNCX
|
F | FHTFX
|
|
|
Institutional | FMYIX
|
|
|
Federated Hermes Municipal High Yield Advantage Fund
Fund Established 1987
A Portfolio of Federated Hermes Municipal Securities Income Trust
Dear Valued Shareholder,
We are pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2022 through August 31, 2023. This report includes Management’s Discussion of Fund Performance, a complete listing of your fund’s holdings, performance information and financial statements along with other important fund information.
As a global leader in active, responsible investment management, Federated Hermes is guided by our conviction that responsible investing is the best way to create wealth over the long term. The company provides capabilities across a wide range of asset classes to investors around the world.
In addition, FederatedHermes.com/us offers quick and easy access to valuable resources that include timely fund updates, economic and market insights from our investment strategists and financial planning tools. You can also access many of those insights by following us on Twitter (@FederatedHermes) and LinkedIn.
Thank you for investing with us. We hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
Management’s Discussion of Fund Performance (unaudited)
The total return of Federated Hermes Municipal High Yield Advantage Fund (the “Fund”), based on net asset value for the 12-month reporting period ended August 31, 2023, was -0.50% for Class A Shares, -1.23% for Class C Shares, -0.48% for Class F Shares and -0.11% for Institutional Shares. The -0.11% total return of the Institutional Shares consisted of 3.95% of tax-exempt dividends and reinvestments and depreciation of -4.06% in the net asset value of the shares.1 The Fund’s broad-based securities market index, the S&P Municipal Bond Index (the “Main Index”),2 had a total return of 1.79% during the reporting period. The total return of the 25% S&P A and Higher/25% BBB/50% High Yield, All 3-Year Plus Sub-Index (the “Blended Index”),3 was 1.29% during the reporting period. The total return of the Morningstar High Yield Muni Funds Average (MHYMFA),4 a peer group average for the Fund, was -0.67% during the reporting period. The Fund’s and the MHYMFA’s total returns for the most recently completed fiscal year reflected actual cash flows, transaction costs and expenses which were not reflected in the total return of any index.
During the reporting period, the Fund’s investment strategy focused on: (a) security selection; (b) active adjustment of the Fund’s duration5 (which indicates the portfolio’s sensitivity to changes in interest rates);6 (c) selection of intermediate- to long-term, tax-exempt municipal bonds that typically yield more than short-term, tax-exempt municipal bonds due to the upward sloping yield curve;7 (d) credit quality;8 and (e) allocation of the Fund’s portfolio among securities of similar issuers (referred to as “sectors”). These were the most significant factors affecting the Fund’s performance relative to the Blended Index during the reporting period.
The following discussion will focus on the performance of the Fund’s Institutional Shares relative to the Blended Index.
Market OVERVIEW
Inflation, which first reared its head in 2022, began to abate during the reporting period but remained an issue for fixed-income markets. Following seven moves totaling 4.25% in 2022, the Federal Reserve (the “Fed”) raised rates four more times for an additional 1.00% during the first eight months of 2023. The short part of the yield curve responded most sharply, with the yield on 2-year Treasuries increasing 137 basis points to 4.87% over the reporting period. The rest of the yield curve saw smaller, parallel increases, with 5-, 10- and 30-year Treasury yields rising 90, 91 and 92 basis points, respectively, over the same period.
Annual Shareholder Report
1
The municipal yield curve also shifted upward, although less dramatically. The Municipal Market Data (MMD) AAA 10-year rate increased from 2.59% at the beginning of the period to 3.41% at the end of October 2022. It fell as low as 2.08% in April before rising again to 2.93% at the end of the period, a net rise of 34 basis points. The MMD AAA rate rose 86 basis points at 2 years, 56 basis points at 5 years and 59 basis points at 30 years. Municipals richened compared to treasuries, with the yield ratio falling from 81% to 71% at 10 years and from 100% to 92% at 30 years.
The municipal curve inverted during the period. As of the end of the period, yields on 1-year AAA bonds were higher than those with 13 years to maturity.
Municipal credit spreads changed little over the period. The spread between the yield of the S&P Municipal High Yield Index and the S&P Municipal Index widened by just one basis point from the beginning of the period to the end, although this spread widened by as much as 43 basis points in the spring, before tightening through the end of the fiscal year. Underlying credit generally remained good over the last year. State and local governments, as well as other issuers, continued to benefit from the considerable federal aid that came their way during and after the pandemic. For the first half of 2023, Moody’s upgrades outnumbered downgrades by nearly four to one.
Higher rates continue to depress new issuance. According to The Bond Buyer, total issuance for the 12 months ending August 31, 2023 was 18% lower than the prior 12 months, and 25% lower than the 12 months ending August 31, 2021. Refunding issuance remained at low levels as higher rates make fewer refundings economical.
SECURITY SELECTION
In a volatile year, individual security selection was an important component of overall return. Individual circumstances such as liquidity, security-specific credit, coupon and other factors all had impacts on Fund performance during the reporting period. Overall, the net impact of individual security selection had a negative impact on the Fund’s return relative to the Blended Index.
DURATION
As determined at the end of the reporting period, the Fund’s dollar-weighted average duration was 9.8 years, up from 8.1 years at the beginning of the period. Throughout the first part of the fiscal year, the Fund’s duration was short to neutral compared to the Blended Index. During the second half of the period, the duration was neutral to long. Overall, the Fund’s duration positioning was a slight drag relative to the Blended Index.
YIELD CURVE AND MATURITY
The Fund’s positioning along the yield curve, particularly its selection of bonds with durations from two to four years, contributed to positive performance compared to the Blended Index during the period.
Annual Shareholder Report
2
CREDIT QUALITY
During the reporting period, higher-rated bonds generally outperformed lower-rated bonds.9 The Fund’s overweight position in A-rated bonds and underweight in BBB-rated bonds caused the Fund’s performance to outperform relative to the Blended Index.
SECTOR allocation
During the period, the Fund’s best-performing sectors were State General Obligations, Local General Obligations and Multifamily Housing bonds. Lagging sectors included Public Power, Life Care and Port bonds. Overall, the Fund’s sector allocation contributed positively to its performance against the Blended Index.
1
Income may be subject to state taxes, local taxes and the federal alternative minimum tax for individuals (AMT).
2
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Main Index.
3
Prior to March 1, 2023, the Fund also compared its performance to the Blended Index. Effective March 1, 2023, the Fund no longer compares its performance to the Blended Index as the Adviser does not believe the Blended Index continues to be reflective of the universe of securities in which the Fund invests. Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Blended Index.
4
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Morningstar peer group.
5
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations.
6
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
7
The yield curve is a graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.
8
Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk.
9
Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the fund’s adviser believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor’s, Moody’s Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
Annual Shareholder Report
3
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Federated Hermes Municipal High Yield Advantage Fund (the “Fund”) from August 31, 2013 to August 31, 2023, compared to the S&P Municipal Bond Index (Main Index),2 25% S&P A and Higher/25% BBB/50% High Yield, All 3-Year Plus Sub-Index (Blended Index),3 and the Morningstar High Yield Muni Funds Average (MHYMFA).4 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of A $10,000 Investment
Growth of $10,000 as of August 31, 2023
◾ Total returns shown for Class C Shares include the 1.00% contingent deferred sales charge, as applicable.
◾ Total returns shown for Class F Shares include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900) and the maximum contingent deferred sales charge of 1.00%, as applicable.
The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses. See the Average Annual Total Return table below for the returns of additional classes not shown in the line graph above.
Annual Shareholder Report
4
Average Annual Total Returns for the Period Ended 8/31/2023
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
|
|
1 Year
|
5 Years
|
10 Years
|
|
Class A Shares
|
-4.94%
|
0.02%
|
3.08%
|
|
Class C Shares
|
-2.19%
|
0.20%
|
2.93%
|
|
Class F Shares
|
-2.40%
|
0.75%
|
3.45%
|
|
Institutional Shares
|
-0.11%
|
1.21%
|
3.81%
|
|
Main Index
|
1.79%
|
1.57%
|
2.89%
|
|
Blended Index
|
1.29%
|
2.10%
|
4.46%
|
|
MHYMFA
|
-0.67%
|
0.93%
|
3.54%
|
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedHermes.com/us or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1
Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: for Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); for Class C Shares, a 1.00% contingent deferred sales charge would be applied on any redemption less than one year from the purchase date; for Class F Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900) and a contingent deferred sales charge of 1.00% would be applied on any redemption less than three years from the purchase date. The Fund’s performance assumes the reinvestment of all dividends and distributions. The Main Index, Blended Index and MHYMFA have been adjusted to reflect reinvestment of dividends on securities in the indexes and the average.
2
The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to AMT. Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor’s Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The Main Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. The Main Index is unmanaged, and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
3
Prior to March 1, 2023, the Fund also compared its performance to the Blended Index. Effective March 1, 2023, the Fund no longer compares its performance to the Blended Index as the Adviser does not believe the Blended Index continues to be reflective of the universe of securities in which the Fund invests. The Blended Index is a custom blended index that
Annual Shareholder Report
5
represents, by market weighting, 25% of the A-rated and higher component of the Main Index, 25% of the BBB-rated component of the Main Index and 50% of the below investment grade (bonds with ratings of less than BBB-/Baa3) component of the Main Index, all with remaining maturities of three years or more. The Blended Index is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund’s performance. The Blended Index is unmanaged, and, unlike the Fund is no affected by cash flows. It is not possible to invest directly in an index.
4
Morningstar figures represent the average of the total returns reported by all the funds designated by Morningstar as falling into the respective category indicated. They do not reflect sales charges. The Morningstar figures in the Growth of a $10,000 Investment line graph are based on historical return information published by Morningstar and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Morningstar as falling into the category can change over time, the Morningstar figures in the line graph may not match the Morningstar figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
Annual Shareholder Report
6
Portfolio of Investments Summary Table (unaudited)
At August 31, 2023, the Fund’s sector composition1 was as follows:
|
Sector Composition
|
Percentage of
Total Net Assets
|
|
Dedicated Tax
|
18.1%
|
|
Primary/Secondary Education
|
13.2%
|
|
Industrial Development Bond/Pollution Control Revenue Bond
|
10.4%
|
|
Senior Care
|
9.8%
|
|
Hospital
|
8.7%
|
|
Tobacco
|
6.4%
|
|
General Obligation—State
|
4.6%
|
|
Incremental Tax
|
4.4%
|
|
Public Power
|
4.1%
|
|
General Obligation—Local
|
3.9%
|
|
Other2
|
15.8%
|
|
Other Assets and Liabilities—Net3
|
0.6%
|
|
TOTAL
|
100%
|
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 83.6% of the Fund’s total net assets. Remaining sectors have been aggregated under the designation “Other.”
3
Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
7
Portfolio of Investments
August 31, 2023
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—99.0%
|
|
|
|
|
Alabama—1.2%
|
|
|
$500,000
|
1,2
|
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
|
$300,000
|
|
1,500,000
|
1,2
|
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
|
900,000
|
|
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
|
2,025,242
|
|
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
|
2,018,268
|
|
|
|
TOTAL
|
5,243,510
|
|
|
|
Alaska—0.0%
|
|
|
1,000,000
|
1,2
|
Alaska Industrial Development and Export Authority (Boys & Girls
Home & Family Services, Inc.), Community Provider Revenue
Bonds (Series 2007C), 6.000%, 12/1/2036
|
2,600
|
|
|
|
Arizona—3.2%
|
|
|
650,000
|
3
|
Arizona State IDA (Basis Schools, Inc. Obligated Group),
Education Revenue Bonds (Series 2017D), 5.000%, 7/1/2051
|
568,859
|
|
500,000
|
3
|
Arizona State IDA (Basis Schools, Inc. Obligated Group),
Education Revenue Bonds (Series 2017G), 5.000%, 7/1/2051
|
437,584
|
|
1,000,000
|
3
|
Arizona State IDA (Doral Academy of Nevada FMMR), Education
Revenue Bonds (Series 2019A), 5.000%, 7/15/2049
|
907,484
|
|
1,750,000
|
3
|
Arizona State IDA (Pinecrest Academy of Nevada), Horizon,
Inspirada and St. Rose Campus Education Revenue Bonds
(Series 2018A), 5.750%, 7/15/2048
|
1,706,938
|
|
1,000,000
|
|
Chandler, AZ IDA (Intel Corp.), Industrial Development Revenue
Bonds (Series 2022-2), 5.000%, Mandatory Tender 9/1/2027
|
1,029,160
|
|
1,000,000
|
|
Maricopa County, AZ, IDA (Commercial Metals Corp.), Exempt
Facilities Revenue Bonds (Series 2022), 4.000%, 10/15/2047
|
832,517
|
|
1,000,000
|
3
|
Maricopa County, AZ, IDA (Paradise Schools), Revenue Refunding
Bonds, 5.000%, 7/1/2047
|
915,385
|
|
1,500,000
|
|
Phoenix, AZ IDA (GreatHearts Academies), Education Facility
Revenue Bonds (Series 2014A), 5.000%, 7/1/2044
|
1,421,318
|
|
1,000,000
|
|
Phoenix, AZ IDA (GreatHearts Academies), Education Facility
Revenue Bonds (Series 2016A), 5.000%, 7/1/2046
|
937,468
|
|
1,000,000
|
3
|
Pima County, AZ IDA (La Posada at Pusch Ridge), Senior Living
Revenue Bonds (Series 2022A), 6.250%, 11/15/2035
|
998,198
|
Annual Shareholder Report
8
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Arizona—continued
|
|
|
$1,000,000
|
3
|
Pima County, AZ IDA (La Posada at Pusch Ridge), Senior Living
Revenue Bonds (Series 2022A), 7.000%, 11/15/2057
|
$997,277
|
|
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
|
3,071,612
|
|
430,000
|
3
|
Verrado Community Facilities District No. 1, AZ, District GO
Refunding Bonds (Series 2013A), 6.000%, 7/15/2027
|
431,236
|
|
|
|
TOTAL
|
14,255,036
|
|
|
|
Arkansas—0.3%
|
|
|
1,250,000
|
|
Arkansas Development Finance Authority (United States Steel
Corp.), Environmental Improvement Revenue Bonds
(Series 2022), 5.450%, 9/1/2052
|
1,214,541
|
|
|
|
California—6.1%
|
|
|
4,445,000
|
|
California Health Facilities Financing Authority (Cedars-Sinai
Medical Center), Revenue Refunding Bonds (Series 2021A),
5.000%, 8/15/2051
|
4,721,573
|
|
500,000
|
3
|
California Public Finance Authority (Kendal at Sonoma), Enso
Village Senior Living Revenue Refunding Bonds (Series 2021A),
5.000%, 11/15/2046
|
445,799
|
|
750,000
|
3
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2014A), 5.125%, 7/1/2044
|
752,113
|
|
565,000
|
3
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2015A), 5.000%, 7/1/2045
|
565,978
|
|
500,000
|
3
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2017A), 5.000%, 7/1/2047
|
500,874
|
|
2,000,000
|
|
California State Municipal Finance Authority (LINXS APM Project),
Senior Lien Revenue Bonds (Series 2018A), 5.000%, 12/31/2043
|
2,000,248
|
|
1,000,000
|
3
|
California State School Finance Authority Charter School
Revenue (Bright Star Schools-Obligated Group), Charter School
Revenue Bonds (Series 2017), 5.000%, 6/1/2037
|
966,170
|
|
500,000
|
3
|
California State School Finance Authority Charter School
Revenue (Rocketship Public Schools), Revenue Bonds
(Series 2017G), 5.000%, 6/1/2047
|
454,121
|
|
1,100,000
|
3
|
California State School Finance Authority Charter School
Revenue (Summit Public Schools Obligated Group), (Series 2017),
5.000%, 6/1/2053
|
941,425
|
|
900,000
|
|
California State, Various Purpose UT GO Bonds,
5.250%, 9/1/2047
|
997,338
|
|
2,250,000
|
3
|
California Statewide Communities Development Authority (Loma
Linda University Medical Center), Revenue Bonds (Series 2016A),
5.000%, 12/1/2046
|
2,162,263
|
|
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%, 8/15/2042
|
1,016,603
|
Annual Shareholder Report
9
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
California—continued
|
|
|
$5,000,000
|
4
|
Golden State Tobacco Securitization Corp., CA, Subordinate
Tobacco Settlement Asset-Backed Bonds (Series 2021B-2),
0.000%, 6/1/2066
|
$495,153
|
|
1,590,000
|
|
Golden State Tobacco Securitization Corp., CA, Tobacco
Settlement Asset-Backed Bonds (Series 2022), 5.000%, 6/1/2051
|
1,650,771
|
|
95,000
|
|
Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited
Obligation Improvement Bonds, 5.000%, 9/2/2028
|
95,864
|
|
365,000
|
|
Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited
Obligation Improvement Bonds, 5.000%, 9/2/2029
|
368,333
|
|
180,000
|
|
Irvine, CA (Irvine, CA Reassessment District No. 13-1), Limited
Obligation Improvement Bonds, 5.000%, 9/2/2030
|
181,631
|
|
850,000
|
|
Los Angeles, CA Department of Airports (Los Angeles
International Airport), Subordinate Revenue Bonds
(Series 2017A), 5.000%, 5/15/2047
|
862,031
|
|
2,500,000
|
|
M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A),
(Citigroup, Inc. GTD), 7.000%, 11/1/2034
|
3,048,898
|
|
1,250,000
|
|
Orange County, CA Community Facilities District No. 2016-1
(CFD 2016-1 (Village of Esencia)), Special Tax Revenue Bonds
(Series 2016A), 5.000%, 8/15/2041
|
1,265,364
|
|
1,000,000
|
|
Palomar Health, CA Revenue, (Series 2016), 5.000%, 11/1/2039
|
1,006,311
|
|
1,000,000
|
|
Roseville, CA Special Tax (Fiddyment Ranch CFD No. 1), Special
Tax Refunding Revenue Bonds (Series 2017), 5.000%, 9/1/2034
|
1,038,271
|
|
1,255,000
|
|
Roseville, CA Special Tax (Fiddyment Ranch CFD No. 5), Special
Tax Revenue Bonds (Series 2021), 4.000%, 9/1/2050
|
1,048,749
|
|
340,000
|
3
|
San Francisco Special Tax District No. 2020-1 (Mission Rock
Facilities and Services), Development Special Tax Bonds
(Series 2021A), 4.000%, 9/1/2051
|
264,536
|
|
|
|
TOTAL
|
26,850,417
|
|
|
|
Colorado—6.6%
|
|
|
1,000,000
|
|
Banning Lewis Ranch Metropolitan District No. 4, LT GO Bonds
(Series 2018A), 5.750%, 12/1/2048
|
988,090
|
|
1,000,000
|
|
Banning Lewis Ranch Regional Metropolitan District, LT GO
Bonds (Series 2018A), 5.375%, 12/1/2048
|
946,305
|
|
1,500,000
|
|
Base Village Metropolitan District No. 2, LT GO Refunding Bonds
(Series 2016A), 5.750%, 12/1/2046
|
1,500,325
|
|
500,000
|
|
Colorado Educational & Cultural Facilities Authority (Aspen View
Academy), Charter School Revenue Bonds (Series 2021),
4.000%, 5/1/2061
|
367,577
|
|
2,000,000
|
|
Colorado Educational & Cultural Facilities Authority (James Irwin
Educational Foundation), Charter School Revenue Bonds
(Series 2022), 5.000%, 9/1/2062
|
1,813,381
|
|
1,000,000
|
3
|
Colorado Educational & Cultural Facilities Authority (Loveland
Classical School), School Improvement Revenue Bonds
(Series 2016), 5.000%, 7/1/2036
|
975,450
|
Annual Shareholder Report
10
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Colorado—continued
|
|
|
$1,625,000
|
|
Colorado Educational & Cultural Facilities Authority (Skyview
Academy), Charter School Refunding & Improvement Revenue
Bonds (Series 2014), 5.500%, 7/1/2049
|
$1,579,058
|
|
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
|
1,001,724
|
|
5,000,000
|
|
Colorado Health Facilities Authority (Advent Health
System/Sunbelt Obligated Group), Hospital Revenue Bonds
(Series 2021A), 4.000%, 11/15/2050
|
4,577,151
|
|
1,500,000
|
|
Colorado Health Facilities Authority (Christian Living
Communities), Revenue Refunding Bonds (Series 2016),
5.000%, 1/1/2031
|
1,445,551
|
|
2,500,000
|
|
Colorado State Health Facilities Authority (Intermountain
Healthcare Obligated Group), Revenue Bonds (Series 2022A),
5.000%, 5/15/2052
|
2,591,861
|
|
500,000
|
|
Denver, CO Convention Center Hotel Authority, Senior Revenue
Refunding Bonds (Series 2016), 5.000%, 12/1/2040
|
483,824
|
|
1,000,000
|
3
|
Denver, CO Health & Hospital Authority, Revenue Refunding
Bonds (Series 2017A), 5.000%, 12/1/2034
|
1,032,704
|
|
615,000
|
|
Eagle County, CO Air Terminal Corp., Revenue Refunding Bonds
(Series 2011A), 6.000%, 5/1/2027
|
615,518
|
|
1,170,000
|
|
Hogback Metropolitan District, CO, LT GO Bonds (Series 2021A),
5.000%, 12/1/2051
|
993,349
|
|
1,500,000
|
|
Lakes at Centerra Metropolitan District No. 2, LT GO Refunding
and Improvement Bonds (Series 2018A), 5.125%, 12/1/2037
|
1,427,759
|
|
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
|
2,507,802
|
|
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
|
2,123,053
|
|
2,510,000
|
|
St. Vrain Lakes, CO Metropolitan District No. 2, LT GO Senior
Bonds (Series 2017A), 5.000%, 12/1/2037
|
2,422,943
|
|
|
|
TOTAL
|
29,393,425
|
|
|
|
Connecticut—0.9%
|
|
|
1,000,000
|
|
Connecticut Development Authority (Bombardier, Inc.), Airport
Facility Revenue Bonds, 7.950%, 4/1/2026
|
996,021
|
|
1,835,000
|
3
|
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
|
1,869,171
|
|
1,500,000
|
|
Steel Point Infrastructure Improvement District, Steelpoint
Harbor Special Obligation Revenue Bonds (Series 2021),
4.000%, 4/1/2051
|
1,195,097
|
|
|
|
TOTAL
|
4,060,289
|
Annual Shareholder Report
11
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Delaware—1.6%
|
|
|
$1,600,000
|
|
Delaware EDA (Newark Charter School, Inc.), Charter School
Revenue Bonds (Series 2021), 4.000%, 9/1/2041
|
$1,398,098
|
|
3,000,000
|
|
Delaware Health Facilities Authority (Christiana Care Health
Services), Revenue and Refunding Bonds (Series 2020A),
4.000%, 10/1/2049
|
2,739,497
|
|
3,000,000
|
3
|
Millsboro, DE Special Obligations (Plantation Lakes Special
Development District), Special Tax Revenue Refunding Bonds
(Series 2018), (Original Issue Yield: 5.140%), 5.125%, 7/1/2038
|
2,911,286
|
|
|
|
TOTAL
|
7,048,881
|
|
|
|
District of Columbia—1.5%
|
|
|
1,000,000
|
|
District of Columbia (Friendship Public Charter School, Inc.),
Revenue Bonds (Series 2016A), 5.000%, 6/1/2046
|
960,164
|
|
1,000,000
|
|
District of Columbia (Ingleside at Rock Creek), Project Revenue
Bonds (Series 2017A), (Original Issue Yield: 5.250%),
5.000%, 7/1/2052
|
812,287
|
|
1,000,000
|
|
District of Columbia (KIPP DC), Revenue Bonds (Series 2019),
4.000%, 7/1/2039
|
902,687
|
|
1,000,000
|
|
Metropolitan Washington, DC Airports Authority, Revenue
Refunding Bonds (Series 2017A), 5.000%, 10/1/2047
|
1,012,178
|
|
1,700,000
|
|
Washington Metropolitan Area Transit Authority, Dedicated
Revenue Bonds (Series 2020A), 4.000%, 7/15/2045
|
1,623,119
|
|
1,180,000
|
|
Washington Metropolitan Area Transit Authority, Dedicated
Revenue Bonds (Series 2020A), 5.000%, 7/15/2045
|
1,250,751
|
|
|
|
TOTAL
|
6,561,186
|
|
|
|
Florida—8.6%
|
|
|
1,245,000
|
|
Alta Lakes, FL CDD, Special Assessment Bonds (Series 2019),
4.625%, 5/1/2049
|
1,082,330
|
|
125,000
|
|
Arborwood, FL CDD, Special Assessment Revenue Bonds
(Series 2014A-1), (Original Issue Yield: 6.900%), 6.900%, 5/1/2036
|
125,087
|
|
450,000
|
|
Artisan Lakes East CDD, Capital Improvement Revenue Bonds
(Series 2021-1), 4.000%, 5/1/2051
|
345,412
|
|
550,000
|
|
Artisan Lakes East CDD, Capital Improvement Revenue Bonds
(Series 2021-2), 4.000%, 5/1/2052
|
418,793
|
|
1,365,000
|
|
Boggy Branch CDD, FL, Special Assessment Bonds (Series 2021),
4.000%, 5/1/2051
|
1,057,097
|
|
3,000,000
|
|
Broward County, FL (Broward County, FL Convention Center
Hotel), First Tier Revenue Bonds (Series 2022), (Broward County,
FL GTD), 5.500%, 1/1/2055
|
3,280,073
|
|
2,237,081
|
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
|
123,039
|
|
1,000,000
|
3
|
Florida Development Finance Corp. (Glenridge on Palmer Ranch),
Senior Living Revenue and Refunding Bonds (Series 2021),
5.000%, 6/1/2051
|
808,268
|
Annual Shareholder Report
12
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Florida—continued
|
|
|
$1,000,000
|
|
Florida Development Finance Corp. (Mayflower Retirement
Community), Senior Living Revenue Bonds (Series 2021A),
4.000%, 6/1/2055
|
$610,981
|
|
1,000,000
|
|
Florida Development Finance Corp. (Shands Jacksonville Medical
Center, Inc.), UFHealth Revenue Refunding Bonds (Series 2022A),
5.000%, 2/1/2052
|
878,193
|
|
1,000,000
|
|
Harbor Bay, FL CDD, Special Assessment District Area One
(Series 2019A-1), (Original Issue Yield: 4.140%), 4.100%, 5/1/2048
|
799,184
|
|
265,000
|
|
Lakes of Sarasota CDD, Improvement Revenue Bonds Phase 1
Project (Series 2021A-1), 4.100%, 5/1/2051
|
211,337
|
|
450,000
|
|
Lakes of Sarasota CDD, Improvement Revenue Bonds Phase 1
Project (Series 2021A-2), (Original Issue Yield: 3.960%),
3.875%, 5/1/2031
|
426,672
|
|
555,000
|
|
Lakewood Ranch Stewardship District, FL (Indigo Expansion Area
Project), Special Assessment Revenue Bonds (Series 2019),
4.000%, 5/1/2049
|
434,774
|
|
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
|
923,480
|
|
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
|
1,005,948
|
|
750,000
|
|
Lakewood Ranch Stewardship District, FL (Northeast Sector
Phase-2B), Special Assessment Revenue Bonds (Series 2020),
4.000%, 5/1/2050
|
580,770
|
|
1,000,000
|
|
Lakewood Ranch Stewardship District, FL (Northeast Sector
Project—Phase 1B), Special Assessment Revenue Bonds
(Series 2018), 5.450%, 5/1/2048
|
989,731
|
|
1,075,000
|
|
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
|
1,028,340
|
|
1,000,000
|
|
Lee County, FL IDA (Cypress Cove at Healthpark), Healthcare
Facilities Revenue Bonds (Series 2022A), 5.250%, 10/1/2057
|
824,717
|
|
1,000,000
|
|
LT Ranch, FL CDD (LT Ranch, FL CDD Phase IIA Assessment
Area), Capital Improvement Revenue Bonds Phase IIA
(Series 2022-2), (Original Issue Yield: 5.740%), 5.700%, 5/1/2053
|
1,003,301
|
|
1,840,000
|
|
LT Ranch, FL CDD, Capital Improvement Revenue Bonds
(Series 2019), 4.000%, 5/1/2050
|
1,424,706
|
|
745,000
|
|
Midtown Miami, FL CDD, Special Assessment & Revenue
Refunding Bonds (Series 2014A), (Original Issue Yield: 5.250%),
5.000%, 5/1/2037
|
722,557
|
|
1,000,000
|
|
North River Ranch Improvement Stewardship District, Special
Assessment Revenue Bonds (Series 2023A-1), 5.800%, 5/1/2043
|
981,526
|
|
1,000,000
|
|
North River Ranch Improvement Stewardship District, Special
Assessment Revenue Bonds (Series 2023A-1), 6.000%, 5/1/2054
|
977,972
|
Annual Shareholder Report
13
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Florida—continued
|
|
|
$2,000,000
|
3
|
Polk County, FL IDA (Mineral Development, LLC), Secondary
Phosphate Tailings Recovery Project Revenue Bonds
(Series 2020), 5.875%, 1/1/2033
|
$1,994,842
|
|
145,000
|
1,2
|
Reunion East CDD, FL, Special Assessment Bonds
(Series 2002A-1), 7.375%, 5/1/2033
|
1
|
|
1,125,000
|
|
River Landing CDD, Capital Improvement Revenue Bonds
(Series 2020A), (Original Issue Yield: 4.360%), 4.350%, 5/1/2051
|
921,508
|
|
900,000
|
|
Rivers Edge III CDD, Capital Improvement Revenue Bonds
(Series 2021), 4.000%, 5/1/2051
|
692,315
|
|
1,250,000
|
|
Seminole County, FL IDA (Legacy Pointe at UCF), Retirement
Facilities Revenue Bonds (Series 2019A), 5.750%, 11/15/2054
|
972,843
|
|
745,000
|
|
Southern Grove, FL CDD #5, Special Assessment Bonds
(Series 2021), 4.000%, 5/1/2048
|
585,314
|
|
585,000
|
|
Southern Grove, FL CDD #5, Special Assessment District Revenue
Refunding Bonds (Series 2019), 4.000%, 5/1/2043
|
482,382
|
|
500,000
|
|
St. Johns County, FL IDA (Vicar’s Landing), Senior Living Revenue
Bonds (Series 2021A), 4.000%, 12/15/2050
|
355,581
|
|
495,000
|
|
Talavera, FL CDD, Capital Improvement Revenue Bonds
(Series 2019), 4.350%, 5/1/2040
|
441,416
|
|
770,000
|
|
Talavera, FL CDD, Capital Improvement Revenue Bonds
(Series 2019), 4.500%, 5/1/2050
|
649,420
|
|
1,000,000
|
|
Three Rivers CDD, Special Assessment Refunding Bonds
(Series 2023), (Original Issue Yield: 5.600%), 5.550%, 5/1/2043
|
978,856
|
|
1,000,000
|
|
Three Rivers CDD, Special Assessment Refunding Bonds
(Series 2023), (Original Issue Yield: 5.800%), 5.750%, 5/1/2053
|
972,195
|
|
900,000
|
|
Tolomato CDD, FL, Special Assessment Refunding Bonds
(Series 2019C), 4.400%, 5/1/2040
|
813,614
|
|
1,000,000
|
|
Tolomato CDD, FL, Special Assessment Refunding Bonds
Subordinate Lien (Series 2019A-2), 4.250%, 5/1/2037
|
917,989
|
|
175,000
|
4
|
Tolomato CDD, FL, Special Assessment Revenue Bonds
(Series 2015-2), (Original Issue Yield: 6.752%), (Step Coupon
11/1/2024@6.610%), 0.000%, 5/1/2040
|
161,709
|
|
190,000
|
1,2
|
Tolomato CDD, FL, Special Assessment Revenue Bonds
(Series 2015-3), 6.610%, 5/1/2040
|
2
|
|
1,400,000
|
|
Tradition CDD No. 9, Special Assessment Community
Infrastructure Bonds (Series 2021), 4.000%, 5/1/2052
|
1,069,831
|
|
980,000
|
|
Verandah West, FL CDD, Capital Improvement Revenue
Refunding Bonds (Series 2013), (Original Issue Yield: 5.125%),
5.000%, 5/1/2033
|
980,031
|
|
1,500,000
|
|
Viera Stewardship District (Viera Stewardship District Village 2),
Special Assessment Revenue Bonds (Series 2021),
4.000%, 5/1/2053
|
1,140,594
|
|
2,000,000
|
|
Willow Walk, FL CDD, Special Assessment Bonds (Series 2015),
5.625%, 5/1/2045
|
2,003,904
|
Annual Shareholder Report
14
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Florida—continued
|
|
|
$1,340,000
|
|
Windward at Lakewood Ranch, FL CDD, Capital Improvement
Revenue Bonds (Series 2022), 4.250%, 5/1/2052
|
$1,071,054
|
|
|
|
TOTAL
|
38,269,689
|
|
|
|
Georgia—0.7%
|
|
|
1,010,000
|
|
