'DICKSTEIN, SHAPIRO & MORIN, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
(202) 785-9700
February 23, 1995
Via EDGAR
EDGAR Operations Branch
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Bruce R. MacNeil
Re: FORTRESS MUNICIPAL INCOME FUND, INC.
Registration Statement on Form N-14 (File No. 33-57355)
Ladies and Gentlemen:
Enclosed for filing pursuant to Rule 497(b) of the General
Rules and Regulations promulgated pursuant to the Securities Act of
1933, as amended, and Regulation S-T are the definitive Prospectus/Proxy
Statements contained in the above-captioned Registration Statement, in
the exact form in which such Prospectus/Proxy Statements have been used.
The enclosed have been redlined to reflect changes made from the
registration statement previously filed on Form N-14 on January 19,
1995.
Very truly yours,
/s/ Matthew G. Maloney
Matthew G. Maloney
Enclosures
Reg. No. 33-57355
811-4533
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FORTRESS MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies to:
Charles H. Field, Esquire Matthew G. Maloney, Esquire
Corporate Counsel Dickstein, Shapiro & Morin, L.L.P.
Federated Investors 2101 L Street, N.W.
Pittsburgh, PA 15222 Washington, D.C. 20037
It is proposed that this filing will become effective on February 18,
1995, or as soon thereafter as is practicable, pursuant to Rule 488.
(Approximate Date of Proposed Public Offering)
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 that it elects to register an indefinite amount of
securities under the Securities Act of 1933 and filed the Notice
required by that Rule for Registrant's most recent fiscal year on
October 14, 1994.
CROSS REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14
This Registration Statement is comprised of six prospectus/proxy
statements, and related statements of additional information relating to
the acquisition by the Registrant of: (1) Florida Municipal Income Fund;
(2) Maryland Municipal Income Fund; (3) New Jersey Municipal Income
Fund; (4) Texas Municipal Income Fund; (5) Virginia Municipal Income
Fund; each of which is a portfolio of Municipal Securities Income Trust;
and (6) Multi-State Income Fund, a portfolio of Fixed Income Securities,
Inc. The numbers below correspond to the prospectus/proxy statement
numbers.
Item of Part A of Form N-14 and Caption or Location in
Caption Prospectus
1.Beginning of Registration
Statement and Outside Front
Cover Page of Prospectus (1-6) Cross Reference Sheet;
Cover Page
2.Beginning and Outside Back
Cover Page of Prospectus (1-6) Table of Contents
3.Synopsis Information and
Risk Factors (1-6) Summary; Risk Factors
4.Information About the
Transaction (1-6) Information About the
Reorganization
5.Information About the
Registrant (1-5) Information About the
Trust, the Portfolio and the
Fund; (6) Information About the
Corporation; the Portfolio and
the Fund
6.Information About the
Company Being Acquired (1-5)Information About the Trust,
the Portfolio and the Fund; (6)
Information About the
Corporation; the Portfolio and
the Fund
7.Voting Information (1-6) Voting Information
8.Interest of Certain Persons
and Experts Not Applicable
9.Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
FLORIDA MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of Municipal Securities Income
Trust (the "Trust") are pleased to submit for your vote a proposal to
transfer all of the assets of Florida Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio in that it seeks current
income which is exempt from the federal regular income tax. The
Portfolio also seeks current income which is exempt from the Florida
intangibles tax. Income earned by the Fund is not exempt from the
Florida intangibles tax. As part of the transaction, shareholders in the
Portfolio would receive shares in the Fund equal in value to their
shares in the Portfolio and the Portfolio would be liquidated.
The Board of Trustees of the Trust, as well as Federated Advisers, the
Trust's adviser, and Federated Securities Corp., the Trust's principal
underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following
reasons:
- the Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
FLORIDA MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF FLORIDA MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of Florida Municipal Income Fund (the
"Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of
the Trust, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Trust, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
FLORIDA MUNICIPAL INCOME FUND,
a portfolio of
MUNICIPAL SECURITIES INCOME TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of Florida Municipal Income Fund (the "Portfolio"), a
portfolio of Municipal Securities Income Trust, a Massachusetts business
trust (the "Trust"), in exchange for Fund shares to be distributed pro
rata by the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a non-diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide current
income which is exempt from federal regular income tax and to maintain
an investment portfolio which will cause its shares to be exempt from
the Florida intangibles tax. The Portfolio pursues this objective by
investing primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and the Florida intangibles tax.
For a comparison of the investment policies of the Portfolio and the
Fund, see "Summary-Investment Objectives and Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 3
Distribution Arrangements 4
Purchase and Redemption
Procedures 5
Tax Consequences 5
Risk Factors 6
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 8
Federal Income Tax Consequences 8
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 9
Information About The Fund, The
Portfolio And The Trust 9
Fortress Municipal Income Fund,
Inc. 9
Florida Municipal Income Fund,
a portfolio of Municipal
Securities Income Trust 9
Voting Information 10
Outstanding Shares and Voting
Requirements 10
Dissenter's Right of Appraisal 11
Other Matters 11
Exhibit A 12
Exhibit B 21
Summary
About the Proposed Reorganization
The Board of Trustees of Municipal Securities Income Trust (the "Trust")
has voted to recommend to shareholders of its portfolio, Florida
Municipal Income Fund (the "Portfolio"), the approval of an Agreement
and Plan of Reorganization (the "Plan") whereby Fortress Municipal
Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire
all of the assets of the Portfolio in exchange for Fund shares to be
distributed pro rata by the Portfolio to its shareholders in complete
liquidation and dissolution of the Portfolio (the "Reorganization"). As
a result of the Reorganization, each shareholder of the Portfolio will
become the owner of Fund shares having a total net asset value equal to
the total net asset value of his or her holdings in the Portfolio on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio. After the
acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Income earned by the Fund will be exempt from the federal regular income
tax but will not be exempt from the Florida intangibles tax. As
discussed below, income earned by the Portfolio is exempt from the
federal regular income tax and the Florida intangibles tax.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference thereto.
The investment objective of the Portfolio is to provide current income
which is exempt from federal regular income tax and to maintain an
investment portfolio which will cause its shares to be exempt from the
Florida intangibles tax. This investment objective may not be changed
without the approval of shareholders. The Portfolio pursues its
investment objective by investing primarily in securities which are
exempt from federal regular income tax and the Florida intangibles tax.
As a matter of investment policy which cannot be changed without the
approval of shareholders, the Portfolio invests its assets so that at
least 80% of its annual interest income is exempt from federal regular
income tax.
The Fund is a diversified investment company. In contrast, the Portfolio
is a non-diversified portfolio of securities.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high-risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
An investment in the Fund may entail greater risks than an investment in
the Portfolio as a result of the Fund's ability to invest in high-yield,
high-risk municipal bonds. The risks may include a greater risk of
default in the payment of principal and interest on such securities as a
result of the issuer's weaker financial condition. The Adviser seeks to
minimize these risks through various portfolio management techniques
described in the Fund's prospectus dated October 31, 1994. There can be
no assurance that the Adviser will be successful in minimizing these
risks.
The Portfolio invests primarily in Florida municipal securities, which
are obligations issued by or on behalf of the State of Florida and
Florida municipalities, as well as those issued by states, territories
and possessions of the United States and participation interests in such
instruments, the interest from which is exempt from federal regular
income tax and the Florida intangibles tax in the opinion of the
issuer's bond counsel, the Trust, its officers or the Adviser ("Florida
Municipal Securities"). The Florida Municipal Securities, and any other
securities, which the Portfolio buys are investment grade bonds rated,
at the time of purchase, Baa or higher by Moody's or BBB or higher by
S&P or by Fitch Investors Service, Inc. and bonds which are not rated if
the Adviser determines that such bonds are of comparable quality or have
similar characteristics to bonds having such ratings. If a security's
rating is reduced below the required minimum after the Portfolio has
purchased it, the Portfolio is not required to sell the security but may
consider doing so. Unless otherwise designated, the investment policies
of the Portfolio may be changed by the Board of Trustees without
shareholder approval, although shareholders will be notified before any
material change becomes effective. Currently, the Portfolio invests
primarily in variable rate municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Trustees without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated December 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated December 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
The Adviser, which also serves as investment adviser to the Portfolio,
may similarly voluntarily choose to waive a portion of its advisory fee
or reimburse the Portfolio for operating expenses but may likewise
terminate such waiver or reimbursement at any time in its sole
discretion. The Adviser has also undertaken to reimburse the Portfolio
for operating expenses in excess of limitations established by certain
states. Without such waiver or reimbursement, the expense ratio of each
of the Fund and the Portfolio would be higher by 0.0 and 3.37% ,
respectively, of average daily net assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's most recent fiscal year was 1.29% of its average
aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its most recent fiscal year and would have been 4.12% of
average daily net assets absent the voluntary waiver by the Adviser of a
portion of the investment advisory fee and reimbursement of certain
other operating expenses. As of December 1, 1994, the Adviser ceased its
voluntary waiver of investment advisory fees as well as its voluntary
reimbursement of certain Portfolio operating expenses. As a result, the
maximum total annual operating expenses for the Portfolio for its
current fiscal year are expected to be 2.50% of average daily net
assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights. For a complete description of sales charges,
contingent deferred sales charges and exemptions from such charges,
reference is hereby made to the Prospectus of the Fund dated October 31,
1994 and the Prospectus of the Portfolio dated December 31, 1994, each
of which is incorporated herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated December 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio.
Purchases of shares of the Fund may be made through an investment dealer
who has an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of October 17, 1994 the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by FSC. Proceeds will be distributed by check within seven days after
receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated December 31, 1994 and the
Statement of Additional Information dated December 31, 1994. Such risks
include, but are not limited to, fluctuating yields on Florida Municipal
Securities based on factors such as general market conditions, the size
of the offering, the maturity of the obligations and the rating of the
issue; the ability of issuers to meet their obligations for payment of
interest and principal when due; legislative, executive or
administrative changes or voter initiatives which could result in
adverse consequences for Florida Municipal Securities; and any adverse
economic conditions or developments affecting the State of Florida or
its municipalities.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn income exempt from both the federal regular income
tax and the Florida intangibles tax. In an effort to remain competitive
with other investment companies with similar investment objectives, the
Adviser waived all of its investment advisory fees and reimbursed the
Portfolio for certain operating expenses, resulting in aggregate fee
waivers and expense reimbursements of $263,489 for the Portfolio's
fiscal year ended August 31, 1994. However, by August 31, 1994, the
Portfolio's net assets had grown only to $11,634,652. In the opinion of
FSC, the Portfolio's principal underwriter, the Portfolio suffered from
a lack of investor interest sufficient to permit it to grow to a size
which would permit it to operate efficiently. Although FSC expended
significant marketing efforts to promote sales of the Portfolio's
shares, the negative investment climate for municipal securities
throughout 1994 impeded sales of Portfolio shares and FSC concluded that
it was unlikely that the situation would improve materially in the
foreseeable future. In addition, the Adviser and its affiliates
concluded that they would be unable to continue to waive investment
advisory fees and reimburse operating expenses in order for the
Portfolio to continue to earn a yield on its investments competitive
with other investment companies with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Trust's Board of Trustees that
the Portfolio be liquidated. It also indicated that the Adviser would
cease waiving its investment advisory fee after November 30, 1994 and
that as a result, the Portfolio's operating expenses could be expected
to increase to approximately 2.5%. FSC accordingly recommended to
shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $100,000, or approximately $0.077 per share. As a
result, FSC and the Adviser recommended to the Board of Trustees of the
Trust that it consider the feasibility of transferring the Portfolio's
assets to another investment company in exchange for shares of such
other investment company in a transaction which would be tax-free to the
Portfolio and its shareholders. Recognizing that many shareholders may
not have wished to redeem their shares of the Portfolio, FSC and the
Adviser recommended to the Trust's Board of Trustees a transfer of the
Portfolio's assets to the Fund, which seeks to earn interest income
exempt from the federal regular income tax (although not exempt from the
Florida intangibles tax).
The Board of Trustees of the Trust evaluated this proposal as well as
other alternatives, including liquidation of the Portfolio. The Trustees
concluded that this transaction would be in the best interests of
shareholders because the Portfolio was unlikely to reach economic size
on its own, as a result of relatively high expenses, and that net yield
on an investment in the Portfolio would not be attractive to
shareholders. With assets of approximately $411,672,068 at December 31,
1994, the Trust's Board of Trustees concluded that the Fund was of a
size to provide operating efficiencies and economies of scale sufficient
to provide shareholders with competitive investment returns and net
income exempt from the federal regular income tax. The Trustees also
took account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Trustees noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Trust's Board of Trustees, including a majority of the
independent Trustees, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Trustees of the Trust unanimously voted to approve, and
recommend to Portfolio shareholders the approval of, the Reorganization.