Geo. L. Smith II Georgia World Congress Center Authority,
Convention Center Hotel Second Tier Revenue Bonds
(Series 2021B), 5.000%, 1/1/2054
|
821,637
|
|
475,000
|
|
Municipal Electric Authority of Georgia, Plant Vogtle Units 3&4
Project M Bonds (Series 2021A), 5.000%, 1/1/2056
|
481,120
|
|
1,500,000
|
|
Municipal Electric Authority of Georgia, Plant Vogtle Units 3&4
Project M Revenue Refunding Bonds (Series 2023A),
5.250%, 7/1/2064
|
1,550,104
|
|
500,000
|
|
Rockdale County, GA Development Authority (Pratt Paper, LLC),
Revenue Refunding Bonds (Series 2018), 4.000%, 1/1/2038
|
469,257
|
|
|
|
TOTAL
|
3,322,118
|
|
|
|
Idaho—0.6%
|
|
|
3,000,000
|
|
Idaho Health Facilities Authority (Terraces of Boise), Exchange
Revenue Refunding Bonds (Series 2021A), 4.550%, 10/1/2056
|
2,010,246
|
|
490,000
|
|
Idaho Health Facilities Authority (Terraces of Boise), Taxable
Exchange Revenue Refunding Bonds (Series 2021B),
8.000%, 10/1/2028
|
452,907
|
|
|
|
TOTAL
|
2,463,153
|
|
|
|
Illinois—9.3%
|
|
|
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
|
3,530,249
|
|
1,000,000
|
|
Chicago, IL Board of Education, UT GO Dedicated Revenue
Refunding Bonds (Series 2018A), 5.000%, 12/1/2030
|
1,032,975
|
|
1,000,000
|
|
Chicago, IL Board of Education, UT GO Dedicated Revenue
Refunding Bonds (Series 2018A), 5.000%, 12/1/2031
|
1,029,665
|
|
2,750,000
|
|
Chicago, IL Board of Education, UT GO Dedicated Revenue
Refunding Bonds (Series 2018A), 5.000%, 12/1/2033
|
2,826,162
|
|
1,400,000
|
|
Chicago, IL Board of Education, UT GO Dedicated Revenue
Refunding Bonds (Series 2018A), 5.000%, 12/1/2034
|
1,434,221
|
|
1,125,000
|
|
Chicago, IL O’Hare International Airport (TrIPs Obligated Group),
Senior Special Facilities Revenue Bonds (Series 2018),
5.000%, 7/1/2048
|
1,077,149
|
|
1,000,000
|
|
Chicago, IL O’Hare International Airport, General Airport Senior
Lien Revenue Bonds (Series 2022A), 5.500%, 1/1/2055
|
1,050,262
|
|
4,000,000
|
|
Chicago, IL Transit Authority, Second Lien Sales Tax Receipts
Revenue Bonds (Series 2022A), 5.000%, 12/1/2057
|
4,048,082
|
|
1,250,000
|
|
Chicago, IL, UT GO Bonds (Series 2023A), 5.500%, 1/1/2039
|
1,348,102
|
Annual Shareholder Report
15
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Illinois—continued
|
|
|
$2,683,000
|
|
Chicago, IL, UT GO Exchanged Bonds (Series 2021B),
4.000%, 1/1/2038
|
$2,512,753
|
|
1,333,000
|
|
Chicago, IL, UT GO Exchanged Bonds (Series 2021B),
4.000%, 1/1/2044
|
1,165,973
|
|
314,000
|
|
DuPage County, IL (Naperville Campus LLC), Special Tax Bonds
(Series 2006), 5.625%, 3/1/2036
|
306,291
|
|
2,000,000
|
|
Illinois Finance Authority (Admiral at the Lake), Revenue
Refunding Bonds (Series 2017), (Original Issue Yield: 5.350%),
5.250%, 5/15/2042
|
1,611,238
|
|
1,100,000
|
|
Illinois Finance Authority (Lutheran Life Communities), Revenue
Bonds (Series 2019A), 5.000%, 11/1/2049
|
878,576
|
|
1,250,000
|
|
Illinois Finance Authority (Noble Network of Charter Schools),
Education Revenue Bonds (Series 2015), 5.000%, 9/1/2032
|
1,255,351
|
|
1,100,000
|
|
Illinois Finance Authority (Rogers Park Montessori School
Project), Senior Revenue Bonds (Series 2014A), 6.125%, 2/1/2045
|
1,101,226
|
|
8,000,000
|
|
Illinois State, GO Bonds (Series 2017D), 5.000%, 11/1/2028
|
8,406,929
|
|
1,000,000
|
|
Illinois State, UT GO Bonds (Series 2020C), (Original Issue Yield:
4.340%), 4.000%, 10/1/2041
|
929,852
|
|
1,000,000
|
|
Illinois State, UT GO Bonds (Series 2022A), 5.500%, 3/1/2042
|
1,081,075
|
|
530,000
|
|
Illinois State, UT GO Bonds (Series 2023B), 5.500%, 5/1/2047
|
568,525
|
|
1,000,000
|
|
Illinois State, UT GO Bonds (Series of February 2014), (Original
Issue Yield: 5.040%), 5.000%, 2/1/2039
|
1,000,126
|
|
600,000
|
|
Illinois State, UT GO Refunding Bonds (Series 2021A),
5.000%, 3/1/2046
|
615,537
|
|
2,000,000
|
|
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project Bonds (Series 2015A), 5.500%, 6/15/2053
|
2,021,523
|
|
2,000,000
|
4
|
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project Bonds (Series 2017A), (Original Issue Yield:
5.250%), 0.000%, 12/15/2056
|
362,291
|
|
|
|
TOTAL
|
41,194,133
|
|
|
|
Indiana—0.2%
|
|
|
915,000
|
|
Indiana State Finance Authority (KIPP Indianapolis), Revenue
Bonds (Series 2020A), 5.000%, 7/1/2055
|
809,179
|
|
|
|
Iowa—1.8%
|
|
|
898,697
|
|
Iowa Finance Authority (Deerfield Retirement Community, Inc.),
Lifespace GTD Senior Living Facility Revenue Refunding Bonds
(Series 2014A), (United States Treasury PRF 11/15/2024@100),
5.400%, 11/15/2046
|
914,700
|
|
2,930,000
|
|
Iowa Finance Authority (Iowa Fertilizer Co. LLC), Midwestern
Disaster Area Revenue Refunding Bonds (Series 2022),
5.000%, 12/1/2050
|
2,886,892
|
|
2,930,000
|
|
Tobacco Settlement Financing Corp., IA, Tobacco Settlement
Asset-Backed Senior Current Interest Bonds
(Series 2021A-2 Class 1), 4.000%, 6/1/2049
|
2,633,488
|
Annual Shareholder Report
16
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Iowa—continued
|
|
|
$410,000
|
|
Tobacco Settlement Financing Corp., IA, Tobacco Settlement
Asset-Backed Senior Current Interest Bonds
(Series 2021B-1 Class 2), 4.000%, 6/1/2049
|
$399,042
|
|
1,060,000
|
|
Xenia Rural Water District, Water Revenue Refunding Capital
Loan Notes (Series 2016), (United States Treasury PRF
12/1/2026@100), 5.000%, 12/1/2041
|
1,123,737
|
|
|
|
TOTAL
|
7,957,859
|
|
|
|
Kentucky—1.0%
|
|
|
375,000
|
|
Henderson, KY (Pratt Paper, LLC), Exempt Facilities Revenue
Bonds (Series 2022), 4.700%, 1/1/2052
|
352,627
|
|
1,000,000
|
|
Kentucky Economic Development Finance Authority (Miralea),
Revenue Bonds (Series 2016A), 5.000%, 5/15/2046
|
731,831
|
|
2,000,000
|
|
Kentucky Economic Development Finance Authority (Miralea),
Revenue Bonds (Series 2016A), 5.000%, 5/15/2051
|
1,416,330
|
|
1,000,000
|
|
Louisville & Jefferson County, KY Metropolitan Government
(Norton Healthcare, Inc.), Health System Revenue Bonds
(Series 2023A), 5.000%, 10/1/2040
|
1,054,865
|
|
1,000,000
|
|
Louisville & Jefferson County, KY Metropolitan Government
(Norton Healthcare, Inc.), Health System Revenue Bonds
(Series 2023A), 5.000%, 10/1/2041
|
1,050,561
|
|
|
|
TOTAL
|
4,606,214
|
|
|
|
Louisiana—1.6%
|
|
|
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
|
860,704
|
|
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
|
31,255
|
|
970,000
|
|
Louisiana Public Facilities Authority (Ochsner Clinic Foundation),
Refunding Revenue Bonds (Series 2016), 5.000%, 5/15/2047
|
973,075
|
|
600,000
|
|
Louisiana Stadium and Exposition District, Senior Revenue Bonds
(Series 2023A), 5.000%, 7/1/2048
|
632,041
|
|
2,000,000
|
|
Louisiana Stadium and Exposition District, Senior Revenue Bonds
(Series 2023A), 5.250%, 7/1/2053
|
2,134,551
|
|
1,000,000
|
|
St. James Parish, LA (NuStar Logistics LP), Revenue Bonds
(Series 2008), 6.100%, Mandatory Tender 6/1/2030
|
1,082,949
|
|
1,225,000
|
|
Tobacco Settlement Financing Corp., LA, Tobacco Settlement
Asset-Backed Refunding Bonds (Series 2013A),
5.250%, 5/15/2035
|
1,233,952
|
|
|
|
TOTAL
|
6,948,527
|
|
|
|
Maine—0.6%
|
|
|
1,000,000
|
|
Maine Health & Higher Educational Facilities Authority (Northern
Light Health Obligated Group), Revenue Bonds (Series 2016A),
5.000%, 7/1/2046
|
879,536
|
Annual Shareholder Report
17
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Maine—continued
|
|
|
$2,000,000
|
3
|
Maine State Finance Authority Solid Waste Disposal (Casella
Waste Systems, Inc.), Revenue Bonds (Series 2005R-3),
5.250%, 1/1/2025
|
$2,011,256
|
|
|
|
TOTAL
|
2,890,792
|
|
|
|
Maryland—2.2%
|
|
|
955,000
|
|
Baltimore, MD (East Baltimore Research Park), Special Obligation
Revenue Refunding Bonds (Series 2017A), 5.000%, 9/1/2038
|
946,580
|
|
500,000
|
|
Baltimore, MD (Harbor Point), Special Obligation Refunding
Bonds (Series 2016), (Original Issue Yield: 5.160%),
5.125%, 6/1/2043
|
488,132
|
|
1,855,000
|
|
Frederick County, MD (Jefferson Technology Park), Tax Increment
& Special Tax Limited Obligation Refunding Bonds
(Series 2020B), 4.625%, 7/1/2043
|
1,759,080
|
|
1,060,000
|
|
Maryland State Economic Development Corp. (CONSOL Energy,
Inc.), Port Facilities Refunding Revenue Bonds (Series 2010),
5.750%, 9/1/2025
|
1,068,811
|
|
1,000,000
|
|
Maryland State Economic Development Corp. (Port Covington
District), Special Obligation Bonds (Series 2020),
4.000%, 9/1/2050
|
805,902
|
|
200,000
|
|
Maryland State Economic Development Corp. (Ports America
Chesapeake, Inc.), Transportation Facilities Revenue Refunding
Bonds (Series 2017A), 5.000%, 6/1/2032
|
208,308
|
|
450,000
|
|
Maryland State Economic Development Corp. (Ports America
Chesapeake, Inc.), Transportation Facilities Revenue Refunding
Bonds (Series 2017A), 5.000%, 6/1/2035
|
465,484
|
|
1,000,000
|
3
|
Prince Georges County, MD (Westphalia Town Center), Special
Obligation Revenue Bonds (Series 2018), (Original Issue Yield:
5.330%), 5.250%, 7/1/2048
|
965,367
|
|
1,000,000
|
|
Prince Georges County, MD Revenue Authority (Suitland-Naylor
Road Project), Special Obligation Bonds (Series 2016),
5.000%, 7/1/2046
|
994,541
|
|
1,000,000
|
|
Rockville, MD Mayor & City Council Econ Dev Revenue (Ingleside
at King Farm), Economic Development Revenue Bonds
(Series 2017B), 5.000%, 11/1/2042
|
865,456
|
|
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
|
1,004,178
|
|
|
|
TOTAL
|
9,571,839
|
|
|
|
Massachusetts—0.2%
|
|
|
1,000,000
|
3
|
Massachusetts Development Finance Agency (Newbridge on the
Charles), Revenue Refunding Bonds (Series 2017),
5.000%, 10/1/2057
|
858,084
|
|
|
|
Michigan—0.9%
|
|
|
1,000,000
|
|
Detroit, MI, UT GO Bonds (Series 2020), 5.500%, 4/1/2050
|
1,017,503
|
|
250,000
|
|
Detroit, MI, UT GO Bonds (Series 2023A), 6.000%, 5/1/2043
|
274,458
|
Annual Shareholder Report
18
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Michigan—continued
|
|
|
$1,000,000
|
|
Michigan State Finance Authority (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
|
$1,010,489
|
|
1,000,000
|
|
Michigan State Finance Authority (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
|
1,006,609
|
|
1,500,000
|
|
Plymouth, MI Educational Center Charter School, Public School
Academy Revenue Refunding Bonds, Series 2005,
5.625%, 11/1/2035
|
915,000
|
|
|
|
TOTAL
|
4,224,059
|
|
|
|
Minnesota—2.5%
|
|
|
750,000
|
|
Baytown Township, MN (St. Croix Preparatory Academy), Charter
School Lease Revenue Refunding Bonds (Series 2016A),
4.000%, 8/1/2041
|
592,544
|
|
1,100,000
|
|
Baytown Township, MN (St. Croix Preparatory Academy), Charter
School Lease Revenue Refunding Bonds (Series 2016A),
4.250%, 8/1/2046
|
858,820
|
|
1,700,000
|
|
Forest Lake, MN (Lakes International Language Academy),
Charter School Lease Revenue Bonds (Series 2014A),
5.750%, 8/1/2044
|
1,704,198
|
|
1,000,000
|
|
Forest Lake, MN (Lakes International Language Academy),
Charter School Lease Revenue Bonds (Series 2018A),
5.375%, 8/1/2050
|
939,814
|
|
3,000,000
|
3
|
Minneapolis, MN Charter School Lease Revenue (Twin Cities
International School), (Series 2017A), (Original Issue Yield:
5.150%), 5.000%, 12/1/2047
|
2,711,085
|
|
2,000,000
|
|
St. Cloud, MN Charter School (Stride Academy), Lease Revenue
Bonds (Series 2016A), 5.000%, 4/1/2046
|
1,447,794
|
|
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
|
1,824,250
|
|
325,000
|
|
Winona, MN Port Authority (Bluffview Montessori School Project),
Lease Revenue Bonds (Series 2016A), 4.500%, 6/1/2036
|
270,483
|
|
750,000
|
|
Winona, MN Port Authority (Bluffview Montessori School Project),
Lease Revenue Bonds (Series 2016A), 4.750%, 6/1/2046
|
588,460
|
|
|
|
TOTAL
|
10,937,448
|
|
|
|
Missouri—0.6%
|
|
|
400,000
|
|
Cape Girardeau County, MO IDA (SoutheastHEALTH Obligated
Group), Health Facilities Revenue Bonds (Series 2021),
4.000%, 3/1/2046
|
342,816
|
|
2,000,000
|
3
|
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
|
1,433,910
|
Annual Shareholder Report
19
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Missouri—continued
|
|
|
$1,000,000
|
|
Kirkwood, MO IDA (Aberdeen Heights Project), Retirement
Community Revenue Bonds (Series 2017A), 5.250%, 5/15/2050
|
$745,570
|
|
|
|
TOTAL
|
2,522,296
|
|
|
|
Montana—0.4%
|
|
|
900,000
|
|
Kalispell, MT Housing and Healthcare Facilities (Immanuel
Lutheran Corp.), Revenue Bonds (Series 2017A),
5.250%, 5/15/2047
|
718,101
|
|
1,425,000
|
|
Kalispell, MT Housing and Healthcare Facilities (Immanuel
Lutheran Corp.), Revenue Bonds (Series 2017A),
5.250%, 5/15/2052
|
1,106,544
|
|
|
|
TOTAL
|
1,824,645
|
|
|
|
Nevada—1.5%
|
|
|
905,000
|
3
|
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
|
828,682
|
|
1,000,000
|
3
|
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%, 12/15/2038
|
945,478
|
|
900,000
|
|
Las Vegas, NV (Summerlin Village 24 SID No. 812), Local
Improvement Bonds (Series 2015), 5.000%, 12/1/2035
|
902,300
|
|
495,000
|
|
Las Vegas, NV (Summerlin Village 25 SID No. 815), Local
Improvement Bonds (Series 2020), 5.000%, 12/1/2049
|
459,501
|
|
1,500,000
|
|
Las Vegas, NV Redevelopment Agency, Tax Increment Revenue
Refunding Bonds (Series 2016), 5.000%, 6/15/2045
|
1,507,003
|
|
765,000
|
|
Las Vegas, NV SID No. 611 (Sunstone Phase I and II), Local
Improvement Bonds (Series 2020), (Original Issue Yield: 4.170%),
4.125%, 6/1/2050
|
626,841
|
|
1,180,000
|
|
Las Vegas, NV SID No. 814 (Summerlin Villages 21 & 24A), Local
Improvement Bonds (Series 2019), 4.000%, 6/1/2049
|
948,820
|
|
645,000
|
|
North Las Vegas, NV SID No. 64 (Valley Vista), Local Improvement
Bonds (Series 2019), 4.625%, 6/1/2049
|
578,344
|
|
|
|
TOTAL
|
6,796,969
|
|
|
|
New Hampshire—0.3%
|
|
|
100,000
|
|
National Finance Authority, NH (Covanta Energy Corp.), Resource
Recovery Revenue Refunding Bonds (Series 2020B), 3.750%,
Mandatory Tender 7/2/2040
|
76,717
|
|
999,121
|
|
National Finance Authority, NH, Municipal Certificates
(Series 2023-2 Class A), (Original Issue Yield: 4.650%),
3.875%, 1/20/2038
|
913,720
|
|
1,252,180
|
1,2,3
|
New Hampshire Health and Education Facilities Authority
(Hillside Village), Revenue Bonds (Series 20017A), (Original Issue
Yield: 6.375%), 6.125%, 7/1/2052
|
275,480
|
|
|
|
TOTAL
|
1,265,917
|
Annual Shareholder Report
20
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
New Jersey—3.3%
|
|
|
$1,280,000
|
|
New Jersey EDA (New Jersey State), Motor Vehicle Surcharge
Subordinate Revenue Refunding Bonds (Series 2017A),
5.000%, 7/1/2033
|
$1,338,622
|
|
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
|
186,581
|
|
185,000
|
|
New Jersey EDA (New Jersey State), School Facilities
Construction Refunding Bonds (Series 2018EEE), (United States
Treasury PRF 12/15/2028@100), 5.000%, 6/15/2043
|
203,124
|
|
315,000
|
|
New Jersey EDA (New Jersey State), School Facilities
Construction Refunding Bonds (Series 2018EEE),
5.000%, 6/15/2043
|
324,370
|
|
1,335,000
|
|
New Jersey EDA (Port Newark Container Terminal LLC), Special
Facilities Revenue and Refunding Bonds (Series 2017),
5.000%, 10/1/2047
|
1,341,781
|
|
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
|
990,064
|
|
2,500,000
|
|
New Jersey EDA (United Airlines, Inc.), Special Facility Revenue
Bonds (Series 1999), 5.250%, 9/15/2029
|
2,506,411
|
|
1,000,000
|
|
New Jersey State Transportation Trust Fund Authority
(New Jersey State), Transportation System Bonds (Series 2018A),
5.000%, 12/15/2034
|
1,064,847
|
|
750,000
|
|
New Jersey State, Covid-19 GO Emergency Bonds
(Series 2020A), 4.000%, 6/1/2032
|
785,077
|
|
1,000,000
|
|
Newark, NJ, Mass Transit Access Tax Revenue Bonds
(Series 2022), (Assured Guaranty Municipal Corp. INS),
6.000%, 11/15/2062
|
1,122,229
|
|
500,000
|
|
South Jersey Port Corp., Subordinate Marine Terminal Revenue
Bonds (Series 2017B), 5.000%, 1/1/2048
|
494,538
|
|
4,295,000
|
|
Tobacco Settlement Financing Corp., NJ, Tobacco Settlement
Asset-Backed Subordinate Refunding Bonds (Series 2018B),
5.000%, 6/1/2046
|
4,220,221
|
|
|
|
TOTAL
|
14,577,865
|
|
|
|
New York—4.6%
|
|
|
1,000,000
|
3
|
Build NYC Resource Corporation (Albert Einstein School of
Medicine, Inc.), Revenue Bonds (Series 2015), 5.500%, 9/1/2045
|
973,143
|
|
1,000,000
|
|
Build NYC Resource Corporation (KIPP NYC Canal West),
Revenue Bonds (Series 2022), 5.250%, 7/1/2062
|
994,928
|
|
4,915,000
|
4
|
Glen Cove, NY Local Economic Assistance Corp. (Garvies Point
Public Improvement Project), Capital Appreciation Revenue
Bonds (Series 2016B), (Original Issue Yield: 6.000%),
0.000%, 1/1/2045
|
1,246,243
|
Annual Shareholder Report
21
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
New York—continued
|
|
|
$1,000,000
|
3
|
Monroe County, NY IDC (True North Rochester Preparatory
Charter School), Charter School Revenue Bonds (Series 2020A),
5.000%, 6/1/2059
|
$922,026
|
|
1,365,028
|
1,2
|
Nassau County, NY IDA (Amsterdam at Harborside), Continuing
Care Retirement Community Revenue Bonds (Series 2021B),
5.000%, 1/1/2058
|
408,398
|
|
500,000
|
|
New York City, NY Transitional Finance Authority, Future Tax
Secured Subordinate Bonds (Series 2020C-1), 4.000%, 5/1/2045
|
480,017
|
|
1,000,000
|
|
New York Counties Tobacco Trust VI, Tobacco Settlement
Pass-Through Bonds (Series 201A-2B), 5.000%, 6/1/2051
|
913,357
|
|
1,000,000
|
3
|
New York Liberty Development Corporation (3 World Trade
Center), Revenue Bonds (Series 2014 Class 2),
5.375%, 11/15/2040
|
989,413
|
|
1,500,000
|
|
New York State Dormitory Authority (New York State Personal
Income Tax Revenue Bond Fund), Revenue Refunding Bonds
(Series 2022A), 4.000%, 3/15/2049
|
1,408,723
|
|
1,000,000
|
|
New York State Power Authority, Revenue Bonds (Series 2020A),
4.000%, 11/15/2060
|
926,985
|
|
665,000
|
|
New York Transportation Development Corporation (American
Airlines, Inc.), Special Facilities Revenue Refunding Bonds
(Series 2021), 3.000%, 8/1/2031
|
588,658
|
|
1,535,000
|
|
New York Transportation Development Corporation (American
Airlines, Inc.), Special Facility Revenue Refunding Bonds
(Series 2016), 5.000%, 8/1/2026
|
1,538,369
|
|
455,000
|
|
New York Transportation Development Corporation (American
Airlines, Inc.), Special Facility Revenue Refunding Bonds
(Series 2016), 5.000%, 8/1/2031
|
456,127
|
|
1,000,000
|
|
New York Transportation Development Corporation (Delta Air
Lines, Inc.), LaGuardia Airport Terminals Special Facilities
Revenue Bonds (Series 2018), 5.000%, 1/1/2033
|
1,028,499
|
|
1,500,000
|
|
New York Transportation Development Corporation (Delta Air
Lines, Inc.), LaGuardia Airport Terminals Special Facilities
Revenue Bonds (Series 2020), (Original Issue Yield: 4.550%),
4.375%, 10/1/2045
|
1,408,786
|
|
1,000,000
|
|
New York Transportation Development Corporation (Empire State
Thruway Partners LLC), Exempt Facility Revenue Bonds
(Series 2021), 4.000%, 10/31/2046
|
837,933
|
|
865,000
|
|
New York Transportation Development Corporation (JFK
International Air Terminal LLC), Special Facilities Revenue Bonds
(Series 2020A), 4.000%, 12/1/2042
|
784,750
|
|
1,800,000
|
|
New York Transportation Development Corporation (JFK
International Air Terminal LLC), Special Facilities Revenue Bonds
(Series 2020C), 4.000%, 12/1/2040
|
1,691,199
|
|
1,000,000
|
|
New York Transportation Development Corporation (JFK
International Air Terminal LLC), Special Facilities Revenue Bonds
(Series 2022), 5.000%, 12/1/2041
|
1,026,862
|
Annual Shareholder Report
22
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
New York—continued
|
|
|
$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
|
$871,076
|
|
1,000,000
|
|
TSASC, Inc. NY, Tobacco Settlement Asset Backed Senior
Refunding Bonds (Series 2017A), 5.000%, 6/1/2041
|
1,012,156
|
|
|
|
TOTAL
|
20,507,648
|
|
|
|
Ohio—3.9%
|
|
|
10,600,000
|
|
Buckeye Tobacco Settlement Financing Authority, OH, Tobacco
Settlement Asset-Backed Refunding Bonds
(Series 2020B-2 Class 2), 5.000%, 6/1/2055
|
9,689,379
|
|
1,000,000
|
|
Cuyahoga County, OH Hospital Authority (MetroHealth System),
Hospital Revenue Bonds (Series 2017), 5.500%, 2/15/2057
|
999,905
|
|
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
|
1,809,158
|
|
1,800,000
|
3
|
Ohio Air Quality Development Authority (AMG Vanadium LLC),
Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049
|
1,617,161
|
|
1,000,000
|
|
Ohio Air Quality Development Authority (Pratt Paper, LLC),
Exempt Facilities Revenue Bonds (Series 2017),
4.500%, 1/15/2048
|
923,349
|
|
1,125,000
|
|
Ohio State Hospital Revenue (University Hospitals Health System,
Inc.), Hospital Revenue Bonds (Series 2016A), 5.000%, 1/15/2041
|
1,129,733
|
|
1,000,000
|
|
Ohio State Treasurer (Portsmouth Gateway Group LLC), Private
Activity Revenue Bonds (Series 2015), 5.000%, 6/30/2053
|
968,567
|
|
|
|
TOTAL
|
17,137,252
|
|
|
|
Oklahoma—0.9%
|
|
|
2,315,000
|
|
Oklahoma Development Finance Authority (OU Medicine),
Hospital Revenue Bonds (Series 2018B), 5.500%, 8/15/2057
|
2,189,340
|
|
1,750,000
|
|
Tulsa County, OK Industrial Authority (Montereau, Inc.), Senior
Living Community Revenue Refunding Bonds (Series 2017),
5.250%, 11/15/2045
|
1,683,323
|
|
|
|
TOTAL
|
3,872,663
|
|
|
|
Oregon—0.4%
|
|
|
440,000
|
|
Clackamas County, OR Hospital Facilities Authority (Mary’s
Woods at Marylhurst, Inc.), Senior Living Revenue Bonds
(Series 2018A), 5.000%, 5/15/2038
|
408,760
|
|
635,000
|
|
Clackamas County, OR Hospital Facilities Authority (Mary’s
Woods at Marylhurst, Inc.), Senior Living Revenue Bonds
(Series 2018A), 5.000%, 5/15/2043
|
563,488
|
|
400,000
|
|
Clackamas County, OR Hospital Facilities Authority (Mary’s
Woods at Marylhurst, Inc.), Senior Living Revenue Bonds
(Series 2018A), 5.000%, 5/15/2048
|
345,101
|
Annual Shareholder Report
23
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Oregon—continued
|
|
|
$500,000
|
|
Clackamas County, OR Hospital Facilities Authority (Mary’s
Woods at Marylhurst, Inc.), Senior Living Revenue Bonds
(Series 2018A), 5.000%, 5/15/2052
|
$420,548
|
|
|
|
TOTAL
|
1,737,897
|
|
|
|
Pennsylvania—3.2%
|
|
|
2,000,000
|
|
Bucks County, PA IDA (School Lane Charter School),
(Series 2016A), 5.125%, 3/15/2046
|
1,920,480
|
|
1,200,000
|
|
Chester County, PA IDA (Avon Grove Charter School), Revenue
Bonds (Series 2017A), 5.000%, 12/15/2047
|
1,117,418
|
|
800,000
|
|
Chester County, PA IDA (Avon Grove Charter School), Revenue
Bonds (Series 2017A), 5.000%, 12/15/2051
|
733,732
|
|
1,000,000
|
|
Clairton Municipal Authority, PA, Sewer Revenue Bonds
(Series 2012B), (Original Issue Yield: 5.050%), 5.000%, 12/1/2042
|
1,000,210
|
|
3,000,000
|
|
Lehigh County, PA General Purpose Authority (Lehigh Valley
Academy Regional Charter School), Charter School Revenue
Bonds (Series 2022), 4.000%, 6/1/2057
|
2,290,239
|
|
2,000,000
|
|
Pennsylvania Economic Development Financing Authority
(National Gypsum Co.), Exempt Facilities Refunding Revenue
Bonds (Series 2014), 5.500%, 11/1/2044
|
2,002,719
|
|
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
|
1,254,962
|
|
2,000,000
|
|
Pennsylvania Economic Development Financing Authority
(The Penndot Major Bridges Package One Project), Revenue
Bonds (Series 2022), (Original Issue Yield: 5.080%),
6.000%, 6/30/2061
|
2,167,571
|
|
690,000
|
|
Philadelphia, PA Authority for Industrial Development
(PresbyHomes Germantown/Morrisville), Senior Living Revenue
Bonds (Series 2005A), 5.625%, 7/1/2035
|
702,359
|
|
1,000,000
|
|
Philadelphia, PA Water & Wastewater System, Water and
Wastewater Revenue Bonds (Series 2017A), 5.000%, 10/1/2052
|
1,020,295
|
|
|
|
TOTAL
|
14,209,985
|
|
|
|
Puerto Rico—6.7%
|
|
|
2,844,771
|
4
|
Commonwealth of Puerto Rico, GO CVI Bonds,
0.000%, 11/1/2043
|
1,465,057
|
|
1,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2037
|
896,931
|
|
3,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2041
|
2,584,821
|
|
1,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2046
|
828,992
|
|
4,000,000
|
1,2
|
Puerto Rico Electric Power Authority, Power Revenue Bonds
(Series 2010 XX), (Original Issue Yield: 5.400%), 5.250%, 7/1/2040
|
1,090,000
|
Annual Shareholder Report
24
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Puerto Rico—continued
|
|
|
$995,000
|
1,2
|
Puerto Rico Electric Power Authority, Power Revenue Bonds
(Series 2012B), (Original Issue Yield: 5.080%), 5.050%, 7/1/2042
|
$271,137
|
|
195,000
|
1,2
|
Puerto Rico Electric Power Authority, Power Revenue Bonds
(Series 2013A), (Original Issue Yield: 7.070%), 7.000%, 7/1/2040
|
53,138
|
|
2,500,000
|
1,2
|
Puerto Rico Electric Power Authority, Power Revenue Bonds
(Series 2013A), (Original Issue Yield: 7.120%), 7.000%, 7/1/2043
|
681,250
|
|
310,000
|
1,2
|
Puerto Rico Electric Power Authority, Power Revenue Bonds
(Series 2013A), 7.000%, 7/1/2033
|
84,475
|
|
6,764,000
|
4
|
Puerto Rico Sales Tax Financing Corp., Restructured Capital
Appreciation Sales Tax Bonds (Series 2019A-1), 0.000%, 7/1/2051
|
1,389,579
|
|
15,340,000
|
|
Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax
Bonds (Series 2019A), (Original Issue Yield: 5.154%),
5.000%, 7/1/2058
|
14,847,670
|
|
6,000,000
|
|
Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax
Bonds (Series 2019A-2), 4.784%, 7/1/2058
|
5,609,341
|
|
|
|
TOTAL
|
29,802,391
|
|
|
|
Rhode Island—0.7%
|
|
|
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
|
490,375
|
|
2,730,000
|
|
Tobacco Settlement Financing Corp., RI, Tobacco Settlement
Asset-Backed Bonds (Series 2015B), 5.000%, 6/1/2050
|
2,646,026
|
|
|
|
TOTAL
|
3,136,401
|
|
|
|
South Carolina—1.2%
|
|
|
1,000,000
|
|
Berkeley County, SC (Nexton Improvement District), Assessment
Revenue Bonds (Series 2019), (Original Issue Yield: 4.280%),
4.250%, 11/1/2040
|
852,331
|
|
1,150,000
|
3
|
South Carolina Jobs-EDA (Green Charter Schools), Educational
Facilities Revenue Refunding Bonds (Series 2021A),
4.000%, 6/1/2046
|
804,548
|
|
1,000,000
|
3
|
South Carolina Jobs-EDA (Seafields at Kiawah Island), Retirement
Community Revenue Bonds (Series 2023A), 7.500%, 11/15/2053
|
991,568
|
|
1,000,000
|
3
|
South Carolina Jobs-EDA (Seafields at Kiawah Island), Retirement
Community Revenue Bonds TEMPS-75 (Series 2023B-1),
5.750%, 11/15/2029
|
946,552
|
|
1,000,000
|
|
South Carolina Jobs-EDA (South Carolina Episcopal Home at Still
Hopes), Residential Care Facilities Revenue and Revenue
Refunding Bonds (Series 2018A), 5.000%, 4/1/2038
|
905,516
|
|
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
|
806,287
|
|
|
|
TOTAL
|
5,306,802
|
Annual Shareholder Report
25
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
South Dakota—0.4%
|
|
|
$1,000,000
|
|
Sioux Falls, SD Health Facilities Revenue (Dow Rummel Village),
(Series 2017), (Original Issue Yield: 5.050%), 5.000%, 11/1/2042
|
$868,485
|
|
1,000,000
|
|
Sioux Falls, SD Health Facilities Revenue (Dow Rummel Village),
(Series 2017), (Original Issue Yield: 5.200%), 5.125%, 11/1/2047
|
851,800
|
|
|
|
TOTAL
|
1,720,285
|
|
|
|
Tennessee—0.1%
|
|
|
1,200,000
|
1,2
|
Blount County, TN Health and Educational Facilities Board
(Asbury, Inc.), Revenue Refunding and Improvement Bonds
(Series 2016A), 5.000%, 1/1/2047
|
276,000
|
|
|
|
Texas—9.3%
|
|
|
1,100,000
|
|
Arlington, TX Higher Education Finance Corp. (Uplift Education),
Revenue Bonds (Series 2016A), 5.000%, 12/1/2046
|
1,048,627
|
|
500,000
|
|
Austin, TX Airport System, Airport System Revenue Bonds
(Series 2014), 5.000%, 11/15/2044
|
501,672
|
|
250,000
|
|
Austin, TX Convention Center Enterprises, Inc., Convention
Center Hotel First Tier Revenue Refunding Bonds (Series 2017A),
5.000%, 1/1/2034
|
253,620
|
|
250,000
|
|
Austin, TX Convention Center Enterprises, Inc., Convention
Center Hotel Second Tier Revenue Refunding Bonds
(Series 2017B), 5.000%, 1/1/2034
|
246,742
|
|
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
|
879,608
|
|
2,000,000
|
|
Clifton Higher Education Finance Corporation, TX (Idea Public
Schools), 6.000%, 8/15/2043
|
2,002,044
|
|
500,000
|
|
Clifton Higher Education Finance Corporation, TX (Idea Public
Schools), Education Revenue Bonds (Series 2012),
5.000%, 8/15/2042
|
500,039
|
|
1,000,000
|
|
Clifton Higher Education Finance Corporation, TX (Idea Public
Schools), Education Revenue Bonds (Series 2022A), (Texas
Permanent School Fund Guarantee Program GTD),
4.000%, 8/15/2047
|
898,116
|
|
2,000,000
|
|
Clifton Higher Education Finance Corporation, TX (Uplift
Education), Revenue Bonds (Series 2015A), 5.000%, 12/1/2050
|
1,877,832
|
|
1,000,000
|
|
Dallas-Fort Worth, TX (Dallas-Fort Worth, TX International
Airport), Joint Revenue Refunding and Improvement Bonds
(Series 2023B), 5.000%, 11/1/2047
|
1,055,524
|
|
1,527,000
|
|
Decatur, TX Hospital Authority (Wise Regional Health System),
Hospital Revenue Bonds (Series 2021C), 4.000%, 9/1/2044
|
1,250,026
|
|
515,000
|
|
Decatur, TX Hospital Authority (Wise Regional Health System),
Revenue Bonds, (United States Treasury PRF 9/1/2023@100),
6.375%, 9/1/2042
|
515,000
|
|
2,920,000
|
|
Harris County, TX IDC (Energy Transfer LP), Marine Terminal
Refunding Revenue Bonds (Series 2023), 4.050%, Mandatory
Tender 6/1/2033
|
2,864,173
|
Annual Shareholder Report
26
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Texas—continued
|
|
|
$1,500,000
|
|
Houston, TX Airport System (United Airlines, Inc.), Airport System
Special Facilities Revenue Bonds (Series 2021 B-1),
4.000%, 7/15/2041
|
$1,322,348
|
|
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
|
1,504,078
|
|
3,000,000
|
|
Houston, TX Airport System, Subordinate Lien Revenue and
Refunding Bonds (Series 2023A), (Assured Guaranty Municipal
Corp. INS), 5.250%, 7/1/2048
|
3,154,984
|
|
1,500,000
|
|
Lower Colorado River Authority, TX (LCRA Transmission Services
Corp.), Transmission Contract Refunding Revenue Bonds
(Series 2023A), 5.250%, 5/15/2048
|
1,599,247
|
|
1,500,000
|
3
|
Mission, TX Economic Development Corporation (Natgasoline),
Senior Lien Revenue Bonds (Series 2018), (Original Issue Yield:
4.716%), 4.625%, 10/1/2031
|
1,462,960
|
|
2,000,000
|
|
New Hope Cultural Education Facilities Finance Corporation
(Brazos Presbyterian Homes Holding, Inc.), Retirement Facilities
Revenue Bonds (Series 2017), 5.000%, 1/1/2042
|
1,783,421
|
|
1,544,173
|
1
|
New Hope Cultural Education Facilities Finance Corporation
(Buckingham Senior Living Community), Retirement Facilities
Revenue Exchange Bonds (Series 2021B), 2.000%, 11/15/2061
|
608,683
|
|
2,000,000
|
3
|
New Hope Cultural Education Facilities Finance Corporation
(Jubilee Academic Center), Education Revenue Refunding Bonds
(Series 2021), 4.000%, 8/15/2046
|
1,500,939
|
|
1,000,000
|
|
New Hope Cultural Education Facilities Finance Corporation
(MRC Langford), Retirement Facility Revenue Bonds
(Series 2016A), 5.500%, 11/15/2046
|
809,545
|
|
600,000
|
|
North Texas Tollway Authority, First Tier Revenue Refunding
Bonds (Series 2016A), 5.000%, 1/1/2039
|
611,720
|
|
335,000
|
|
North Texas Tollway Authority, Second Tier Revenue Refunding
Bonds (Series 2021B), 4.000%, 1/1/2041
|
311,128
|
|
2,000,000
|
|
Red River, TX HFDC (MRC The Crossings), Retirement Facility
Revenue Bonds (Series 2014A), (United States Treasury PRF
11/15/2024@100), 8.000%, 11/15/2049
|
2,104,506
|
|
1,000,000
|
|
Tarrant County, TX Cultural Education Facilities Finance Corp.
(Baylor Scott & White Health Care System), Hospital Revenue
Bonds (Series 2022D), 5.500%, 11/15/2047
|
1,072,837
|
|
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
|
2,670,971
|
|
1,500,000
|
|
Tarrant County, TX Cultural Education Facilities Finance Corp.
(MRC Stevenson Oaks Project), Retirement Facilities Revenue
Bonds (Series 2020A), 6.875%, 11/15/2055
|
1,349,914
|
Annual Shareholder Report
27
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Texas—continued
|
|
|
$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%, 12/31/2050
|
$1,984,662
|
|
2,000,000
|
|
Texas Private Activity Bonds Surface Transportation Corporation
(NTE Mobility Partners, LLC), Senior Lien Revenue Bonds
(Series 2023), 5.500%, 12/31/2058
|
2,116,042
|
|
1,195,000
|
|
Texas State Transportation Commission (State Highway 249
System), First Tier Toll Revenue Bonds (Series 2019A),
5.000%, 8/1/2057
|
1,171,907
|
|
|
|
TOTAL
|
41,032,915
|
|
|
|
Utah—0.7%
|
|
|
1,000,000
|
|
Salt Lake City, UT (Salt Lake City, UT International Airport),
Airport Revenue Bonds (Series 2023A), 5.500%, 7/1/2053
|
1,065,500
|
|
2,000,000
|
3
|
Utah State Charter School Finance Authority (Freedom Academy
Foundation), Charter School Revenue Refunding Bonds
(Series 2017), (Original Issue Yield: 5.300%), 5.250%, 6/15/2037
|
1,901,890
|
|
|
|
TOTAL
|
2,967,390
|
|
|
|
Vermont—0.2%
|
|
|
1,000,000
|
3
|
Vermont EDA (Casella Waste Systems, Inc.), Solid Waste Disposal
Revenue Bonds (Series 2013), 4.625%, Mandatory
Tender 4/3/2028
|
984,386
|
|
|
|
Virginia—1.5%
|
|
|
1,800,000
|
|
Chesapeake Bay Bridge & Tunnel District, VA, First Tier General
Resolution Revenue Bonds (Series 2016), 5.000%, 7/1/2051
|
1,811,847
|
|
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
|
797,688
|
|
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
|
3,901,349
|
|
370,000
|
|
Virginia Small Business Financing Authority (Covanta Energy
Corp.), Solid Waste Disposal Revenue Bonds (Series 2018),
5.000%, Mandatory Tender 7/1/2038
|
340,458
|
|
|
|
TOTAL
|
6,851,342
|
|
|
|
Washington—4.1%
|
|
|
2,000,000
|
|
Energy Northwest, WA (Bonneville WA Power Administration),
Columbia Generating Station Electric Revenue Refunding Bonds
(Series 2021A), 4.000%, 7/1/2042
|
1,955,916
|
|
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
|
1,000,273
|
|
10,000,000
|
|
Seattle, WA Municipal Light & Power, Improvement and
Refunding Revenue Bonds (Series 2018A), 4.000%, 1/1/2047
|
9,460,187
|
Annual Shareholder Report
28
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Washington—continued
|
|
|
$1,000,000
|
|
Washington State Health Care Facilities Authority (Virginia Mason
Medical Center), Revenue Bonds (Series 2017),
5.000%, 8/15/2037
|
$995,900
|
|
1,000,000
|
3
|
Washington State Housing Finance Commission (Heron’s Key
Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A),
(Original Issue Yield: 7.050%), (United States Treasury PRF
7/1/2025@100), 7.000%, 7/1/2050
|
1,053,562
|
|
1,000,000
|
3
|
Washington State Housing Finance Commission (Heron’s Key
Senior Living), Nonprofit Housing Revenue Bonds (Series 2015A),
(United States Treasury PRF 7/1/2025@100), 7.000%, 7/1/2045
|
1,053,561
|
|
2,500,000
|
3
|
Washington State Housing Finance Commission (Rockwood
Retirement Communities), Nonprofit Housing Revenue &
Refunding Revenue Bonds (Series 2014A), (United States Treasury
PRF 1/1/2024@100), 7.500%, 1/1/2049
|
2,529,334
|
|
|
|
TOTAL
|
18,048,733
|
|
|
|
Wisconsin—3.4%
|
|
|
2,800,000
|
3
|
Public Finance Authority, WI (American Dream at Meadowlands),
Limited Obligation PILOT Revenue Bonds (Series 2017),
7.000%, 12/1/2050
|
2,530,021
|
|
1,375,000
|
3
|
Public Finance Authority, WI (Eno River Academy), Charter
School Revenue Bonds (Series 2020A), 5.000%, 6/15/2054
|
1,205,431
|
|
2,000,000
|
|
Public Finance Authority, WI (Grand Hyatt San Antonio Hotel),
Grand Hyatt San Antonio Hotel Acquisition Project (Senior Lien
Series 2022A), 5.000%, 2/1/2062
|
1,849,564
|
|
2,000,000
|
3
|
Public Finance Authority, WI (LVHN CHP JV, LLC), Revenue Bonds
(Series 2022A), 7.500%, 12/1/2052
|
1,957,948
|
|
1,750,000
|
|
Public Finance Authority, WI (Mountain Island Charter School),
Education Revenue Refunding Bonds (Series 2017),
5.000%, 7/1/2047
|
1,637,274
|
|
1,000,000
|
|
Public Finance Authority, WI (National Gypsum Co.), Exempt
Facilities Refunding Revenue Bonds (Series 2016),
4.000%, 8/1/2035
|
863,852
|
|
3,000,000
|
3
|
Public Finance Authority, WI (Southminster), Retirement Facilities
First Mortgage Revenue Bonds (Series 2018), 5.000%, 10/1/2053
|
2,476,666
|
|
1,500,000
|
|
Public Finance Authority, WI Revenue (Fargo-Moorhead
Metropolitan Area Flood Risk Management Project), Senior
Revenue Bonds (Series 2021) Green Bonds, 4.000%, 3/31/2056
|
1,160,658
|
|
800,000
|
|
Wisconsin Health & Educational Facilities Authority (ProHealth
Care, Inc.), Revenue Refunding Bonds (Series 2015),
5.000%, 8/15/2039
|
801,091
|
Annual Shareholder Report
29
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Wisconsin—continued
|
|
|
$1,000,000
|
|
Wisconsin Health & Educational Facilities Authority (St. Camillus
Health System, Inc.), Revenue Bonds (Series 2019A),
5.000%, 11/1/2046
|
$780,830
|
|
|
|
TOTAL
|
15,263,335
|
|
|
|
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $478,669,149)
|
438,526,096
|
|
|
5
|
SHORT-TERM MUNICIPALS—0.4%
|
|
|
|
|
Alabama—0.2%
|
|
|
455,000
|
|
Mobile, AL IDB (Alabama Power Co.), (Series 2001-A) Daily
VRDNs, 4.500%, 9/1/2023
|
455,000
|
|
445,000
|
|
Wilsonville, AL IDB (Alabama Power Co.), (Series 2008) Daily
VRDNs, 4.500%, 9/1/2023
|
445,000
|
|
|
|
TOTAL
|
900,000
|
|
|
|
Michigan—0.0%
|
|
|
100,000
|
|
Michigan Strategic Fund (Air Products & Chemicals, Inc.),
(Series 2007) Daily VRDNs, 3.890%, 9/1/2023
|
100,000
|
|
|
|
Multi-State—0.2%
|
|
|
1,000,000
|
|
Nuveen Municipal Credit Opportunities Fund, PUTTERs 3a-7
(Series 5033) (VMFP Series C) Daily VRDNs, (JPMorgan Chase
Bank, N.A. LIQ), 4.700%, 9/1/2023
|
1,000,000
|
|
|
|
TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $2,000,000)
|
2,000,000
|
|
|
|
TOTAL INVESTMENT IN SECURITIES—99.4%
(IDENTIFIED COST $480,669,149)6
|
440,526,096
|
|
|
|
OTHER ASSETS AND LIABILITIES - NET—0.6%7
|
2,494,278
|
|
|
|
TOTAL NET ASSETS—100%
|
$443,020,374
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 12.8% of the Fund’s portfolio as calculated based upon total market value (percentage is unaudited).
1
Security in default.
2
Non-income-producing security.
3
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 August 31, 2023, these restricted securities amounted to $59,661,451, which represented 13.5% of total net assets.
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 $479,223,383.
Annual Shareholder Report
30
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 August 31, 2023.
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 August 31, 2023, all investments of the Fund utilized Level 2 inputs in valuing the Fund’s assets carried at fair value.
The following acronym(s) are used throughout this portfolio:
|
CDD
|
—Community Development District
|
|
EDA
|
—Economic Development Authority
|
|
GO
|
—General Obligation
|
|
GTD
|
—Guaranteed
|
|
HFDC
|
—Health Facility Development Corporation
|
|
IDA
|
—Industrial Development Authority
|
|
IDB
|
—Industrial Development Bond
|
|
IDC
|
—Industrial Development Corporation
|
|
INS
|
—Insured
|
|
LIQ
|
—Liquidity Agreement
|
|
LT
|
—Limited Tax
|
|
PILOT
|
—Payment in Lieu of Taxes
|
|
PRF
|
—Pre-refunded
|
|
PUTTERs
|
—Puttable Tax-Exempt Receipts
|
|
SID
|
—Special Improvement District
|
|
TEMPS
|
—Tax Exempt Mandatory Paydown Securities
|
|
UT
|
—Unlimited Tax
|
|
VRDNs
|
—Variable Rate Demand Notes
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
31
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$8.14
|
$9.40
|
$8.90
|
$9.30
|
$8.88
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income1
|
0.33
|
0.28
|
0.31
|
0.33
|
0.33
|
|
Net realized and unrealized gain (loss)
|
(0.37)
|
(1.26)
|
0.50
|
(0.41)
|
0.43
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
(0.04)
|
(0.98)
|
0.81
|
(0.08)
|
0.76
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.30)
|
(0.28)
|
(0.31)
|
(0.32)
|
(0.34)
|
|
Net Asset Value, End of Period
|
$7.80
|
$8.14
|
$9.40
|
$8.90
|
$9.30
|
|
Total Return2
|
(0.50)%
|
(10.60)%
|
9.19%
|
(0.78)%
|
8.76%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.89%4
|
0.89%
|
0.89%
|
0.89%4
|
0.89%4
|
|
Net investment income
|
4.13%
|
3.16%
|
3.35%
|
3.69%
|
3.77%
|
|
Expense waiver/reimbursement5
|
0.18%
|
0.16%
|
0.15%
|
0.15%
|
0.16%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$150,104
|
$178,383
|
$224,522
|
$204,461
|
$218,050
|
|
Portfolio turnover6
|
17%
|
27%
|
12%
|
27%
|
11%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 0.89%, 0.89% and 0.89% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
32
Financial Highlights–Class C Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$8.13
|
$9.39
|
$8.90
|
$9.29
|
$8.87
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income1
|
0.27
|
0.21
|
0.24
|
0.26
|
0.27
|
|
Net realized and unrealized gain (loss)
|
(0.37)
|
(1.25)
|
0.49
|
(0.39)
|
0.42
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
(0.10)
|
(1.04)
|
0.73
|
(0.13)
|
0.69
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.24)
|
(0.22)
|
(0.24)
|
(0.26)
|
(0.27)
|
|
Net Asset Value, End of Period
|
$7.79
|
$8.13
|
$9.39
|
$8.90
|
$9.29
|
|
Total Return2
|
(1.23)%
|
(11.26)%
|
8.27%
|
(1.41)%
|
7.97%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
1.64%4
|
1.64%
|
1.64%
|
1.64%4
|
1.64%4
|
|
Net investment income
|
3.37%
|
2.41%
|
2.62%
|
2.93%
|
3.01%
|
|
Expense waiver/reimbursement5
|
0.18%
|
0.16%
|
0.15%
|
0.15%
|
0.16%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$13,713
|
$18,017
|
$25,061
|
$31,350
|
$48,130
|
|
Portfolio turnover6
|
17%
|
27%
|
12%
|
27%
|
11%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 1.64%, 1.64% and 1.64% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
33
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$8.14
|
$9.39
|
$8.90
|
$9.30
|
$8.88
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income1
|
0.32
|
0.28
|
0.31
|
0.33
|
0.33
|
|
Net realized and unrealized gain (loss)
|
(0.36)
|
(1.25)
|
0.49
|
(0.41)
|
0.42
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
(0.04)
|
(0.97)
|
0.80
|
(0.08)
|
0.75
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.30)
|
(0.28)
|
(0.31)
|
(0.32)
|
(0.33)
|
|
Net Asset Value, End of Period
|
$7.80
|
$8.14
|
$9.39
|
$8.90
|
$9.30
|
|
Total Return2
|
(0.48)%
|
(10.49)%
|
9.08%
|
(0.77)%
|
8.76%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.89%4
|
0.89%
|
0.89%
|
0.89%4
|
0.89%4
|
|
Net investment income
|
4.12%
|
3.16%
|
3.35%
|
3.69%
|
3.76%
|
|
Expense waiver/reimbursement5
|
0.18%
|
0.16%
|
0.15%
|
0.15%
|
0.16%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$109,065
|
$147,878
|
$189,045
|
$182,765
|
$195,691
|
|
Portfolio turnover6
|
17%
|
27%
|
12%
|
27%
|
11%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 0.89%, 0.89% and 0.89% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
34
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
|
Net Asset Value, Beginning of Period
|
$8.12
|
$9.38
|
$8.89
|
$9.29
|
$8.87
|
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
|
Net investment income1
|
0.35
|
0.30
|
0.33
|
0.35
|
0.36
|
|
|
Net realized and unrealized gain (loss)
|
(0.36)
|
(1.26)
|
0.49
|
(0.40)
|
0.42
|
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
(0.01)
|
(0.96)
|
0.82
|
(0.05)
|
0.78
|
|
|
Less Distributions:
|
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.32)
|
(0.30)
|
(0.33)
|
(0.35)
|
(0.36)
|
|
|
Net Asset Value, End of Period
|
$7.79
|
$8.12
|
$9.38
|
$8.89
|
$9.29
|
|
|
Total Return2
|
(0.11)%
|
(10.39)%
|
9.37%
|
(0.53)%
|
9.04%
|
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
Net expenses3
|
0.64%4
|
0.64%
|
0.64%
|
0.64%4
|
0.64%4
|
|
|
Net investment income
|
4.38%
|
3.41%
|
3.59%
|
3.93%
|
4.01%
|
|
|
Expense waiver/reimbursement5
|
0.18%
|
0.16%
|
0.15%
|
0.15%
|
0.16%
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$170,139
|
$179,629
|
$174,234
|
$129,832
|
$155,444
|
|
|
Portfolio turnover6
|
17%
|
27%
|
12%
|
27%
|
11%
|
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 0.64%, 0.64% and 0.64% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
35
Statement of Assets and Liabilities
August 31, 2023
August 31, 2023
|
Assets:
|
|
|
|
Investment in securities, at value (identified cost $480,669,149)
|
|
$440,526,096
|
|
Cash
|
|
15,087
|
|
Income receivable
|
|
6,141,793
|
|
Receivable for shares sold
|
|
249,806
|
|
TOTAL ASSETS
|
|
446,932,782
|
|
Liabilities:
|
|
|
|
Payable for investments purchased
|
$1,066,280
|
|
|
Payable for shares redeemed
|
2,638,938
|
|
|
Payable for other service fees (Notes 2 and 5)
|
56,370
|
|
|
Payable for distribution services fee (Note 5)
|
8,956
|
|
|
Payable for investment adviser fee (Note 5)
|
5,203
|
|
|
Payable for administrative fee (Note 5)
|
2,144
|
|
|
Accrued expenses (Note 5)
|
134,517
|
|
|
TOTAL LIABILITIES
|
|
3,912,408
|
|
Net assets for 56,830,532 shares outstanding
|
|
$443,020,374
|
|
Net Assets Consists of:
|
|
|
|
Paid-in capital
|
|
$532,278,466
|
|
Total distributable earnings (loss)
|
|
(89,258,092)
|
|
TOTAL NET ASSETS
|
|
$443,020,374
|
Annual Shareholder Report
36
Statement of Assets and Liabilities–continued
|
Net Asset Value, Offering Price and Redemption Proceeds Per
Share:
|
|
|
|
Class A Shares:
|
|
|
|
Net asset value per share ($150,103,555 ÷ 19,237,856 shares
outstanding), no par value, unlimited shares authorized
|
|
$7.80
|
|
Offering price per share (100/95.50 of $7.80)
|
|
$8.17
|
|
Redemption proceeds per share
|
|
$7.80
|
|
Class C Shares:
|
|
|
|
Net asset value per share ($13,713,177 ÷ 1,759,979 shares
outstanding), no par value, unlimited shares authorized
|
|
$7.79
|
|
Offering price per share
|
|
$7.79
|
|
Redemption proceeds per share (99.00/100 of $7.79)
|
|
$7.71
|
|
Class F Shares:
|
|
|
|
Net asset value per share ($109,064,688 ÷ 13,983,593 shares
outstanding), no par value, unlimited shares authorized
|
|
$7.80
|
|
Offering price per share (100/99.00 of $7.80)
|
|
$7.88
|
|
Redemption proceeds per share (99.00/100 of $7.80)
|
|
$7.72
|
|
Institutional Shares:
|
|
|
|
Net asset value per share ($170,138,954 ÷ 21,849,104 shares
outstanding), no par value, unlimited shares authorized
|
|
$7.79
|
|
Offering price per share
|
|
$7.79
|
|
Redemption proceeds per share
|
|
$7.79
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
37
Statement of Operations
Year Ended August 31, 2023
Year Ended August 31, 2023
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$23,819,285
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$2,846,527
|
|
|
Administrative fee (Note 5)
|
|
375,445
|
|
|
Custodian fees
|
|
13,301
|
|
|
Transfer agent fees
|
|
267,849
|
|
|
Directors’/Trustees’ fees (Note 5)
|
|
4,348
|
|
|
Auditing fees
|
|
36,959
|
|
|
Legal fees
|
|
11,262
|
|
|
Distribution services fee (Note 5)
|
|
119,907
|
|
|
Other service fees (Notes 2 and 5)
|
|
745,951
|
|
|
Portfolio accounting fees
|
|
192,974
|
|
|
Share registration costs
|
|
74,828
|
|
|
Printing and postage
|
|
35,654
|
|
|
Miscellaneous (Notes 5)
|
|
33,038
|
|
|
TOTAL EXPENSES
|
|
4,758,043
|
|
|
Waiver and Reduction:
|
|
|
|
|
Waiver of investment adviser fee (Note 5)
|
$(832,642)
|
|
|
|
Reduction of custodian fees (Note 6)
|
(2,281)
|
|
|
|
TOTAL WAIVER AND REDUCTION
|
|
(834,923)
|
|
|
Net expenses
|
|
|
3,923,120
|
|
Net investment income
|
|
|
19,896,165
|
|
Realized and Unrealized Gain (Loss) on Investments
and Futures Contracts:
|
|
|
|
|
Net realized loss on investments
|
|
|
(9,922,120)
|
|
Net realized gain on futures contracts
|
|
|
163,391
|
|
Net change in unrealized depreciation of investments
|
|
|
(13,468,064)
|
|
Net realized and unrealized loss on investments and
futures contracts
|
|
|
(23,226,793)
|
|
Change in net assets resulting from operations
|
|
|
$(3,330,628)
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
38
Statement of Changes in Net Assets
|
Year Ended August 31
|
2023
|
2022
|
|
Increase (Decrease) in Net Assets
|
|
|
|
Operations:
|
|
|
|
Net investment income
|
$19,896,165
|
$18,368,847
|
|
Net realized gain (loss)
|
(9,758,729)
|
(2,915,507)
|
|
Net change in unrealized appreciation/depreciation
|
(13,468,064)
|
(79,417,295)
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
(3,330,628)
|
(63,963,955)
|
|
Distributions to Shareholders:
|
|
|
|
Class A Shares
|
(6,105,694)
|
(6,581,627)
|
|
Class B Shares1
|
(7,965)
|
(26,755)
|
|
Class C Shares
|
(478,427)
|
(549,883)
|
|
Class F Shares
|
(4,602,811)
|
(5,534,200)
|
|
Institutional Shares
|
(7,113,142)
|
(5,882,954)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS
|
(18,308,039)
|
(18,575,419)
|
|
Share Transactions:
|
|
|
|
Proceeds from sale of shares
|
107,701,590
|
141,639,561
|
|
Net asset value of shares issued to shareholders in payment of
distributions declared
|
17,438,881
|
17,668,836
|
|
Cost of shares redeemed
|
(185,117,340)
|
(166,512,281)
|
|
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
|
(59,976,869)
|
(7,203,884)
|
|
Change in net assets
|
(81,615,536)
|
(89,743,258)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
524,635,910
|
614,379,168
|
|
End of period
|
$443,020,374
|
$524,635,910
|
1
On February 3, 2023, Class B Shares were converted into Class A Shares.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
39
Notes to Financial Statements
August 31, 2023
1. ORGANIZATION
Federated Hermes 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 Hermes Municipal High Yield Advantage Fund (the “Fund”). 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 four classes of shares: Class A 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.
At the close of business on February 3, 2023, Class B Shares were converted into the Fund’s existing Class A Shares pursuant to a Plan of Conversion approved by the Fund’s Board of Trustees (the “Trustees”). The conversion occurred on a tax-free basis. The cash value of a shareholder’s investment was not changed as a result of the share class conversion. No action was required by shareholders to effect the conversion.
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 Federated Investment Management Company (the “Adviser”).
◾ Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.
◾ 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 ask quotations.
◾ Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Adviser.
◾ For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, 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.
Annual Shareholder Report
40
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 Adviser’s valuation policies and procedures for the Fund, or if information furnished by a pricing service, in the opinion of the Adviser’s 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, and the actual value obtained could be materially different.
Fair Valuation Procedures
Pursuant to Rule 2a-5 under the Act, the Trustees have designated the Adviser as the Fund’s valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees’ oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser’s fair value determinations.
The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services 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 Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser’s fair valuation and significant events procedures as part of the Fund’s compliance program and will review 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 ask 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 Adviser.
Annual Shareholder Report
41
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 $834,923 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 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. Prior to their conversion to Class A Shares at the close of business on February 3, 2023, the Class B Shares were also subject to these fees. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the year ended August 31, 2023, other service fees for the Fund were as follows:
|
|
Other
Service Fees
Incurred
|
|
Class A Shares
|
$403,773
|
|
Class B Shares
|
678
|
|
Class C Shares
|
39,291
|
|
Class F Shares
|
302,209
|
|
TOTAL
|
$745,951
|
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2023, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2023, tax years 2020 through 2023 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
Annual Shareholder Report
42
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk. Upon entering into a financial futures contract with a broker, the Fund is required to deposit 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 clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.
At August 31, 2023, the Fund had no outstanding futures contracts.
The average notional value of short futures contracts held by the Fund throughout the period was $2,279,135. This is based on amounts held as of each month-end throughout the fiscal period.
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 Adviser.