The Directors of the Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the
best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
In the event shareholders of the Portfolio do not approve the Plan, the
Trust's Board of Trustees will consider other alternatives which would
address the Portfolio's uneconomic size. These may include a plan of
liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Trust, on behalf of the Portfolio, and the Fund as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any
time before or after approval by shareholders of the Portfolio prior to
the Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Trust, on behalf of the Portfolio, is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust,
to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth
below is a brief summary of the significant rights of shareholders of
the Portfolio.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations
or the election of trustees under certain circumstances. A special
meeting of shareholders of the Trust for any permissible purpose shall
be called by the Trustees upon the written request of the holders of at
least 10% of the outstanding shares of the Trust or of the relevant
portfolio. Each share of the Portfolio is entitled to one vote. All
shares of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for obligations of
the Trust on behalf of the Portfolio. To protect its shareholders, the
Trust has filed legal documents with the Commonwealth of Massachusetts
that expressly disclaim the liability of Portfolio shareholders for such
acts or obligations of the Trust. These documents require that notice of
this disclaimer be given in each agreement, obligation or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Portfolio.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Portfolio, the Trust is required to
use the property of the Portfolio to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder for any act or obligation of the
Trust on behalf of the Portfolio. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from the assets of the Portfolio.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $971,744 $412,643,812
Price Per Share 10.02 8.30 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Trust
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
Florida Municipal Income Fund, a portfolio of Municipal Securities
Income Trust
Information about the Portfolio and the Trust is contained in the
Portfolio's current Prospectus dated December 31, 1994 and its Statement
of Additional Information dated December 31, 1994, which are
incorporated herein by reference. Copies of such Prospectus and
Statement of Additional Information may be obtained without charge from
the Fund by calling 1-800-245-5000 or by writing to the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is
subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements and
other information filed by the Portfolio can be obtained by calling or
writing the Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Trust an instrument revoking the proxy,
by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Trust and the Adviser at no additional cost
to the Trust. Such solicitations may be by telephone. The Adviser will
reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Trust has fixed the close of business on
February 10, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting of
Shareholders and any adjournment thereof. As of the record date, there
were 88,159.23 shares of the Portfolio outstanding. Each Portfolio share
is entitled to one vote and fractional shares have proportionate voting
rights. On the record date, TROBAR, as custodian for the benefit of
Robert B. Strother, Jacksonville, Florida, owned approximately 9,718.17
shares, or 11.02% of the Portfolio's outstanding shares; and Merrill
Lynch, Pierce, Fenner & Smith (as record owner holding shares for its
clients), Jacksonville, Florida, owned approximately 66,842 shares, or
75.82%, of the Portfolio's outstanding shares, and, therefore, may, for
certain purposes, be deemed to control the Portfolio and be able to
affect the outcome of certain matters presented for a vote of
shareholders. On such date, no other person owned of record, or to the
knowledge of the Adviser, beneficially owned, 5% or more of the
Portfolio's outstanding shares. On the record date, the trustees and
officers of the Portfolio as a group owned less than 1% of the
outstanding shares of the Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of
the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i)
67% of the shares of the Portfolio present at the Special Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
A majority of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Trust's Declaration of Trust or Massachusetts
law. Under the Plan, if approved by Portfolio shareholders, each
Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Trust knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named
in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
Agreement And Plan Of Reorganization
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL
SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter
called the "Trust") on behalf of its portfolio FLORIDA MUNICIPAL INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are
registered open-end management investment companies and the Acquired
Fund owns securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), of the
Acquiring Fund has determined that the exchange of all or substantially
all of the assets of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not
be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940
Act), of the Acquired Fund has determined that the exchange of all of
the assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquired Fund shareholders and that the interests of
the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Trust.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as
an open-end, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the
Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte
& Touche LLP, independent auditors, and have been prepared in accordance
with generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of
such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since August 31, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Trustees and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Trust's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Trustees of
the Trust or the Board of Directors of the Acquiring Fund at any time
prior to the Closing Date (and notwithstanding any vote of the Board of
Trustees of the Acquired Fund) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the
Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by
the Acquired Fund pursuant to this Agreement shall be limited in any
case to the Acquired Fund and its assets and the Acquiring Fund shall
not seek satisfaction of any such obligation from the shareholders of
the Acquired Fund, the trustees, officers, employees or agents of the
Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
MUNICIPAL SECURITIES INCOME TRUST,
on behalf of its portfolio,
FLORIDA MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/J. Crilley Kelly
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
FLORIDA MUNICIPAL INCOME FUND
(A Portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated
February 18, 1995 related to the above-referenced matter may be
obtained from Fortress Municipal Income Fund, Inc., Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This
Statement of Additional Information should be read in
conjunction with such Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal Income
Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of Florida Municipal Income
Fund, a portfolio of Municipal Securities Income Trust, dated December
31, 1994
3. Financial Statements of Fortress Municipal Income Fund, Inc.,
dated August 31, 1994
4. Financial Statements of Florida Municipal Income Fund, a portfolio
of Municipal Securities Income Trust, dated August 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of Florida Municipal Income Fund
(the "Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust"), dated December 31, 1994, is incorporated herein by reference
to Post-Effective Amendment No. 17 to the Trust's Registration Statement
on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the
Securities and Exchange Commission on or about December 30, 1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated August 31,
1994, are incorporated herein by reference to the Portfolio's Annual
Report to Shareholders for the fiscal year ended August 31, 1994, which
was filed with the Securities and Exchange Commission on or about
November 1, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $971,744.
MARYLAND MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of Municipal Securities Income
Trust (the "Trust") are pleased to submit for your vote a proposal to
transfer all of the assets of Maryland Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio in that it seeks current
income which is exempt from the federal regular income tax. The
Portfolio also seeks current income which is exempt from the personal
income taxes imposed by the State of Maryland and Maryland
municipalities. Income earned by the Fund will not be exempt from the
personal income taxes imposed by the State of Maryland and Maryland
municipalities. As part of the transaction, shareholders in the
Portfolio would receive shares in the Fund equal in value to their
shares in the Portfolio and the Portfolio would be liquidated.
The Board of Trustees of the Trust, as well as Federated Advisers, the
Trust's adviser, and Federated Securities Corp., the Trust's principal
underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following
reasons:
- the Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
MARYLAND MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF MARYLAND MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of Maryland Municipal Income Fund (the
"Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of
the Trust, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Trust, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
MARYLAND MUNICIPAL INCOME FUND,
a portfolio of
MUNICIPAL SECURITIES INCOME TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of Maryland Municipal Income Fund (the "Portfolio"), a
portfolio of Municipal Securities Income Trust, a Massachusetts business
trust (the "Trust"), in exchange for Fund shares to be distributed pro
rata by the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a non-diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide current
income which is exempt from federal regular income tax and the personal
income taxes imposed by the State of Maryland and Maryland
municipalities. The Portfolio pursues this objective by investing
primarily in securities which are exempt from federal regular income tax
and personal income taxes imposed by the State of Maryland and Maryland
municipalities. For a comparison of the investment policies of the
Portfolio and the Fund, see "Summary-Investment Objectives and
Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 3
Distribution Arrangements 4
Purchase and Redemption
Procedures 5
Tax Consequences 5
Risk Factors 6
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 8
Federal Income Tax Consequences 8
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 9
Information About The Fund, The
Portfolio And The Trust 9
Fortress Municipal Income Fund,
Inc. 9
Maryland Municipal Income Fund,
a portfolio of Municipal
Securities Income Trust 9
Voting Information 10
Outstanding Shares and Voting
Requirements 10
Dissenter's Right of Appraisal 11
Other Matters 11
Exhibit A 12
Exhibit B 21
Summary
About the Proposed Reorganization
The Board of Trustees of Municipal Securities Income Trust (the "Trust")
has voted to recommend to shareholders of its portfolio, Maryland
Municipal Income Fund (the "Portfolio"), the approval of an Agreement
and Plan of Reorganization (the "Plan") whereby Fortress Municipal
Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire
all of the assets of the Portfolio in exchange for Fund shares to be
distributed pro rata by the Portfolio to its shareholders in complete
liquidation and dissolution of the Portfolio (the "Reorganization"). As
a result of the Reorganization, each shareholder of the Portfolio will
become the owner of Fund shares having a total net asset value equal to
the total net asset value of his or her holdings in the Portfolio on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio. After the
acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Income earned by the Fund will be exempt from the federal regular income
tax but will not be exempt from the personal income taxes imposed by the
State of Maryland and Maryland municipalities. As discussed below,
income earned by the Portfolio is exempt from the federal regular income
tax and the personal income taxes imposed by the State of Maryland and
Maryland municipalities.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference thereto.
The investment objective of the Portfolio is to provide current income
which is exempt from federal regular income tax and the personal income
taxes imposed by the State of Maryland and Maryland municipalities. This
investment objective may not be changed without the approval of
shareholders. The Portfolio pursues its investment objective by
investing primarily in securities which are exempt from federal regular
income tax and personal income taxes imposed by the State of Maryland
and Maryland municipalities. As a matter of investment policy which
cannot be changed without the approval of shareholders, the Portfolio
invests its assets so that, under normal circumstances, at least 80% of
its annual interest income is exempt from federal regular income tax, or
that at least 80% of its net assets are invested in securities the
interest from which is exempt from federal regular income tax. For the
most recent fiscal year of the Portfolio, 100% of the Portfolio's annual
interest income was exempt from the federal regular income tax.
The Fund is a diversified investment company. In contrast, the Portfolio
is a non-diversified portfolio of securities.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high-risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
An investment in the Fund may entail greater risks than an investment in
the Portfolio as a result of the Fund's ability to invest in high-yield,
high-risk municipal bonds. The risks may include a greater risk of
default in the payment of principal and interest on such securities as a
result of the issuer's weaker financial condition. The Adviser seeks to
minimize these risks through various portfolio management techniques
described in the Fund's prospectus dated October 31, 1994. There can be
no assurance that the Adviser will be successful in minimizing these
risks.
Under normal circumstances, the Portfolio will invest at least 65% of
its total assets in Maryland municipal securities, which are obligations
issued by or on behalf of the State of Maryland, its political
subdivisions, or agencies, debt obligations of any state, territory or
possession of the United States, including the District of Columbia, or
any political subdivision of any of these, and participation interests
in such instruments, the interest from which is exempt from both federal
regular income tax and the personal income taxes imposed by the State of
Maryland and Maryland municipalities in the opinion of the issuer's bond
counsel, the Trust, its officers or the Adviser ("Maryland Municipal
Securities"). The Maryland Municipal Securities which the Portfolio buys
are investment grade bonds rated, at the time of purchase, Baa or higher
by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc.
and bonds which are not rated if the Adviser determines that such bonds
are of comparable quality or have similar characteristics to bonds
having such ratings. If a security's rating is reduced below the
required minimum after the Portfolio has purchased it, the Portfolio is
not required to sell the security but may consider doing so. Unless
otherwise designated, the investment policies of the Portfolio may be
changed by the Board of Trustees without shareholder approval, although
shareholders will be notified before any material change becomes
effective. Currently, the Portfolio invests primarily in variable rate
municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Trustees without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated December 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated December 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
The Adviser, which also serves as investment adviser to the Portfolio,
may similarly voluntarily choose to waive a portion of its advisory fee
or reimburse the Portfolio for operating expenses but may likewise
terminate such waiver or reimbursement at any time in its sole
discretion. The Adviser has also undertaken to reimburse the Portfolio
for operating expenses in excess of limitations established by certain
states. Without such waiver or reimbursement, the expense ratio of each
of the Fund and the Portfolio would be higher by 0.0 and 4.64%,
respectively, of average daily net assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's most recent fiscal year was 1.68% of its average
aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its most recent fiscal year and would have been 5.39% of
average daily net assets absent the voluntary waiver by the Adviser of a
portion of the investment advisory fee and reimbursement of certain
other operating expenses. As of December 1, 1994, the Adviser ceased its
voluntary waiver of investment advisory fees as well as its voluntary
reimbursement of certain Portfolio operating expenses. As a result, the
maximum total annual operating expenses for the Portfolio for its
current fiscal year are expected to be 2.50% of average daily net
assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights. For a complete description of sales charges,
contingent deferred sales charges and exemptions from such charges,
reference is hereby made to the Prospectus of the Fund dated October 31,
1994 and the Prospectus of the Portfolio dated December 31, 1994, each
of which is incorporated herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated December 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio.
Purchases of shares of the Fund may be made through an investment dealer
who has an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of December 1, 1994, the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by State Street Bank. Proceeds will be distributed by check within seven
days after receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated December 31, 1994 and the
Statement of Additional Information dated December 31, 1994. Such risks
include, but are not limited to, fluctuating yields on Maryland
Municipal Securities based on factors such as general market conditions
in the municipal bond market, the size of the offering, the maturity of
the obligations and the rating of the issue; the ability of issuers and
participation interests, or the guarantors of either, to meet their
obligations for payment of interest and principal when due; legislative,
executive or administrative changes or voter initiatives which could
result in adverse consequences for Maryland Municipal Securities; and
any adverse economic conditions or developments affecting the State of
Maryland or its municipalities.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn income exempt from both the federal regular income
tax and the personal income tax imposed by the State of Maryland and
Maryland municipalities. In an effort to remain competitive with other
investment companies with similar investment objectives, the Adviser
waived all of its investment advisory fees and reimbursed the Portfolio
for certain operating expenses, resulting in aggregate fee waivers and
expense reimbursements of $155,732 for the Portfolio's fiscal year ended
August 31, 1994. However, by August 31, 1994, the Portfolio's net assets
had grown only to $5,996,564. In the opinion of FSC, the Portfolio's
principal underwriter, the Portfolio suffered from a lack of investor
interest sufficient to permit it to grow to a size which would permit it
to operate efficiently. Although FSC expended significant marketing
efforts to promote sales of the Portfolio's shares, the negative
investment climate for municipal securities throughout 1994 impeded
sales of Portfolio shares and FSC concluded that it was unlikely that
the situation would improve materially in the foreseeable future. In
addition, the Adviser and its affiliates concluded that they would be
unable to continue to waive investment advisory fees and reimburse
operating expenses in order for the Portfolio to continue to earn a
yield on its investments competitive with other investment companies
with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Trust's Board of Trustees that
the Portfolio be liquidated. It also indicated that the Adviser would
cease waiving its investment advisory fee after November 30, 1994 and
that as a result, the Portfolio's operating expenses could be expected
to increase to approximately 2.5%. FSC accordingly recommended to
shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $150,000, or approximately $0.205 per share. As a
result, FSC and the Adviser recommended to the Board of Trustees of the
Trust that it consider the feasibility of transferring the Portfolio's
assets to another investment company in exchange for shares of such
other investment company in a transaction which would be tax-free to the
Portfolio and its shareholders. Recognizing that many shareholders may
not have wished to redeem their shares of the Portfolio, FSC and the
Adviser recommended to the Trust's Board of Trustees a transfer of the
Portfolio's assets to the Fund, which seeks to earn interest income
exempt from the federal regular income tax (although not exempt from the
personal income tax imposed by the State of Maryland and Maryland
municipalities).