Annual Shareholder Report
43
Additional information on restricted securities held at August 31, 2023, is as follows:
|
Security
|
Acquisition
Date
|
Acquisition
Cost
|
Value
|
|
Arizona State IDA (Basis Schools, Inc. Obligated Group),
Education Revenue Bonds (Series 2017D), 5.000%, 7/1/2051
|
10/12/2017
|
$657,652
|
$568,859
|
|
Arizona State IDA (Basis Schools, Inc. Obligated Group),
Education Revenue Bonds (Series 2017G), 5.000%, 7/1/2051
|
12/15/2017
|
$509,583
|
$437,584
|
|
Arizona State IDA (Doral Academy of Nevada FMMR),
Education Revenue Bonds (Series 2019A),
5.000%, 7/15/2049
|
4/3/2019
|
$1,026,361
|
$907,484
|
|
Arizona State IDA (Pinecrest Academy of Nevada), Horizon,
Inspirada and St. Rose Campus Education Revenue Bonds
(Series 2018A), 5.750%, 7/15/2048
|
12/14/2018
|
$1,777,639
|
$1,706,938
|
|
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
|
$973,143
|
|
California Public Finance Authority (Kendal at Sonoma), Enso
Village Senior Living Revenue Refunding Bonds
(Series 2021A), 5.000%, 11/15/2046
|
5/27/2021
|
$524,754
|
$445,799
|
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2014A), 5.125%, 7/1/2044
|
6/13/2014
|
$750,000
|
$752,113
|
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2015A), 5.000%, 7/1/2045
|
8/27/2015
|
$570,894
|
$565,978
|
|
California School Finance Authority (KIPP LA), School Facility
Revenue Bonds (Series 2017A), 5.000%, 7/1/2047
|
8/4/2017
|
$526,665
|
$500,874
|
|
California State School Finance Authority Charter School
Revenue (Bright Star Schools-Obligated Group), Charter
School Revenue Bonds (Series 2017), 5.000%, 6/1/2037
|
4/20/2020
|
$1,005,733
|
$966,170
|
|
California State School Finance Authority Charter School
Revenue (Rocketship Public Schools), Revenue Bonds
(Series 2017G), 5.000%, 6/1/2047
|
12/4/2017
|
$508,703
|
$454,121
|
|
California State School Finance Authority Charter School
Revenue (Summit Public Schools Obligated Group),
(Series 2017), 5.000%, 6/1/2053
|
10/5/2017
|
$1,141,282
|
$941,425
|
|
California Statewide Communities Development Authority
(Loma Linda University Medical Center), Revenue Bonds
(Series 2016A), 5.000%, 12/1/2046
|
5/19/2020
|
$2,255,537
|
$2,162,263
|
|
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
|
$2,207,379
|
$123,039
|
|
Colorado Educational & Cultural Facilities Authority
(Loveland Classical School), School Improvement Revenue
Bonds (Series 2016), 5.000%, 7/1/2036
|
4/17/2020
|
$946,760
|
$975,450
|
|
Denver, CO Health & Hospital Authority, Revenue Refunding
Bonds (Series 2017A), 5.000%, 12/1/2034
|
8/23/2017
|
$1,049,842
|
$1,032,704
|
Annual Shareholder Report
44
|
Security
|
Acquisition
Date
|
Acquisition
Cost
|
Value
|
|
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
|
$910,994
|
$828,682
|
|
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%, 12/15/2038
|
11/8/2022
|
$936,840
|
$945,478
|
|
Florida Development Finance Corp. (Glenridge on Palmer
Ranch), Senior Living Revenue and Refunding Bonds
(Series 2021), 5.000%, 6/1/2051
|
5/13/2021
|
$1,094,458
|
$808,268
|
|
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
|
$1,977,042
|
$1,433,910
|
|
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
|
$2,011,256
|
|
Maricopa County, AZ, IDA (Paradise Schools), Revenue
Refunding Bonds, 5.000%, 7/1/2047
|
10/6/2016
|
$1,018,984
|
$915,385
|
|
Massachusetts Development Finance Agency (Newbridge on
the Charles), Revenue Refunding Bonds (Series 2017),
5.000%, 10/1/2057
|
12/7/2017
|
$1,040,834
|
$858,084
|
|
Millsboro, DE Special Obligations (Plantation Lakes Special
Development District), Special Tax Revenue Refunding
Bonds (Series 2018), (Original Issue Yield: 5.140%),
5.125%, 7/1/2038
|
5/22/2020
|
$2,862,647
|
$2,911,286
|
|
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
|
$2,937,989
|
$2,711,085
|
|
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
|
$1,490,872
|
$1,462,960
|
|
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
|
$1,823,001
|
$1,869,171
|
|
Monroe County, NY IDC (True North Rochester Preparatory
Charter School), Charter School Revenue Bonds
(Series 2020A), 5.000%, 6/1/2059
|
7/9/2020
|
$1,089,708
|
$922,026
|
|
New Hampshire Health and Education Facilities Authority
(Hillside Village), Revenue Bonds (Series 20017A), (Original
Issue Yield: 6.375%), 6.125%, 7/1/2052
|
6/18/2017
|
$996,369
|
$275,480
|
|
New Hope Cultural Education Facilities Finance Corporation
(Jubilee Academic Center), Education Revenue Refunding
Bonds (Series 2021), 4.000%, 8/15/2046
|
3/24/2023
|
$1,480,320
|
$1,500,939
|
|
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
|
$989,413
|
Annual Shareholder Report
45
|
Security
|
Acquisition
Date
|
Acquisition
Cost
|
Value
|
|
Ohio Air Quality Development Authority (AMG Vanadium
LLC), Exempt Facilities Revenue Bonds (Series 2019),
5.000%, 7/1/2049
|
6/27/2019
|
$1,866,238
|
$1,617,161
|
|
Pima County, AZ Industrial Development Authority
(La Posada at Pusch Ridge), Senior Living Revenue Bonds
(Series 2022A), 6.250%, 11/15/2035
|
10/6/2022
|
$1,000,000
|
$998,198
|
|
Pima County, AZ Industrial Development Authority
(La Posada at Pusch Ridge), Senior Living Revenue Bonds
(Series 2022A), 7.000%, 11/15/2057
|
10/6/2022
|
$1,000,000
|
$997,277
|
|
Polk County, FL IDA (Mineral Development, LLC), Secondary
Phosphate Tailings Recovery Project Revenue Bonds
(Series 2020), 5.875%, 1/1/2033
|
10/23/2020
|
$2,000,000
|
$1,994,842
|
|
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
|
$989,004
|
$965,367
|
|
Public Finance Authority, WI (American Dream at
Meadowlands), Limited Obligation PILOT Revenue Bonds
(Series 2017), 7.000%, 12/1/2050
|
6/22/2017
|
$2,838,228
|
$2,530,021
|
|
Public Finance Authority, WI (Eno River Academy), Charter
School Revenue Bonds (Series 2020A), 5.000%, 6/15/2054
|
6/12/2020
|
$1,401,111
|
$1,205,431
|
|
Public Finance Authority, WI (LVHN CHP JV, LLC), Revenue
Bonds (Series 2022A), 7.500%, 12/1/2052
|
2/2/2023
|
$2,000,000
|
$1,957,948
|
|
Public Finance Authority, WI (Southminster), Retirement
Facilities First Mortgage Revenue Bonds (Series 2018),
5.000%, 10/1/2053
|
11/15/2022
|
$2,416,980
|
$2,476,666
|
|
San Francisco Special Tax District No. 2020-1 (Mission Rock
Facilities and Services), Development Special Tax Bonds
(Series 2021A), 4.000%, 9/1/2051
|
5/7/2021
|
$369,953
|
$264,536
|
|
South Carolina Jobs-EDA (Green Charter Schools),
Educational Facilities Revenue Refunding Bonds
(Series 2021A), 4.000%, 6/1/2046
|
1/31/2023
|
$891,952
|
$804,548
|
|
South Carolina Jobs-EDA (Seafields at Kiawah Island),
Retirement Community Revenue Bonds (Series 2023A),
7.500%, 11/15/2053
|
7/21/2023
|
$1,000,000
|
$991,568
|
|
South Carolina Jobs-EDA (Seafields at Kiawah Island),
Retirement Community Revenue Bonds TEMPS-75
(Series 2023B-1), 5.750%, 11/15/2029
|
7/21/2023
|
$949,887
|
$946,552
|
|
Utah State Charter School Finance Authority (Freedom
Academy Foundation), Charter School Revenue Refunding
Bonds (Series 2017), (Original Issue Yield: 5.300%),
5.250%, 6/15/2037
|
4/27/2020
|
$1,866,473
|
$1,901,890
|
|
Vermont EDA (Casella Waste Systems, Inc.), Solid Waste
Disposal Revenue Bonds (Series 2013), 4.625%, Mandatory
Tender 4/3/2028
|
3/28/2018
|
$1,000,000
|
$984,386
|
|
Verrado Community Facilities District No. 1, AZ, District GO
Refunding Bonds (Series 2013A), 6.000%, 7/15/2027
|
7/3/2013
|
$430,000
|
$431,236
|
Annual Shareholder Report
46
|
Security
|
Acquisition
Date
|
Acquisition
Cost
|
Value
|
|
Washington State Housing Finance Commission (Heron’s Key
Senior Living), Nonprofit Housing Revenue Bonds
(Series 2015A), (Original Issue Yield: 7.050%), (United States
Treasury PRF 7/1/2025@100), 7.000%, 7/1/2050
|
7/22/2015
|
$993,921
|
$1,053,562
|
|
Washington State Housing Finance Commission (Heron’s Key
Senior Living), Nonprofit Housing Revenue Bonds
(Series 2015A), (United States Treasury PRF 7/1/2025@100),
7.000%, 7/1/2045
|
7/22/2015
|
$1,002,518
|
$1,053,561
|
|
Washington State Housing Finance Commission (Rockwood
Retirement Communities), Nonprofit Housing Revenue &
Refunding Revenue Bonds (Series 2014A), (United States
Treasury PRF 1/1/2024@100), 7.500%, 1/1/2049
|
1/31/2014
|
$2,500,000
|
$2,529,334
|
Additional Disclosure Related to Derivative Instruments
The Effect of Derivative Instruments on the Statement of Operations For the Year Ended August 31, 2023
|
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
|
|
|
|
Interest
Rate
Contracts
|
|
Futures Contracts
|
$163,391
|
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 materially from those estimated. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class A Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
1,990,207
|
$15,740,915
|
2,405,984
|
$21,416,895
|
|
Shares issued to shareholders in payment of
distributions declared
|
723,366
|
5,706,697
|
695,169
|
6,146,216
|
|
Conversion of Class B Shares to Class A
Shares1
|
76,188
|
620,168
|
—
|
—
|
|
Shares redeemed
|
(5,468,316)
|
(42,926,213)
|
(5,082,228)
|
(44,103,087)
|
|
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS
|
(2,678,555)
|
$(20,858,433)
|
(1,981,075)
|
$(16,539,976)
|
Annual Shareholder Report
47
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class B Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
22
|
$173
|
57
|
$503
|
|
Shares issued to shareholders in payment of
distributions declared
|
869
|
6,791
|
2,664
|
23,695
|
|
Conversion of Class B Shares to Class A Shares1
|
(76,382)
|
(620,168)
|
—
|
—
|
|
Shares redeemed
|
(14,164)
|
(109,995)
|
(74,700)
|
(660,346)
|
|
NET CHANGE RESULTING FROM CLASS B
SHARE TRANSACTIONS
|
(89,655)
|
$(723,199)
|
(71,979)
|
$(636,148)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class C Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
332,353
|
$2,616,366
|
379,619
|
$3,396,520
|
|
Shares issued to shareholders in payment of
distributions declared
|
60,152
|
474,027
|
61,815
|
546,301
|
|
Shares redeemed
|
(848,869)
|
(6,693,087)
|
(895,366)
|
(7,797,708)
|
|
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS
|
(456,364)
|
$(3,602,694)
|
(453,932)
|
$(3,854,887)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class F Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
579,841
|
$4,552,690
|
892,888
|
$7,812,091
|
|
Shares issued to shareholders in payment of
distributions declared
|
546,583
|
4,307,683
|
591,804
|
5,229,555
|
|
Shares redeemed
|
(5,314,901)
|
(41,353,905)
|
(3,436,655)
|
(29,422,978)
|
|
NET CHANGE RESULTING FROM CLASS F
SHARE TRANSACTIONS
|
(4,188,477)
|
$(32,493,532)
|
(1,951,963)
|
$(16,381,332)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Institutional Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
10,856,645
|
$84,791,446
|
12,699,199
|
$109,013,552
|
|
Shares issued to shareholders in payment of
distributions declared
|
882,155
|
6,943,683
|
649,045
|
5,723,069
|
|
Shares redeemed
|
(11,998,332)
|
(94,034,140)
|
(9,815,095)
|
(84,528,162)
|
|
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS
|
(259,532)
|
$(2,299,011)
|
3,533,149
|
$30,208,459
|
|
NET CHANGE RESULTING FROM TOTAL
FUND SHARE TRANSACTIONS
|
(7,672,583)
|
$(59,976,869)
|
(925,800)
|
$(7,203,884)
|
1
On February 3, 2023, Class B Shares were converted to Class A Shares. Within the Statement of Changes in Net Assets, the conversion from Class B Shares is within the Cost of shares redeemed and the conversion to Class A Shares is within Proceeds from sale of shares.
Annual Shareholder Report
48
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2023 and 2022, was as follows:
|
|
2023
|
2022
|
|
Tax-exempt income
|
$18,262,061
|
$18,534,246
|
|
Ordinary income
|
$45,978
|
$41,173
|
As of August 31, 2023, the components of distributable earnings on a tax basis were as follows:
|
Undistributed tax-exempt income
|
$704,933
|
|
Net unrealized depreciation
|
$(38,697,287)
|
|
Capital loss carryforwards
|
$(51,265,738)
|
|
TOTAL
|
$(89,258,092)
|
At August 31, 2023, the cost of investments for federal tax purposes was $479,223,383. The net unrealized depreciation of investments for federal tax purposes was $38,697,287. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $4,761,110 and unrealized depreciation from investments for those securities having an excess of cost over value of $43,458,397. The difference between book-basis and tax-basis net unrealized depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities and open defaulted bonds.
At August 31, 2023, the Fund had a capital loss carryforward of $51,265,738 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.
The following schedule summarizes the Fund’s capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$15,876,140
|
$35,389,598
|
$51,265,738
|
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 competitive reasons such as to maintain the Fund’s expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the year ended August 31, 2023, the Adviser voluntarily waived $832,642 of its fee.
Annual Shareholder Report
49
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 year ended August 31, 2023, the annualized fee paid to FAS was 0.079% 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 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 C Shares
|
0.75%
|
|
Class F Shares
|
0.05%
|
Prior to their conversion to Class A Shares at the close of business on February 3, 2023, the Class B Shares were also subject to the Plan at 0.75% of average daily net assets of the Class B Shares.
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2023, distribution services fees for the Fund were as follows:
|
|
Distribution
Services Fee
Incurred
|
|
Class B Shares
|
$2,035
|
|
Class C Shares
|
117,872
|
|
TOTAL
|
$119,907
|
Annual Shareholder Report
50
For the year ended August 31, 2023, FSC retained $16,511 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 year ended August 31, 2023, 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 year ended August 31, 2023, FSC retained $3,920 in sales charges from the sale of Class A Shares. FSC also retained $856, $2,135 and $29,195 of CDSC relating to redemptions of Class A Shares, Class C Shares and Class F Shares, respectively.
Other Service Fees
For the year ended August 31, 2023, FSSC received $13,680 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 C Shares, Class F Shares and Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 0.89%, 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, 2024; 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 year ended August 31, 2023, 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 $51,775,000 and $49,825,000, respectively. Net realized gain (loss) recognized on these transactions was $0.
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.
Annual Shareholder Report
51
6. EXPENSE REDUCTION
Through arrangements with the Fund’s custodian, net credits realized as a result of uninvested cash balances were used to offset custody expenses. For the year ended August 31, 2023, the Fund’s expenses were offset by $2,281 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2023, were as follows:
|
Purchases
|
$80,886,188
|
|
Sales
|
$132,157,100
|
8. CONCENTRATION OF RISK
The Fund has 55.8% 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 dated June 21, 2023. The LOC was made available to temporarily finance 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 (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of a commitment fee based on the amount of the lenders’ commitment that has not been utilized, quarterly in arrears and at maturity. As of August 31, 2023, the Fund had no outstanding loans. During the year ended August 31, 2023, 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 August 31, 2023, there were no outstanding loans. During the year ended August 31, 2023, the program was not utilized.
Annual Shareholder Report
52
11. Indemnifications
Under the Fund’s organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party’s actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.
12. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in, and may continue to result in, closed borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus has resulted in substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. In addition, governments, their regulatory agencies, or self-regulatory organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect the instruments in which the Fund invests or the issuers of such investments. Any such impact could adversely affect the Fund’s performance.
13. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2023, 99.75% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
53
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Federated Hermes Municipal Securities Income Trust and the Shareholders of Federated Hermes Municipal High Yield Advantage Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Federated Hermes Municipal High Yield Advantage Fund (the Fund), a portfolio of Federated Hermes Municipal Securities Income Trust, including the portfolio of investments, as of August 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of August 31, 2023, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Annual Shareholder Report
54
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of August 31, 2023, by correspondence with custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Hermes’ investment companies since 2006.
Boston, Massachusetts
October 24, 2023
October 24, 2023
Annual Shareholder Report
55
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 March 1, 2023 to August 31, 2023.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
56
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
|
Beginning
Account Value
3/1/2023
|
Ending
Account Value
8/31/2023
|
Expenses Paid
During Period1
|
|
Actual:
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,010.20
|
$4.51
|
|
Class C Shares
|
$1,000
|
$1,007.60
|
$8.30
|
|
Class F Shares
|
$1,000
|
$1,011.50
|
$4.51
|
|
Institutional Shares
|
$1,000
|
$1,012.90
|
$3.25
|
|
Hypothetical (assuming a 5% return
before expenses):
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,020.72
|
$4.53
|
|
Class C Shares
|
$1,000
|
$1,016.94
|
$8.34
|
|
Class F Shares
|
$1,000
|
$1,020.72
|
$4.53
|
|
Institutional Shares
|
$1,000
|
$1,021.98
|
$3.26
|
1
Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
|
Class A Shares
|
0.89%
|
|
Class C Shares
|
1.64%
|
|
Class F Shares
|
0.89%
|
|
Institutional Shares
|
0.64%
|
Annual Shareholder Report
57
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2022, the Trust comprised four portfolio(s), and the Federated Hermes Fund Family consisted of 33 investment companies (comprising 102 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Hermes Fund Family and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400, Option #4.
Interested TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Indefinite Term
Began serving: August 1990
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of the Funds in the Federated Hermes Fund Family; President,
Chief Executive Officer and Director, Federated Hermes, Inc.;
Chairman and Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and Director,
Federated Global Investment Management Corp.; Chairman and
Trustee, Federated Equity Management Company of Pennsylvania;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Previous Positions: President, Federated Investment Counseling;
President and Chief Executive Officer, Federated Investment
Management Company, Federated Global Investment Management
Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.
|
Annual Shareholder Report
58
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
John B. Fisher*
Birth Date: May 16, 1956
Trustee
Indefinite Term
Began serving: May 2016
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of certain of the Funds in the Federated Hermes Fund Family;
Director and Vice President, Federated Hermes, Inc.; President,
Director/Trustee and CEO, Federated Advisory Services Company,
Federated Equity Management Company of Pennsylvania, Federated
Global Investment Management Corp., Federated Investment
Counseling, Federated Investment Management Company, and
Federated MDTA LLC; Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales
Division of Federated Securities Corp.; President and CEO of Passport
Research, Ltd.; Director and President, Technology, Federated
Services Company.
|
*
Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold with Federated Hermes, Inc. and its subsidiaries.
INDEPENDENT TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee, and Chair of the Board
of Directors or Trustees, of the Federated Hermes Fund Family;
formerly, Chairman and CEO, The Collins Group, Inc. (a private equity
firm) (Retired).
Other Directorships Held: Director, KLX Energy Services Holdings,
Inc. (oilfield services); former Director of KLX Corp. (aerospace).
Qualifications: Mr. Collins has served in several business and financial
management roles and directorship positions throughout his career.
Mr. Collins previously served as Chairman and CEO of The Collins
Group, Inc. (a private equity firm) and as a Director of KLX Corp.
Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins
previously served as Director and Audit Committee Member, Bank of
America Corp.; Director, FleetBoston Financial Corp.; and Director,
Beth Israel Deaconess Medical Center (Harvard University
Affiliate Hospital).
|
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|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
|
Principal Occupations: Director or Trustee, Chair of the Audit
Committee of the Federated Hermes Fund Family; formerly, Vice
Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee,
Equifax, Inc.; Lead Director, Member of the Audit and Nominating and
Corporate Governance Committees, Haverty Furniture Companies,
Inc.; formerly, Director, Member of Governance and Compensation
Committees, Publix Super Markets, Inc.
Qualifications: Mr. Hough has served in accounting, business
management and directorship positions throughout his career.
Mr. Hough most recently held the position of Americas Vice Chair of
Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough
serves on the President’s Cabinet and Business School Board of
Visitors for the University of Alabama. Mr. Hough previously served on
the Business School Board of Visitors for Wake Forest University, and
he previously served as an Executive Committee member of the
United States Golf Association.
|
|
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Adjunct Professor Emerita of Law, Duquesne University
School of Law; formerly, Dean of the Duquesne University School of
Law and Professor of Law and Interim Dean of the Duquesne
University School of Law; formerly, Associate General Secretary and
Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation
(natural gas).
Qualifications: Judge Lally-Green has served in various legal and
business roles and directorship positions throughout her career. Judge
Lally-Green previously held the position of Dean of the School of Law
of Duquesne University (as well as Interim Dean). Judge Lally-Green
previously served as Associate General Secretary of the Diocese of
Pittsburgh, a member of the Superior Court of Pennsylvania and as a
Professor of Law, Duquesne University School of Law. Judge
Lally-Green was appointed by the Supreme Court of Pennsylvania to
serve on the Supreme Court’s Board of Continuing Judicial Education
and the Supreme Court’s Appellate Court Procedural Rules
Committee. Judge Lally-Green also currently holds the positions on
not for profit or for profit boards of directors as follows: Director
and Chair, UPMC Mercy Hospital; Regent, Saint Vincent Seminary;
Member, Pennsylvania State Board of Education (public); Director,
Catholic Charities, Pittsburgh; and Director CNX Resources
Corporation (natural gas). Judge Lally-Green has held the positions of:
Director, Auberle; Director, Epilepsy Foundation of Western and
Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director,
Saint Thomas More Society; Director and Chair, Catholic High Schools
of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute;
Director, St. Vincent College; Director and Chair, North Catholic High
School, Inc.; Director and Vice Chair, Our Campaign for the Church
Alive!, Inc.; and Director and Vice Chair, Saint Francis University.
|
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|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
Thomas M. O’Neill
Birth Date: June 14, 1951
Trustee
Indefinite Term
Began serving: August 2006
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Sole Proprietor, Navigator Management Company
(investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O’Neill has served in several business, mutual fund
and financial management roles and directorship positions throughout
his career. Mr. O’Neill serves as Director, Medicines for Humanity.
Mr. O’Neill previously served as Chief Executive Officer and President,
Managing Director and Chief Investment Officer, Fleet Investment
Advisors; President and Chief Executive Officer, Aeltus Investment
Management, Inc.; General Partner, Hellman, Jordan Management
Co., Boston, MA; Chief Investment Officer, The Putnam Companies,
Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director
and Consultant, EZE Castle Software (investment order management
software); Director, Midway Pacific (lumber); and Director, The
Golisano Children’s Museum of Naples, Florida.
|
|
Madelyn A. Reilly
Birth Date: February 2, 1956
Trustee
Indefinite Term
Began serving:
November 2020
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; formerly, Senior Vice President for Legal Affairs,
General Counsel and Secretary of Board of Directors, Duquesne
University (Retired).
Other Directorships Held: None.
Qualifications: Ms. Reilly has served in various business and legal
management roles throughout her career. Ms. Reilly previously served
as Senior Vice President for Legal Affairs, General Counsel and
Secretary of Board of Directors and Director of Risk Management and
Associate General Counsel, Duquesne University. Prior to her work at
Duquesne University, Ms. Reilly served as Assistant General Counsel
of Compliance and Enterprise Risk as well as Senior Counsel of
Environment, Health and Safety, PPG Industries. Ms. Reilly currently
serves as a member of the Board of Directors of UPMC
Mercy Hospital.
|
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|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Retired; formerly, Senior Vice Chancellor and Chief Legal
Officer, University of Pittsburgh and Executive Vice President and
Chief Legal Officer, CONSOL Energy Inc. (now split into two separate
publicly traded companies known as CONSOL Energy Inc. and CNX
Resources Corp.).
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal
management roles and directorship positions throughout his career.
Mr. Richey most recently held the positions of Senior Vice Chancellor
and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously
served as Chairman of the Board, Epilepsy Foundation of Western
Pennsylvania and Chairman of the Board, World Affairs Council of
Pittsburgh. Mr. Richey previously served as Chief Legal Officer and
Executive Vice President, CONSOL Energy Inc. and CNX Gas
Company; and Board Member, Ethics Counsel and Shareholder,
Buchanan Ingersoll & Rooney PC (a law firm).
|
|
John S. Walsh
Birth Date:
November 28, 1957
Trustee
Indefinite Term
Began serving: June 1999
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; President and Director, Heat Wagon, Inc. (manufacturer
of construction temporary heaters); President and Director,
Manufacturers Products, Inc. (distributor of portable construction
heaters); President, Portable Heater Parts, a division of Manufacturers
Products, Inc.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management
roles and directorship positions throughout his career. Mr. Walsh
previously served as Vice President, Walsh & Kelly, Inc.
(paving contractors).
|
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OFFICERS
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Hermes Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp.; and Assistant Treasurer, Federated
Investors Trust Company. Ms. Hensler has received the Certified
Public Accountant designation.
Previous Positions: Controller of Federated Hermes, Inc.; Senior Vice
President and Assistant Treasurer, Federated Investors Management
Company; Treasurer, Federated Investors Trust Company; Assistant
Treasurer, Federated Administrative Services, Federated
Administrative Services, Inc., Federated Securities Corp., Edgewood
Services, Inc., Federated Advisory Services Company, Federated
Equity Management Company of Pennsylvania, Federated Global
Investment Management Corp., Federated Investment Counseling,
Federated Investment Management Company, Passport Research,
Ltd., and Federated MDTA, LLC; Financial and Operations Principal for
Federated Securities Corp., Edgewood Services, Inc. and Southpointe
Distribution Services, Inc.
|
|
Peter J. Germain
Birth Date:
September 3, 1959
CHIEF LEGAL OFFICER,
SECRETARY and EXECUTIVE
VICE PRESIDENT
Officer since: January 2005
|
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary
and Executive Vice President of the Federated Hermes Fund Family.
He is General Counsel, Chief Legal Officer, Secretary and Executive
Vice President, Federated Hermes, Inc.; Trustee and Senior Vice
President, Federated Investors Management Company; Trustee and
President, Federated Administrative Services; Director and President,
Federated Administrative Services, Inc.; Director and Vice President,
Federated Securities Corp.; Director and Secretary, Federated Private
Asset Management, Inc.; Secretary, Federated Shareholder Services
Company; and Secretary, Retirement Plan Service Company of
America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a
member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel,
Managing Director of Mutual Fund Services, Federated Hermes, Inc.;
Senior Vice President, Federated Services Company; and Senior
Corporate Counsel, Federated Hermes, Inc.
|
|
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE
OFFICER AND SENIOR
VICE PRESIDENT
Officer since: July 2015
|
Principal Occupations: Senior Vice President and Chief Compliance
Officer of the Federated Hermes Fund Family; Vice President and
Chief Compliance Officer of Federated Hermes, Inc. and Chief
Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined
Federated Hermes, Inc. in October 2011. He holds FINRA licenses
under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of
Compliance Operating Officer, Federated Hermes, Inc. Prior to joining
Federated Hermes, Inc., Mr. Van Meter served at the United States
Securities and Exchange Commission in the positions of Senior
Counsel, Office of Chief Counsel, Division of Investment Management
and Senior Counsel, Division of Enforcement.
|
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|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: February 2010
|
Principal Occupations: Robert J. Ostrowski joined Federated Hermes,
Inc. in 1987 as an Investment Analyst and became a Portfolio Manager
in 1990. He was named Chief Investment Officer of Federated
Hermes’ taxable fixed-income products in 2004 and also serves as a
Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice
President of the Fund’s Adviser in 2009 and served as a Senior Vice
President of the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has
received the Chartered Financial Analyst designation. He received his
M.S. in Industrial Administration from Carnegie Mellon University.
|
Annual Shareholder Report
64
Evaluation and Approval of Advisory Contract–May 2023
Federated Hermes Municipal High Yield Advantage Fund (the “Fund”)
At its meetings in May 2023 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including 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 investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to approve the continuation of the existing arrangement. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation of the Fund’s management fee (the “CCO Fee Evaluation Report”). The Board considered the CCO Fee Evaluation Report, along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the 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.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed
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65
reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; Federated Hermes’ business and operations; the Adviser’s investment philosophy, personnel and processes; the Fund’s investment objectives and strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate); the Fund’s fees and expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the financial condition of Federated Hermes; the Adviser’s profitability with respect to managing the Fund; distribution and sales activity for the Fund; and the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any).
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. 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 the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser’s cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize “economies of scale” as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any “fall-out” benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fee and expense structures, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same 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 the adviser’s services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements
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regarding the basis for a fund board’s approval of the fund’s investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation of the 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 Hermes on matters relating to the oversight of the other funds advised by Federated Hermes (each, a “Federated Hermes Fund” and, collectively, the “Federated Hermes Funds”).
In addition, the Board considered the preferences and expectations of Fund shareholders and 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 the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes’ industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund’s shareholders and such shareholders in the marketplace, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.
In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to approve the continuation of the Contract was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Contract. The Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. The Independent Trustees were assisted throughout the evaluation process by independent legal counsel. In connection with their deliberations at the May Meetings, the Independent Trustees met separately in executive session with their independent legal counsel and without management present to review the relevant materials and consider their responsibilities under applicable laws. In addition, senior management representatives of Federated Hermes also met with the Independent Trustees and their independent legal counsel to discuss the materials and presentations furnished to the Board at the May Meetings. The Board considered the approval of the Contract for the Fund as part of its consideration of agreements for funds across the family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.
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67
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the range of services provided to the Fund by Federated Hermes. The Board considered the Adviser’s personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. 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 Federated Hermes’ ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser’s ability to deliver competitive investment performance for the Fund when compared to the Fund’s Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund’s investment program.
In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted that the significant acquisition of Hermes Fund Managers Limited by Federated Hermes has deepened Federated Hermes’ investment management expertise and capabilities and its access to analytical resources related to environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters. The Board considered Federated Hermes’ oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes’ communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds’ officers.
The Board received and evaluated information regarding Federated Hermes’ regulatory and compliance environment. The Board considered Federated Hermes’ compliance program and compliance history and reports from the CCO about Federated Hermes’ compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes’ support of the Federated Hermes Funds’ compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund’s obligations pursuant to Rule 38a-1 under the
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Investment Company Act of 1940, including Federated Hermes’ commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes’ approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds’ compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes’ oversight in this regard, including in connection with the implementation of new rules on derivatives risk management and fair valuation.
The Board also considered the implementation of Federated Hermes’ business continuity plans. In addition, the Board noted Federated Hermes’ commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.
The Board considered Federated Hermes’ efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.
Fund Investment Performance
The Board considered the investment performance of the Fund. In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser’s analysis of, the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance compared to one or more relevant categories or groups of peer funds and the Fund’s benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain
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69
Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.
The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”). The Board noted 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 the CCO’s view that, in evaluating such comparisons, 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 Performance Peer Group.
The Board considered that for the one-year, three-year and five-year periods ended December 31, 2022, the Fund’s performance was above the median of the Performance Peer Group.
Based on these considerations, the Board concluded that it had continued confidence in the Adviser’s overall capabilities to manage the Fund.
Fund Expenses
The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. 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, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category.
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund’s fees and expenses. The Board focused on comparisons with other registered funds with comparable investment programs more heavily than non-registered fund products or services because such comparisons are believed to be more relevant. The Board considered that other registered funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the
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Fund’s shareholders. The Board noted that the range of such other registered funds’ fees and expenses, therefore, appears to be a relevant indicator of what investors 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 Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was above the median of the Expense 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.
The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-registered fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing and fund liquidity; (vi) different administrative responsibilities; (vii) different degrees of risk associated with management; and (viii) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s registered fund, noting the CCO’s view that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party registered fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.
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Profitability
The Board received and considered profitability information furnished by Federated Hermes, as requested by the CCO. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs on a fund-by-fund basis continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. In addition, the Board considered the CCO’s view that the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO’s view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.
Economies of Scale
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of determining 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 Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information
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security programs; internal audit and risk management functions; and technology and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.
The Board also received and considered information on adviser-paid fees (commonly referred to as “revenue sharing” payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.
Other Benefits
The Board considered information regarding the compensation and other ancillary (or “fall-out”) benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds’ investment advisory contracts, Federated Hermes’ affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds’ administrator and distributor. In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.
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Conclusions
The Board considered: (i) the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and sub-advisory arrangements is a continuing and ongoing 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 ongoing oversight of the Federated Hermes Funds.
On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative.
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Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness
Annual Evaluation of Adequacy and Effectiveness
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Federated Hermes Municipal Securities Income Trust (the Trust) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Municipal High Yield Advantage Fund (the “Fund” and, collectively with the other non-money market open-end funds advised by Federated Hermes, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of each Federated Hermes Fund’s investment adviser as the administrator for the Program (the “Administrator”) with respect to that Fund. The Administrator, in turn, has delegated day-to-day responsibility for the administration of the Program to multiple Liquidity Risk Management Committees, which are comprised of representatives from certain divisions within Federated Hermes.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2023, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from April 1, 2022 through March 31, 2023 (the “Period”). The Report addressed the operation of the Program and assessed the adequacy and effectiveness of its implementation, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and
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the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
◾ confirmation that it was not necessary for the Fund to utilize, and the Fund did not utilize, any alternative funding sources that were available to the Federated Hermes Funds during the Period, such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind, reverse repurchase agreement transactions, redemptions delayed beyond the normal T+1 settlement but within seven days of the redemption request, and committed lines of credit;
◾ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
◾ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments, and the results of the Administrator’s evaluation of the services performed by the vendor in support of this process, including the Administrator’s view that the methodologies utilized by the vendor continue to be appropriate;
◾ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the operation of the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
◾ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period, and the operation of the procedures for monitoring this limit;
◾ the fact that there were no liquidity events during the Period that materially affected the Fund’s liquidity risk;
◾ the impact on liquidity and management of liquidity risk, if any, caused by extended non-U.S. market closures and confirmation that there were no issues for any of the affected Federated Hermes Funds in meeting shareholder redemptions at any time during these temporary non-U.S. market closures.
Based on this review, the Administrator concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400, Option #4. 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 FederatedHermes.com/us/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 FederatedHermes.com/us.
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Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Hermes Municipal High Yield Advantage Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923864
CUSIP 313923849
CUSIP 313923831
CUSIP 313923815
CUSIP 313923849
CUSIP 313923831
CUSIP 313923815
G01091-01 (10/23)
© 2023 Federated Hermes, Inc.
Annual Shareholder Report
August 31, 2023
|
Share Class | Ticker
|
A | OMIAX
|
F | OMIFX
|
Institutional | OMIIX
|
|
Federated Hermes Ohio Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Hermes Municipal Securities Income Trust
Dear Valued Shareholder,
We are pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2022 through August 31, 2023. This report includes Management’s Discussion of Fund Performance, a complete listing of your fund’s holdings, performance information and financial statements along with other important fund information.
As a global leader in active, responsible investment management, Federated Hermes is guided by our conviction that responsible investing is the best way to create wealth over the long term. The company provides capabilities across a wide range of asset classes to investors around the world.
In addition, FederatedHermes.com/us offers quick and easy access to valuable resources that include timely fund updates, economic and market insights from our investment strategists and financial planning tools. You can also access many of those insights by following us on Twitter (@FederatedHermes) and LinkedIn.
Thank you for investing with us. We hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
Management’s Discussion of Fund Performance (unaudited)
The total return of Federated Hermes Ohio Municipal Income Fund (the “Fund”), based on net asset value for the 12-month reporting period ended August 31, 2023, was 0.68% for Class A Shares, 0.53% for Class F Shares and 0.94% for Institutional Shares. The 0.94% total return of the Institutional Shares for the reporting period consisted of 2.78% of tax-exempt dividends and reinvestments and price depreciation of -1.84% in the net asset value of the shares.1 The total return of the S&P Municipal Bond Ohio Index (the “OH Index”),2 the Fund’s broad-based securities market index, was 1.39% during the same period. The total return for the S&P Municipal Bond OH, Investment Grade Index (OHIG),3 a secondary index for the Fund, was 1.34%, and the total return of the Morningstar Muni Ohio Funds Average (MMOFA),4 a peer group average for the Fund, was 0.88% during the same period. The Fund’s and the MMOFA’s total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and expenses which were not reflected in the total return of the OH Index and OHIG.