The Board of Trustees of the Trust evaluated this proposal as well as
other alternatives, including liquidation of the Portfolio. The Trustees
concluded that this transaction would be in the best interests of
shareholders because the Portfolio was unlikely to reach economic size
on its own, as a result of relatively high expenses, and that net yield
on an investment in the Portfolio would not be attractive to
shareholders.
With assets of approximately $411,672,068 at December 31, 1994, the
Trust's Board of Trustees concluded that the Fund was of a size to
provide operating efficiencies and economies of scale sufficient to
provide shareholders with competitive investment returns and net income
exempt from the federal regular income tax. The Trustees also took
account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Trustees noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Trust's Board of Trustees, including a majority of the
independent Trustees, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Trustees of the Trust unanimously voted to approve, and
recommend to Portfolio shareholders the approval of, the Reorganization.
The Directors of the Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the
best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
In the event shareholders of the Portfolio do not approve the Plan, the
Trust's Board of Trustees will consider other alternatives which would
address the Portfolio's uneconomic size. These may include a plan of
liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Trust, on behalf of the Portfolio, and the Fund as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any
time before or after approval by shareholders of the Portfolio prior to
the Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Trust, on behalf of the Portfolio, is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust,
to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth
below is a brief summary of the significant rights of shareholders of
the Portfolio.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations
or the election of trustees under certain circumstances. A special
meeting of shareholders of the Trust for any permissible purpose shall
be called by the Trustees upon the written request of the holders of at
least 10% of the outstanding shares of the Trust or of the relevant
portfolio. Each share of the Portfolio is entitled to one vote. All
shares of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for obligations of
the Trust on behalf of the Portfolio. To protect its shareholders, the
Trust has filed legal documents with the Commonwealth of Massachusetts
that expressly disclaim the liability of Portfolio shareholders for such
acts or obligations of the Trust. These documents require that notice of
this disclaimer be given in each agreement, obligation or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Portfolio.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Portfolio, the Trust is required to
use the property of the Portfolio to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder for any act or obligation of the
Trust on behalf of the Portfolio. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from the assets of the Portfolio.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $912,252 $412,584,320
Price Per Share 10.02 7.80 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Trust
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
Maryland Municipal Income Fund, a portfolio of Municipal Securities
Income Trust
Information about the Portfolio and the Trust is contained in the
Portfolio's current Prospectus dated December 31, 1994 and its Statement
of Additional Information dated December 31, 1994, which are
incorporated herein by reference. Copies of such Prospectus and
Statement of Additional Information may be obtained without charge from
the Fund by calling 1-800-245-5000 or by writing to the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is
subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements and
other information filed by the Portfolio can be obtained by calling or
writing the Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Trust an instrument revoking the proxy,
by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Trust and the Adviser at no additional cost
to the Trust. Such solicitations may be by telephone. The Adviser will
reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Trust has fixed the close of business on
February 10, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting of
Shareholders and any adjournment thereof. As of the record date, there
were 82,243.85 shares of the Portfolio outstanding. Each Portfolio share
is entitled to one vote and fractional shares have proportionate voting
rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as
record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 8,146 shares, or 9.90%, of the Portfolio's
outstanding shares; Alex Brown & Sons, Incorporated (as record owner
holding shares for its clients), Baltimore, Maryland, owned
approximately 44,944.59 shares, or 54.65%, of the Portfolio's
outstanding shares; and Ben Hamed, Silver Spring, Maryland, owned
approximately 5,521.52 shares, or 6.71%, of the Portfolio's outstanding
shares. On such date, no other person owned of record, or to the
knowledge of the Adviser, beneficially owned, 5% or more of the
Portfolio's outstanding shares. On the record date, the trustees and
officers of the Portfolio as a group owned less than 1% of the
outstanding shares of the Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or
to the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of
the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i)
67% of the shares of the Portfolio present at the Special Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
A majority of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Trust's Declaration of Trust or Massachusetts
law. Under the Plan, if approved by Portfolio shareholders, each
Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Trust knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named
in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL
SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter
called the "Trust") on behalf of its portfolio MARYLAND MUNICIPAL INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are
registered open-end management investment companies and the Acquired
Fund owns securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), of the
Acquiring Fund has determined that the exchange of all or substantially
all of the assets of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not
be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940
Act), of the Acquired Fund has determined that the exchange of all of
the assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquired Fund shareholders and that the interests of
the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Trust.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as
an open-end, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the
Acquired Fund at August 31, 1994 have been audited by Deloitte & Touche
LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired
Fund as of such dates not disclosed therein.
(h) Since August 31, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Trustees and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Trust's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Trustees of
the Trust or the Board of Directors of the Acquiring Fund at any time
prior to the Closing Date (and notwithstanding any vote of the Board of
Trustees of the Acquired Fund) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the
Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by
the Acquired Fund pursuant to this Agreement shall be limited in any
case to the Acquired Fund and its assets and the Acquiring Fund shall
not seek satisfaction of any such obligation from the shareholders of
the Acquired Fund, the trustees, officers, employees or agents of the
Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
MUNICIPAL SECURITIES INCOME TRUST,
on behalf of its portfolio,
MARYLAND MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/J. Crilley Kelly
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
MARYLAND MUNICIPAL INCOME FUND
(A Portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement Of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated February
18, 1995 related to the above-referenced matter may be obtained
from Fortress Municipal Income Fund, Inc., Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal Income
Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of Maryland Municipal Income
Fund, a portfolio of Municipal Securities Income Trust, dated
December 31, 1994
3. Financial Statements of Fortress Municipal Income Fund, Inc., dated
August 31, 1994
4. Financial Statements of Maryland Municipal Income Fund, a portfolio
of Municipal Securities Income Trust, dated August 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of Maryland Municipal Income
Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust
(the "Trust"), dated December 31, 1994, is incorporated herein by
reference to Post-Effective Amendment No. 17 to the Trust's Registration
Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed
with the Securities and Exchange Commission on or about December 30,
1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated August 31,
1994, are incorporated herein by reference to the Portfolio's Annual
Report to Shareholders for the fiscal year ended August 31, 1994 which
was filed with the Securities and Exchange Commission on or about
November 1, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $912,252.
MULTI-STATE MUNICIPAL INCOME FUND,
(A portfolio of FIXED INCOME SECURITIES, INC.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Directors and management of Fixed Income Securities, Inc.
(the "Corporation") are pleased to submit for your vote a proposal to
transfer all of the assets of Multi-State Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio. As part of the transaction,
shareholders in the Portfolio would receive shares in the Fund equal in
value to their shares in the Portfolio and the Portfolio would be
liquidated.
The Board of Directors of the Corporation, as well as Federated
Advisers, the Corporation's adviser, and Federated Securities Corp., the
Corporation's principal underwriter, believe the proposed agreement and
plan of reorganization is in the best interests of Portfolio
shareholders for the following reasons:
- the Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
MULTI-STATE MUNICIPAL INCOME FUND
(A portfolio of FIXED INCOME SECURITIES, INC.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF MULTI-STATE MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of Multi-State Municipal Income Fund
(the "Portfolio"), a portfolio of Fixed Income Securities, Inc. (the
"Corporation") will be held at 2:00 p.m. on March 30, 1995 at the office
of the Corporation, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Corporation, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
MULTI-STATE MUNICIPAL INCOME FUND,
a portfolio of
FIXED INCOME SECURITIES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of Multi-State Municipal Income Fund (the "Portfolio"), a
portfolio of Fixed Income Securities, Inc., a Maryland corporation (the
"Corporation"), in exchange for Fund shares to be distributed pro rata
by the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide a high level
of current income which is exempt from federal regular income tax. The
Portfolio pursues this objective by investing in a diversified portfolio
primarily limited to municipal securities. For a comparison of the
investment policies of the Portfolio and the Fund, see "Summary-
Investment Objectives and Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 2
Distribution Arrangements 3
Purchase and Redemption
Procedures 4
Tax Consequences 5
Risk Factors 5
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 7
Federal Income Tax Consequences 7
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 8
Information About The Fund, The
Portfolio And The Corporation 8
Fortress Municipal Income Fund,
Inc. 8
Multi-State Municipal Income
Fund, a portfolio of Fixed
Income Securities, Inc. 9
Voting Information 9
Outstanding Shares and Voting
Requirements 9
Dissenter's Right of Appraisal 10
Other Matters 10
Exhibit A 11
Exhibit B 20
Summary
About the Proposed Reorganization
The Board of Directors of Fixed Income Securities, Inc. (the
"Corporation") has voted to recommend to shareholders of its portfolio,
Multi-State Municipal Income Fund (the "Portfolio"), the approval of an
Agreement and Plan of Reorganization (the "Plan") whereby Fortress
Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would
acquire all of the assets of the Portfolio in exchange for Fund shares
to be distributed pro rata by the Portfolio to its shareholders in
complete liquidation of the Portfolio (the "Reorganization"). As a
result of the Reorganization, each shareholder of the Portfolio will
become the owner of Fund shares having a total net asset value equal to
the total net asset value of his or her holdings in the Portfolio on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Corporation will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code so that no gain or loss will be
recognized by either the Fund or the Portfolio or their shareholders.
The tax cost basis of the Fund shares received by Portfolio shareholders
will be the same as the tax cost basis of their shares in the Portfolio.
After the acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference thereto.
The investment objective of the Portfolio is to provide a high level of
current income which is exempt from federal regular income tax. This
investment objective may not be changed without the approval of
shareholders. The Portfolio pursues its investment objective by
investing in a diversified portfolio primarily limited to municipal
securities. As a matter of investment policy which cannot be changed
without the approval of shareholders, under normal circumstances the
Portfolio invests its assets so that at least 80% of its income from
investments is exempt from federal regular income tax or so that at
least 80% of its net assets are invested in obligations, the interest
from which is exempt from federal regular income tax. For the most
recent fiscal year of the Portfolio, 100% of the Portfolio's annual
interest income was exempt from the federal regular income tax. The
Portfolio will also, under normal circumstances, invest at least 65% of
its assets in municipal securities issued by more than two states,
although this investment policy may be changed without shareholder
approval.
The Fund is a diversified investment company. In contrast, the Portfolio
is a non-diversified portfolio of securities.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high-risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
The Portfolio invests primarily in municipal securities, which are debt
obligations issued by or on behalf of states, territories and
possessions of the United States, including the District of Columbia,
and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal regular income tax. The
municipal securities, and any other securities, in which the Portfolio
invests are rated, at the time of purchase, Baa or higher by Moody's or
BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which
are not rated if the Adviser determines that such bonds are of
comparable quality or have similar characteristics to investment grade
bonds. If a security's rating is reduced below the required minimum
after the Portfolio has purchased it, the Portfolio is not required to
sell the security but may consider doing so. Unless otherwise
designated, the investment policies of the Portfolio may be changed by
the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective. Currently, the Portfolio invests primarily in variable rate
municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Directors without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated January 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated January 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
Under the advisory contract, the Adviser, which also serves as
investment adviser to the Portfolio, may similarly voluntarily choose to
waive a portion of its advisory fee but may likewise terminate such
waiver at any time in its sole discretion. The Adviser has also
undertaken to reimburse the Portfolio for operating expenses in excess
of limitations established by certain states. Without such waiver or
reimbursement, the expense ratio of each of the Fund and the Portfolio
would be higher by 0.0 and 3.88, respectively, of average daily net
assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's fiscal year ended November 30, 1993 and for the six
months ended May 31, 1994 was 0.14 of 1% and 2.84%, respectively, of its
average aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its fiscal year ended November 30, 1993 and for the six
months ended May 31, 1994 and would have been 4.63% and 7.00%,
respectively, of average daily net assets absent the voluntary waiver by
the Adviser of a portion of the investment advisory fee and
reimbursement of certain other operating expenses. As of December 1,
1994, the Adviser ceased its voluntary waiver of investment advisory
fees as well as its voluntary reimbursement of certain Portfolio
operating expenses. As a result, the maximum total annual operating
expenses for the Portfolio for its current fiscal year are expected to
be 2.50% of average daily net assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by the
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights.
For a complete description of sales charges, contingent deferred sales
charges and exemptions from such charges, reference is hereby made to
the Prospectus of the Fund dated October 31, 1994 and the Prospectus of
the Portfolio dated January 31, 1994, each of which is incorporated
herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares, or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated January 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio.
Purchases of shares of the Fund may be made through an investment dealer
who has an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of October 17, 1994, the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by FSC. Proceeds will be distributed by check within seven days after
receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Corporation will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code so that no gain or loss will be
recognized by either the Fund or the Portfolio or their shareholders.
The tax cost basis of the Fund shares received by Portfolio shareholders
will be the same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated January 31, 1994 and the
Statement of Additional Information dated January 31, 1994. Such risks
include, but are not limited to, general market conditions in the
municipal note market and the municipal bond market; the size of the
offering; the maturity of the obligations and the rating of the issue;
and the ability of issuers or guarantors to meet their obligations for
payment of interest and principal when due.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn a high level of current income exempt from the
federal regular income tax. In an effort to remain competitive with
other investment companies with similar investment objectives, the
Adviser waived all of its investment advisory fees and reimbursed the
Portfolio for certain operating expenses, resulting in aggregate fee
waivers and expense reimbursements of $50,173 for the Portfolio's fiscal
year ended November 30, 1993 and $199,042 for the six month ended May
31, 1994. However, by September 30, 1994, the Portfolio's net assets had
grown only to $6,443,205. In the opinion of FSC, the Portfolio's
principal underwriter, the Portfolio suffered from a lack of investor
interest sufficient to permit it to grow to a size which would permit it
to operate efficiently. Although FSC expended significant marketing
efforts to promote sales of the Portfolio's shares, the negative
investment climate for municipal securities throughout 1994 impeded
sales of Portfolio shares and FSC concluded that it was unlikely that
the situation would improve materially in the foreseeable future. In
addition, the Adviser and its affiliates concluded that they would be
unable to continue to waive investment advisory fees and reimburse
operating expenses in order for the Portfolio to continue to earn a
yield on its investments competitive with other investment companies
with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Corporation's Board of Directors
that the Portfolio be liquidated. It also indicated that the Adviser
would cease waiving its investment advisory fee after November 30, 1994
and that as a result, the Portfolio's operating expenses could be
expected to increase to approximately 2.5%. FSC accordingly recommended
to shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $60,000, or approximately $0.084 per share. As a
result, FSC and the Adviser recommended to the Board of Directors of the
Corporation that it consider the feasibility of transferring the
Portfolio's assets to another investment company in exchange for shares
of such other investment company in a transaction which would be tax-
free to the Portfolio and its shareholders. Recognizing that many
shareholders may not have wished to redeem their shares of the
Portfolio, FSC and the Adviser recommended to the Corporation's Board of
Directors a transfer of the Portfolio's assets to the Fund, which seeks
to earn interest income exempt from the federal regular income tax.
The Board of Directors of the Corporation evaluated this proposal as
well as other alternatives, including liquidation of the Portfolio. The
Directors concluded that this transaction would be in the best interests
of shareholders because the Portfolio was unlikely to reach economic
size on its own, as a result of relatively high expenses, and that net
yield on an investment in the Portfolio would not be attractive to
shareholders.
With assets of approximately $411,672,068 at December 31, 1994, the
Corporation's Board of Directors concluded that the Fund was of a size
to provide operating efficiencies and economies of scale sufficient to
provide shareholders with competitive investment returns and net income
exempt from the federal regular income tax. The Directors also took
account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Directors noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Corporation's Board of Directors, including a majority
of the independent Directors, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Directors of the Corporation unanimously voted to approve,
and recommend to Portfolio shareholders the approval of, the
Reorganization.
The Board of Directors of the Fund, including the independent Directors,
have unanimously concluded that consummation of the Reorganization is in
the best interests of the Fund and the shareholders of the Fund and that
the interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan. In
the event shareholders of the Portfolio do not approve the Plan, the
Corporation's Board of Directors will consider other alternatives which
would address the Portfolio's uneconomic size. These may include a plan
of liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Corporation, on behalf of the Portfolio, and the
Fund as described under the caption "Federal Income Tax Consequences"
below. The Plan may be terminated and the Reorganization may be
abandoned at any time before or after approval by shareholders of the
Portfolio prior to the Closing Date by either party if it believes that
consummation of the Reorganization would not be in the best interests of
its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Corporation, on behalf of the Portfolio, is qualified in its
entirety by the terms and provisions of the Plan, a copy of which is
attached hereto as Exhibit A and incorporated herein by reference
thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Corporation, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the
Corporation, to the effect that, on the basis of the existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Corporation is organized as a corporation under the laws of the
State of Maryland. The Corporation is not required to hold annual
meetings of shareholders. Shareholder approval is necessary only for
certain changes in operations or the election of Directors under certain
circumstances. A special meeting of shareholders of the Corporation for
any permissible purpose shall be called by the Directors upon the
written request of the holders of at least 25% of the outstanding shares
entitled to be cast at the meeting. Each share of the Portfolio is
entitled to one vote. All shares of the Corporation have equal voting
rights except that in matters affecting only a particular portfolio or
class, only shares of that portfolio or class are entitled to vote.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $306,943 $411,979,011
Price Per Share 10.02 8.30 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Corporation
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
Multi-State Municipal Income Fund, a portfolio of Fixed Income
Securities, Inc.
Information about the Portfolio and the Corporation is contained in the
Portfolio's current Prospectus dated January 31, 1994 and its Statement
of Additional Information dated January 31, 1994, which are incorporated
herein by reference. Copies of such Prospectus and Statement of
Additional Information may be obtained without charge from the Fund by
calling 1-800-245-5000 or by writing to the Fund at Federated Investors
Tower, Pittsburgh, PA 15222-3779. The Corporation is subject to the
informational requirements of the 1933 Act, the 1934 Act and the 1940
Act and in accordance therewith files reports and other information with
the SEC. Reports, proxy and information statements and other information
filed by the Corporation can be obtained by calling or writing the Fund
and can also be inspected at the public reference facilities maintained
by the SEC or obtained at prescribed rates at the addresses listed in
the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of the Corporation of proxies for
use at the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Corporation an instrument revoking the
proxy, by submitting a proxy bearing a later date or by attending and
voting at the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Corporation and the Adviser at no additional
cost to the Corporation. Such solicitations may be by telephone. The
Adviser will reimburse custodians, nominees and fiduciaries for the
reasonable costs incurred by them in connection with forwarding
solicitation materials to the beneficial owners of shares held of record
by such persons.
Outstanding Shares and Voting Requirements
The Board of Directors of the Corporation has fixed the close of
business on February 10, 1995 as the record date for the determination
of shareholders entitled to notice of and to vote at the Special Meeting
of Shareholders and any adjournment thereof. As of the record date,
there were 37,116.42 shares of the Portfolio outstanding. Each Portfolio
share is entitled to one vote and fractional shares have proportionate
voting rights. On the record date, Painewebber, for the benefit of James
C. Haselden, and Mildred A. Haselden, as joint tenants in common,
Aurora, Colorado, owned approximately 3,774.23 shares, or 10.17%, of the
Portfolio's outstanding shares; and Merrill Lynch, Pierce, Fenner &
Smith (as record owner holding shares for its clients), Jacksonville,
Florida, owned approximately 31,023 shares, or 83.58%, of the
Portfolio's outstanding shares, and therefore, may, for certain
purposes, be deemed to control the Portfolio and be able to affect the
outcome of certain matters presented for a vote of shareholders. On such
date, no other person owned of record, or to the knowledge of the
Adviser, beneficially owned, 5% or more of the Portfolio's outstanding
shares. On the record date, the Directors and officers of the Portfolio
as a group owned less than 1% of the outstanding shares of the
Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the Directors and
officers of the Fund as a group owned less than 1% of the outstanding
shares of the Fund.
Approval of the Plan requires the affirmative vote of the lesser of
(1) 67% of the shares of the Portfolio present at the Special Meeting,
if the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
One-third of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Corporation's Articles of Incorporation or
Maryland law. Under the Plan, if approved by Portfolio shareholders,
each Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Corporation knows of no other matters that may
properly be, or which are likely to be, brought before the meeting.
However, if any other business shall properly come before the meeting,
the persons named in the proxy intend to vote thereon in accordance with
their best judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and FIXED INCOME
SECURITIES, INC., a Maryland corporation (hereinafter called the
"Corporation") on behalf of its portfolio MULTI-STATE MUNICIPAL INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-
end management investment companies and the Acquired Fund owns
securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock;
WHEREAS, the Board of Directors, including a majority of the Directors
who are not "interested persons" (as defined under the Investment
Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund
has determined that the exchange of all or substantially all of the
assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund shareholders and that the interests of
the existing shareholders of the Acquiring Fund would not be diluted as
a result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the Directors
who are not "interested persons" (as defined under the 1940 Act), of the
Acquired Fund has determined that the exchange of all of the assets of
the Acquired Fund for Acquiring Fund Shares is in the best interests of
the Acquired Fund shareholders and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of
this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Corporation.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland and has power to own all of its properties and assets and to
carry out this Agreement.
(b) The Corporation is registered under the 1940
Act, as an open-end, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Corporation's Articles of Incorporation or By-Laws or
of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is
bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the
Acquired Fund at November 30, 1993 and 1994 have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired
Fund as of such dates, and there are no known contingent liabilities of
the Acquired Fund as of such dates not disclosed therein.
(h) Since November 30, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Directors and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Corporation's Articles of Incorporation.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Directors of
the Corporation or the Board of Directors of the Acquiring Fund at any
time prior to the Closing Date (and notwithstanding any vote of the
Board of Directors of the Acquired Fund) if circumstances should develop
that, in the opinion of either of the parties' Board, make proceeding
with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Directors of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
FIXED INCOME SECURITIES, INC.,
on behalf of its portfolio,
MULTI-STATE MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/Charles H. Field
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
MULTI-STATE MUNICIPAL INCOME FUND
(A Portfolio of FIXED INCOME SECURITIES, INC.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated February
18, 1995 related to the above-referenced matter may be obtained
from Fortress Municipal Income Fund, Inc., Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal
Income Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of Multi-State Municipal
Income Fund, a portfolio of Fixed Income Securities, Inc., dated
January 31, 1994
3. Financial Statements of Fortress Municipal Income Fund, Inc.,
dated August 31, 1994
4. Financial Statements of Multi-State Municipal Income Fund, a
portfolio of Fixed Income Securities, Inc., dated November 30, 1993
5. Financial Statements (Unaudited) of Multi-State Municipal Income
Fund, dated May 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of Multi-State Municipal Income
Fund (the "Portfolio"), a portfolio of Fixed Income Securities, Inc.
(the "Corporation"), dated January 31, 1994, is incorporated herein by
reference to Post-Effective Amendment No. 8 to the Corporation's
Registration Statement on Form N-1A (File Nos. 33-43472 and 811-6447)
which was filed with the Securities and Exchange Commission on or about
January 28, 1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated November 30,
1993, are incorporated herein by reference to the Portfolio's Prospectus
dated January 31, 1994 which was filed with the Securities and Exchange
Commission in Post-Effective Amendment No. 8 to the Corporation's
Registration Statement on Form N-1A (File Nos. 33-43472 and 811-6447) on
or about January 28, 1994.
The unaudited financial statements of the Portfolio, dated May 31, 1994,
are incorporated herein by reference to the Portfolio's Semi-Annual
Report to the Shareholders which was filed with the Securities and
Exchange Commission on or about July 28, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $306,943.
NEW JERSEY MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of Municipal Securities Income
Trust (the "Trust") are pleased to submit for your vote a proposal to
transfer all of the assets of New Jersey Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio in that it seeks current
income which is exempt from the federal regular income tax. The
Portfolio also seeks current income which is exempt from the personal
income taxes imposed by the State of New Jersey and New Jersey
municipalities. Income earned by the Fund will not be exempt from the
personal income taxes imposed by the State of New Jersey and New Jersey
municipalities. As part of the transaction, shareholders in the
Portfolio would receive shares in the Fund equal in value to their
shares in the Portfolio and the Portfolio would be liquidated.
The Board of Trustees of the Trust, as well as Federated Advisers, the
Trust's adviser, and Federated Securities Corp., the Trust's principal
underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following
reasons:
- The Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
NEW JERSEY MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF NEW JERSEY MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of New Jersey Municipal Income Fund
(the "Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of
the Trust, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Trust, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
NEW JERSEY MUNICIPAL INCOME FUND,
a portfolio of
MUNICIPAL SECURITIES INCOME TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of New Jersey Municipal Income Fund (the "Portfolio"), a
portfolio of Municipal Securities Income Trust, a Massachusetts business
trust (the "Trust"), in exchange for Fund shares to be distributed pro
rata by the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a non-diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide current
income which is exempt from federal regular income tax and the personal
income taxes imposed by the State of New Jersey and New Jersey
municipalities. The Portfolio pursues this objective by investing
primarily in securities which are exempt from federal regular income tax
and personal income taxes imposed by the State of New Jersey and New
Jersey municipalities. For a comparison of the investment policies of
the Portfolio and the Fund, see "Summary-Investment Objectives and
Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 3
Distribution Arrangements 3
Purchase and Redemption
Procedures 4
Tax Consequences 5
Risk Factors 5
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 7
Federal Income Tax Consequences 8
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 9
Information About The Fund, The
Portfolio And The Trust 9
Fortress Municipal Income Fund,
Inc. 9
New Jersey Municipal Income
Fund, 9
Voting Information 10
Outstanding Shares and Voting
Requirements 10
Dissenter's Right of Appraisal 11
Other Matters 11
Exhibit A 12
Exhibit B 21
Summary
About the Proposed Reorganization
The Board of Trustees of Municipal Securities Income Trust (the "Trust")
has voted to recommend to shareholders of its portfolio, New Jersey
Municipal Income Fund (the "Portfolio"), the approval of an Agreement
and Plan of Reorganization (the "Plan") whereby Fortress Municipal
Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire
all of the assets of the Portfolio in exchange for Fund shares to be
distributed pro rata by the Portfolio to its shareholders in complete
liquidation and dissolution of the Portfolio (the "Reorganization"). As
a result of the Reorganization, each shareholder of the Portfolio will
become the owner of Fund shares having a total net asset value equal to
the total net asset value of his or her holdings in the Portfolio on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio. After the
acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Income earned by the Fund will be exempt from the federal regular income
tax but will not be exempt from the personal income taxes imposed by the
State of New Jersey and New Jersey municipalities. As discussed below,
income earned by the Portfolio is exempt from the federal regular income
tax and the personal income taxes imposed by the State of New Jersey and
New Jersey municipalities.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference thereto.
The investment objective of the Portfolio is to provide current income
which is exempt from federal regular income tax and the personal income
taxes imposed by the State of New Jersey and New Jersey municipalities.
This investment objective may not be changed without the approval of
shareholders. The Portfolio pursues its investment objective by
investing primarily in securities which are exempt from federal regular
income tax and personal income taxes imposed by the State of New Jersey
and New Jersey municipalities. As a matter of investment policy which
cannot be changed without the approval of shareholders, the Portfolio
invests its assets so that at least 80% of its annual interest income is
exempt from federal regular income tax and New Jersey state and
municipal income tax.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high-risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
An investment in the Fund may entail greater risks than an investment in
the Portfolio as a result of the Fund's ability to invest in high-yield,
high-risk municipal bonds. The risks may include a greater risk of
default in the payment of principal and interest on such securities as a
result of the issuer's weaker financial condition. The Adviser seeks to
minimize these risks through various portfolio management techniques
described in the Fund's prospectus dated October 31, 1994. There can be
no assurance that the Adviser will be successful in minimizing these
risks.