During the reporting period, the most significant factors affecting the Fund’s performance relative to the OHIG were (a) the allocation of the Fund’s portfolio among securities of similar issuers (referred to as “sectors”); (b) the sensitivity of the portfolio to changing interest rates, including portfolio duration;5,6 (c) the allocation of securities across the municipal yield curve (the level of interest rates across maturities);7 (d) the credit quality of portfolio securities;8 and (e) security selection.
The following discussion will focus on the performance of the Fund’s Institutional Shares relative to the OHIG.
MARKET overview
Inflation, which first reared its head in 2022, began to abate during the reporting period but remained an issue for fixed-income markets. Following seven moves totaling 4.25% in 2022, the Federal Reserve (the “Fed”) raised rates four more times for an additional 1.00% during the first eight months of 2023. The short part of the yield curve responded most sharply, with the yield on 2-year treasuries increasing 137 basis points to 4.87% over the fiscal year. The rest of the yield curve saw smaller, parallel increases, with 5-, 10- and 30-year treasury yields rising 90, 91 and 92 basis points, respectively, over the same period.
The municipal yield curve also shifted upward, although less dramatically. The Municipal Market Data (MMD) AAA 10-year rate increased from 2.59% at the beginning of the period to 3.41% at the end of October 2022. It fell as low as 2.08% in April before rising again to 2.93% at the end of the period, a
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net rise of 34 basis points. The MMD AAA rate rose 86 basis points at two years, 56 basis points at five years and 59 basis points at 30 years. Municipals richened compared to Treasuries, with the yield ratio falling from 81% to 71% at 10 years and from 100% to 92% at 30 years.
The municipal curve inverted during the fiscal year. As of the end of the period, yields on 1-year AAA bonds were higher than those with 13 years to maturity.
Municipal credit spreads changed little over the period. The spread between the yield of the S&P Municipal High Yield Index and the S&P Municipal Index widened by just one basis point from the beginning of the period to the end, although this spread widened by as much as 43 basis points in the spring, before tightening through the end of the fiscal year. Underlying credit generally remained good over the last fiscal year. State and local governments, as well as other issuers, continued to benefit from the considerable federal aid that came their way during and after the pandemic. For the first half of 2023, Moody’s upgrades outnumbered downgrades by nearly four to one.
Higher rates continued to depress new issuance. According to The Bond Buyer, total issuance for the 12 months ending August 31, 2023 was 18% lower than the prior 12 months, and 25% lower than the 12 months ending August 31, 2021. Refunding issuance remained at low levels as higher rates make fewer refundings economical.
The total return of OHIG for the reporting period of 1.34% was generally comparable to the 1.79% total return of the national S&P Municipal Bond Index (SPMBI)9 for the period. The credit ratings of the State of Ohio held stable in the high grade (AA+ or higher) quality ranges during the fiscal year. Moody’s, S&P and Fitch ratings were Aa1, AA+, AAA, respectively, at period end. These ratings are above average for U.S. States at each ratings agency, largely reflecting Ohio’s strong budgetary and financial management, sound reserve levels and affordable fixed costs associated with below-average long-term debt, pension and retiree healthcare (OPEB) liabilities relative to other U.S. States.
SECTOR allocation
The fund’s sector allocation had a net negative impact on relative performance during the period. Underweight exposure to outperforming long toll road and tobacco bonds and overweight exposure to underperforming industrial revenue and senior care sectors accounted for most of the negative impact of sector allocation. Underweight exposure to underperforming local general obligation and state general obligation securities provided a partial, favorable contribution.
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DURATION
The Fund’s duration was generally neutral compared to the OHIG during the first half of the reporting period and slightly longer during the latter half. Extending during the latter part was a detractor. Over the entire fiscal year, duration management was a negative contributor to relative performance.
YIELD CURVE AND MATURITY
The Fund’s allocation of securities along the yield curve contributed to positive performance relative to the OHIG. In particular, timely allocation to bonds with durations greater than eight years contributed to relative performance.
credit QUALITY
The allocation of the Fund’s portfolio across the credit quality spectrum contributed favorably to the Fund’s relative performance compared to the OHIG during the reporting period. An overweight position to A-rated securities that outperformed and a moderate weighting in out-of-index below-investment-grade securities10 that also outperformed contributed favorably to relative performance. However, the Fund’s underweight position in AAA-rated bonds that outperformed and the Fund’s overweight position in BBB-rated securities that underperformed detracted from relative performance.
SECURITY SELECTION
Individual security selection contributed slightly to positive performance relative to the OHIG during the reporting period, as the Fund’s relative total return was stronger than could be explained by duration, yield curve, sector allocation and credit quality characteristics.
1
Income may be subject to the alternative minimum tax for individuals (AMT).
2
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the OH Index.
3
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the OHIG. Prior to March 1, 2023, the Fund also compared its performance to the OHIG. Effective March 1, 2023, the Fund no longer compares its performance to the OHIG as the Adviser does not believe the OHIG continues to be reflective of the universe of securities in which the Fund invests.
4
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Morningstar peer group.
5
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations.
6
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
7
The yield curve is a graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.
8
Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk.
9
The SPMBI is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the AMT.
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Eligibility criteria for inclusion in the SPMBI include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor’s Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The SPMBI is rebalanced monthly. The SPMBI is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. Unlike the Fund, the SPMBI is unmanaged and is not affected by cash flows. It is not possible to invest directly in this index.
10
Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund’s Adviser believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor’s, Moody’s Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
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FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Federated Hermes Ohio Municipal Income Fund (the “Fund”) from August 31, 2013 to August 31, 2023, compared to the S&P Municipal Bond Ohio Index (OH Index),2 the S&P Municipal Bond OH, Investment Grade Index (OHIG)3 and Morningstar Muni Ohio Funds Average (MMOFA).4 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
GROWTH OF A $10,000 INVESTMENT
Growth of $10,000 as of August 31, 2023
◾ Total returns shown for Class A Shares include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550)
◾ Total returns shown for Class F Shares include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900), and maximum contingent deferred sales charge of 1.00% as applicable.
The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses.
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Average Annual Total Returns for the Period Ended 8/31/2023
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
|
|
1 Year
|
5 Years
|
10 Years
|
|
Class A Shares
|
-3.88%
|
-0.08%
|
1.71%
|
|
Class F Shares
|
-1.41%
|
0.50%
|
1.92%
|
|
Institutional Shares5
|
0.94%
|
1.02%
|
2.26%
|
|
OH Index
|
1.39%
|
1.79%
|
3.56%
|
|
OHIG
|
1.34%
|
1.42%
|
2.85%
|
|
MMOFA
|
0.88%
|
0.96%
|
2.41%
|
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedHermes.com/us or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1
Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: for Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); for Class F Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900); and the maximum contingent deferred sales charge is 1.00% on any redemption less than four years from the purchase date. The Fund’s performance assumes the reinvestment of all dividends and distributions. The OH Index, OHIG and MMOFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2
The OH Index consists of bonds in the S&P Municipal Bond Index (Main Index) that have been issued by the State of Ohio or local governments or state or local government entities within Ohio. The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the AMT. Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor’s Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The Ohio Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. The OH Index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
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3
Prior to March 1, 2023, the Fund also compared its performance to the OHIG. Effective March 1, 2023, the Fund no longer compares its performance to the OHIG as the Adviser does not believe the OHIG continues to be reflective of the universe of securities in which the Fund invests. The OHIG represents the portion of the OH Index composed solely of bonds that are rated BBB-/Baa3 or higher. The OHIG is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund’s performance. The OHIG is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4
Morningstar figures represent the average of the total returns reported by all the funds designated by Morningstar as falling into the respective category indicated. They do not reflect sales charges. The Morningstar figures in the Growth of a $10,000 Investment line graph are based on historical return information published by Morningstar and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Morningstar as falling into the category can change over time, the Morningstar figures in the line graph may not match the Morningstar figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
5
The Fund’s Institutional Shares commenced operations on April 28, 2020. For the period prior to the commencement of operations of Institutional Shares, the performance information shown for the Fund’s Institutional Shares is for the Class F Shares. The performance of the Class F Shares has not been adjusted to reflect the expenses of the Institutional Shares since the Institutional Shares have a lower expense ratio than the expense ratio of Class F Shares. The performance of Class F has been adjusted to reflect the absence of sales charges and to remove any voluntary waiver of Fund expenses related to Class F Shares that may have occurred during the periods prior to commencement of operations of the Institutional Shares.
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Portfolio of Investments Summary Table (unaudited)
At August 31, 2023, the Fund’s sector composition1 was as follows:
|
Sector Composition
|
Percentage of
Total Net Assets
|
|
Hospital
|
18.2%
|
|
General Obligation—Local
|
16.7%
|
|
Higher Education
|
13.9%
|
|
General Obligation—State
|
11.5%
|
|
Dedicated Tax
|
7.6%
|
|
Toll Road
|
5.9%
|
|
Public Power
|
5.4%
|
|
Water & Sewer
|
4.9%
|
|
Industrial Development/Pollution Control
|
3.1%
|
|
Senior Care
|
2.9%
|
|
Other2
|
8.9%
|
|
Other Assets and Liabilities—Net3
|
1.0%
|
|
TOTAL
|
100%
|
1
Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund’s Adviser. For securities that have been enhanced by a third-party guarantor, such as bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund’s Adviser. Pre-refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2
For purposes of this table, sector classifications constitute 90.1% 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.
Annual Shareholder Report
8
Portfolio of Investments
August 31, 2023
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—97.3%
|
|
|
|
|
Ohio—95.4%
|
|
|
$1,000,000
|
|
Akron, Bath & Copley, OH Joint Township Hospital District
(Children’s Hospital Medical Center, Akron), Hospital Refunding
Revenue Bonds (Series 2002A), (Original Issue Yield: 4.120%),
4.000%, 11/15/2042
|
$903,538
|
|
325,000
|
|
Akron, Bath & Copley, OH Joint Township Hospital District
(Children’s Hospital Medical Center, Akron), Hospital Refunding
Revenue Bonds (Series 2002A), 5.000%, 11/15/2038
|
339,500
|
|
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
|
1,008,446
|
|
900,000
|
|
Allen County, OH (Bon Secours Mercy Health), Hospital Facilities
Revenue Refunding Bonds, 4.000%, 8/1/2047
|
820,299
|
|
1,000,000
|
|
Allen County, OH (Bon Secours Mercy Health), Hospital Facilities
Revenue Refunding Bonds, 5.000%, 11/1/2043
|
1,006,742
|
|
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
|
2,262,271
|
|
1,000,000
|
|
American Municipal Power-Ohio, Inc. (American Municipal Power,
Prairie State Energy Campus Project), Revenue Bonds
(Series 2019C), 4.000%, 2/15/2039
|
956,528
|
|
1,000,000
|
|
American Municipal Power-Ohio, Inc. (AMP—Combined
Hydroelectric Projects), Revenue Refunding Bonds
(Series 2020A), 5.000%, 2/15/2029
|
1,081,604
|
|
750,000
|
|
American Municipal Power-Ohio, Inc. (AMP Fremont Energy),
Revenue Refunding Bonds (Series 2021A), 5.000%, 2/15/2034
|
829,200
|
|
2,000,000
|
|
Bowling Green State University, OH, General Receipts Bonds
(Series 2016A), 5.000%, 6/1/2044
|
2,036,181
|
|
1,000,000
|
|
Buckeye Tobacco Settlement Financing Authority, OH, Tobacco
Settlement Asset-Backed Refunding Bonds
(Series 2020B-2 Class 2), 5.000%, 6/1/2055
|
914,092
|
|
250,000
|
|
Cleveland, OH (Cleveland, OH Water), Water Revenue Bonds
(Series 2020FF), 5.000%, 1/1/2033
|
278,577
|
|
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
|
1,079,100
|
|
1,000,000
|
|
Cleveland, OH, Various Purpose GO Bonds (Series 2022A),
5.000%, 12/1/2051
|
1,049,842
|
|
2,000,000
|
|
Columbus, OH City School District, School Facilities Construction
& Improvement UT GO Bonds (Series 2017), 5.000%, 12/1/2047
|
2,037,669
|
|
1,000,000
|
|
Columbus, OH Sewer System, Revenue Refunding Bonds
(Series 2014), 5.000%, 6/1/2031
|
1,019,288
|
|
1,270,000
|
|
Columbus, OH, UT GO Bonds (Series 2021A), 5.000%, 4/1/2039
|
1,379,855
|
Annual Shareholder Report
9
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Ohio—continued
|
|
|
$1,500,000
|
|
Copley Fairlawn, OH School District, UT GO Classroom Facilities
Construction and Improvement Bonds (Series 2023),
4.000%, 12/1/2052
|
$1,356,404
|
|
1,270,000
|
|
Cuyahoga County, OH Hospital Authority (MetroHealth System),
Hospital Revenue Bonds (Series 2017), 5.500%, 2/15/2057
|
1,269,879
|
|
1,405,000
|
|
Cuyahoga County, OH Sales Tax, Ballpark Improvement Sales Tax
Revenue Bonds (Series 2022A), 4.000%, 1/1/2034
|
1,449,334
|
|
1,000,000
|
|
Cuyahoga County, OH, Certificates of Participation Convention
Hotel Project (Series 2014), 5.000%, 12/1/2036
|
1,002,813
|
|
2,000,000
|
|
Fairfield County, OH, LT GO Bonds (Series 2015),
4.000%, 12/1/2040
|
1,972,816
|
|
1,000,000
|
|
Franklin County, OH (Trinity Healthcare Credit Group), Revenue
Bonds (Series 2017), 4.000%, 12/1/2046
|
923,027
|
|
2,000,000
|
|
Franklin County, OH (Trinity Healthcare Credit Group), Revenue
Bonds (Series 2017A), 5.000%, 12/1/2047
|
2,030,127
|
|
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
|
915,156
|
|
2,000,000
|
|
Franklin County, OH Convention Facilities Authority, Tax & Lease
Revenue Anticipation & Refunding Bonds (Series 2014),
(United States Treasury PRF 12/1/2024@100), 5.000%, 12/1/2035
|
2,038,824
|
|
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
|
974,419
|
|
1,000,000
|
|
Franklin County, OH Hospital Facility Authority (Nationwide
Children’s Hospital), Hospital Improvement Revenue Bonds
(Series 2017A), 5.000%, 11/1/2029
|
1,069,653
|
|
1,000,000
|
|
Franklin County, OH Hospital Facility Authority (OhioHealth
Corp.), Hospital Facilities Revenue Bonds (Series 2015),
5.000%, 5/15/2040
|
1,010,267
|
|
3,015,000
|
|
Franklin County, OH Sales Tax Revenue, Various Purpose Sales
Tax Revenue Bonds (Series 2018), 5.000%, 6/1/2048
|
3,137,956
|
|
2,000,000
|
|
Hamilton County, OH (Cincinnati Children’s Hospital Medical
Center), Hospital Facilities Revenue Bonds (Series 2019CC),
5.000%, 11/15/2041
|
2,173,137
|
|
500,000
|
|
Hamilton County, OH (Life Enriching Communities), Healthcare
Improvement and Refunding Revenue Bonds (Series 2016),
5.000%, 1/1/2036
|
482,133
|
|
500,000
|
|
Hamilton County, OH (Life Enriching Communities), Healthcare
Improvement and Refunding Revenue Bonds (Series 2016),
5.000%, 1/1/2051
|
434,398
|
|
2,000,000
|
|
Hamilton County, OH Convention Facilities Authority, Convention
Facilities Authority Revenue & Refunding Bonds (Series 2014),
5.000%, 12/1/2032
|
2,001,629
|
Annual Shareholder Report
10
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Ohio—continued
|
|
|
$1,075,000
|
|
Hamilton County, OH, LT GO Improvement and Refunding Bonds
(Series 2017A), 5.000%, 12/1/2033
|
$1,147,534
|
|
1,000,000
|
|
Hamilton County, OH, LT GO Refunding Bonds (Series 2017A),
5.000%, 12/1/2037
|
1,044,099
|
|
1,000,000
|
|
Kent State University, OH, General Receipts Bonds
(Series 2020A), 5.000%, 5/1/2050
|
1,042,633
|
|
955,000
|
|
Mayfield Heights, OH, Limited GO Aquatic and Community
Center Bonds (Series 2023), 4.000%, 12/1/2048
|
890,984
|
|
1,335,000
|
|
Miami University, OH, General Receipts Revenue and Refunding
Bonds (Series 2020A), 4.000%, 9/1/2045
|
1,266,440
|
|
1,000,000
|
|
Middleburg Heights, OH (Southwest General Health Center),
Hospital Facilities Improvement and Revenue Refunding Bonds
(Series 2020A), 4.000%, 8/1/2047
|
842,755
|
|
1,000,000
|
|
Montgomery County, OH Hospital Authority (Kettering Health
Network Obligated Group), Hospital Facilities Improvement and
Refunding Revenue Bonds (Series 2021), 4.000%, 8/1/2051
|
893,997
|
|
1,200,000
|
1
|
Ohio Air Quality Development Authority (AMG Vanadium LLC),
Exempt Facilities Revenue Bonds (Series 2019), 5.000%, 7/1/2049
|
1,078,107
|
|
500,000
|
|
Ohio Air Quality Development Authority (Pratt Paper, LLC),
Exempt Facilities Revenue Bonds (Series 2017),
4.250%, 1/15/2038
|
482,241
|
|
500,000
|
|
Ohio Air Quality Development Authority (Pratt Paper, LLC),
Exempt Facilities Revenue Bonds (Series 2017),
4.500%, 1/15/2048
|
461,675
|
|
1,000,000
|
|
Ohio State Air Quality Development Authority (American Electric
Power Co., Inc.), Air Quality Revenue Bonds (Series 2007B),
2.500%, Mandatory Tender 10/1/2029
|
859,891
|
|
200,000
|
|
Ohio State Higher Educational Facility Commission (Ashtabula
County Medical Center), Healthcare Facility Revenue Bonds
(Series 2022), 5.250%, 1/1/2052
|
200,284
|
|
1,000,000
|
|
Ohio State Higher Educational Facility Commission (Case
Western Reserve University, OH), Higher Educational Facility
Revenue Bonds (Series 2016), 5.000%, 12/1/2040
|
1,025,821
|
|
1,250,000
|
|
Ohio State Higher Educational Facility Commission (Cleveland
Clinic), Revenue Bonds (Series 2019B), 4.000%, 1/1/2042
|
1,212,146
|
|
1,000,000
|
|
Ohio State Higher Educational Facility Commission (Denison
University), Revenue Bonds (Series 2019), 5.000%, 11/1/2044
|
1,038,400
|
|
1,000,000
|
|
Ohio State Higher Educational Facility Commission (Judson
Obligated Group), Healthcare Facility Revenue Bonds
(Series 2020A), 5.000%, 12/1/2050
|
868,950
|
|
2,000,000
|
|
Ohio State Higher Educational Facility Commission (Kenyon
College, OH), Higher Educational Facility Revenue Bonds
(Series 2015), 5.000%, 7/1/2041
|
2,024,167
|
Annual Shareholder Report
11
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Ohio—continued
|
|
|
$1,000,000
|
|
Ohio State Higher Educational Facility Commission (University of
Dayton), Revenue Bonds (Series 2022A), (Original Issue Yield:
4.240%), 4.000%, 2/1/2052
|
$866,748
|
|
1,025,000
|
|
Ohio State Higher Educational Facility Commission (Xavier
University), Higher Educational Facility Revenue Bonds
(Series 2020), 4.000%, 5/1/2039
|
941,003
|
|
2,325,000
|
|
Ohio State Treasurer (Portsmouth Gateway Group LLC), Private
Activity Revenue Bonds (Series 2015), 5.000%, 12/31/2039
|
2,325,179
|
|
350,000
|
|
Ohio State Turnpike & Infrastructure Commission, Revenue
Refunding Bonds (Series 2017A), 5.000%, 2/15/2028
|
371,606
|
|
1,000,000
|
|
Ohio State Turnpike & Infrastructure Commission, Senior Lien
Revenue Bonds (Series 2021A), 5.000%, 2/15/2046
|
1,067,908
|
|
1,400,000
|
|
Ohio State Turnpike & Infrastructure Commission, Senior Lien
Revenue Bonds (Series 2021A), 5.000%, 2/15/2051
|
1,485,816
|
|
355,000
|
|
Ohio State Turnpike & Infrastructure Commission, Turnpike
Revenue Refunding Bonds (Series 1998A), (National Re Holdings
Corp. INS), 5.500%, 2/15/2024
|
358,512
|
|
1,000,000
|
|
Ohio State Water Development Authority Pollution Control
Facilities (Ohio State Water Development Authority), Water
Pollution Control Loan Fund Revenue Bonds (Series 2021A),
4.000%, 12/1/2046
|
950,616
|
|
1,260,000
|
|
Ohio State Water Development Authority Pollution Control
Facilities (Ohio State Water Development Authority), Water
Pollution Control Loan Fund Revenue Bonds (Series 2021A),
5.000%, 12/1/2046
|
1,357,791
|
|
1,000,000
|
|
Ohio State Water Development Authority, Water Development
Revenue Bonds (Fresh Water Series 2016B), 5.000%, 6/1/2037
|
1,041,989
|
|
750,000
|
|
Ohio State, Capital Facilities Lease-Appropriation Bonds Adult
Correctional Building Fund (Series 2017A), 5.000%, 10/1/2034
|
795,566
|
|
1,460,000
|
|
Ohio State, Capital Facilities Lease-Appropriation Bonds Adult
Correctional Building Fund (Series 2017A), 5.000%, 10/1/2035
|
1,544,144
|
|
1,835,000
|
|
Ohio State, Common Schools UT GO Bonds (Series 2019A),
5.000%, 6/15/2033
|
2,030,006
|
|
3,000,000
|
|
Ohio State, Higher Education UT GO Bonds (Series 2015C),
5.000%, 11/1/2033
|
3,078,465
|
|
2,000,000
|
|
Ohio State, Higher Education UT GO Bonds (Series 2019A),
5.000%, 5/1/2035
|
2,124,602
|
|
1,100,000
|
|
Ohio State, Higher Education UT GO Bonds (Series 2021A),
4.000%, 5/1/2036
|
1,135,031
|
|
1,465,000
|
|
Ohio State, UT GO Bonds (Series 2022A), 5.000%, 3/1/2040
|
1,620,230
|
|
1,500,000
|
|
Olentangy, OH Local School District, UT GO Refunding Bonds
(Series 2016), 5.000%, 12/1/2030
|
1,552,141
|
|
470,000
|
|
River Valley, OH Local School District, UT GO School Facilities
Bonds, (School District Credit Program GTD), 5.250%, 11/1/2023
|
471,178
|
|
1,135,000
|
|
Shaker Heights, OH, UT GO Bonds, 4.000%, 12/1/2052
|
1,055,791
|
Annual Shareholder Report
12
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Ohio—continued
|
|
|
$555,000
|
|
Toledo, OH, LT GO Various Purpose Improvement Bonds
(Series 2022), (Assured Guaranty Municipal Corp. INS),
5.500%, 12/1/2042
|
$608,008
|
|
1,000,000
|
|
University of Akron, OH, General Receipts Bonds (Series 2016A),
5.000%, 1/1/2036
|
1,021,286
|
|
1,000,000
|
|
University of Cincinnati, OH, General Receipts Bonds
(Series 2014C), 5.000%, 6/1/2041
|
1,007,779
|
|
905,000
|
|
University of Cincinnati, OH, General Receipts Bonds
(Series 2017A), 4.000%, 6/1/2042
|
870,863
|
|
760,000
|
|
Winton Woods, OH School District, UT GO Classroom Facilities
Refunding Bonds (Series 2022), (Build America Mutual Assurance
INS), 4.000%, 11/1/2049
|
694,972
|
|
500,000
|
|
Worthington City, OH City School District, UT GO Bonds
(Series 2023), 5.500%, 12/1/2054
|
550,909
|
|
|
|
TOTAL
|
90,552,967
|
|
|
|
Puerto Rico—1.9%
|
|
|
1,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2037
|
896,931
|
|
1,000,000
|
|
Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax
Bonds (Series 2019A), (Original Issue Yield: 5.154%),
5.000%, 7/1/2058
|
967,906
|
|
|
|
TOTAL
|
1,864,837
|
|
|
|
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $97,444,823)
|
92,417,804
|
|
|
2
|
SHORT-TERM MUNICIPALS—1.7%
|
|
|
|
|
Ohio—1.7%
|
|
|
200,000
|
|
Allen County, OH (Bon Secours Mercy Health), (Series 2010C)
Daily VRDNs, (BMO Harris Bank, N.A. LOC), 4.000%, 9/1/2023
|
200,000
|
|
500,000
|
|
Ohio State Higher Educational Facility Commission (Cleveland
Clinic), (Series 2008 B-4) Daily VRDNs, (Barclays Bank plc LIQ),
3.950%, 9/1/2023
|
500,000
|
|
920,000
|
|
Ohio State Higher Educational Facility Commission (Cleveland
Clinic), (Series 2013B-2) Daily VRDNs, (Bank of New York Mellon,
N.A. LIQ), 3.900%, 9/1/2023
|
920,000
|
|
|
|
TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $1,620,000)
|
1,620,000
|
|
|
|
TOTAL INVESTMENT IN SECURITIES—99.0%
(IDENTIFIED COST $99,064,823)3
|
94,037,804
|
|
|
|
OTHER ASSETS AND LIABILITIES—NET—1.0%4
|
912,795
|
|
|
|
TOTAL NET ASSETS—100%
|
$94,950,599
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 4.5% of the Fund’s portfolio as calculated based upon total market value (unaudited).
Annual Shareholder Report
13
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 August 31, 2023, this restricted security amounted to $1,078,107, which represented 1.1% 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 $99,044,859.
4
Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2023.
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 August 31, 2023, all investments of the Fund utilized Level 2 inputs in valuing the Fund’s assets carried at fair value.
The following acronym(s) are used throughout this portfolio:
|
GO
|
—General Obligation
|
|
GTD
|
—Guaranteed
|
|
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
Annual Shareholder Report
14
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$10.32
|
$11.50
|
$11.40
|
$11.44
|
$10.95
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.27
|
0.27
|
0.25
|
0.26
|
0.30
|
|
Net realized and unrealized gain (loss)
|
(0.20)
|
(1.21)
|
0.09
|
(0.02)
|
0.49
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.07
|
(0.94)
|
0.34
|
0.24
|
0.79
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.26)
|
(0.23)
|
(0.24)
|
(0.26)
|
(0.30)
|
|
Distributions from net realized gain
|
—
|
(0.01)
|
—
|
(0.02)
|
—
|
|
TOTAL DISTRIBUTIONS
|
(0.26)
|
(0.24)
|
(0.24)
|
(0.28)
|
(0.30)
|
|
Net Asset Value, End of Period
|
$10.13
|
$10.32
|
$11.50
|
$11.40
|
$11.44
|
|
Total Return1
|
0.68%
|
(8.22)%
|
2.99%
|
2.17%
|
7.32%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses2
|
0.77%3
|
0.77%
|
0.77%
|
0.77%3
|
0.77%3
|
|
Net investment income
|
2.52%
|
2.09%
|
2.08%
|
2.27%
|
2.67%
|
|
Expense waiver/reimbursement4
|
0.27%
|
0.19%
|
0.19%
|
0.19%
|
0.19%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$18,678
|
$22,235
|
$44,097
|
$58,253
|
$57,065
|
|
Portfolio turnover5
|
17%
|
17%
|
5%
|
8%
|
15%
|
1
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
2
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
3
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.77%, 0.77% and 0.77% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
5
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
15
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$10.32
|
$11.51
|
$11.40
|
$11.44
|
$10.95
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.24
|
0.21
|
0.22
|
0.24
|
0.28
|
|
Net realized and unrealized gain (loss)
|
(0.19)
|
(1.18)
|
0.11
|
(0.02)
|
0.49
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.05
|
(0.97)
|
0.33
|
0.22
|
0.77
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.24)
|
(0.21)
|
(0.22)
|
(0.24)
|
(0.28)
|
|
Distributions from net realized gain
|
—
|
(0.01)
|
—
|
(0.02)
|
—
|
|
TOTAL DISTRIBUTIONS
|
(0.24)
|
(0.22)
|
(0.22)
|
(0.26)
|
(0.28)
|
|
Net Asset Value, End of Period
|
$10.13
|
$10.32
|
$11.51
|
$11.40
|
$11.44
|
|
Total Return1
|
0.53%
|
(8.44)%
|
2.93%
|
2.01%
|
7.15%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses2
|
0.92%3
|
0.92%
|
0.92%
|
0.92%3
|
0.92%3
|
|
Net investment income
|
2.36%
|
1.94%
|
1.93%
|
2.12%
|
2.53%
|
|
Expense waiver/reimbursement4
|
0.52%
|
0.44%
|
0.44%
|
0.44%
|
0.44%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$48,409
|
$58,194
|
$74,669
|
$81,508
|
$87,597
|
|
Portfolio turnover5
|
17%
|
17%
|
5%
|
8%
|
15%
|
1
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
2
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
3
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.92%, 0.92% and 0.92% for the years ended August 31, 2023, 2020 and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
5
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
16
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
20201
|
|
Net Asset Value, Beginning of Period
|
$10.32
|
$11.51
|
$11.40
|
$11.06
|
|
Income From Investment Operations:
|
|
|
|
|
|
Net investment income
|
0.29
|
0.26
|
0.26
|
0.08
|
|
Net realized and unrealized gain (loss)
|
(0.19)
|
(1.18)
|
0.11
|
0.35
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.10
|
(0.92)
|
0.37
|
0.43
|
|
Less Distributions:
|
|
|
|
|
|
Distributions from net investment income
|
(0.29)
|
(0.26)
|
(0.26)
|
(0.09)
|
|
Distributions from net realized gain
|
—
|
(0.01)
|
—
|
—
|
|
TOTAL DISTRIBUTIONS
|
(0.29)
|
(0.27)
|
(0.26)
|
(0.09)
|
|
Net Asset Value, End of Period
|
$10.13
|
$10.32
|
$11.51
|
$11.40
|
|
Total Return2
|
0.94%
|
(8.07)%
|
3.32%
|
3.90%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
Net expenses3
|
0.52%4
|
0.52%
|
0.52%
|
0.52%4,5
|
|
Net investment income
|
2.76%
|
2.34%
|
2.32%
|
2.40%5
|
|
Expense waiver/reimbursement6
|
0.27%
|
0.19%
|
0.19%
|
0.24%5
|
|
Supplemental Data:
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$27,865
|
$42,461
|
$37,120
|
$6,652
|
|
Portfolio turnover7
|
17%
|
17%
|
5%
|
8%8
|
1
Reflects operations for the period from April 28, 2020 (date of initial investment) to August 31, 2020.
2
Based on net asset value. Total returns for periods of less than one year are not annualized.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio is 0.52% for the year ended August 31, 2023, and 0.52% for the period ended August 31, 2020, after taking into account these expense reductions.
5
Computed on an annualized basis.
6
This expense decrease is reflected in both the net expense and net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
7
Securities that mature are considered sales for purposes of this calculation.
8
Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal year ended August 31, 2020.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
17
Statement of Assets and Liabilities
August 31, 2023
August 31, 2023
|
Assets:
|
|
|
|
Investment in securities, at value (identified cost $99,064,823)
|
|
$94,037,804
|
|
Cash
|
|
21,345
|
|
Income receivable
|
|
1,056,457
|
|
Receivable for shares sold
|
|
1,187
|
|
TOTAL ASSETS
|
|
95,116,793
|
|
Liabilities:
|
|
|
|
Payable for shares redeemed
|
$60,948
|
|
|
Payable for portfolio accounting fees
|
51,416
|
|
|
Payable for share registration costs
|
20,978
|
|
|
Payable for other service fees (Notes 2 and 5)
|
14,472
|
|
|
Payable for transfer agent fee
|
8,386
|
|
|
Payable for distribution services fee (Note 5)
|
6,247
|
|
|
Payable for administrative fee (Note 5)
|
502
|
|
|
Payable for investment adviser fee (Note 5)
|
264
|
|
|
Accrued expenses (Note 5)
|
2,981
|
|
|
TOTAL LIABILITIES
|
|
166,194
|
|
Net assets for 9,375,744 shares outstanding
|
|
$94,950,599
|
|
Net Assets Consists of:
|
|
|
|
Paid-in capital
|
|
$102,736,381
|
|
Total distributable earnings (loss)
|
|
(7,785,782)
|
|
TOTAL NET ASSETS
|
|
$94,950,599
|
Annual Shareholder Report
18
Statement of Assets and Liabilities–continued
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
|
|
|
|
Class A Shares:
|
|
|
|
Net asset value per share ($18,677,561 ÷ 1,844,657 shares outstanding),
no par value, unlimited shares authorized
|
|
$10.13
|
|
Offering price per share (100/95.50 of $10.13)
|
|
$10.61
|
|
Redemption proceeds per share
|
|
$10.13
|
|
Class F Shares:
|
|
|
|
Net asset value per share ($48,408,526 ÷ 4,779,512 shares outstanding),
no par value, unlimited shares authorized
|
|
$10.13
|
|
Offering price per share (100/99.00 of $10.13)
|
|
$10.23
|
|
Redemption proceeds per share (99.00/100 of $10.13)
|
|
$10.03
|
|
Institutional Shares:
|
|
|
|
Net asset value per share ($27,864,512 ÷ 2,751,575 shares outstanding),
no par value, unlimited shares authorized
|
|
$10.13
|
|
Offering price per share
|
|
$10.13
|
|
Redemption proceeds per share
|
|
$10.13
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
19
Statement of Operations
Year Ended August 31, 2023
Year Ended August 31, 2023
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$3,469,726
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$422,303
|
|
|
Administrative fee (Note 5)
|
|
83,696
|
|
|
Custodian fees
|
|
2,279
|
|
|
Transfer agent fees
|
|
61,519
|
|
|
Directors’/Trustees’ fees (Note 5)
|
|
2,363
|
|
|
Auditing fees
|
|
31,930
|
|
|
Legal fees
|
|
11,688
|
|
|
Distribution services fee (Note 5)
|
|
212,356
|
|
|
Other service fees (Notes 2 and 5)
|
|
183,433
|
|
|
Portfolio accounting fees
|
|
128,033
|
|
|
Share registration costs
|
|
50,127
|
|
|
Printing and postage
|
|
23,306
|
|
|
Miscellaneous (Note 5)
|
|
24,661
|
|
|
TOTAL EXPENSES
|
|
1,237,694
|
|
|
Waivers and Reduction:
|
|
|
|
|
Waiver of investment adviser fee (Note 5)
|
$(287,738)
|
|
|
|
Waiver of other operating expenses (Note 5)
|
(132,613)
|
|
|
|
Reduction of custodian fees (Note 6)
|
(876)
|
|
|
|
TOTAL WAIVERS AND REDUCTION
|
|
(421,227)
|
|
|
Net expenses
|
|
|
816,467
|
|
Net investment income
|
|
|
2,653,259
|
|
Realized and Unrealized Gain (Loss) on Investments and
Futures Contracts:
|
|
|
|
|
Net realized loss on investments
|
|
|
(1,872,406)
|
|
Net realized gain on futures contracts
|
|
|
50,542
|
|
Net change in unrealized depreciation of investments
|
|
|
(251,363)
|
|
Net realized and unrealized gain (loss) on investments and
futures contracts
|
|
|
(2,073,227)
|
|
Change in net assets resulting from operations
|
|
|
$580,032
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
20
Statement of Changes in Net Assets
|
Year Ended August 31
|
2023
|
2022
|
|
Increase (Decrease) in Net Assets
|
|
|
|
Operations:
|
|
|
|
Net investment income
|
$2,653,259
|
$3,015,874
|
|
Net realized loss
|
(1,821,864)
|
(1,019,749)
|
|
Net change in unrealized depreciation
|
(251,363)
|
(14,369,714)
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
580,032
|
(12,373,589)
|
|
Distributions to Shareholders:
|
|
|
|
Class A Shares
|
(515,338)
|
(552,543)
|
|
Class F Shares
|
(1,259,427)
|
(1,400,409)
|
|
Institutional Shares
|
(881,207)
|
(1,266,437)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS
|
(2,655,972)
|
(3,219,389)
|
|
Share Transactions:
|
|
|
|
Proceeds from sale of shares
|
12,464,351
|
31,918,130
|
|
Net asset value of shares issued to shareholders in payment of
distributions declared
|
1,959,751
|
2,100,853
|
|
Cost of shares redeemed
|
(40,287,092)
|
(51,422,496)
|
|
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
|
(25,862,990)
|
(17,403,513)
|
|
Change in net assets
|
(27,938,930)
|
(32,996,491)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
122,889,529
|
155,886,020
|
|
End of period
|
$94,950,599
|
$122,889,529
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
21
Notes to Financial Statements
August 31, 2023
1. ORGANIZATION
Federated Hermes 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 Hermes Ohio Municipal Income Fund (the “Fund”). 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 three classes of shares: Class A 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 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.
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 Federated Investment Management Company (the ”Adviser”).
◾ 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 ask quotations.
◾ Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Adviser.
◾ Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.
◾ For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, 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 Adviser’s valuation policies and procedures for the Fund, or if
Annual Shareholder Report
22
information furnished by a pricing service, in the opinion of the Adviser’s 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, and the actual value obtained could be materially different.
Fair Valuation Procedures
Pursuant to Rule 2a-5 under the Act, the Fund’s Board of Trustees (the “Trustees”) has designated the Adviser as the Fund’s valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees’ oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser’s fair value determinations.
The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services 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 Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser’s fair valuation and significant events procedures as part of the Fund’s compliance program and will review 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 ask 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 Adviser.
Annual Shareholder Report
23
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 $421,227 is disclosed in various locations 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 and Class F Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the year ended August 31, 2023, other service fees for the Fund were as follows:
|
|
Other Service
Fees Incurred
|
|
Class A Shares
|
$50,820
|
|
Class F Shares
|
132,613
|
|
TOTAL
|
$183,433
|
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2023, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2023, tax years 2020 through 2023 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.
Annual Shareholder Report
24
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 Adviser.
Additional information on restricted securities held at August 31, 2023, 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
|
$1,244,158
|
$1,078,107
|
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk and yield curve 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 clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.
At August 31, 2023, the Fund had no outstanding futures contracts.
The average notional value of short futures contracts held by the Fund throughout the period was $182,800. This is based on amounts held as of each month end throughout the fiscal period.
Annual Shareholder Report
25
Additional Disclosure Related to Derivative Instruments
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended August 31, 2023
|
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$50,542
|
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 materially from those estimated. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class A Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
328,107
|
$3,341,878
|
472,579
|
$5,211,841
|
|
Shares issued to shareholders in payment of
distributions declared
|
50,412
|
514,582
|
50,245
|
547,960
|
|
Shares redeemed
|
(688,640)
|
(7,004,258)
|
(2,200,936)
|
(24,906,469)
|
|
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS
|
(310,121)
|
$(3,147,798)
|
(1,678,112)
|
$(19,146,668)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class F Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
99,405
|
$1,016,632
|
65,755
|
$720,839
|
|
Shares issued to shareholders in payment of
distributions declared
|
116,847
|
1,193,061
|
121,617
|
1,328,567
|
|
Shares redeemed
|
(1,074,591)
|
(10,977,377)
|
(1,037,865)
|
(11,235,840)
|
|
NET CHANGE RESULTING FROM CLASS F
SHARE TRANSACTIONS
|
(858,339)
|
$(8,767,684)
|
(850,493)
|
$(9,186,434)
|
Annual Shareholder Report
26
|
Year Ended August 31
|
2023
|
2022
|
||
|
Institutional Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
799,945
|
$8,105,841
|
2,294,482
|
$25,985,450
|
|
Shares issued to shareholders in payment of
distributions declared
|
24,698
|
252,108
|
20,562
|
224,326
|
|
Shares redeemed
|
(2,187,580)
|
(22,305,457)
|
(1,426,618)
|
(15,280,187)
|
|
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS
|
(1,362,937)
|
$(13,947,508)
|
888,426
|
$10,929,589
|
|
NET CHANGE RESULTING FROM TOTAL
FUND SHARE TRANSACTIONS
|
(2,531,397)
|
$(25,862,990)
|
(1,640,179)
|
$(17,403,513)
|
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2023 and 2022, was as follows:
|
|
2023
|
2022
|
|
Ordinary income1
|
$180
|
$31,863
|
|
Tax-exempt income
|
$2,655,792
|
$3,019,038
|
|
Long-term capital gains
|
$—
|
$168,488
|
1
For tax purposes, short-term capital gains are considered ordinary income in determining distributable earnings.
As of August 31, 2023, the components of distributable earnings on a tax-basis were as follows:
|
Tax-exempt income
|
$95,143
|
|
Net unrealized depreciation
|
$(5,007,055)
|
|
Capital loss carryforward
|
$(2,873,870)
|
|
Total
|
$(7,785,782)
|
At August 31, 2023, the cost of investments for federal tax purposes was $99,044,859. The net unrealized depreciation of investments for federal tax purposes was $5,007,055. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $97,272 and unrealized depreciation from investments for those securities having an excess of cost over value of $5,104,327. The difference between book-basis and tax-basis net unrealized depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.
As of August 31, 2023, the Fund had a capital loss carryforward of $2,873,870 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.
Annual Shareholder Report
27
The following schedule summarizes the Fund’s capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$559,237
|
$2,314,633
|
$2,873,870
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund for competitive reasons such as to maintain the Fund’s expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the year ended August 31, 2023, the Adviser voluntarily waived $287,738 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 year ended August 31, 2023, the annualized fee paid to FAS was 0.079% 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:
|
|
Percentage of Average Daily
Net Assets of Class
|
|
Class A Shares
|
0.05%
|
|
Class F Shares
|
0.40%
|
Annual Shareholder Report
28
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2023, distribution services fees for the Fund were as follows:
|
|
Distribution
Services Fees
Incurred
|
Distribution
Services Fees
Waived
|
|
Class F Shares
|
$212,356
|
$(132,613)
|
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2023, FSC retained $79,744 of fees paid by the Fund. For the year ended August 31, 2023, the Fund’s Class A shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2023, FSC retained $2,326 in sales charges from the sale of Class A Shares. FSC also retained $7,524 of CDSC relating to redemptions of Class F Shares.
Other Service Fees
For the year ended August 31, 2023, FSSC received $1,498 of the other service fees disclosed in Note 2.
Interfund Transactions
During the year ended August 31, 2023, the Fund engaged in purchase and sales transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sales transactions complied with Rule 17a-7 under the Act and amounted to $36,620,000 and $36,150,000, respectively. Net realized gain (loss) recognized on these transactions was $0.
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 F Shares and Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 0.77%, 0.92% and 0.52% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2024; or (b) the date of the Fund’s next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Annual Shareholder Report
29
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 offset custody expenses. For the year ended August 31, 2023, the Fund’s expenses were offset by $876 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2023, were as follows:
|
Purchases
|
$17,926,937
|
|
Sales
|
$42,821,277
|
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 August 31, 2023, 2.5% 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 dated June 21, 2023. The LOC was made available to temporarily finance 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 (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of a commitment fee based on the amount of the lenders’ commitment that has not been utilized, quarterly in arrears and at maturity. As of August 31, 2023, the Fund had no outstanding loans. During the year ended August 31, 2023, the Fund did not utilize the LOC.
Annual Shareholder Report
30
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 August 31, 2023, there were no outstanding loans. During the year ended August 31, 2023, the program was not utilized.
11. Indemnifications
Under the Fund’s organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party’s actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.
12. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in, and may continue to result in, closed borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus has resulted in substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. In addition, governments, their regulatory agencies, or self-regulatory organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect the instruments in which the Fund invests or the issuers of such investments. Any such impact could adversely affect the Fund’s performance.
13. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended August 31, 2023, 100% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
31
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF federated Hermes municipal securities income trust and THE shareholders of federated Hermes ohio municipal income FUND:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Federated Hermes Ohio Municipal Income Fund (the Fund), a portfolio of Federated Hermes Municipal Securities Income Trust, including the portfolio of investments, as of August 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of August 31, 2023, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Annual Shareholder Report
32
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of August 31, 2023, by correspondence with custodians. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Hermes’ investment companies since 2006.
Boston, Massachusetts
October 24, 2023
October 24, 2023
Annual Shareholder Report
33
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 March 1, 2023 to August 31, 2023.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
34
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
|
Beginning
Account Value
3/1/2023
|
Ending
Account Value
8/31/2023
|
Expenses Paid
During Period1
|
|
Actual:
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,007.20
|
$3.90
|
|
Class F Shares
|
$1,000
|
$1,006.50
|
$4.65
|
|
Institutional Shares
|
$1,000
|
$1,008.50
|
$2.63
|
|
Hypothetical (assuming a 5% return
before expenses):
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,021.32
|
$3.92
|
|
Class F Shares
|
$1,000
|
$1,020.57
|
$4.69
|
|
Institutional Shares
|
$1,000
|
$1,022.58
|
$2.65
|
1
Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
|
Class A Shares
|
0.77%
|
|
Class F Shares
|
0.92%
|
|
Institutional Shares
|
0.52%
|
Annual Shareholder Report
35
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2022, the Trust comprised four portfolio(s), and the Federated Hermes Fund Family consisted of 33 investment companies (comprising 102 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Hermes Fund Family and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400, Option #4.
Interested TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Indefinite Term
Began serving: August 1990
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of the Funds in the Federated Hermes Fund Family; President,
Chief Executive Officer and Director, Federated Hermes, Inc.;
Chairman and Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and Director,
Federated Global Investment Management Corp.; Chairman and
Trustee, Federated Equity Management Company of Pennsylvania;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Previous Positions: President, Federated Investment Counseling;
President and Chief Executive Officer, Federated Investment
Management Company, Federated Global Investment Management
Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.
|
Annual Shareholder Report
36
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
John B. Fisher*
Birth Date: May 16, 1956
Trustee
Indefinite Term
Began serving: May 2016
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of certain of the Funds in the Federated Hermes Fund Family;
Director and Vice President, Federated Hermes, Inc.; President,
Director/Trustee and CEO, Federated Advisory Services Company,
Federated Equity Management Company of Pennsylvania, Federated
Global Investment Management Corp., Federated Investment
Counseling, Federated Investment Management Company, and
Federated MDTA LLC; Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales
Division of Federated Securities Corp.; President and CEO of Passport
Research, Ltd.; Director and President, Technology, Federated
Services Company.
|
*
Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold with Federated Hermes, Inc. and its subsidiaries.
INDEPENDENT TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee, and Chair of the Board
of Directors or Trustees, of the Federated Hermes Fund Family;
formerly, Chairman and CEO, The Collins Group, Inc. (a private equity
firm) (Retired).
Other Directorships Held: Director, KLX Energy Services Holdings,
Inc. (oilfield services); former Director of KLX Corp. (aerospace).
Qualifications: Mr. Collins has served in several business and financial
management roles and directorship positions throughout his career.
Mr. Collins previously served as Chairman and CEO of The Collins
Group, Inc. (a private equity firm) and as a Director of KLX Corp.
Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins
previously served as Director and Audit Committee Member, Bank of
America Corp.; Director, FleetBoston Financial Corp.; and Director,
Beth Israel Deaconess Medical Center (Harvard University
Affiliate Hospital).
|
Annual Shareholder Report
37
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
|
Principal Occupations: Director or Trustee, Chair of the Audit
Committee of the Federated Hermes Fund Family; formerly, Vice
Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee,
Equifax, Inc.; Lead Director, Member of the Audit and Nominating and
Corporate Governance Committees, Haverty Furniture Companies,
Inc.; formerly, Director, Member of Governance and Compensation
Committees, Publix Super Markets, Inc.
Qualifications: Mr. Hough has served in accounting, business
management and directorship positions throughout his career.
Mr. Hough most recently held the position of Americas Vice Chair of
Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough
serves on the President’s Cabinet and Business School Board of
Visitors for the University of Alabama. Mr. Hough previously served on
the Business School Board of Visitors for Wake Forest University, and
he previously served as an Executive Committee member of the
United States Golf Association.
|
|
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Adjunct Professor Emerita of Law, Duquesne University
School of Law; formerly, Dean of the Duquesne University School of
Law and Professor of Law and Interim Dean of the Duquesne
University School of Law; formerly, Associate General Secretary and
Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation
(natural gas).
Qualifications: Judge Lally-Green has served in various legal and
business roles and directorship positions throughout her career. Judge
Lally-Green previously held the position of Dean of the School of Law
of Duquesne University (as well as Interim Dean). Judge Lally-Green
previously served as Associate General Secretary of the Diocese of
Pittsburgh, a member of the Superior Court of Pennsylvania and as a
Professor of Law, Duquesne University School of Law. Judge
Lally-Green was appointed by the Supreme Court of Pennsylvania to
serve on the Supreme Court’s Board of Continuing Judicial Education
and the Supreme Court’s Appellate Court Procedural Rules
Committee. Judge Lally-Green also currently holds the positions on
not for profit or for profit boards of directors as follows: Director
and Chair, UPMC Mercy Hospital; Regent, Saint Vincent Seminary;
Member, Pennsylvania State Board of Education (public); Director,
Catholic Charities, Pittsburgh; and Director CNX Resources
Corporation (natural gas). Judge Lally-Green has held the positions of:
Director, Auberle; Director, Epilepsy Foundation of Western and
Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director,
Saint Thomas More Society; Director and Chair, Catholic High Schools
of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute;
Director, St. Vincent College; Director and Chair, North Catholic High
School, Inc.; Director and Vice Chair, Our Campaign for the Church
Alive!, Inc.; and Director and Vice Chair, Saint Francis University.
|
Annual Shareholder Report
38
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
Thomas M. O’Neill
Birth Date: June 14, 1951
Trustee
Indefinite Term
Began serving: August 2006
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Sole Proprietor, Navigator Management Company
(investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O’Neill has served in several business, mutual fund
and financial management roles and directorship positions throughout
his career. Mr. O’Neill serves as Director, Medicines for Humanity.
Mr. O’Neill previously served as Chief Executive Officer and President,
Managing Director and Chief Investment Officer, Fleet Investment
Advisors; President and Chief Executive Officer, Aeltus Investment
Management, Inc.; General Partner, Hellman, Jordan Management
Co., Boston, MA; Chief Investment Officer, The Putnam Companies,
Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director
and Consultant, EZE Castle Software (investment order management
software); Director, Midway Pacific (lumber); and Director, The
Golisano Children’s Museum of Naples, Florida.
|
|
Madelyn A. Reilly
Birth Date: February 2, 1956
Trustee
Indefinite Term
Began serving:
November 2020
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; formerly, Senior Vice President for Legal Affairs,
General Counsel and Secretary of Board of Directors, Duquesne
University (Retired).
Other Directorships Held: None.
Qualifications: Ms. Reilly has served in various business and legal
management roles throughout her career. Ms. Reilly previously served
as Senior Vice President for Legal Affairs, General Counsel and
Secretary of Board of Directors and Director of Risk Management and
Associate General Counsel, Duquesne University. Prior to her work at
Duquesne University, Ms. Reilly served as Assistant General Counsel
of Compliance and Enterprise Risk as well as Senior Counsel of
Environment, Health and Safety, PPG Industries. Ms. Reilly currently
serves as a member of the Board of Directors of UPMC
Mercy Hospital.
|
Annual Shareholder Report
39
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Retired; formerly, Senior Vice Chancellor and Chief Legal
Officer, University of Pittsburgh and Executive Vice President and
Chief Legal Officer, CONSOL Energy Inc. (now split into two separate
publicly traded companies known as CONSOL Energy Inc. and CNX
Resources Corp.).
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal
management roles and directorship positions throughout his career.
Mr. Richey most recently held the positions of Senior Vice Chancellor
and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously
served as Chairman of the Board, Epilepsy Foundation of Western
Pennsylvania and Chairman of the Board, World Affairs Council of
Pittsburgh. Mr. Richey previously served as Chief Legal Officer and
Executive Vice President, CONSOL Energy Inc. and CNX Gas
Company; and Board Member, Ethics Counsel and Shareholder,
Buchanan Ingersoll & Rooney PC (a law firm).
|
|
John S. Walsh
Birth Date:
November 28, 1957
Trustee
Indefinite Term
Began serving: June 1999
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; President and Director, Heat Wagon, Inc. (manufacturer
of construction temporary heaters); President and Director,
Manufacturers Products, Inc. (distributor of portable construction
heaters); President, Portable Heater Parts, a division of Manufacturers
Products, Inc.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management
roles and directorship positions throughout his career. Mr. Walsh
previously served as Vice President, Walsh & Kelly, Inc.
(paving contractors).
|
Annual Shareholder Report
40
OFFICERS
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Hermes Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp.; and Assistant Treasurer, Federated
Investors Trust Company. Ms. Hensler has received the Certified
Public Accountant designation.
Previous Positions: Controller of Federated Hermes, Inc.; Senior Vice
President and Assistant Treasurer, Federated Investors Management
Company; Treasurer, Federated Investors Trust Company; Assistant
Treasurer, Federated Administrative Services, Federated
Administrative Services, Inc., Federated Securities Corp., Edgewood
Services, Inc., Federated Advisory Services Company, Federated
Equity Management Company of Pennsylvania, Federated Global
Investment Management Corp., Federated Investment Counseling,
Federated Investment Management Company, Passport Research,
Ltd., and Federated MDTA, LLC; Financial and Operations Principal for
Federated Securities Corp., Edgewood Services, Inc. and Southpointe
Distribution Services, Inc.
|
|
Peter J. Germain
Birth Date:
September 3, 1959
CHIEF LEGAL OFFICER,
SECRETARY and EXECUTIVE
VICE PRESIDENT
Officer since: January 2005
|
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary
and Executive Vice President of the Federated Hermes Fund Family.
He is General Counsel, Chief Legal Officer, Secretary and Executive
Vice President, Federated Hermes, Inc.; Trustee and Senior Vice
President, Federated Investors Management Company; Trustee and
President, Federated Administrative Services; Director and President,
Federated Administrative Services, Inc.; Director and Vice President,
Federated Securities Corp.; Director and Secretary, Federated Private
Asset Management, Inc.; Secretary, Federated Shareholder Services
Company; and Secretary, Retirement Plan Service Company of
America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a
member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel,
Managing Director of Mutual Fund Services, Federated Hermes, Inc.;
Senior Vice President, Federated Services Company; and Senior
Corporate Counsel, Federated Hermes, Inc.
|
|
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE
OFFICER AND SENIOR
VICE PRESIDENT
Officer since: July 2015
|
Principal Occupations: Senior Vice President and Chief Compliance
Officer of the Federated Hermes Fund Family; Vice President and
Chief Compliance Officer of Federated Hermes, Inc. and Chief
Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined
Federated Hermes, Inc. in October 2011. He holds FINRA licenses
under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of
Compliance Operating Officer, Federated Hermes, Inc. Prior to joining
Federated Hermes, Inc., Mr. Van Meter served at the United States
Securities and Exchange Commission in the positions of Senior
Counsel, Office of Chief Counsel, Division of Investment Management
and Senior Counsel, Division of Enforcement.
|
Annual Shareholder Report
41
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Officer since: February 2010
|
Principal Occupations: Robert J. Ostrowski joined Federated Hermes,
Inc. in 1987 as an Investment Analyst and became a Portfolio Manager
in 1990. He was named Chief Investment Officer of Federated
Hermes, Inc. taxable fixed-income products in 2004 and also serves as
a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice
President of the Fund’s Adviser in 2009 and served as a Senior Vice
President of the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has
received the Chartered Financial Analyst designation. He received his
M.S. in Industrial Administration from Carnegie Mellon University.
|
Annual Shareholder Report
42
Evaluation and Approval of Advisory Contract–May 2023
Federated Hermes Ohio Municipal Income Fund (the “Fund”)
At its meetings in May 2023 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including 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 investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to approve the continuation of the existing arrangement. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation of the Fund’s management fee (the “CCO Fee Evaluation Report”). The Board considered the CCO Fee Evaluation Report, along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the 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.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed
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43
reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; Federated Hermes’ business and operations; the Adviser’s investment philosophy, personnel and processes; the Fund’s investment objectives and strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate); the Fund’s fees and expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the financial condition of Federated Hermes; the Adviser’s profitability with respect to managing the Fund; distribution and sales activity for the Fund; and the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any).
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. 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 the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser’s cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize “economies of scale” as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any “fall-out” benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fee and expense structures, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same 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 the adviser’s services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements
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44
regarding the basis for a fund board’s approval of the fund’s investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation of the 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 Hermes on matters relating to the oversight of the other funds advised by Federated Hermes (each, a “Federated Hermes Fund” and, collectively, the “Federated Hermes Funds”).
In addition, the Board considered the preferences and expectations of Fund shareholders and 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 the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes’ industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund’s shareholders and such shareholders in the marketplace, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.
In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to approve the continuation of the Contract was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Contract. The Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. The Independent Trustees were assisted throughout the evaluation process by independent legal counsel. In connection with their deliberations at the May Meetings, the Independent Trustees met separately in executive session with their independent legal counsel and without management present to review the relevant materials and consider their responsibilities under applicable laws. In addition, senior management representatives of Federated Hermes also met with the Independent Trustees and their independent legal counsel to discuss the materials and presentations furnished to the Board at the May Meetings. The Board considered the approval of the Contract for the Fund as part of its consideration of agreements for funds across the family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.
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45
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the range of services provided to the Fund by Federated Hermes. The Board considered the Adviser’s personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. 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 Federated Hermes’ ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser’s ability to deliver competitive investment performance for the Fund when compared to the Fund’s Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund’s investment program.
In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted that the significant acquisition of Hermes Fund Managers Limited by Federated Hermes has deepened Federated Hermes’ investment management expertise and capabilities and its access to analytical resources related to environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters. The Board considered Federated Hermes’ oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes’ communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds’ officers.
The Board received and evaluated information regarding Federated Hermes’ regulatory and compliance environment. The Board considered Federated Hermes’ compliance program and compliance history and reports from the CCO about Federated Hermes’ compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes’ support of the Federated Hermes Funds’ compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund’s obligations pursuant to Rule 38a-1 under the
Annual Shareholder Report
46
Investment Company Act of 1940, including Federated Hermes’ commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes’ approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds’ compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes’ oversight in this regard, including in connection with the implementation of new rules on derivatives risk management and fair valuation.
The Board also considered the implementation of Federated Hermes’ business continuity plans. In addition, the Board noted Federated Hermes’ commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.
The Board considered Federated Hermes’ efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.
Fund Investment Performance
The Board considered the investment performance of the Fund. In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser’s analysis of, the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance compared to one or more relevant categories or groups of peer funds and the Fund’s benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain
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47
Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.
The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”). The Board noted 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 the CCO’s view that, in evaluating such comparisons, 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 Performance Peer Group.
For the periods ended December 31, 2022, the Fund’s performance fell below the Performance Peer Group median for the three-year and five-year periods, and was above the Performance Peer Group median for the one-year period. The Board discussed the Fund’s performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Based on these considerations, the Board concluded that it had continued confidence in the Adviser’s overall capabilities to manage the Fund.
Fund Expenses
The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. 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, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category.
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund’s fees and expenses. The Board focused on comparisons with other registered funds with comparable investment programs more heavily than non-registered fund products or services because such comparisons are believed to be more relevant. The Board considered that
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other registered funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the Fund’s shareholders. The Board noted that the range of such other registered funds’ fees and expenses, therefore, appears to be a relevant indicator of what investors 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 Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was below the median of the Expense Peer Group, and the Board was satisfied that the overall expense structure of the Fund remained competitive.
The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-registered fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing and fund liquidity; (vi) different administrative responsibilities; (vii) different degrees of risk associated with management; and (viii) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s registered fund, noting the CCO’s view that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party registered fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.
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49
Profitability
The Board received and considered profitability information furnished by Federated Hermes, as requested by the CCO. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs on a fund-by-fund basis continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. In addition, the Board considered the CCO’s view that the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO’s view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.
Economies of Scale
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of determining 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 Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information
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security programs; internal audit and risk management functions; and technology and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.
The Board also received and considered information on adviser-paid fees (commonly referred to as “revenue sharing” payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.
Other Benefits
The Board considered information regarding the compensation and other ancillary (or “fall-out”) benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds’ investment advisory contracts, Federated Hermes’ affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds’ administrator and distributor. In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.
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Conclusions
The Board considered: (i) the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and sub-advisory arrangements is a continuing and ongoing 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 ongoing oversight of the Federated Hermes Funds.
On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative.
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Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness
Annual Evaluation of Adequacy and Effectiveness
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Federated Hermes Municipal Securities Income Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Ohio Municipal Income Fund (the “Fund” and, collectively with the other non-money market open-end funds advised by Federated Hermes, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of each Federated Hermes Fund’s investment adviser as the administrator for the Program (the “Administrator”) with respect to that Fund. The Administrator, in turn, has delegated day-to-day responsibility for the administration of the Program to multiple Liquidity Risk Management Committees, which are comprised of representatives from certain divisions within Federated Hermes.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2023, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from April 1, 2022 through March 31, 2023 (the “Period”). The Report addressed the operation of the Program and assessed the adequacy and effectiveness of its implementation, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and
Annual Shareholder Report
53
the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
◾ confirmation that it was not necessary for the Fund to utilize, and the Fund did not utilize, any alternative funding sources that were available to the Federated Hermes Funds during the Period, such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind, reverse repurchase agreement transactions, redemptions delayed beyond the normal T+1 settlement but within seven days of the redemption request, and committed lines of credit;
◾ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
◾ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments, and the results of the Administrator’s evaluation of the services performed by the vendor in support of this process, including the Administrator’s view that the methodologies utilized by the vendor continue to be appropriate;
◾ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the operation of the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
◾ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period, and the operation of the procedures for monitoring this limit;
◾ the fact that there were no liquidity events during the Period that materially affected the Fund’s liquidity risk;
◾ the impact on liquidity and management of liquidity risk, if any, caused by extended non-U.S. market closures and confirmation that there were no issues for any of the affected Federated Hermes Funds in meeting shareholder redemptions at any time during these temporary non-U.S. market closures.
Based on this review, the Administrator concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
Annual Shareholder Report
54
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, Option #4. 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 FederatedHermes.com/us/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 FederatedHermes.com/us.
Annual Shareholder Report
55
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Hermes Ohio Municipal Income Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923823
CUSIP 313923609
CUSIP 313923765
CUSIP 313923609
CUSIP 313923765
28994 (10/23)
© 2023 Federated Hermes, Inc.
Annual Shareholder Report
August 31, 2023
|
Share Class | Ticker
|
A | PAMFX
|
Institutional | PAMIX
|
|
|
Federated Hermes Pennsylvania Municipal Income Fund
Fund Established 1990
A Portfolio of Federated Hermes Municipal Securities Income Trust
Dear Valued Shareholder,
We are pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2022 through August 31, 2023. This report includes Management’s Discussion of Fund Performance, a complete listing of your fund’s holdings, performance information and financial statements along with other important fund information.
As a global leader in active, responsible investment management, Federated Hermes is guided by our conviction that responsible investing is the best way to create wealth over the long term. The company provides capabilities across a wide range of asset classes to investors around the world.
In addition, FederatedHermes.com/us offers quick and easy access to valuable resources that include timely fund updates, economic and market insights from our investment strategists and financial planning tools. You can also access many of those insights by following us on Twitter (@FederatedHermes) and LinkedIn.
Thank you for investing with us. We hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
Management’s Discussion of Fund Performance (unaudited)
The total return of Federated Hermes Pennsylvania Municipal Income Fund (the “Fund”), based on net asset value for the 12-month reporting period ended August 31, 2023, was 1.15% for Class A Shares and 1.28% for Institutional Shares. The 1.28% total return of the Institutional Shares consisted of 2.88% of tax-exempt dividends and reinvestments and price depreciation of -1.60% in the net asset value of the shares.1 The total return of the S&P Municipal Bond Pennsylvania Index (PA Index),2 the Fund’s broad-based securities market index, was 1.51% during the same period. The total return of the S&P Municipal Bond PA, Investment Grade Index (PAIG),3 a secondary index for the Fund, was 1.76%. The total return of the Morningstar Muni Pennsylvania Funds Average (MMPFA),4 a peer group average for the Fund, was 0.62% during the same reporting period. The Fund’s and the MMPFA’s total returns for the most recently completed fiscal year reflected actual cash flows, transaction costs and expenses which were not reflected in the total return of the PA Index or PAIG.
During the reporting period, the most significant factors affecting the Fund’s performance relative to the PAIG were (a) the allocation of the Fund’s portfolio among securities of similar issuers (referred to as “sectors”); (b) the sensitivity of the portfolio to changing interest rates, including portfolio duration;5,6 (c) the allocation of securities across the municipal yield curve (the level of interest rates across maturities);7 (d) security selection; and (e) the credit quality of portfolio securities.8
The following discussion will focus on the performance of the Fund’s Institutional Shares relative to the PAIG.
MARKET overview
Inflation, which first reared its head in 2022, began to abate during the reporting period but remained an issue for fixed-income markets. Following seven moves totaling 4.25% in 2022 the Federal Reserve (the “Fed”) raised rates four more times for an additional 1.00% during the first eight months of 2023. The short part of the yield curve responded most sharply, with the yield on 2-year Treasuries increasing 137 basis points to 4.87% over the fiscal year. The rest of the yield curve saw smaller, parallel increases, with 5-, 10-, and 30-year Treasury yields rising 90, 91, and 92 basis points, respectively, over the same period.