The Portfolio invests primarily in New Jersey municipal securities,
which are obligations issued by or on behalf of the State of New Jersey,
its political subdivisions, or agencies, debt obligations of any state,
territory or possession of the United States, including the District of
Columbia, or any political subdivision of any of these, and
participation interests in any of the above obligations, the interest
from which is exempt from both federal regular income tax and the
personal income taxes imposed by the State of New Jersey and New Jersey
municipalities in the opinion of the issuer's bond counsel, the Trust,
its officers or the Adviser ("New Jersey Municipal Securities"). The New
Jersey Municipal Securities, and any other securities, which the
Portfolio buys are investment grade bonds rated, at the time of
purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch
Investors Service, Inc. and bonds which are not rated if the Adviser
determines that such bonds are of comparable quality or have similar
characteristics to bonds having such ratings. If a security's rating is
reduced below the required minimum after the Portfolio has purchased it,
the Portfolio is not required to sell the security but may consider
doing so. Unless otherwise designated, the investment policies of the
Portfolio may be changed by the Board of Trustees without shareholder
approval, although shareholders will be notified before any material
change becomes effective. Currently, the Portfolio invests primarily in
variable rate municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Trustees without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated December 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated December 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
The Adviser, which also serves as investment adviser to the Portfolio,
may similarly voluntarily choose to waive a portion of its advisory fee
or reimburse the Portfolio for operating expenses but may likewise
terminate such waiver or reimbursement at any time in its sole
discretion. The Adviser has also undertaken to reimburse the Portfolio
for operating expenses in excess of limitations established by certain
states. Without such waiver or reimbursement, the expense ratio of each
of the Fund and the Portfolio would be higher by 0.0 and 3.22% ,
respectively, of average daily net assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's most recent fiscal year was 1.22% of its average
aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its most recent fiscal year and would have been 3.97% of
average daily net assets absent the voluntary waiver by the Adviser of a
portion of the investment advisory fee and reimbursement of certain
other operating expenses. As of December 1, 1994, the Adviser ceased its
voluntary waiver of investment advisory fees as well as its voluntary
reimbursement of certain Portfolio operating expenses. As a result, the
maximum total annual operating expenses for the Portfolio for its
current fiscal year are expected to be 2.50% of average daily net
assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights. For a complete description of sales charges,
contingent deferred sales charges and exemptions from such charges,
reference is hereby made to the Prospectus of the Fund dated October 31,
1994 and the Prospectus of the Portfolio dated December 31, 1994, each
of which is incorporated herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated December 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio.
Purchases of shares of the Fund may be made through an investment dealer
who has an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of October 17, 1994 the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by State Street Bank. Proceeds will be distributed by check within seven
days after receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated December 31, 1994 and the
Statement of Additional Information dated December 31, 1994. Such risks
include, but are not limited to, fluctuating yields on New Jersey
Municipal Securities based on factors such as the general conditions of
the short-term municipal note market and the municipal bond market, the
size of the offering, the maturity of the obligations and the rating of
the issue; the ability of issuers and participation interests, or the
guarantors of either, to meet their obligations for payment of interest
and principal when due; and any adverse economic conditions or
developments affecting the State of New Jersey or its municipalities.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn income exempt from both the federal regular income
tax and the personal income taxes imposed by the State of New Jersey and
New Jersey municipalities. In an effort to remain competitive with other
investment companies with similar investment objectives, the Adviser
waived all of its investment advisory fees and reimbursed the Portfolio
for certain operating expenses, resulting in aggregate fee waivers and
expense reimbursements of $267,395 for the Portfolio's fiscal year ended
August 31, 1994. However, by August 31, 1994, the Portfolio's net assets
had grown only to $11,166,179. In the opinion of FSC, the Portfolio's
principal underwriter, the Portfolio suffered from a lack of investor
interest sufficient to permit it to grow to a size which would permit it
to operate efficiently. Although FSC expended significant marketing
efforts to promote sales of the Portfolio's shares, the negative
investment climate for municipal securities throughout 1994 impeded
sales of Portfolio shares and FSC concluded that it was unlikely that
the situation would improve materially in the foreseeable future. In
addition, the Adviser and its affiliates concluded that they would be
unable to continue to waive investment advisory fees and reimburse
operating expenses in order for the Portfolio to continue to earn a
yield on its investments competitive with other investment companies
with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Trust's Board of Trustees that
the Portfolio be liquidated. It also indicated that the Adviser would
cease waiving its investment advisory fee after November 30, 1994 and
that as a result, the Portfolio's operating expenses could be expected
to increase to approximately 2.5%. FSC accordingly recommended to
shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $500,000, or approximately $0.421 per share. As a
result, FSC and the Adviser recommended to the Board of Trustees of the
Trust that it consider the feasibility of transferring the Portfolio's
assets to another investment company in exchange for shares of such
other investment company in a transaction which would be tax-free to the
Portfolio and its shareholders. Recognizing that many shareholders may
not have wished to redeem their shares of the Portfolio, FSC and the
Adviser recommended to the Trust's Board of Trustees a transfer of the
Portfolio's assets to the Fund, which seeks to earn interest income
exempt from the federal regular income tax (although not exempt from the
personal income taxes imposed by the State of New Jersey and New Jersey
municipalities).
The Board of Trustees of the Trust evaluated this proposal as well as
other alternatives, including liquidation of the Portfolio. The Trustees
concluded that this transaction would be in the best interests of
shareholders because the Portfolio was unlikely to reach economic size
on its own, as a result of relatively high expenses, and that net yield
on an investment in the Portfolio would not be attractive to
shareholders.
With assets of approximately $411,672,068 at December 31, 1994, the
Trust's Board of Trustees concluded that the Fund was of a size to
provide operating efficiencies and economies of scale sufficient to
provide shareholders with competitive investment returns and net income
exempt from the federal regular income tax. The Trustees also took
account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Trustees noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Trust's Board of Trustees, including a majority of the
independent Trustees, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Trustees of the Trust unanimously voted to approve, and
recommend to Portfolio shareholders the approval of, the Reorganization.
The Directors of the Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the
best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
In the event shareholders of the Portfolio do not approve the Plan, the
Trust's Board of Trustees will consider other alternatives which would
address the Portfolio's uneconomic size. These may include a plan of
liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Trust, on behalf of the Portfolio, and the Fund as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any
time before or after approval by shareholders of the Portfolio prior to
the Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Trust, on behalf of the Portfolio, is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust,
to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth
below is a brief summary of the significant rights of shareholders of
the Portfolio.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations
or the election of trustees under certain circumstances. A special
meeting of shareholders of the Trust for any permissible purpose shall
be called by the Trustees upon the written request of the holders of at
least 10% of the outstanding shares of the Trust or of the relevant
portfolio. Each share of the Portfolio is entitled to one vote. All
shares of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for obligations of
the Trust on behalf of the Portfolio. To protect its shareholders, the
Trust has filed legal documents with the Commonwealth of Massachusetts
that expressly disclaim the liability of Portfolio shareholders for such
acts or obligations of the Trust. These documents require that notice of
this disclaimer be given in each agreement, obligation or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Portfolio.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Portfolio, the Trust is required to
use the property of the Portfolio to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder for any act or obligation of the
Trust on behalf of the Portfolio. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from the assets of the Portfolio.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $944,673 $412,616,741
Price Per Share 10.02 8.08 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Trust
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
New Jersey Municipal Income Fund,
a portfolio of Municipal Securities Income Trust
Information about the Portfolio and the Trust is contained in the
Portfolio's current Prospectus dated December 31, 1994 and its Statement
of Additional Information dated December 31, 1994, which are
incorporated herein by reference. Copies of such Prospectus and
Statement of Additional Information may be obtained without charge from
the Fund by calling 1-800-245-5000 or by writing to the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is
subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements and
other information filed by the Portfolio can be obtained by calling or
writing the Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Trust an instrument revoking the proxy,
by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Trust and the Adviser at no additional cost
to the Trust. Such solicitations may be by telephone. The Adviser will
reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Trust has fixed the close of business on
February 10, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting of
Shareholders and any adjournment thereof. As of the record date, there
were 83,954.24 shares of the Portfolio outstanding. Each Portfolio share
is entitled to one vote and fractional shares have proportionate voting
rights. On the record date, Painewebber, as custodian for the benefit of
Rita Wasserstein, Marlboro, New Jersey, owned approximately 5,904.69
shares, or 7.03% of the Portfolio's outstanding shares; Frank Palermo,
Cliffside Park, New Jersey, owned approximately 5,328.46 shares, or
6.35% of the Portfolio's outstanding shares; Lawrence B. Zazzo, Cherry
Hill, New Jersey, owned approximately 7,938.78 shares, or 9.46% of the
Portfolio's outstanding shares; LEWCO Securities, Corp. (as record owner
for its client), New York, New York, owned approximately 6,397 shares,
or 7.62% of the Portfolio's outstanding shares; and Merrill Lynch,
Pierce, Fenner & Smith (as record owner holding shares for its clients),
Jacksonville, Florida, owned approximately 35,486 shares, or 42.27% of
the Portfolio's outstanding shares. On such date, no other person owned
of record, or to the knowledge of the Adviser, beneficially owned, 5% or
more of the Portfolio's outstanding shares. On the record date, the
trustees and officers of the Portfolio as a group owned less than 1% of
the outstanding shares of the Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of
the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i)
67% of the shares of the Portfolio present at the Special Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
A majority of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Trust's Declaration of Trust or Massachusetts
law. Under the Plan, if approved by Portfolio shareholders, each
Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Trust knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named
in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL
SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter
called the "Trust") on behalf of its portfolio NEW JERSEY MUNICIPAL
INCOME FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are
registered open-end management investment companies and the Acquired
Fund owns securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), of the
Acquiring Fund has determined that the exchange of all or substantially
all of the assets of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not
be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940
Act), of the Acquired Fund has determined that the exchange of all of
the assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquired Fund shareholders and that the interests of
the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Trust.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as
an open-end, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the
Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte
& Touche LLP, independent auditors, and have been prepared in accordance
with generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of
such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since August 31, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Trustees and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Trust's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Trustees of
the Trust or the Board of Directors of the Acquiring Fund at any time
prior to the Closing Date (and notwithstanding any vote of the Board of
Trustees of the Acquired Fund) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the
Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by
the Acquired Fund pursuant to this Agreement shall be limited in any
case to the Acquired Fund and its assets and the Acquiring Fund shall
not seek satisfaction of any such obligation from the shareholders of
the Acquired Fund, the trustees, officers, employees or agents of the
Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
MUNICIPAL SECURITIES INCOME TRUST,
on behalf of its portfolio,
NEW JERSEY MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/J. Crilley Kelly
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
NEW JERSEY MUNICIPAL INCOME FUND
(A Portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated February
18, 1995 related to the above-referenced matter may be obtained
from Fortress Municipal Income Fund, Inc., Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal Income
Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of New Jersey Municipal Income
Fund, a portfolio of Municipal Securities Income Trust, dated
December 31, 1994
3. Financial Statements of Fortress Municipal Income Fund, Inc., dated
August 31, 1994
4. Financial Statements of New Jersey Municipal Income Fund, a portfolio
of Municipal Securities Income Trust, dated August 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of New Jersey Municipal Income
Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust
(the "Trust"), dated December 31, 1994, is incorporated herein by
reference to Post-Effective Amendment No. 17 to the Trust's Registration
Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed
with the Securities and Exchange Commission on or about December 31,
1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated August 31,
1994, are incorporated herein by reference to the Portfolio's Annual
Report to Shareholders for the fiscal year ended August 31, 1994 which
was filed with the Securities and Exchange Commission on or about
November 1, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $944,673.
TEXAS MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of Municipal Securities Income
Trust (the "Trust") are pleased to submit for your vote a proposal to
transfer all of the assets of Texas Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio in that it seeks current
income which is exempt from the federal regular income tax. As part of
the transaction, shareholders in the Portfolio would receive shares in
the Fund equal in value to their shares in the Portfolio and the
Portfolio would be liquidated.
The Board of Trustees of the Trust, as well as Federated Advisers, the
Trust's adviser, and Federated Securities Corp., the Trust's principal
underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following
reasons:
- The Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
TEXAS MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF TEXAS MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of Texas Municipal Income Fund (the
"Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of
the Trust, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Trust, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
TEXAS MUNICIPAL INCOME FUND,
a portfolio of
MUNICIPAL SECURITIES INCOME TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of Texas Municipal Income Fund (the "Portfolio"), a portfolio
of Municipal Securities Income Trust, a Massachusetts business trust
(the "Trust"), in exchange for Fund shares to be distributed pro rata by
the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a non-diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide current
income which is exempt from federal regular income tax. The Portfolio
pursues this objective by investing primarily in securities which are
exempt from federal regular income tax. For a comparison of the
investment policies of the Portfolio and the Fund, see "Summary-
Investment Objectives and Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 3
Distribution Arrangements 3
Purchase and Redemption
Procedures 4
Tax Consequences 5
Risk Factors 5
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 8
Federal Income Tax Consequences 8
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 9
Information About The Fund, The
Portfolio
And The Trust 9
Fortress Municipal Income Fund,
Inc. 9
Texas Municipal Income Fund, a
portfolio
of Municipal Securities Income
Trust 9
Voting Information 10
Outstanding Shares and Voting
Requirements 10
Dissenter's Right of Appraisal 11
Other Matters 11
Exhibit A 12
Exhibit B 21
Summary
About the Proposed Reorganization
The Board of Trustees of Municipal Securities Income Trust (the "Trust")
has voted to recommend to shareholders of its portfolio, Texas Municipal
Income Fund (the "Portfolio"), the approval of an Agreement and Plan of
Reorganization (the "Plan") whereby Fortress Municipal Income Fund,
Inc., a Maryland corporation (the "Fund"), would acquire all of the
assets of the Portfolio in exchange for Fund shares to be distributed
pro rata by the Portfolio to its shareholders in complete liquidation
and dissolution of the Portfolio (the "Reorganization"). As a result of
the Reorganization, each shareholder of the Portfolio will become the
owner of Fund shares having a total net asset value equal to the total
net asset value of his or her holdings in the Portfolio on the date of
the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio. After the
acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference hereto.