The municipal yield curve also shifted upward although less dramatically. The Municipal Market Data (MMD) AAA 10-year rate increased from 2.59% at the beginning of the period to 3.41% at the end of October 2022. It fell as low as 2.08% in April before rising again to 2.93% at the end of the period, a
Annual Shareholder Report
1
net rise of 34 basis points. The MMD AAA rate rose 86 basis points at 2 years, 56 basis points at 5 years, and 59 basis points at 30 years. Municipals richened compared to Treasuries, with the yield ratio falling from 81% to 71% at 10 years and from 100% to 92% at 30 years.
The municipal yield curve inverted during the period. As of the end of the fiscal year, yields on 1-year AAA bonds were higher than those with 13 years to maturity.
Municipal credit spreads changed little over the period. The spread between the yield of the S&P Municipal High Yield Index and the S&P Municipal Index widened by just one basis point from the beginning of the period to the end, although this spread widened by as much as 43 basis points in the spring, before tightening through the end of the fiscal year. Underlying credit generally remained good over the last fiscal year. State and local governments, as well as other issuers, continued to benefit from the considerable federal aid that came their way during and after the pandemic. For the first half of 2023, Moody’s upgrades outnumbered downgrades by nearly four to one.
Higher rates continued to depress new issuance. According to the Bond Buyer, total issuance for the 12 months ended August 31, 2023 was 18% lower than the prior 12 months, and 25% lower than the 12 months ending August 31, 2021. Refunding issuance remained at low levels as higher rates made fewer refundings economical.
The total return of 1.76% for the PAIG for the reporting period was generally comparable to the 1.79% total return of the national S&P Municipal Bond Index (SPMBI)9 for the period. According to MMD, spreads on Commonwealth of Pennsylvania general obligation bonds widened by up to 10 basis points compared to national AAA-rated bonds during the period.
The credit ratings of the Commonwealth of Pennsylvania did not change during the period: Moody’s (Aa3/stable), S&P (A+/stable) and Fitch (AA-/positive), although Moody’s revised its outlook to positive shortly after the end of the reporting fiscal year. According to the Bond Buyer, issuance of municipal bonds in the Commonwealth of Pennsylvania was $10.6 billion during the reporting period, a decline of 24% from the prior reporting period.
Sector allocation
The Fund’s sector allocation had a net negative impact on relative performance versus the PAIG during the reporting period. The Fund’s best-performing sectors included State General Obligations, Airport and Industrial Revenue bonds. Lagging sectors included Life Care, Higher Education and Hospitals.
DURATION
The Fund’s duration was generally short to neutral compared to the PAIG during the first half of the reporting period and slightly longer during the latter half. The shorter duration earlier in the reporting period helped relative
Annual Shareholder Report
2
performance, but extending during the latter part was a detractor. Over the entire fiscal year, duration management was a negative contributor to relative performance.
YIELD CURVE AND MATURITY
The Fund’s allocation of securities along the yield curve contributed to positive performance relative to the PAIG. In particular, timely allocation to bonds with durations greater than 8 years contributed to relative performance.
SECURITY SELECTION
Individual security selection contributed to performance relative to the PAIG over the period as the Fund’s relative total return was stronger than could be explained by duration, yield curve, sector allocation and credit quality characteristics. For example, the Fund’s significant weighting in bonds with 5% coupons or higher contributed to favorable relative return. Higher coupon bonds faced less risk of pricing below par and less risk of extending duration as yields increased compared to lower coupon bonds.
credit QUALITY
The allocation of the Fund’s portfolio across the credit quality spectrum modestly aided Fund return relative to the PAIG during the period. In particular, exposure to out-of-index below-investment-grade10 bonds benefitted from spread tightening. Overweight positions in BBB-rated bonds and underweights in higher rated securities partially offset the exposure to out-of-index below-investment-grade bonds.
1
Income may be subject to the alternative minimum tax for individuals (AMT).
2
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the PA Index.
3
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the PAIG. Prior to March 1, 2023, the Fund also compared its performance to the PAIG. Effective March 1, 2023 the Fund no longer compares its performance to the PAIG as the Adviser does not believe the PAIG continues to be reflective of the universe of securities in which the Fund invests.
4
Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Morningstar peer group.
5
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
6
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management’s Discussion of Fund Performance, duration is determined using a third-party analytical system.
7
The yield curve is a graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.
8
Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk.
Annual Shareholder Report
3
9
The SPMBI is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the AMT. Eligibility criteria for inclusion in the SPMBI include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor’s Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The SPMBI is rebalanced monthly. The SPMBI is unmanaged, and it is not possible to invest directly in an index.
10
Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund’s Adviser believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor’s, Moody’s Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
Annual Shareholder Report
4
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Federated Hermes Pennsylvania Municipal Income Fund (the “Fund”) from August 31, 2013 to August 31, 2023, compared to the S&P Municipal Bond Pennsylvania Index (PA Index),2 S&P Municipal Bond PA, Investment Grade Index (PAIG)3 and the Morningstar Muni Pennsylvania Funds Average (MMPFA).4 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
GROWTH OF A $10,000 INVESTMENT
Growth of $10,000 as of August 31, 2023
◾ Total returns shown for Class A Shares include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550).
Average Annual Total Returns for the Period Ended 8/31/2023
(returns reflect all applicable sales charges as specified below in footnote #1)
|
|
1 Year
|
5 Years
|
10 Years
|
|
Class A Shares
|
-3.39%
|
0.17%
|
2.02%
|
|
Institutional Shares5
|
1.28%
|
1.22%
|
2.56%
|
|
PA Index
|
1.51%
|
1.64%
|
3.04%
|
|
PAIG
|
1.76%
|
1.65%
|
2.94%
|
|
MMPFA
|
0.62%
|
0.95%
|
2.46%
|
Annual Shareholder Report
5
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedHermes.com/us or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1
Represents a hypothetical investment of $10,000 in the Fund after deducting the applicable sales charges: For Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). The Fund’s performance assumes the reinvestment of all dividends and distributions. The PA Index, PAIG and MMPFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2
The PA Index consists of bonds in the S&P Municipal Bond Index (“Main Index”) that have been issued by the Commonwealth of Pennsylvania or local governments or state or local government entities within Pennsylvania. The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the AMT. Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or local government or state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor’s Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The PA Index is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. The PA Index is unmanaged, and unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
3
Prior to March 1, 2023, the Fund also compared its performance to the PAIG. Effective March 1, 2023 the Fund no longer compares its performance to the PAIG as the Adviser does not believe the PAIG continues to be reflective of the universe of securities in which the Fund invests. The PAIG represents the portion of the PA Index composed solely of bonds that are rated BBB-/Baa3 or higher. The PAIG is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund’s performance. The PAIG is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4
Morningstar figures represent the average of the total returns reported by all the funds designated by Morningstar as falling into the respective category indicated. They do not reflect sales charges. The Morningstar figures in the Growth of a $10,000 Investment line graph are based on historical return information published by Morningstar and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Morningstar as falling into the category can change over time, the Morningstar figures in the line graph may not match the Morningstar figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
Annual Shareholder Report
6
5
The Fund’s Institutional Shares commenced operations on April 28, 2020. For the period prior to the commencement of operations of Institutional Shares, the performance information shown for the Fund’s Institutional Shares is for the Class A Shares. The performance of the Class A Shares has not been adjusted to reflect the expenses of the Institutional Shares, since the Institutional Shares have a lower expense ratio than the expense ratio of Class A Shares. The performance of Class A has been adjusted to reflect the absence of sales charges and to remove any voluntary waiver of Fund expenses related to Class A Shares that may have occurred during the periods prior to commencement of operations of the Institutional Shares.
Annual Shareholder Report
7
Portfolio of Investments Summary Table (unaudited)
At August 31, 2023, the Fund’s sector composition1 was as follows:
|
Sector Composition
|
Percentage of
Total Net Assets
|
|
Hospital
|
16.4%
|
|
General Obligation—Local
|
14.0%
|
|
Toll Road
|
13.4%
|
|
Water & Sewer
|
11.1%
|
|
Higher Education
|
8.8%
|
|
Airport
|
5.9%
|
|
Senior Care
|
5.3%
|
|
General Obligation—State
|
5.0%
|
|
Dedicated Tax
|
3.3%
|
|
Other Transportation
|
3.3%
|
|
Other2
|
12.4%
|
|
Other Assets and Liabilities—Net3
|
1.1%
|
|
TOTAL
|
100%
|
1
Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund’s Adviser. For securities that have been enhanced by a third-party guarantor, such as bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund’s Adviser. Pre-refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.
2
For purposes of this table, sector classifications constitute 86.5% of the Fund’s total net assets. Remaining sectors have been aggregated under the designation “Other.”
3
Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
8
Portfolio of Investments
August 31, 2023
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—97.8%
|
|
|
|
|
Pennsylvania—93.9%
|
|
|
$1,000,000
|
|
Allegheny County, PA Airport Authority (Pittsburgh
International Airport), Airport Revenue Bonds (Series 2021A),
4.000%, 1/1/2040
|
$936,235
|
|
1,000,000
|
|
Allegheny County, PA Airport Authority (Pittsburgh
International Airport), Airport Revenue Bonds (Series 2021A),
5.000%, 1/1/2051
|
1,013,051
|
|
1,000,000
|
|
Allegheny County, PA Airport Authority (Pittsburgh
International Airport), Airport Revenue Bonds (Series 2021A),
5.000%, 1/1/2056
|
1,010,289
|
|
530,000
|
|
Allegheny County, PA Higher Education Building Authority
(Carnegie Mellon University), Revenue Bonds (Series 2019A),
5.000%, 8/1/2027
|
568,721
|
|
2,000,000
|
|
Allegheny County, PA Hospital Development Authority
(Allegheny Health Network Obligated Group), Revenue Bonds
(Series 2018A), 5.000%, 4/1/2047
|
1,997,950
|
|
860,000
|
1
|
Allegheny County, PA Hospital Development Authority (UPMC
Health System), Revenue Bonds (Series 2017D-2) FRNs, 4.760%
(SIFMA 7-day +0.700%), Mandatory Tender 5/15/2027
|
846,914
|
|
1,000,000
|
|
Allegheny County, PA Sanitation Authority, Sewer Revenue
Bonds (Series 2015), 5.000%, 12/1/2040
|
1,020,076
|
|
2,000,000
|
|
Allegheny County, PA Sanitation Authority, Sewer Revenue
Bonds (Series 2015), 5.000%, 12/1/2045
|
2,037,576
|
|
1,000,000
|
|
Allegheny County, PA, UT GO Bonds (Series C-77),
5.000%, 11/1/2043
|
1,045,563
|
|
2,000,000
|
|
Allegheny County, PA, UT GO Refunding Bonds (Series C-76),
5.000%, 11/1/2041
|
2,069,872
|
|
1,450,000
|
|
Bucks County, PA IDA (Pennswood Village), Revenue Bonds
(Series 2018A), 5.000%, 10/1/2037
|
1,429,785
|
|
1,000,000
|
|
Canon McMillan, PA School District, GO Bonds (Series 2017),
(Assured Guaranty Municipal Corp. INS)/(Pennsylvania School
District Intercept Program GTD), 5.000%, 12/1/2041
|
1,042,063
|
|
1,000,000
|
|
Capital Region Water, PA, Water Revenue Refunding Bonds
(Series 2018), 5.000%, 7/15/2032
|
1,072,686
|
|
500,000
|
|
Centre County, PA Hospital Authority (Mount Nittany
Medical Center), Hospital Revenue Bonds (Series 2018A),
5.000%, 11/15/2042
|
503,812
|
|
500,000
|
|
Centre County, PA, UT GO Bonds (Series 2022),
5.000%, 7/1/2035
|
553,475
|
|
1,000,000
|
|
Chester County, PA HEFA (Main Line Health Systems),
Revenue Bonds (Series 2017A), 5.000%, 10/1/2052
|
1,017,686
|
Annual Shareholder Report
9
|
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
|
$1,191,332
|
|
2,000,000
|
|
Clairton Municipal Authority, PA, Sewer Revenue Bonds
(Series 2012B), 5.000%, 12/1/2037
|
2,000,763
|
|
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
|
2,854,762
|
|
2,000,000
|
|
Commonwealth of Pennsylvania, UT GO Bonds (2nd Series 2016),
5.000%, 9/15/2026
|
2,110,905
|
|
1,000,000
|
|
Commonwealth of Pennsylvania, UT GO Refunding Bonds
(Series 2019), 5.000%, 7/15/2029
|
1,108,192
|
|
90,000
|
|
Cumberland County, PA Municipal Authority (Diakon Lutheran
Social Ministries), Revenue Bonds (Series 2015), (United States
Treasury PRF 1/1/2025@100), 5.000%, 1/1/2038
|
91,846
|
|
365,000
|
|
Cumberland County, PA Municipal Authority (Diakon Lutheran
Social Ministries), Revenue Bonds (Series 2015), (United States
Treasury PRF 1/1/2025@100), 5.000%, 1/1/2038
|
372,487
|
|
450,000
|
|
Cumberland County, PA Municipal Authority (Diakon Lutheran
Social Ministries), Revenue Bonds (Series 2015),
5.000%, 1/1/2038
|
448,602
|
|
1,000,000
|
|
Cumberland County, PA Municipal Authority (Dickinson College),
Revenue Bonds (Series 2016), 5.000%, 5/1/2030
|
1,031,829
|
|
2,000,000
|
|
Cumberland County, PA Municipal Authority (Penn State Health
Obligated Group), Revenue Bonds (Series 2019),
4.000%, 11/1/2044
|
1,808,934
|
|
1,700,000
|
|
Delaware County, PA Authority (Haverford College), Revenue
Bonds (Series 2017A), 5.000%, 10/1/2042
|
1,756,419
|
|
1,250,000
|
|
Delaware County, PA Regional Water Quality Control Authority,
Sewer Revenue Bonds (Series 2015), 5.000%, 5/1/2040
|
1,269,169
|
|
1,750,000
|
|
Delaware River Joint Toll Bridge Commission, Revenue Bonds
(Series 2017), 5.000%, 7/1/2042
|
1,809,491
|
|
1,130,000
|
|
Delaware River Port Authority, Revenue Bonds (Series 2018A),
5.000%, 1/1/2033
|
1,229,101
|
|
250,000
|
|
Delaware River Port Authority, Revenue Bonds (Series 2018A),
5.000%, 1/1/2038
|
266,018
|
|
200,000
|
|
Delaware River Port Authority, Revenue Bonds (Series 2018A),
5.000%, 1/1/2039
|
211,619
|
|
500,000
|
|
Delaware River Port Authority, Revenue Bonds (Series 2018A),
5.000%, 1/1/2040
|
527,916
|
|
2,260,000
|
|
Geisinger Authority, PA Health System (Geisinger Health System),
Revenue Bonds (Series 2014A), 5.000%, 6/1/2041
|
2,267,015
|
Annual Shareholder Report
10
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Pennsylvania—continued
|
|
|
$1,500,000
|
|
Great Valley School District, PA, GO Bonds (Series 2022),
(Pennsylvania School District Intercept Program GTD),
4.000%, 9/1/2040
|
$1,501,754
|
|
785,000
|
|
Lancaster County, PA Hospital Authority (Masonic Villages),
Health Center Revenue Bonds (Series 2015), 5.000%, 11/1/2035
|
792,024
|
|
1,000,000
|
|
Lancaster County, PA Solid Waste Management Authority,
GTD Authority Bonds (Series 2013B), (Dauphin County, PA GTD),
5.000%, 12/15/2033
|
1,003,978
|
|
1,000,000
|
|
Lancaster, PA IDA (Landis Homes Retirement Community),
Health Center Revenue Refunding Bonds (Series 2021),
4.000%, 7/1/2051
|
725,627
|
|
1,000,000
|
|
Lancaster, PA, UT GO Bonds (Series 2018), (Build America
Mutual Assurance INS), 4.000%, 11/1/2043
|
958,255
|
|
1,000,000
|
|
Lehigh County, PA General Purpose Authority (Lehigh Valley
Academy Regional Charter School), Charter School Revenue
Bonds (Series 2022), 4.000%, 6/1/2052
|
788,476
|
|
1,000,000
|
|
Luzerne County, PA, UT GO GTD Bonds (Series 2017A),
(Assured Guaranty Municipal Corp. INS), 5.000%, 12/15/2029
|
1,061,206
|
|
1,260,000
|
|
Monroe County, PA, UT GO Bonds (Series 2021A),
4.000%, 7/15/2036
|
1,268,530
|
|
1,500,000
|
|
Montgomery County, PA Higher Education & Health Authority
Hospital (Thomas Jefferson University), Revenue Refunding
Bonds (Series 2019), 4.000%, 9/1/2049
|
1,337,834
|
|
1,000,000
|
|
Montgomery County, PA IDA (ACTS Retirement Life
Communities, Inc.), Retirement Communities Revenue Bonds
(Series 2020C), 5.000%, 11/15/2045
|
936,277
|
|
1,125,000
|
|
Montgomery County, PA IDA (Constellation Energy Generation
LLC), Revenue Refunding Bonds (Series 2023A), 4.100%,
Mandatory Tender 4/3/2028
|
1,134,321
|
|
1,000,000
|
|
Mount Lebanon, PA Hospital Authority (St. Clair Memorial
Hospital), Hospital Revenue Bonds (Series 2018),
5.000%, 7/1/2038
|
1,033,558
|
|
1,750,000
|
|
Northampton County, PA General Purpose Authority (Lafayette
College), College Refunding and Revenue Bonds (Series 2017),
5.000%, 11/1/2047
|
1,789,978
|
|
1,000,000
|
|
Northampton County, PA General Purpose Authority (St. Luke’s
University Health Network), Hospital Revenue Bonds
(Series 2016A), 4.000%, 8/15/2040
|
907,305
|
|
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
|
852,450
|
|
1,000,000
|
|
Pennsylvania Economic Development Financing Authority
(National Gypsum Co.), Exempt Facilities Refunding Revenue
Bonds (Series 2014), 5.500%, 11/1/2044
|
1,001,360
|
Annual Shareholder Report
11
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Pennsylvania—continued
|
|
|
$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
|
$1,980,634
|
|
2,200,000
|
|
Pennsylvania Economic Development Financing Authority
(Presbyterian Homes Obligated Group, PA), Revenue Refunding
Bonds (Series 2021), 4.000%, 7/1/2046
|
1,813,633
|
|
1,000,000
|
|
Pennsylvania Economic Development Financing Authority (The
Penndot Major Bridges Package One Project), Revenue Bonds
(Series 2022), (Original Issue Yield: 5.080%), 5.000%, 12/31/2057
|
1,010,146
|
|
1,000,000
|
|
Pennsylvania Economic Development Financing Authority (The
Penndot Major Bridges Package One Project), Revenue Bonds
(Series 2022), (Original Issue Yield: 5.080%), 6.000%, 6/30/2061
|
1,083,785
|
|
1,000,000
|
|
Pennsylvania Economic Development Financing Authority (The
Penndot Major Bridges Package One Project), Revenue Bonds
(Series 2022), 5.750%, 6/30/2048
|
1,082,372
|
|
1,500,000
|
|
Pennsylvania Economic Development Financing Authority (UPMC
Health System), Revenue Bonds (Series 2014A), 5.000%, 2/1/2045
|
1,504,451
|
|
2,000,000
|
|
Pennsylvania Economic Development Financing Authority, Junior
GTD Parking Revenue Bonds (Series 2013B-1), (Dauphin County,
PA GTD), 6.000%, 7/1/2053
|
2,002,896
|
|
1,000,000
|
|
Pennsylvania HFA, Single Family Mortgage Revenue Bonds
(Series 2023-142A), 5.500%, 10/1/2053
|
1,051,487
|
|
1,000,000
|
|
Pennsylvania State Economic Development Financing Authority
(UPMC Health System), Revenue Bonds (Series 2023A-2),
4.000%, 5/15/2048
|
903,279
|
|
285,000
|
|
Pennsylvania State Economic Development Financing Authority
(UPMC Health System), Revenue Bonds (Series 2023A-2),
4.000%, 5/15/2053
|
251,698
|
|
1,950,000
|
|
Pennsylvania State Higher Education Facilities Authority
(University of Pennsylvania Health System), Revenue Bonds
(Series 2017A), 5.000%, 8/15/2042
|
1,992,049
|
|
500,000
|
|
Pennsylvania State Higher Education Facilities Authority
(University of Pennsylvania), Revenue Bonds (Series 2017A),
5.000%, 8/15/2046
|
516,711
|
|
1,500,000
|
|
Pennsylvania State Turnpike Commission, Oil Franchise Tax
Subordinate Revenue Refunding Bonds (Series 2021B),
4.000%, 12/1/2053
|
1,356,894
|
|
1,250,000
|
|
Pennsylvania State Turnpike Commission, Subordinate Revenue
Bonds (Series 2019A), 5.000%, 12/1/2044
|
1,280,094
|
|
1,000,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series 2015B), 5.000%, 12/1/2045
|
1,016,808
|
|
2,000,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series 2018A), 5.000%, 12/1/2048
|
2,067,370
|
|
1,000,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series 2019A), 5.000%, 12/1/2044
|
1,044,500
|
Annual Shareholder Report
12
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Pennsylvania—continued
|
|
|
$400,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series 2022B), 5.000%, 12/1/2036
|
$439,837
|
|
500,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series 2022B), 5.000%, 12/1/2037
|
545,275
|
|
1,000,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Subordinate
Revenue Bonds (Series 2019A), (Assured Guaranty Municipal
Corp. GTD), 4.000%, 12/1/2049
|
928,447
|
|
2,500,000
|
|
Pennsylvania State Turnpike Commission, Turnpike Subordinate
Revenue Bonds (Series 2021A), 4.000%, 12/1/2046
|
2,323,241
|
|
1,000,000
|
|
Pennsylvania State University, GO Bonds (Series 2023),
5.250%, 9/1/2053
|
1,089,166
|
|
1,000,000
|
|
Philadelphia, PA Airport System, Airport Revenue and Refunding
Bonds (Series 2017A), 5.000%, 7/1/2047
|
1,017,765
|
|
1,000,000
|
|
Philadelphia, PA Airport System, Airport Revenue Refunding
Bonds (Series 2020A), 4.000%, 7/1/2040
|
969,232
|
|
2,000,000
|
|
Philadelphia, PA Airport System, Refunding Revenue Bonds
(Series 2017B), 5.000%, 7/1/2047
|
2,014,571
|
|
1,235,000
|
|
Philadelphia, PA Authority for Industrial Development
(PresbyHomes Germantown/Morrisville), Senior Living Revenue
Bonds (Series 2005A), 5.625%, 7/1/2035
|
1,257,121
|
|
2,000,000
|
|
Philadelphia, PA Gas Works, 1998 General Ordinance-Fifteenth
Series Revenue Refunding Bonds, 5.000%, 8/1/2042
|
2,037,882
|
|
1,000,000
|
|
Philadelphia, PA School District, LT GO Bonds (Series 2018B),
(Pennsylvania School District Intercept Program GTD),
5.000%, 9/1/2043
|
1,035,416
|
|
1,000,000
|
|
Philadelphia, PA Water & Wastewater System, Revenue Bonds
(Series 2019B), 5.000%, 11/1/2049
|
1,031,484
|
|
1,010,000
|
|
Philadelphia, PA Water & Wastewater System, Revenue Bonds
(Series 2020A), 5.000%, 11/1/2040
|
1,059,788
|
|
500,000
|
|
Philadelphia, PA, GO Bonds (Series 2019B), 5.000%, 2/1/2038
|
526,063
|
|
1,000,000
|
|
Philadelphia, PA, GO Bonds (Series 2021A), 5.000%, 5/1/2034
|
1,109,965
|
|
1,000,000
|
|
Philadelphia, PA, UT GO Bonds (Series 2017A), 5.000%, 8/1/2033
|
1,058,938
|
|
655,000
|
|
Pittsburgh & Allegheny County, PA Sports & Exhibition Authority,
Parking System Revenue Bonds (Series 2017),
5.000%, 12/15/2037
|
687,320
|
|
390,000
|
|
Pittsburgh, PA Public Parking Authority, Parking System Revenue
Refunding Bonds (Series 2015A), (United States Treasury PRF
6/1/2025@100), 5.000%, 12/1/2025
|
400,981
|
|
610,000
|
|
Pittsburgh, PA Public Parking Authority, Parking System Revenue
Refunding Bonds (Series 2015A), 5.000%, 12/1/2025
|
621,219
|
|
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
|
1,575,681
|
Annual Shareholder Report
13
|
Principal
Amount
|
|
|
Value
|
|
|
|
MUNICIPAL BONDS—continued
|
|
|
|
|
Pennsylvania—continued
|
|
|
$1,200,000
|
|
Pittsburgh, PA Water & Sewer Authority, Water and Sewer
System First Lien Revenue Bonds (Series 2023A), (Assured
Guaranty Municipal Corp. INS), 4.250%, 9/1/2053
|
$1,148,901
|
|
1,000,000
|
|
Scranton, PA School District, GO Bonds (Series 2017E),
(Build America Mutual Assurance INS), 5.000%, 12/1/2035
|
1,063,255
|
|
1,750,000
|
|
St. Mary Hospital Authority, PA (Trinity Healthcare Credit Group),
Revenue Refunding Bonds (Remarket 1/9/18),
5.000%, 11/15/2028
|
1,873,642
|
|
1,000,000
|
|
Swarthmore Borough Authority, PA (Swarthmore College),
Revenue Bonds (Series 2018), 5.000%, 9/15/2048
|
1,039,557
|
|
1,505,000
|
|
Swarthmore Borough Authority, PA (Swarthmore College),
Revenue Bonds (Series 2021B), 4.000%, 9/15/2049
|
1,417,255
|
|
1,000,000
|
|
Union County, PA Higher Educational Facilities Financing
Authority (Bucknell University), University Revenue Bonds
(Series 2015B), 5.000%, 4/1/2032
|
1,016,094
|
|
740,000
|
|
Westmoreland County, PA Municipal Authority, Municipal Service
Revenue Bonds (Series 2016), (Build America Mutual Assurance
INS), 5.000%, 8/15/2042
|
747,334
|
|
|
|
TOTAL
|
109,609,324
|
|
|
|
Puerto Rico—3.9%
|
|
|
2,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2037
|
1,793,862
|
|
1,000,000
|
|
Commonwealth of Puerto Rico, UT GO Restructured Bonds
(Series 2022A), 4.000%, 7/1/2041
|
861,607
|
|
1,000,000
|
|
Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax
Bonds (Series 2019A), (Original Issue Yield: 5.154%),
5.000%, 7/1/2058
|
967,906
|
|
1,000,000
|
|
Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax
Bonds (Series 2019A-2), 4.784%, 7/1/2058
|
934,890
|
|
|
|
TOTAL
|
4,558,265
|
|
|
|
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $119,815,292)
|
114,167,589
|
|
|
1
|
SHORT-TERM MUNICIPALS—1.1%
|
|
|
|
|
Pennsylvania—1.1%
|
|
|
1,150,000
|
|
Delaware County, PA IDA (United Parcel Service, Inc.),
(Series 2015) Daily VRDNs, (United Parcel Service, Inc. GTD),
4.100%, 9/1/2023
|
1,150,000
|
Annual Shareholder Report
14
|
Principal
Amount
|
|
|
Value
|
|
|
1
|
SHORT-TERM MUNICIPALS—continued
|
|
|
|
|
Pennsylvania—continued
|
|
|
$100,000
|
|
Southcentral PA, General Authority (Wellspan Health Obligated
Group), (Series 2019E) Daily VRDNs, (U.S. Bank, N.A. LIQ),
4.250%, 9/1/2023
|
$100,000
|
|
|
|
TOTAL SHORT-TERM MUNICIPALS
(IDENTIFIED COST $1,250,000)
|
1,250,000
|
|
|
|
TOTAL INVESTMENT IN SECURITIES—98.9%
(IDENTIFIED COST $121,065,292)2
|
115,417,589
|
|
|
|
OTHER ASSETS AND LIABILITIES - NET—1.1%3
|
1,286,953
|
|
|
|
TOTAL NET ASSETS—100%
|
$116,704,542
|
Securities that are subject to the federal alternative minimum tax (AMT) represent 10.2% of the Fund’s portfolio as calculated based upon total market value (unaudited).
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
The cost of investments for federal tax purposes amounts to $121,046,233.
3
Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2023.
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 August 31, 2023, all investments of the Fund utilized Level 2 inputs in valuing the Fund’s assets carried at fair value.
Annual Shareholder Report
15
The following acronym(s) are used throughout this portfolio:
|
FRNs
|
—Floating Rate Notes
|
|
GO
|
—General Obligation
|
|
GTD
|
—Guaranteed
|
|
HEFA
|
—Health and Education Facilities Authority
|
|
HFA
|
—Housing Finance Authority
|
|
IDA
|
—Industrial Development Authority
|
|
INS
|
—Insured
|
|
LIQ
|
—Liquidity Agreement
|
|
LT
|
—Limited Tax
|
|
PRF
|
—Pre-refunded
|
|
SIFMA
|
—Securities Industry and Financial Markets Association
|
|
UT
|
—Unlimited Tax
|
|
VRDNs
|
—Variable Rate Demand Notes
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
16
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Net Asset Value, Beginning of Period
|
$9.99
|
$11.22
|
$11.08
|
$11.19
|
$10.69
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.27
|
0.24
|
0.25
|
0.27
|
0.31
|
|
Net realized and unrealized gain (loss)
|
(0.16)
|
(1.20)
|
0.14
|
(0.03)
|
0.51
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.11
|
(0.96)
|
0.39
|
0.24
|
0.82
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.26)
|
(0.24)
|
(0.24)
|
(0.27)
|
(0.31)
|
|
Distributions from net realized gain
|
—
|
(0.03)
|
(0.01)
|
(0.08)
|
(0.01)
|
|
TOTAL DISTRIBUTIONS
|
(0.26)
|
(0.27)
|
(0.25)
|
(0.35)
|
(0.32)
|
|
Net Asset Value, End of Period
|
$9.84
|
$9.99
|
$11.22
|
$11.08
|
$11.19
|
|
Total Return1
|
1.15%
|
(8.63)%
|
3.60%
|
2.21%
|
7.85%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses2
|
0.76%3
|
0.76%
|
0.76%
|
0.76%3
|
0.76%3
|
|
Net investment income
|
2.76%
|
2.28%
|
2.27%
|
2.46%
|
2.85%
|
|
Expense waiver/reimbursement4
|
0.23%
|
0.19%
|
0.17%
|
0.18%
|
0.17%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$99,250
|
$116,884
|
$150,106
|
$155,137
|
$159,471
|
|
Portfolio turnover5
|
19%
|
16%
|
11%
|
8%
|
16%
|
1
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
2
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
3
The net expense ratios are calculated without reduction for expense offset arrangements. The net expense ratios are 0.76%, 0.76% and 0.76% for the years ended August 31, 2023, 2020, and 2019, 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. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
5
Securities that mature are considered sales for purposes of this calculation.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
17
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
|
Year Ended August 31,
|
Period
Ended
8/31/20201
|
||
|
2023
|
2022
|
2021
|
||
|
Net Asset Value, Beginning of Period
|
$9.99
|
$11.22
|
$11.08
|
$10.73
|
|
Income From Investment Operations:
|
|
|
|
|
|
Net investment income
|
0.30
|
0.27
|
0.28
|
0.09
|
|
Net realized and unrealized gain (loss)
|
(0.17)
|
(1.20)
|
0.14
|
0.36
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.13
|
(0.93)
|
0.42
|
0.45
|
|
Less Distributions:
|
|
|
|
|
|
Distributions from net investment income
|
(0.29)
|
(0.27)
|
(0.27)
|
(0.10)
|
|
Distributions from net realized gain
|
—
|
(0.03)
|
(0.01)
|
—
|
|
TOTAL DISTRIBUTIONS
|
(0.29)
|
(0.30)
|
(0.28)
|
(0.10)
|
|
Net Asset Value, End of Period
|
$9.83
|
$9.99
|
$11.22
|
$11.08
|
|
Total Return2
|
1.28%
|
(8.42)%
|
3.83%
|
4.15%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
Net expenses3
|
0.53%4
|
0.53%
|
0.53%
|
0.53%4,5
|
|
Net investment income
|
3.00%
|
2.53%
|
2.49%
|
2.60%5
|
|
Expense waiver/reimbursement6
|
0.21%
|
0.17%
|
0.15%
|
0.20%5
|
|
Supplemental Data:
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$17,454
|
$13,202
|
$10,033
|
$1,847
|
|
Portfolio turnover7
|
19%
|
16%
|
11%
|
8%8
|
1
Reflects operations for the period from April 28, 2020 (commencement of operations) to August 31, 2020.
2
Based on net asset value. Total returns for periods of less than one year are not annualized.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
4
The net expense ratios are calculated without reduction for expense offset arrangements. The net expense ratio is 0.53% for the year ended August 31, 2023 and 0.53% for the period ended August 31, 2020, after taking into account these expense reductions.
5
Computed on an annualized basis.
6
This expense decrease is reflected in both the net expense and net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
7
Securities that mature are considered sales for purposes of this calculation.