The investment objective of the Portfolio is to provide current income
which is exempt from federal regular income tax. This investment
objective may not be changed without the approval of shareholders. The
Portfolio pursues its investment objective by investing primarily in
securities which are exempt from federal regular income tax. As a matter
of investment policy which cannot be changed without the approval of
shareholders, the Portfolio invests its assets so that at least 80% of
its annual interest income is exempt from federal regular income tax.
The Fund is a diversified investment company. In contrast, the
Portfolio is a non-diversified portfolio of securities.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high-risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
An investment in the Fund may entail greater risks than an investment
in the Portfolio as a result of the Fund's ability to invest in high-
yield, high-risk municipal bonds. The risks may include a greater risk
of default in the payment of principal and interest on such securities
as a result of the issuer's weaker financial condition. The Adviser
seeks to minimize these risks through various portfolio management
techniques described in the Fund's prospectus dated October 31, 1994.
There can be no assurance that the Adviser will be successful in
minimizing these risks.
The Portfolio invests primarily in Texas municipal securities, which are
obligations issued by or on behalf of the State of Texas or its
political subdivisions and participation interests in any of the above
obligations, the interest from which is exempt from federal regular
income tax in the opinion of the issuer's bond counsel, the Trust, its
officers or the Adviser ("Texas Municipal Securities"). The Texas
Municipal Securities, and any other securities, which the Portfolio buys
are investment grade bonds rated, at the time of purchase, Baa or higher
by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc.
and bonds which are not rated if the Adviser determines that such bonds
are of comparable quality or have similar characteristics to bonds
having such ratings. If a security's rating is reduced below the
required minimum after the Portfolio has purchased it, the Portfolio is
not required to sell the security but may consider doing so. Unless
otherwise designated, the investment policies of the Portfolio may be
changed by the Board of Trustees without shareholder approval, although
shareholders will be notified before any material change becomes
effective. Currently, the Portfolio invests primarily in variable rate
municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Trustees without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated December 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated December 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
The Adviser, which also serves as investment adviser to the Portfolio,
may similarly voluntarily choose to waive a portion of its advisory fee
or reimburse the Portfolio for operating expenses but may likewise
terminate such waiver or reimbursement at any time in its sole
discretion. The Adviser has also undertaken to reimburse the Portfolio
for operating expenses in excess of limitations established by certain
states. Without such waiver or reimbursement, the expense ratio of each
of the Fund and the Portfolio would be higher by 0.0 and 2.98%,
respectively, of average daily net assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's most recent fiscal year was 1.09% of its average
aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its most recent fiscal year and would have been 3.73% of
average daily net assets absent the voluntary waiver by the Adviser of a
portion of the investment advisory fee and reimbursement of certain
other operating expenses. As of December 1, 1994, the Adviser ceased its
voluntary waiver of investment advisory fees as well as its voluntary
reimbursement of certain Portfolio operating expenses. As a result, the
maximum total annual operating expenses for the Portfolio for its
current fiscal year are expected to be 2.50% of average daily net
assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights. For a complete description of sales charges,
contingent deferred sales charges and exemptions from such charges,
reference is hereby made to the Prospectus of the Fund dated October 31,
1994 and the Prospectus of the Portfolio dated December 31, 1994, each
of which is incorporated herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated December 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio. Purchases
of shares of the Fund may be made through an investment dealer who has
an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of December 1, 1994, the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by FSC. Proceeds will be distributed by check within seven days after
receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated December 31, 1994 and the
Statement of Additional Information dated December 31, 1994. Such risks
include, but are not limited to, fluctuating yields on Texas Municipal
Securities based on factors such as general conditions of the short-term
municipal market and the municipal bond market, the size of the
offering, the maturity of the obligations and the rating of the issue;
the ability of issuers or credit enhancers to meet their obligations for
payment of interest and principal when due; legislative, executive or
administrative changes or voter initiatives which could result in
adverse consequences for Texas Municipal Securities; and any adverse
economic conditions or developments affecting the State of Texas or its
municipalities.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn income exempt from the federal regular income tax.
In an effort to remain competitive with other investment companies with
similar investment objectives, the Adviser waived all of its investment
advisory fees and reimbursed the Portfolio for certain operating
expenses, resulting in aggregate fee waivers and expense reimbursements
of $277,377 for the Portfolio's fiscal year ended August 31, 1994.
However, by August 31, 1994, the Portfolio's net assets had grown only
to $11,130,471. In the opinion of FSC, the Portfolio's principal
underwriter, the Portfolio suffered from a lack of investor interest
sufficient to permit it to grow to a size which would permit it to
operate efficiently. Although FSC expended significant marketing efforts
to promote sales of the Portfolio's shares, the negative investment
climate for municipal securities throughout 1994 impeded sales of
Portfolio shares and FSC concluded that it was unlikely that the
situation would improve materially in the foreseeable future. In
addition, the Adviser and its affiliates concluded that they would be
unable to continue to waive investment advisory fees and reimburse
operating expenses in order for the Portfolio to continue to earn a
yield on its investments competitive with other investment companies
with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Trust's Board of Trustees that
the Portfolio be liquidated. It also indicated that the Adviser would
cease waiving its investment advisory fee after November 30, 1994 and
that as a result, the Portfolio's operating expenses could be expected
to increase to approximately 2.5%. FSC accordingly recommended to
shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $150,000, or approximately $0.125 per share. As a
result, FSC and the Adviser recommended to the Board of Trustees of the
Trust that it consider the feasibility of transferring the Portfolio's
assets to another investment company in exchange for shares of such
other investment company in a transaction which would be tax-free to the
Portfolio and its shareholders. Recognizing that many shareholders may
not have wished to redeem their shares of the Portfolio, FSC and the
Adviser recommended to the Trust's Board of Trustees a transfer of the
Portfolio's assets to the Fund, which seeks to earn interest income
exempt from the federal regular income tax.
The Board of Trustees of the Trust evaluated this proposal as well as
other alternatives, including liquidation of the Portfolio. The Trustees
concluded that this transaction would be in the best interests of
shareholders because the Portfolio was unlikely to reach economic size
on its own, as a result of relatively high expenses, and that net yield
on an investment in the Portfolio would not be attractive to
shareholders.
With assets of approximately $411,672,068 at December 31, 1994, the
Trust's Board of Trustees concluded that the Fund was of a size to
provide operating efficiencies and economies of scale sufficient to
provide shareholders with competitive investment returns and net income
exempt from the federal regular income tax. The Trustees also took
account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Trustees noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Trust's Board of Trustees, including a majority of the
independent Trustees, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Trustees of the Trust unanimously voted to approve, and
recommend to Portfolio shareholders the approval of, the Reorganization.
The Directors of the Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the
best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
In the event shareholders of the Portfolio do not approve the Plan, the
Trust's Board of Trustees will consider other alternatives which would
address the Portfolio's uneconomic size. These may include a plan of
liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Trust, on behalf of the Portfolio, and the Fund as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any
time before or after approval by shareholders of the Portfolio prior to
the Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Trust, on behalf of the Portfolio, is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust,
to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth
below is a brief summary of the significant rights of shareholders of
the Portfolio.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations
or the election of trustees under certain circumstances. A special
meeting of shareholders of the Trust for any permissible purpose shall
be called by the Trustees upon the written request of the holders of at
least 10% of the outstanding shares of the Trust or of the relevant
portfolio. Each share of the Portfolio is entitled to one vote. All
shares of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for obligations of
the Trust on behalf of the Portfolio. To protect its shareholders, the
Trust has filed legal documents with the Commonwealth of Massachusetts
that expressly disclaim the liability of Portfolio shareholders for such
acts or obligations of the Trust. These documents require that notice of
this disclaimer be given in each agreement, obligation or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Portfolio.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Portfolio, the Trust is required to
use the property of the Portfolio to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder for any act or obligation of the
Trust on behalf of the Portfolio. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from the assets of the Portfolio.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $1,596,568 $413,268,636
Price Per Share 10.02 8.35 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Trust
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
Texas Municipal Income Fund, a portfolio of Municipal Securities Income
Trust
Information about the Portfolio and the Trust is contained in the
Portfolio's current Prospectus dated December 31, 1994 and its Statement
of Additional Information dated December 31, 1994, which are
incorporated herein by reference. Copies of such Prospectus and
Statement of Additional Information may be obtained without charge from
the Fund by calling 1-800-245-5000 or by writing to the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is
subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements and
other information filed by the Portfolio can be obtained by calling or
writing the Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Trust an instrument revoking the proxy,
by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Trust and the Adviser at no additional cost
to the Trust. Such solicitations may be by telephone. The Adviser will
reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Trust has fixed the close of business on
February 10, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting of
Shareholders and any adjournment thereof. As of the record date, there
were 163,613.14 shares of the Portfolio outstanding. Each Portfolio
share is entitled to one vote and fractional shares have proportionate
voting rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 150,345 shares, or 91.89%, of the Portfolio's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Portfolio's outstanding shares. On the record date, the trustees and
officers of the Portfolio as a group owned less than 1% of the
outstanding shares of the Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of
the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i)
67% of the shares of the Portfolio present at the Special Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
A majority of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Trust's Declaration of Trust or Massachusetts
law. Under the Plan, if approved by Portfolio shareholders, each
Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Trust knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named
in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL
SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter
called the "Trust") on behalf of its portfolio TEXAS MUNICIPAL INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are
registered open-end management investment companies and the Acquired
Fund owns securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), of the
Acquiring Fund has determined that the exchange of all or substantially
all of the assets of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not
be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940
Act), of the Acquired Fund has determined that the exchange of all of
the assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquired Fund shareholders and that the interests of
the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Trust.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as
an open-end, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the
Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte
& Touche LLP, independent auditors, and have been prepared in accordance
with generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of
such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since August 31, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Trustees and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Trust's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Trustees of
the Trust or the Board of Directors of the Acquiring Fund at any time
prior to the Closing Date (and notwithstanding any vote of the Board of
Trustees of the Acquired Fund) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the
Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by
the Acquired Fund pursuant to this Agreement shall be limited in any
case to the Acquired Fund and its assets and the Acquiring Fund shall
not seek satisfaction of any such obligation from the shareholders of
the Acquired Fund, the trustees, officers, employees or agents of the
Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
MUNICIPAL SECURITIES INCOME TRUST,
on behalf of its portfolio,
TEXAS MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/J. Crilley Kelly
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
TEXAS MUNICIPAL INCOME FUND
(A Portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated February
18, 1995 related to the above-referenced matter may be obtained
from Fortress Municipal Income Fund, Inc., Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal Income
Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of Texas Municipal Income Fund, a
portfolio of Municipal Securities Income Trust, dated December 31,
1994
3. Financial Statements of Fortress Municipal Income Fund, Inc., dated
August 31, 1994
4. Financial Statements of Texas Municipal Income Fund, a portfolio of
Municipal Securities Income Trust, dated August 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of Texas Municipal Income Fund
(the "Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust"), dated December 31, 1994, is incorporated herein by reference
to Post-Effective Amendment No. 17 to the Trust's Registration Statement
on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the
Securities and Exchange Commission on or about December 30, 1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated August 31,
1994, are incorporated herein by reference to the Portfolio's Annual
Report to Shareholders for the fiscal year ended August 31, 1994 which
was filed with the Securities and Exchange Commission on or about
November 1, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $1,596,568.
VIRGINIA MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of Municipal Securities Income
Trust (the "Trust") are pleased to submit for your vote a proposal to
transfer all of the assets of Virginia Municipal Income Fund (the
"Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a
mutual fund advised by Federated Advisers. The Fund has an investment
objective similar to that of the Portfolio in that it seeks current
income which is exempt from the federal regular income tax. The
Portfolio also seeks current income which is exempt from the personal
income taxes imposed by the Commonwealth of Virginia and Virginia
municipalities. Income earned by the Fund will not be exempt from the
personal income taxes imposed by the Commonwealth of Virginia and
Virginia municipalities. As part of the transaction, shareholders in the
Portfolio would receive shares in the Fund equal in value to their
shares in the Portfolio and the Portfolio would be liquidated.
The Board of Trustees of the Trust, as well as Federated Advisers, the
Trust's adviser, and Federated Securities Corp., the Trust's principal
underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following
reasons:
- The Portfolio has not reached a size, and is not
expected to reach a size, in which it can provide
shareholders with a reasonable, competitive return on
its investments.
- The reorganization of the Portfolio into the Fund is
expected to provide operating efficiencies as a
result of the size of the Fund which were not
available to Portfolio shareholders due to the
smaller size of the Portfolio's assets.
- The Fund offers an investment portfolio which invests
in municipal bonds the interest from which is exempt
from the federal regular income tax.
We believe the transfer of the Portfolio's assets in this transaction
will present an excellent investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer
will be effected only if approved by a majority of the Portfolio's
outstanding shares on the record date voted in person or represented by
proxy. We hope you share our enthusiasm and will participate by casting
your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully
before you vote. If you have any questions, please feel free to call us
at 1-800-245-5000.
Thank you for your prompt attention and participation.
Sincerely,
Richard B. Fisher
President
VIRGINIA MUNICIPAL INCOME FUND
(A portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF VIRGINIA MUNICIPAL INCOME FUND:
A Special Meeting of Shareholders of Virginia Municipal Income Fund (the
"Portfolio"), a portfolio of Municipal Securities Income Trust (the
"Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of
the Trust, Federated Investors Tower, 19th Floor, Pittsburgh,
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Trust, on behalf of the Portfolio, and
Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund
would acquire all of the assets of the Portfolio in exchange for Fund
shares to be distributed pro rata by the Portfolio to its shareholders
in complete liquidation of the Portfolio; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: February 18, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business February 10, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the expense of
further mailings, please mark your proxy card, sign it, and return it in
the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting
or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
FEBRUARY 18, 1995
Acquisition of the Assets of
VIRGINIA MUNICIPAL INCOME FUND,
a portfolio of
MUNICIPAL SECURITIES INCOME TRUST
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Fortress Municipal Income
Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of
the assets of Virginia Municipal Income Fund (the "Portfolio"), a
portfolio of Municipal Securities Income Trust, a Massachusetts business
trust (the "Trust"), in exchange for Fund shares to be distributed pro
rata by the Portfolio to its shareholders in complete liquidation of the
Portfolio. As a result of the Plan, each shareholder of the Portfolio
will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the
Portfolio.
The Fund is an open-end, diversified management investment company whose
investment objective is a high level of current income which is
generally exempt from the federal regular income tax. The Fund pursues
this investment objective by investing primarily in a professionally
managed, diverse portfolio of municipal bonds. The Fund may invest up to
35% of its net assets in lower quality municipal bonds. The Portfolio is
a non-diversified portfolio of securities of an open-end management
investment company whose investment objective is to provide current
income which is exempt from federal regular income tax and the personal
income taxes imposed by the Commonwealth of Virginia and Virginia
municipalities. The Portfolio pursues this objective by investing
primarily in securities which are exempt from federal regular income tax
and personal income taxes imposed by the Commonwealth of Virginia and
Virginia municipalities. For a comparison of the investment policies of
the Portfolio and the Fund, see "Summary-Investment Objectives and
Policies".
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Fund dated October 31,
1994 which is incorporated herein by reference. Statements of Additional
Information for the Fund dated October 31, 1994 (relating to the Fund's
prospectus of the same date) and February 18, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed with the Securities and Exchange Commission and are incorporated
herein by reference. Copies of the Statements of Additional Information
may be obtained without charge by writing or calling the Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table Of Contents
Summary 1
About the Proposed
Reorganization 1
Investment Objectives and
Policies 1
Advisory and Other Fees 3
Distribution Arrangements 4
Purchase and Redemption
Procedures 5
Tax Consequences 5
Risk Factors 6
Information About The
Reorganization 6
Background and Reasons for the
Proposed Reorganization 6
Description of the Plan of
Reorganization 7
Description of Portfolio Shares 8
Federal Income Tax Consequences 8
Comparative Information on
Shareholder Rights and
Obligations 8
Capitalization 9
Information About the Fund, The
Portfolio and The Trust 9
Fortress Municipal Income Fund,
Inc. 9
Virginia Municipal Income Fund,
a portfolio of Municipal
Securities Income Trust 10
Voting Information 10
Outstanding Shares and Voting
Requirements 10
Dissenter's Right of Appraisal 11
Other Matters 11
Exhibit A 12
Exhibit B 21
Summary
About the Proposed Reorganization
The Board of Trustees of Municipal Securities Income Trust (the "Trust")
has voted to recommend to shareholders of its portfolio, Virginia
Municipal Income Fund (the "Portfolio"), the approval of an Agreement
and Plan of Reorganization (the "Plan") whereby Fortress Municipal
Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire
all of the assets of the Portfolio in exchange for Fund shares to be
distributed pro rata by the Portfolio to its shareholders in complete
liquidation and dissolution of the Portfolio (the "Reorganization"). As
a result of the Reorganization, each shareholder of the Portfolio will
become the owner of Fund shares having a total net asset value equal to
the total net asset value of his or her holdings in the Portfolio on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio. After the
acquisition is completed, the Portfolio will be liquidated.
Investment Objectives and Policies
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. This investment objective may not be changed without the approval
of shareholders. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of municipal bonds, and may invest
up to 35% of its net assets in lower quality (i.e. "junk") municipal
bonds. As a matter of investment policy that cannot be changed without
the approval of shareholders, except when investing on a temporary basis
for defensive purposes, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax.
Income earned by the Fund will be exempt from the federal regular income
tax but will not be exempt from the personal income taxes imposed by the
Commonwealth of Virginia and Virginia municipalities. As discussed
below, income earned by the Portfolio is exempt from the federal regular
income tax and the personal income taxes imposed by the Commonwealth of
Virginia and Virginia municipalities.
Both the Fund and the Portfolio may invest in securities which are
subject to the alternative minimum tax. Information concerning the
alternative minimum tax is included in the Prospectus of the Fund dated
October 31, 1994, which is incorporated herein by reference thereto.
The investment objective of the Portfolio is to provide current income
which is exempt from federal regular income tax and the personal income
taxes imposed by the Commonwealth of Virginia and Virginia
municipalities. This investment objective may not be changed without the
approval of shareholders. The Portfolio pursues its investment objective
by investing primarily in securities which are exempt from federal
regular income tax and personal income taxes imposed by the Commonwealth
of Virginia and Virginia municipalities. As a matter of investment
policy which cannot be changed without the approval of shareholders, the
Portfolio invests its assets so that, under normal circumstances, at
least 80% of its annual interest income is exempt from federal regular
income tax, or that at least 80% of its net assets are invested in
securities the interest from which is exempt from federal regular income
tax. For the most recent fiscal year of the Portfolio, 100% of the
Portfolio's annual interest income was exempt from the federal regular
income tax.
The Fund is a diversified investment company. In contrast, the Portfolio
is a non-diversified portfolio of securities.
The Fund invests in municipal bonds which are rated Ba or higher by
Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by
Standard & Poor's Ratings Group ("S&P") and bonds which are not rated
but which the adviser judges to be of comparable quality to bonds having
such ratings. The Fund will limit its purchases of high-yield, high risk
municipal bonds rated Ba and BB to less than 35% of its net assets.
Information concerning the ratings of municipal bonds in which the Fund
may invest is contained in Exhibit B hereto. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security but may consider doing so.
Unless otherwise designated, the investment policies of the Fund may be
changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes
effective.
An investment in the Fund may entail greater risks than an investment in
the Portfolio as a result of the Fund's ability to invest in high-yield,
high-risk municipal bonds. The risks may include a greater risk of
default in the payment of principal and interest on such securities as a
result of the issuer's weaker financial condition. The Adviser seeks to
minimize these risks through various portfolio management techniques
described in the Fund's prospectus dated October 31, 1994. There can be
no assurance that the Adviser will be successful in minimizing these
risks.
Under normal circumstances, the Portfolio will invest at least 65% of
its total assets in Virginia municipal securities, which are obligations
issued by or on behalf of the Commonwealth of Virginia, its political
subdivisions, or agencies, debt obligations of any state, territory, or
possession or the United States, including the District of Columbia, or
any political subdivision of any of these, and participation interests
in any of the above obligations, the interest from which is exempt from
both the federal regular income tax and personal income taxes imposed by
the Commonwealth of Virginia and Virginia municipalities in the opinion
of the issuer's bond counsel, the Trust, its officers or the Adviser
("Virginia Municipal Securities"). The Virginia Municipal Securities,
and any other securities, which the Portfolio buys are investment grade
bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or
higher by S&P or by Fitch Investors Service, Inc. and bonds which are
not rated if the Adviser determines that such bonds are of comparable
quality or have similar characteristics to bonds having such ratings. If
a security's rating is reduced below the required minimum after the
Portfolio has purchased it, the Portfolio is not required to sell the
security but may consider doing so. Unless otherwise designated, the
investment policies of the Portfolio may be changed by the Board of
Trustees without shareholder approval, although shareholders will be
notified before any material change becomes effective. Currently, the
Portfolio invests primarily in variable rate municipal securities.
Both the Fund and the Portfolio may invest in derivative municipal
securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse
floaters"). Neither the Fund nor the Portfolio intend to invest more
than 5% of their respective total assets in inverse floaters. The Fund
has reserved the right to hedge a portion of its investments by entering
into futures contracts or options on futures contracts. The Fund will
notify shareholders before it engages in such transactions. The
Portfolio also may utilize futures contracts and options to a limited
extent. Reference is hereby made to the Prospectus of the Portfolio
dated December 30, 1994 for a more complete description of futures
contracts and options, including risks associated therewith, which is
incorporated herein by reference thereto.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which
prohibit it from (1) borrowing money directly or through reverse
repurchase agreements or pledging securities except that, under certain
circumstances, the Fund may, exclusive of custodian intra-day cash
advances and the collateralization of such advances, borrow up to one-
third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) investing more than 10%
of its net assets in securities subject to restrictions on resale under
the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash
items and United States government obligations); and (4) investing more
than 5% of its total assets in industrial development bonds of issuers
that have records of less than three years of continuous operations. The
first two investment limitations listed above cannot be changed without
shareholder approval; the last two limitations may be changed by the
Board of Directors without shareholder approval, although shareholders
will be notified before any material change becomes effective.
The Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the
Portfolio may borrow up to one-third of the value of its total assets
and pledge up to 10% of the value of those assets to secure such
borrowings; and (2) investing more than 5% of its total assets in
industrial development bonds when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the
operation of any predecessor. The Portfolio's first investment
limitation cannot be changed without shareholder approval; the second
may be changed by the Board of Trustees without shareholder approval,
although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations which are similar, although not identical,
described in the Fund's Statement of Additional Information dated
October 31, 1994, and the Portfolio's Statement of Additional
Information dated December 31, 1994. Reference is hereby made to the
Fund's Prospectus and Statement of Additional Information, each dated
October 31, 1994, and to the Portfolio's Prospectus and Statement of
Additional Information, each dated December 31, 1994, which set forth in
full the investment objectives and policies and investment limitations
of each of the Fund and the Portfolio, each of which is incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.60 of 1% of the
Fund's average daily net assets. Federated Advisers (the "Adviser"), the
investment adviser to the Fund, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Fund for certain operating
expenses. This voluntary waiver of fees may be terminated by the Adviser
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states. The annual investment advisory fee for
the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets.
The Adviser, which also serves as investment adviser to the Portfolio,
may similarly voluntarily choose to waive a portion of its advisory fee
or reimburse the Portfolio for operating expenses but may likewise
terminate such waiver or reimbursement at any time in its sole
discretion. The Adviser has also undertaken to reimburse the Portfolio
for operating expenses in excess of limitations established by certain
states. Without such waiver or reimbursement, the expense ratio of each
of the Fund and the Portfolio would be higher by 0.0 and 5.55%,
respectively, of average daily net assets.
Federated Administrative Services, an affiliate of the Adviser, provides
certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average
aggregate daily net assets of all funds advised by the Adviser and its
affiliates. The rate charged is 0.15 of 1% of the first $250 million of
all such funds' average aggregate daily net assets, 0.125 of 1% on the
next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1%
of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of such portfolio. Federated
Administrative Services may choose voluntarily to waive a portion of its
fee. The administrative fee expense for the Fund's most recent fiscal
year was 0.09 of 1% of its average aggregate daily net assets and for
the Portfolio's most recent fiscal year was 2.15% of its average
aggregate daily net assets.
The Fund has adopted a Shareholder Services Plan under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of the
Fund to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Fund has entered into a
Shareholder Services Agreement pursuant to which Federated Shareholder
Services, an affiliate of the Adviser, either performs shareholder
services directly or selects certain financial institutions to perform
such services. Financial institutions will receive fees based upon
shares owned by their customers. The schedule of such fees is determined
from time to time by the Fund and Federated Shareholder Services.
The Portfolio has a similar Shareholder Services Plan pursuant to which
financial institutions enter into shareholder service agreements with
the Portfolio to provide administrative support services to their
customers who own Portfolio shares. Such services may include, but are
not limited to, the provision of personal services and maintenance of
shareholder accounts. The Portfolio may make payments to a financial
institution of up to 0.25 of 1% of the average daily net assets of
Portfolio shares beneficially owned by such financial institution's
customers for such services.
The total annual operating expenses for the Fund were 1.09% of average
daily net assets for its most recent fiscal year. The total annual
operating expenses for the Portfolio were 0.75% of average daily net
assets for its most recent fiscal year. and would have been 6.30% of
average daily net assets absent the voluntary waiver by the Adviser of a
portion of the investment advisory fee and reimbursement of certain
other operating expenses. As of December 1, 1994, the Adviser ceased its
voluntary waiver of investment advisory fees as well as its voluntary
reimbursement of certain Portfolio operating expenses. As a result, the
maximum total annual operating expenses for the Portfolio for its
current fiscal year are expected to be 2.50% of average daily net
assets.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for
shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1
Distribution Plan (the "Distribution Plan") pursuant to which the Fund
may pay to the distributor an amount equal to an annual rate of 0.25 of
1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares
subject to the Distribution Plan. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-
1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the
Portfolio to reimburse FSC for payments paid to dealers and to finance
any activity which is principally intended to result in the sale of
shares subject to the 12b-1 Plan. In connection with the distribution of
Portfolio shares, FSC paid dealers from its assets up to 2% of the net
asset value of Portfolio shares purchased by their customers. The Fund
will not assume any liabilities or make any voluntary reimbursements on
account of the Portfolio's Rule 12b-1 Plan.
In connection with the distribution of and/or administrative services
relating to Fund shares, FSC pays brokers and financial institutions 1%
of the offering price of the Fund shares acquired by their customers on
purchases up to $1,999,999; 0.50% on purchases of $2 million to
$4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid
by FSC pursuant to these arrangements will be reimbursed by the Adviser.