8
Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal period ended August 31, 2020.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
18
Statement of Assets and Liabilities
August 31, 2023
August 31, 2023
|
Assets:
|
|
|
|
Investment in securities, at value (identified cost $121,065,292)
|
|
$115,417,589
|
|
Cash
|
|
19,465
|
|
Income receivable
|
|
1,364,269
|
|
Receivable for shares sold
|
|
15,910
|
|
TOTAL ASSETS
|
|
116,817,233
|
|
Liabilities:
|
|
|
|
Payable for shares redeemed
|
$8,946
|
|
|
Payable for portfolio accounting fees
|
49,532
|
|
|
Payable for other service fees (Notes 2 and 5)
|
21,895
|
|
|
Payable for share registration costs
|
16,006
|
|
|
Payable for transfer agent fees
|
12,396
|
|
|
Payable for administrative fee (Note 5)
|
598
|
|
|
Payable for investment adviser fee (Note 5)
|
577
|
|
|
Accrued expenses (Note 5)
|
2,741
|
|
|
TOTAL LIABILITIES
|
|
112,691
|
|
Net assets for 11,863,176 shares outstanding
|
|
$116,704,542
|
|
Net Assets Consists of:
|
|
|
|
Paid-in capital
|
|
$124,457,141
|
|
Total distributable earnings (loss)
|
|
(7,752,599)
|
|
TOTAL NET ASSETS
|
|
$116,704,542
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
|
|
|
|
Class A Shares:
|
|
|
|
Net asset value per share ($99,250,204 ÷ 10,088,174 shares outstanding),
no par value, unlimited shares authorized
|
|
$9.84
|
|
Offering price per share (100/95.50 of $9.84)
|
|
$10.30
|
|
Redemption proceeds per share
|
|
$9.84
|
|
Institutional Shares:
|
|
|
|
Net asset value per share ($17,454,338 ÷ 1,775,002 shares outstanding),
no par value, unlimited shares authorized
|
|
$9.83
|
|
Offering price per share
|
|
$9.83
|
|
Redemption proceeds per share
|
|
$9.83
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
19
Statement of Operations
Year Ended August 31, 2023
Year Ended August 31, 2023
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$4,279,046
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$485,292
|
|
|
Administrative fee (Note 5)
|
|
96,207
|
|
|
Custodian fees
|
|
2,224
|
|
|
Transfer agent fees
|
|
73,965
|
|
|
Directors’/Trustees’ fees (Note 5)
|
|
2,423
|
|
|
Auditing fees
|
|
31,930
|
|
|
Legal fees
|
|
11,636
|
|
|
Other service fees (Notes 2 and 5)
|
|
262,417
|
|
|
Portfolio accounting fees
|
|
119,736
|
|
|
Share registration costs
|
|
38,335
|
|
|
Printing and postage
|
|
20,972
|
|
|
Miscellaneous (Note 5)
|
|
24,076
|
|
|
TOTAL EXPENSES
|
|
1,169,213
|
|
|
Waiver, Reimbursement and Reduction:
|
|
|
|
|
Waiver of investment adviser fee (Note 5)
|
$(257,840)
|
|
|
|
Reimbursement of other operating expenses
(Notes 2 and 5)
|
(20,970)
|
|
|
|
Reduction of custodian fees (Note 6)
|
(1,821)
|
|
|
|
TOTAL WAIVER, REIMBURSEMENT AND REDUCTION
|
|
(280,631)
|
|
|
Net expenses
|
|
|
888,582
|
|
Net investment income
|
|
|
3,390,464
|
|
Realized and Unrealized Gain (Loss) on Investments and
Futures Contracts:
|
|
|
|
|
Net realized loss on investments
|
|
|
(1,336,022)
|
|
Net realized gain on futures contracts
|
|
|
60,309
|
|
Net change in unrealized depreciation of investments
|
|
|
(808,890)
|
|
Net realized and unrealized gain (loss) on investments and
futures contracts
|
|
|
(2,084,603)
|
|
Change in net assets resulting from operations
|
|
|
$1,305,861
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
20
Statement of Changes in Net Assets
|
Year Ended August 31
|
2023
|
2022
|
|
Increase (Decrease) in Net Assets
|
|
|
|
Operations:
|
|
|
|
Net investment income
|
$3,390,464
|
$3,386,145
|
|
Net realized loss
|
(1,275,713)
|
(873,215)
|
|
Net change in unrealized appreciation/depreciation
|
(808,890)
|
(15,782,377)
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
1,305,861
|
(13,269,447)
|
|
Distributions to Shareholders:
|
|
|
|
Class A Shares
|
(2,776,808)
|
(3,494,988)
|
|
Institutional Shares
|
(475,047)
|
(323,954)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS
|
(3,251,855)
|
(3,818,942)
|
|
Share Transactions:
|
|
|
|
Proceeds from sale of shares
|
21,973,110
|
12,923,188
|
|
Net asset value of shares issued to shareholders in payment of
distributions declared
|
2,471,479
|
2,781,018
|
|
Cost of shares redeemed
|
(35,879,650)
|
(28,669,405)
|
|
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
|
(11,435,061)
|
(12,965,199)
|
|
Change in net assets
|
(13,381,055)
|
(30,053,588)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
130,085,597
|
160,139,185
|
|
End of period
|
$116,704,542
|
$130,085,597
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
21
Notes to Financial Statements
August 31, 2023
1. ORGANIZATION
Federated Hermes 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 Hermes Pennsylvania Municipal Income Fund (the “Fund”). 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 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 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.
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 Federated Investment Management Company (the “Adviser”).
◾ 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 ask quotations.
◾ Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Adviser.
◾ Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.
◾ For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, 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 Adviser’s valuation policies and procedures for the Fund, or if
Annual Shareholder Report
22
information furnished by a pricing service, in the opinion of the Adviser’s 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, and the actual value obtained could be materially different.
Fair Valuation Procedures
Pursuant to Rule 2a-5 under the Act, the Fund’s Board of Trustees (the “Trustees”) has designated the Adviser as the Fund’s valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees’ oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser’s fair value determinations.
The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services 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 Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser’s fair valuation and significant events procedures as part of the Fund’s compliance program and will review 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 ask 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 Adviser.
Annual Shareholder Report
23
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. 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, reimbursement and reduction of $280,631 is disclosed in various locations in this Note 2, 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 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 year ended August 31, 2023, other service fees for the Fund were as follows:
|
|
Other
Service Fees
Incurred
|
Other
Service Fees
Reimbursed
|
|
Class A Shares
|
$262,417
|
$(20,970)
|
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2023, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2023, tax years 2020 through 2023 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.
Annual Shareholder Report
24
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 Adviser.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration and yield curve risks. 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.
At August 31, 2023, the Fund had no outstanding futures contracts.
The average notional value of short futures contracts held by the Fund throughout the period was $424,567. This is based on amounts held as of each month end throughout the fiscal period.
Additional Disclosure Related to Derivative Instruments
The Effect of Derivative Instruments on the Statement of Operations For the Year Ended August 31, 2023
|
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$60,309
|
Annual Shareholder Report
25
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 materially from those estimated. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
Year Ended August 31
|
2023
|
2022
|
||
|
Class A Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
1,352,007
|
$13,449,377
|
557,906
|
$5,957,192
|
|
Shares issued to shareholders in payment of
distributions declared
|
220,564
|
2,179,260
|
247,867
|
2,635,953
|
|
Shares redeemed
|
(3,180,853)
|
(31,500,859)
|
(2,486,593)
|
(26,075,229)
|
|
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS
|
(1,608,282)
|
$(15,872,222)
|
(1,680,820)
|
$(17,482,084)
|
|
Year Ended August 31
|
2023
|
2022
|
||
|
Institutional Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
865,787
|
$8,523,733
|
660,811
|
$6,965,996
|
|
Shares issued to shareholders in payment of
distributions declared
|
29,563
|
292,219
|
13,772
|
145,065
|
|
Shares redeemed
|
(442,157)
|
(4,378,791)
|
(247,316)
|
(2,594,176)
|
|
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS
|
453,193
|
$4,437,161
|
427,267
|
$4,516,885
|
|
NET CHANGE RESULTING FROM TOTAL
FUND SHARE TRANSACTIONS
|
(1,155,089)
|
$(11,435,061)
|
(1,253,553)
|
$(12,965,199)
|
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2023 and 2022, was as follows:
|
|
2023
|
2022
|
|
Tax-exempt income
|
$3,251,855
|
$3,526,966
|
|
Ordinary income1
|
$—
|
$35,715
|
|
Long-term capital gains
|
$—
|
$256,261
|
1
For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
Annual Shareholder Report
26
As of August 31, 2023, the components of distributable earnings on a tax-basis were as follows:
|
Tax-exempt income
|
$119,549
|
|
Net unrealized depreciation
|
$(5,628,643)
|
|
Capital loss carryforwards
|
$(2,243,505)
|
|
TOTAL
|
$(7,752,599)
|
At August 31, 2023, the cost of investments for federal tax purposes was $121,046,233. The net unrealized depreciation of investments for federal tax purposes was $5,628,643. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $271,709 and unrealized depreciation from investments for those securities having an excess of cost over value of $5,900,352. The difference between book-basis and tax-basis net unrealized depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.
As of August 31, 2023, the Fund had a capital loss carryforward of $2,243,505 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.
The following schedule summarizes the Fund’s capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$846,500
|
$1,397,005
|
$2,243,505
|
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund for competitive reasons such as to maintain the Fund’s expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the year ended August 31, 2023, the Adviser voluntarily waived $257,840 of its fee.
Annual Shareholder Report
27
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 year ended August 31, 2023, the annualized fee paid to FAS was 0.079% 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 year ended August 31, 2023, 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 year ended August 31, 2023, FSSC received $23,698 and reimbursed $20,970 of other service fees disclosed in Note 2.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended August 31, 2023, FSC retained $2,412 in sales charges from the sale of Class A Shares.
Interfund Transactions
During the year ended August 31, 2023, 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 $38,250,000 and $38,650,000, respectively. Net realized gain (loss) recognized on these transactions was $0.
Annual Shareholder Report
28
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 and Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 0.76% and 0.53% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2024; 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 offset custody expenses. For the year ended August 31, 2023, the Fund’s expenses were offset by $1,821 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2023, were as follows:
|
Purchases
|
$22,954,338
|
|
Sales
|
$32,336,411
|
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 August 31, 2023, 8.2% 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.
Annual Shareholder Report
29
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 dated June 21, 2023. The LOC was made available to temporarily finance 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 (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of a commitment fee based on the amount of the lenders’ commitment that has not been utilized, quarterly in arrears and at maturity. As of August 31, 2023, the Fund had no outstanding loans. During the year ended August 31, 2023, 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 August 31, 2023, there were no outstanding loans. During the year ended August 31, 2023, the program was not utilized.
11. Indemnifications
Under the Fund’s organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party’s actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.
Annual Shareholder Report
30
12. OTHER mATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in, and may continue to result in, closed borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus has resulted in substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. In addition, governments, their regulatory agencies, or self-regulatory organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect the instruments in which the Fund invests or the issuers of such investments. Any such impact could adversely affect the Fund's performance.
13. FEDERAL TAX INFORMATION (unaudited)
For the fiscal year ended August 31, 2023, 100% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
Annual Shareholder Report
31
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Federated Hermes Municipal Securities INCOME Trust and the Shareholders of Federated Hermes Pennsylvania Municipal Income Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Federated Hermes Pennsylvania Municipal Income Fund (the Fund), a portfolio of Federated Hermes Municipal Securities Income Trust, including the portfolio of investments, as of August 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of August 31, 2023, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Annual Shareholder Report
32
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of August 31, 2023, by correspondence with custodians. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Hermes’ investment companies since 2006.
Boston, Massachusetts
October 24, 2023
October 24, 2023
Annual Shareholder Report
33
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 March 1, 2023 to August 31, 2023.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
34
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
|
|
Beginning
Account Value
3/1/2023
|
Ending
Account Value
8/31/2023
|
Expenses Paid
During Period1
|
|
Actual:
|
|||
|
Class A Shares
|
$1,000
|
$1,012.80
|
$3.86
|
|
Institutional Shares
|
$1,000
|
$1,012.90
|
$2.69
|
|
Hypothetical (assuming a 5% return
before expenses):
|
|||
|
Class A Shares
|
$1,000
|
$1,021.37
|
$3.87
|
|
Institutional Shares
|
$1,000
|
$1,022.53
|
$2.70
|
1
Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
|
Class A Shares
|
0.76%
|
|
Institutional Shares
|
0.53%
|
Annual Shareholder Report
35
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2022, the Trust comprised four portfolio(s), and the Federated Hermes Fund Family consisted of 33 investment companies (comprising 102 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Hermes Fund Family and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400, Option #4.
Interested TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Indefinite Term
Began serving: August 1990
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of the Funds in the Federated Hermes Fund Family; President,
Chief Executive Officer and Director, Federated Hermes, Inc.;
Chairman and Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and Director,
Federated Global Investment Management Corp.; Chairman and
Trustee, Federated Equity Management Company of Pennsylvania;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Previous Positions: President, Federated Investment Counseling;
President and Chief Executive Officer, Federated Investment
Management Company, Federated Global Investment Management
Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.
|
Annual Shareholder Report
36
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
John B. Fisher*
Birth Date: May 16, 1956
Trustee
Indefinite Term
Began serving: May 2016
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of certain of the Funds in the Federated Hermes Fund Family;
Director and Vice President, Federated Hermes, Inc.; President,
Director/Trustee and CEO, Federated Advisory Services Company,
Federated Equity Management Company of Pennsylvania, Federated
Global Investment Management Corp., Federated Investment
Counseling, Federated Investment Management Company, and
Federated MDTA LLC; Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales
Division of Federated Securities Corp.; President and CEO of Passport
Research, Ltd.; Director and President, Technology, Federated
Services Company.
|
*
Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold with Federated Hermes, Inc. and its subsidiaries.
INDEPENDENT TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee, and Chair of the Board
of Directors or Trustees, of the Federated Hermes Fund Family;
formerly, Chairman and CEO, The Collins Group, Inc. (a private equity
firm) (Retired).
Other Directorships Held: Director, KLX Energy Services Holdings,
Inc. (oilfield services); former Director of KLX Corp. (aerospace).
Qualifications: Mr. Collins has served in several business and financial
management roles and directorship positions throughout his career.
Mr. Collins previously served as Chairman and CEO of The Collins
Group, Inc. (a private equity firm) and as a Director of KLX Corp.
Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins
previously served as Director and Audit Committee Member, Bank of
America Corp.; Director, FleetBoston Financial Corp.; and Director,
Beth Israel Deaconess Medical Center (Harvard University
Affiliate Hospital).
|
Annual Shareholder Report
37
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
|
Principal Occupations: Director or Trustee, Chair of the Audit
Committee of the Federated Hermes Fund Family; formerly, Vice
Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee,
Equifax, Inc.; Lead Director, Member of the Audit and Nominating and
Corporate Governance Committees, Haverty Furniture Companies,
Inc.; formerly, Director, Member of Governance and Compensation
Committees, Publix Super Markets, Inc.
Qualifications: Mr. Hough has served in accounting, business
management and directorship positions throughout his career.
Mr. Hough most recently held the position of Americas Vice Chair of
Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough
serves on the President’s Cabinet and Business School Board of
Visitors for the University of Alabama. Mr. Hough previously served on
the Business School Board of Visitors for Wake Forest University, and
he previously served as an Executive Committee member of the
United States Golf Association.
|
|
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Adjunct Professor Emerita of Law, Duquesne University
School of Law; formerly, Dean of the Duquesne University School of
Law and Professor of Law and Interim Dean of the Duquesne
University School of Law; formerly, Associate General Secretary and
Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation
(natural gas).
Qualifications: Judge Lally-Green has served in various legal and
business roles and directorship positions throughout her career. Judge
Lally-Green previously held the position of Dean of the School of Law
of Duquesne University (as well as Interim Dean). Judge Lally-Green
previously served as Associate General Secretary of the Diocese of
Pittsburgh, a member of the Superior Court of Pennsylvania and as a
Professor of Law, Duquesne University School of Law. Judge
Lally-Green was appointed by the Supreme Court of Pennsylvania to
serve on the Supreme Court’s Board of Continuing Judicial Education
and the Supreme Court’s Appellate Court Procedural Rules
Committee. Judge Lally-Green also currently holds the positions on
not for profit or for profit boards of directors as follows: Director
and Chair, UPMC Mercy Hospital; Regent, Saint Vincent Seminary;
Member, Pennsylvania State Board of Education (public); Director,
Catholic Charities, Pittsburgh; and Director CNX Resources
Corporation (natural gas). Judge Lally-Green has held the positions of:
Director, Auberle; Director, Epilepsy Foundation of Western and
Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director,
Saint Thomas More Society; Director and Chair, Catholic High Schools
of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute;
Director, St. Vincent College; Director and Chair, North Catholic High
School, Inc.; Director and Vice Chair, Our Campaign for the Church
Alive!, Inc.; and Director and Vice Chair, Saint Francis University.
|
Annual Shareholder Report
38
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
Thomas M. O’Neill
Birth Date: June 14, 1951
Trustee
Indefinite Term
Began serving: August 2006
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Sole Proprietor, Navigator Management Company
(investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O’Neill has served in several business, mutual fund
and financial management roles and directorship positions throughout
his career. Mr. O’Neill serves as Director, Medicines for Humanity.
Mr. O’Neill previously served as Chief Executive Officer and President,
Managing Director and Chief Investment Officer, Fleet Investment
Advisors; President and Chief Executive Officer, Aeltus Investment
Management, Inc.; General Partner, Hellman, Jordan Management
Co., Boston, MA; Chief Investment Officer, The Putnam Companies,
Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director
and Consultant, EZE Castle Software (investment order management
software); Director, Midway Pacific (lumber); and Director, The
Golisano Children’s Museum of Naples, Florida.
|
|
Madelyn A. Reilly
Birth Date: February 2, 1956
Trustee
Indefinite Term
Began serving:
November 2020
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; formerly, Senior Vice President for Legal Affairs,
General Counsel and Secretary of Board of Directors, Duquesne
University (Retired).
Other Directorships Held: None.
Qualifications: Ms. Reilly has served in various business and legal
management roles throughout her career. Ms. Reilly previously served
as Senior Vice President for Legal Affairs, General Counsel and
Secretary of Board of Directors and Director of Risk Management and
Associate General Counsel, Duquesne University. Prior to her work at
Duquesne University, Ms. Reilly served as Assistant General Counsel
of Compliance and Enterprise Risk as well as Senior Counsel of
Environment, Health and Safety, PPG Industries. Ms. Reilly currently
serves as a member of the Board of Directors of UPMC
Mercy Hospital.
|
Annual Shareholder Report
39
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Retired; formerly, Senior Vice Chancellor and Chief Legal
Officer, University of Pittsburgh and Executive Vice President and
Chief Legal Officer, CONSOL Energy Inc. (now split into two separate
publicly traded companies known as CONSOL Energy Inc. and CNX
Resources Corp.).
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal
management roles and directorship positions throughout his career.
Mr. Richey most recently held the positions of Senior Vice Chancellor
and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously
served as Chairman of the Board, Epilepsy Foundation of Western
Pennsylvania and Chairman of the Board, World Affairs Council of
Pittsburgh. Mr. Richey previously served as Chief Legal Officer and
Executive Vice President, CONSOL Energy Inc. and CNX Gas
Company; and Board Member, Ethics Counsel and Shareholder,
Buchanan Ingersoll & Rooney PC (a law firm).
|
|
John S. Walsh
Birth Date:
November 28, 1957
Trustee
Indefinite Term
Began serving: June 1999
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; President and Director, Heat Wagon, Inc. (manufacturer
of construction temporary heaters); President and Director,
Manufacturers Products, Inc. (distributor of portable construction
heaters); President, Portable Heater Parts, a division of Manufacturers
Products, Inc.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management
roles and directorship positions throughout his career. Mr. Walsh
previously served as Vice President, Walsh & Kelly, Inc.
(paving contractors).
|
Annual Shareholder Report
40
OFFICERS
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Hermes Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp.; and Assistant Treasurer, Federated
Investors Trust Company. Ms. Hensler has received the Certified
Public Accountant designation.
Previous Positions: Controller of Federated Hermes, Inc.; Senior Vice
President and Assistant Treasurer, Federated Investors Management
Company; Treasurer, Federated Investors Trust Company; Assistant
Treasurer, Federated Administrative Services, Federated
Administrative Services, Inc., Federated Securities Corp., Edgewood
Services, Inc., Federated Advisory Services Company, Federated
Equity Management Company of Pennsylvania, Federated Global
Investment Management Corp., Federated Investment Counseling,
Federated Investment Management Company, Passport Research,
Ltd., and Federated MDTA, LLC; Financial and Operations Principal for
Federated Securities Corp., Edgewood Services, Inc. and Southpointe
Distribution Services, Inc.
|
|
Peter J. Germain
Birth Date:
September 3, 1959
CHIEF LEGAL OFFICER,
SECRETARY and EXECUTIVE
VICE PRESIDENT
Officer since: January 2005
|
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary
and Executive Vice President of the Federated Hermes Fund Family.
He is General Counsel, Chief Legal Officer, Secretary and Executive
Vice President, Federated Hermes, Inc.; Trustee and Senior Vice
President, Federated Investors Management Company; Trustee and
President, Federated Administrative Services; Director and President,
Federated Administrative Services, Inc.; Director and Vice President,
Federated Securities Corp.; Director and Secretary, Federated Private
Asset Management, Inc.; Secretary, Federated Shareholder Services
Company; and Secretary, Retirement Plan Service Company of
America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a
member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel,
Managing Director of Mutual Fund Services, Federated Hermes, Inc.;
Senior Vice President, Federated Services Company; and Senior
Corporate Counsel, Federated Hermes, Inc.
|
|
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE
OFFICER AND SENIOR
VICE PRESIDENT
Officer since: July 2015
|
Principal Occupations: Senior Vice President and Chief Compliance
Officer of the Federated Hermes Fund Family; Vice President and
Chief Compliance Officer of Federated Hermes, Inc. and Chief
Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined
Federated Hermes, Inc. in October 2011. He holds FINRA licenses
under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of
Compliance Operating Officer, Federated Hermes, Inc. Prior to joining
Federated Hermes, Inc., Mr. Van Meter served at the United States
Securities and Exchange Commission in the positions of Senior
Counsel, Office of Chief Counsel, Division of Investment Management
and Senior Counsel, Division of Enforcement.
|
Annual Shareholder Report
41
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: February 2010
|
Principal Occupations: Robert J. Ostrowski joined Federated Hermes,
Inc. in 1987 as an Investment Analyst and became a Portfolio Manager
in 1990. He was named Chief Investment Officer of Federated
Hermes’ taxable fixed-income products in 2004 and also serves as a
Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice
President of the Fund’s Adviser in 2009 and served as a Senior Vice
President of the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has
received the Chartered Financial Analyst designation. He received his
M.S. in Industrial Administration from Carnegie Mellon University.
|
Annual Shareholder Report
42
Evaluation and Approval of Advisory Contract–May 2023
Federated Hermes Pennsylvania Municipal Income Fund (the “Fund”)
At its meetings in May 2023 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including 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 investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to approve the continuation of the existing arrangement. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation of the Fund’s management fee (the “CCO Fee Evaluation Report”). The Board considered the CCO Fee Evaluation Report, along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the 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.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed
Annual Shareholder Report
43
reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; Federated Hermes’ business and operations; the Adviser’s investment philosophy, personnel and processes; the Fund’s investment objectives and strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate); the Fund’s fees and expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the financial condition of Federated Hermes; the Adviser’s profitability with respect to managing the Fund; distribution and sales activity for the Fund; and the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any).
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. 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 the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser’s cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize “economies of scale” as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any “fall-out” benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fee and expense structures, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same 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 the adviser’s services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements
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regarding the basis for a fund board’s approval of the fund’s investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation of the 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 Hermes on matters relating to the oversight of the other funds advised by Federated Hermes (each, a “Federated Hermes Fund” and, collectively, the “Federated Hermes Funds”).
In addition, the Board considered the preferences and expectations of Fund shareholders and 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 the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes’ industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund’s shareholders and such shareholders in the marketplace, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.
In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to approve the continuation of the Contract was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Contract. The Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. The Independent Trustees were assisted throughout the evaluation process by independent legal counsel. In connection with their deliberations at the May Meetings, the Independent Trustees met separately in executive session with their independent legal counsel and without management present to review the relevant materials and consider their responsibilities under applicable laws. In addition, senior management representatives of Federated Hermes also met with the Independent Trustees and their independent legal counsel to discuss the materials and presentations furnished to the Board at the May Meetings. The Board considered the approval of the Contract for the Fund as part of its consideration of agreements for funds across the family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.
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Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the range of services provided to the Fund by Federated Hermes. The Board considered the Adviser’s personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. 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 Federated Hermes’ ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser’s ability to deliver competitive investment performance for the Fund when compared to the Fund’s Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund’s investment program.
In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted that the significant acquisition of Hermes Fund Managers Limited by Federated Hermes has deepened Federated Hermes’ investment management expertise and capabilities and its access to analytical resources related to environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters. The Board considered Federated Hermes’ oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes’ communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds’ officers.
The Board received and evaluated information regarding Federated Hermes’ regulatory and compliance environment. The Board considered Federated Hermes’ compliance program and compliance history and reports from the CCO about Federated Hermes’ compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes’ support of the Federated Hermes Funds’ compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund’s obligations pursuant to Rule 38a-1 under the
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Investment Company Act of 1940, including Federated Hermes’ commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes’ approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds’ compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes’ oversight in this regard, including in connection with the implementation of new rules on derivatives risk management and fair valuation.
The Board also considered the implementation of Federated Hermes’ business continuity plans. In addition, the Board noted Federated Hermes’ commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.
The Board considered Federated Hermes’ efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.
Fund Investment Performance
The Board considered the investment performance of the Fund. In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser’s analysis of, the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance compared to one or more relevant categories or groups of peer funds and the Fund’s benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain
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Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.
The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”). The Board noted 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 the CCO’s view that, in evaluating such comparisons, 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 Performance Peer Group.
The Board considered that for the one-year, three-year and five-year periods ended December 31, 2022, the Fund’s performance was above the median of the Performance Peer Group.
Based on these considerations, the Board concluded that it had continued confidence in the Adviser’s overall capabilities to manage the Fund.
Fund Expenses
The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. 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, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category.
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund’s fees and expenses. The Board focused on comparisons with other registered funds with comparable investment programs more heavily than non-registered fund products or services because such comparisons are believed to be more relevant. The Board considered that other registered funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the
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Fund’s shareholders. The Board noted that the range of such other registered funds’ fees and expenses, therefore, appears to be a relevant indicator of what investors 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 Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was below the median of the Expense Peer Group, and the Board was satisfied that the overall expense structure of the Fund remained competitive.
The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-registered fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing and fund liquidity; (vi) different administrative responsibilities; (vii) different degrees of risk associated with management; and (viii) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s registered fund, noting the CCO’s view that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party registered fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.
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Profitability
The Board received and considered profitability information furnished by Federated Hermes, as requested by the CCO. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs on a fund-by-fund basis continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. In addition, the Board considered the CCO’s view that the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO’s view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.
Economies of Scale
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of determining 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 Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information
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security programs; internal audit and risk management functions; and technology and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.
The Board also received and considered information on adviser-paid fees (commonly referred to as “revenue sharing” payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.
Other Benefits
The Board considered information regarding the compensation and other ancillary (or “fall-out”) benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds’ investment advisory contracts, Federated Hermes’ affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds’ administrator and distributor. In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.
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Conclusions
The Board considered: (i) the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and sub-advisory arrangements is a continuing and ongoing 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 ongoing oversight of the Federated Hermes Funds.
On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative.
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Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness
Annual Evaluation of Adequacy and Effectiveness
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Federated Hermes Municipal Securities Income Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Pennsylvania Municipal Income Fund (the “Fund” and, collectively with the other non-money market open-end funds advised by Federated Hermes, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of each Federated Hermes Fund’s investment adviser as the administrator for the Program (the “Administrator”) with respect to that Fund. The Administrator, in turn, has delegated day-to-day responsibility for the administration of the Program to multiple Liquidity Risk Management Committees, which are comprised of representatives from certain divisions within Federated Hermes.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2023, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from April 1, 2022 through March 31, 2023 (the “Period”). The Report addressed the operation of the Program and assessed the adequacy and effectiveness of its implementation, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and
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the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
◾ confirmation that it was not necessary for the Fund to utilize, and the Fund did not utilize, any alternative funding sources that were available to the Federated Hermes Funds during the Period, such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind, reverse repurchase agreement transactions, redemptions delayed beyond the normal T+1 settlement but within seven days of the redemption request, and committed lines of credit;
◾ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
◾ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments, and the results of the Administrator’s evaluation of the services performed by the vendor in support of this process, including the Administrator’s view that the methodologies utilized by the vendor continue to be appropriate;
◾ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the operation of the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
◾ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period, and the operation of the procedures for monitoring this limit;
◾ the fact that there were no liquidity events during the Period that materially affected the Fund’s liquidity risk;
◾ the impact on liquidity and management of liquidity risk, if any, caused by extended non-U.S. market closures and confirmation that there were no issues for any of the affected Federated Hermes Funds in meeting shareholder redemptions at any time during these temporary non-U.S. market closures.
Based on this review, the Administrator concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400, Option #4. 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 FederatedHermes.com/us/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 FederatedHermes.com/us.
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Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated Hermes Pennsylvania Municipal Income Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313923708
CUSIP 313923757
CUSIP 313923757
28995 (10/23)
© 2023 Federated Hermes, Inc.
| Item 2. | Code of Ethics |
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.
(c) There was no amendment to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.
(d) There was no waiver granted, either actual or implicit, from a provision to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.
(e) Not Applicable
(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3. Audit Committee Financial Expert
The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item: G. Thomas Hough and Thomas M. O'Neill.
| Item 4. | Principal Accountant Fees and Services |
(a) Audit Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2023 – $139,389
Fiscal year ended 2022 - $132,750
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2023 - $0
Fiscal year ended 2022 - $0
Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $3,990 and $0 respectively. Fiscal year ended 2023- Audit consent fee for N-14 merger document.
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2023 - $0
Fiscal year ended 2022 - $0
Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(d) All Other Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2023 - $0
Fiscal year ended 2022 - $0
Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate to management its responsibilities to pre-approve services performed by the independent auditor.
The Audit Committee has delegated pre-approval authority to its chairman (the “Chairman”) for services that do not exceed a specified dollar threshold. The Chairman or Chief Audit Executive will report any such pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.
In addition to the annual audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other audit services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain audit services; with limited exception, all other audit services must be specifically pre-approved by the Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the RIC’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor, and has pre-approved certain audit-related services; all other audit-related services must be specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide tax services to the RIC such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain tax services; with limited exception, all tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of permissible services other than audit, review or attest services the pre-approval requirement is waived if:
| (1) | With respect to such services rendered to the Funds, the aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the audit client to its accountant during the fiscal year in which the services are provided; and |
| (2) | With respect to such services rendered to the Fund’s investment adviser ( the “Adviser”)and any entity controlling, controlled by to under common control with the Adviser such as affiliated non-U.S. and U.S. funds not under the Audit Committee’s purview and which do not fall within a category of service which has been determined by the Audit Committee not to have a direct impact on the operations or financial reporting of the RIC, the aggregate amount of all services provided constitutes no more than five percent of the total amount of revenues paid to the RIC’s auditor by the RIC, its Adviser and any entity controlling, controlled by, or under common control with the Adviser during the fiscal year in which the services are provided; and |
| (3) | Such services were not recognized by the issuer or RIC at the time of the engagement to be non-audit services; and |
| (4) | Such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the Board of Directors to whom authority to grant such approvals has been delegated by the Audit Committee. |
The Audit Committee may grant general pre-approval to those permissible non-audit services which qualify for pre-approval and which it believes are routine and recurring services, and would not impair the independence of the auditor.
The Securities and Exchange Commission’s (the “SEC”) rules and relevant guidance should be consulted to determine the precise definitions of these services and applicability of exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.
PROCEDURES
Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by the Fund’s Principal Accounting Officer and/or the Chief Audit Executive of Federated Hermes, Inc., only after those individuals have determined that the request or application is consistent with the SEC’s rules on auditor independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2023 – 0%
Fiscal year ended 2022 - 0%
Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2023 – 0%
Fiscal year ended 2022 – 0%
Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2023 – 0%
Fiscal year ended 2022 – 0%
Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
| (f) | NA |
| (g) | Non-Audit Fees billed to the registrant, the registrant’s Adviser, and certain entities controlling, controlled by or under common control with the Adviser: |
Fiscal year ended 2023 - $51,847
Fiscal year ended 2022 - $18,526
| (h) | The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s Adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
| Item 5. | Audit Committee of Listed Registrants |
Not Applicable
| Item 6. | Schedule of Investments |
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies |
Not Applicable
| Item 13. | Exhibits |
(a)(1) Code of Ethics- Not Applicable to this Report.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.
(a)(3) Not Applicable.
(b) Certifications pursuant to 18 U.S.C. Section 1350.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Federated Hermes Municipal Securities Income Trust
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 24, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date October 24, 2023
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 24, 2023