The administrator may elect to receive amounts less than those stated,
which would reduce the contingent deferred sales charge and/or the
holding period used to calculate such fee upon the sale of such shares
described below. In addition, FSC may pay a fee to financial
institutions as financial assistance for providing substantial marketing
and sales support, which payments would be determined by the amount of
shares sold by such financial institution and/or the nature of the
marketing or sales support furnished. Although such payments would be
made from the assets of FSC, the Adviser or its affiliates may reimburse
them.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund are sold at their net asset value
next determined after an order is received, plus a sales load of 1% of
the offering price for purchases of less than $1 million in all of the
Fortress Investment Program funds and purchases which are not made
through designated institutions. Shares of the Fund received by
Portfolio shareholders as a result of the Reorganization will not be
subject to a sales charge. Shares of the Portfolio were sold at their
net asset value next determined after an order was received.
Absent an exemption, shareholders redeeming Fund shares within certain
time periods of the purchase of those shares will be charged a
contingent deferred sales charge by FSC based on the lesser of the
original price or the net asset value of the shares redeemed, as
follows: for purchases up to $1,999,999 held less than four years the
charge is 1%; for purchases of $2 million to $4,999,999 held less than
two years the charge is 0.50%; and for purchases of more than $5 million
held less than one year, the charge is 0.25%. The contingent deferred
sales charges are not imposed in connection with the exercise of
exchange rights, nor will they be imposed on redemptions of Fund shares
received by shareholders of the Portfolio as a result of the
consummation of the Reorganization.
Effective in late 1994, FSC has waived all contingent deferred sales
charges in connection with redemptions of Portfolio shares. Absent such
waiver or another exemption, shareholders redeeming Portfolio shares
within three full years of the purchase of such shares were charged a
contingent deferred sales charge by FSC based on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption, as
follows: for shares held less than one year the charge was 3%; for
shares held more than one year but less than three years the charge was
2%. These sales charges were not imposed in connection with an exercise
of exchange rights.
For a complete description of sales charges, contingent deferred sales
charges and exemptions from such charges, reference is hereby made to
the Prospectus of the Fund dated October 31, 1994 and the Prospectus of
the Portfolio dated December 31, 1994, each of which is incorporated
herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund
and the Portfolio is Federated Services Company. Procedures for the
purchase and redemption of Fund shares differ slightly from procedures
applicable to the purchase and redemption of Portfolio shares. Any
questions about such procedures may be directed to, and assistance in
effecting purchases or redemptions of Fund shares or redemptions of
Portfolio shares, may be obtained from, FSC, principal distributor for
each of the Fund and the Portfolio, at 800-245-5000.
Reference is made to the Prospectus of the Fund dated October 31, 1994,
and the Prospectus of the Portfolio dated December 31, 1994 for a
complete description of the purchase and redemption procedures
applicable to purchases and redemptions of Fund and Portfolio shares,
respectively, each of which is incorporated herein by reference thereto.
Set forth below is a brief listing of the significant purchase and
redemption procedures of each of the Fund and the Portfolio.
Purchases of shares of the Fund may be made through an investment dealer
who has an agreement with FSC or by wire or check. The minimum initial
investment in the Fund is $1,500. Subsequent investments must be in
amounts of at least $100. As of October 17, 1994 the Portfolio ceased
offering its shares for sale except for dividend reinvestments by
existing shareholders. Prior to that time, the minimum initial
investment in the Portfolio also was $1,500 and the minimum for
subsequent investments also was $100.
The purchase price of shares of both the Fund and the Portfolio is based
on net asset value. The net asset value for each of the Fund and the
Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which
the Fund and the Portfolio compute their net asset value. Purchase and
redemption orders for the Fund and redemption orders for the Portfolio
received from broker/dealers before 5:00 p.m. (Eastern time) and from
financial institutions before 4:00 p.m. (Eastern time) may be entered at
that day's price. Purchase orders by wire are considered received when
the Fund's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. Purchase orders
received by check are considered received after the check is converted
into federal funds, which normally occurs one day after receipt by State
Street Bank.
Fund shareholders have exchange rights with respect to shares in a
family of thirteen funds known as the Fortress Investment Program (the
"Program"), each of which has different investment objectives and
policies. Shares in the Fund may be exchanged for shares in the Program
at net asset value without a sales load (if previously paid) or a
contingent deferred sales charge. Portfolio shareholders also had
exchange rights with respect to certain other investment companies.
However, such other investment companies are no longer offering their
shares for sale. Shares of the Fund may be exchanged on a periodic
systematic basis or upon individual request, and must have a net asset
value which meets the minimum investment requirement for the fund into
which the exchange is being made. Exercise of the exchange privilege is
treated as a sale for federal income tax purposes and, accordingly, may
have tax consequences for the shareholder. Information on share
exchanges may be obtained from FSC.
Redemptions of Fund shares may be made through a financial institution,
by mailing a written request or through the Fund's Systematic Withdrawal
Program. Shares are redeemed at their net asset value next determined
after the redemption request is received by FSC. Proceeds will be
distributed by check within seven days after receipt of a redemption
request.
Generally, redemption of Portfolio shares may be made through a
financial institution, by mailing a written request or through the
Portfolio's Systematic Withdrawal Program. Shares are redeemed at their
net asset value next determined after the redemption request is received
by State Street Bank. Proceeds will be distributed by check within seven
days after receipt of a redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by
either the Fund or the Portfolio or their shareholders. The tax cost
basis of the Fund shares received by Portfolio shareholders will be the
same as the tax cost basis of their shares in the Portfolio.
Risk Factors
Investment in the Fund is subject to certain risks which are set forth
in the Fund's Prospectus dated October 31, 1994 and the Statement of
Additional Information dated October 31, 1994 and incorporated herein by
reference thereto. Briefly, these risks include, but are not limited to,
the ability of the issuers of bonds owned by the Fund to meet their
obligations for the payment of principal and interest when due;
fluctuation in the value of the shares; gain or loss in the sale of
bonds by the Fund based on interest rate sensitivity and changes in the
perceived quality of the credit of the issuer; economic, political and
regulatory developments which affect bonds whose revenues are from
similar projects or where issuers share the same geographic location
when such bonds constitute a large portion of the Fund's portfolio; and
narrow markets for lower rated and unrated bonds.
The Fund's ability to invest in lower quality bonds increases the risk
associated with an investment in the Fund. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of issuers to make principal and interest payments than occurs
with higher rated bonds.
Investment in the Portfolio carries risks as well, as more fully
described in the Portfolio's Prospectus dated December 31, 1994 and the
Statement of Additional Information dated December 31, 1994. Such risks
include, but are not limited to, fluctuating yields on Virginia
Municipal Securities based on factors such as general market conditions,
the size of the offering, the maturity of the obligations and the rating
of the issue; the ability of issuers and participation interests, or the
guarantors of either, to meet their obligations for payment of interest
and principal when due; legislative, executive or administrative changes
or voter initiatives which could result in adverse consequences for
Virginia Municipal Securities; and any adverse economic conditions or
developments affecting the Commonwealth of Virginia or its
municipalities.
Information About The Reorganization
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1993 to provide investors with the
opportunity to earn income exempt from both the federal regular income
tax and personal income taxes imposed by the Commonwealth of Virginia
and Virginia municipalities. In an effort to remain competitive with
other investment companies with similar investment objectives, the
Adviser waived all of its investment advisory fees and reimbursed the
Portfolio for certain operating expenses, resulting in aggregate fee
waivers and expense reimbursements of $145,296 for the Portfolio's
fiscal year ended August 31, 1994. However, by August 31, 1994, the
Portfolio's net assets had grown only to $4,375,390. In the opinion of
FSC, the Portfolio's principal underwriter, the Portfolio suffered from
a lack of investor interest sufficient to permit it to grow to a size
which would permit it to operate efficiently. Although FSC expended
significant marketing efforts to promote sales of the Portfolio's
shares, the negative investment climate for municipal securities
throughout 1994 impeded sales of Portfolio shares and FSC concluded that
it was unlikely that the situation would improve materially in the
foreseeable future. In addition, the Adviser and its affiliates
concluded that they would be unable to continue to waive investment
advisory fees and reimburse operating expenses in order for the
Portfolio to continue to earn a yield on its investments competitive
with other investment companies with similar investment objectives.
As a result of these factors, in early November 1994, FSC notified
shareholders that it had ceased offering shares of the Portfolio for
sale and that it would recommend to the Trust's Board of Trustees that
the Portfolio be liquidated. It also indicated that the Adviser would
cease waiving its investment advisory fee after November 30, 1994 and
that as a result, the Portfolio's operating expenses could be expected
to increase to approximately 2.5%. FSC accordingly recommended to
shareholders that they voluntarily redeem their shares and indicated
that all contingent deferred sales charges that would otherwise be
applicable to such redemptions would be waived. In anticipation of
voluntary redemptions, the Adviser restructured the Portfolio's
investments by emphasizing shorter-term municipal securities.
Although many shareholders of the Portfolio elected to redeem their
shares as a result of the foregoing developments, a significant number
of shareholders expressed dissatisfaction both with this alternative and
the overall determination to recommend liquidation of the Portfolio.
After consultation with many shareholders as well as various broker
dealers and other financial institutions who had sold Portfolio shares,
FSC voluntarily determined to reimburse shareholders of the Portfolio as
of October 13, 1994, $40,000, or approximately $0.081 per share. As a
result, FSC and the Adviser recommended to the Board of Trustees of the
Trust that it consider the feasibility of transferring the Portfolio's
assets to another investment company in exchange for shares of such
other investment company in a transaction which would be tax-free to the
Portfolio and its shareholders. Recognizing that many shareholders may
not have wished to redeem their shares of the Portfolio, FSC and the
Adviser recommended to the Trust's Board of Trustees a transfer of the
Portfolio's assets to the Fund, which seeks to earn interest income
exempt from the federal regular income tax (although not exempt from the
personal income taxes imposed by the Commonwealth of Virginia and
Virginia municipalities).
The Board of Trustees of the Trust evaluated this proposal as well as
other alternatives, including liquidation of the Portfolio. The Trustees
concluded that this transaction would be in the best interests of
shareholders because the Portfolio was unlikely to reach economic size
on its own, as a result of relatively high expenses, and that net yield
on an investment in the Portfolio would not be attractive to
shareholders.
With assets of approximately $411,672,068 at December 31, 1994, the
Trust's Board of Trustees concluded that the Fund was of a size to
provide operating efficiencies and economies of scale sufficient to
provide shareholders with competitive investment returns and net income
exempt from the federal regular income tax. The Trustees also took
account of the fact that the Fund also receives investment advisory
services from the Adviser and that the Fund and its shareholders receive
similar administrative and other shareholder services as presently
enjoyed by the Portfolio and its shareholders. The Trustees noted that
the Fund's investment advisory fee of 0.60% of average daily net assets
is higher than the Portfolio's investment advisory fee of 0.40% of
average daily net assets, but concluded that this difference in advisory
fees is offset by the lower overall expenses of the Fund as compared to
the Portfolio.
Accordingly, the Trust's Board of Trustees, including a majority of the
independent Trustees, determined that participation in the
Reorganization is in the best interests of the Portfolio and that the
interests of Portfolio shareholders would not be diluted as a result of
its effecting the Reorganization. Based upon the foregoing
considerations, and the fact that shareholders of the Portfolio will not
suffer any adverse tax consequences as a result of the Reorganization,
the Board of Trustees of the Trust unanimously voted to approve, and
recommend to Portfolio shareholders the approval of, the Reorganization.
The Directors of the Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the
best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
In the event shareholders of the Portfolio do not approve the Plan, the
Trust's Board of Trustees will consider other alternatives which would
address the Portfolio's uneconomic size. These may include a plan of
liquidation or another transaction.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for Fund shares to be distributed pro rata by the
Portfolio to its shareholders in complete liquidation of the Portfolio
on or about March 30, 1995 (the "Closing Date"). Shareholders of the
Portfolio will become shareholders of the Fund as of the close of
business on the Closing Date and will begin accruing dividends on the
next day. Shareholders of the Fund will accrue their last dividend from
the Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the Trust, on behalf of the Portfolio, and the Fund as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any
time before or after approval by shareholders of the Portfolio prior to
the Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not
limited to, accountants' fees, legal fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Portfolio's shareholders and the costs of holding the Special
Meeting of Shareholders.
The foregoing description of the Plan entered into between the Fund and
the Trust, on behalf of the Portfolio, is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Portfolio Shares
Shares of the Fund to be issued to shareholders of the Portfolio under
the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Fund dated October 31, 1994 provided herewith for additional information
about Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Fund and the
Trust, on behalf of the Portfolio, will receive an opinion from
Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust,
to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax
purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Fund upon its
receipt of the Portfolio's assets solely in exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the
transfer of its assets to the Fund in exchange for Fund shares or upon
the distribution (whether actual or constructive) of the Fund shares to
the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares;
(5) the tax basis of the Portfolio's assets acquired by the Fund will be
the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization; (6) the tax basis of Fund shares received
by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the
assets of the Portfolio in the hands of the Fund will include the period
during which those assets were held by the Portfolio; and (8) the
holding period of Fund shares received by each shareholder of the
Portfolio pursuant to the Plan will include the period during which the
Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of
the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Fund is organized as a corporation under the laws of the State of
Maryland. The Fund is not required to hold annual meetings of
shareholders except when required to do so under the 1940 Act. A special
meeting of shareholders of the Fund shall be called by the Chairman,
Secretary or any Director upon the written request of the holders of at
least 25% of the outstanding shares of the Fund. Each share of the Fund
is entitled to one vote at all meetings of shareholders.
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth
below is a brief summary of the significant rights of shareholders of
the Portfolio.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations
or the election of trustees under certain circumstances. A special
meeting of shareholders of the Trust for any permissible purpose shall
be called by the Trustees upon the written request of the holders of at
least 10% of the outstanding shares of the Trust or of the relevant
portfolio. Each share of the Portfolio is entitled to one vote. All
shares of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for obligations of
the Trust on behalf of the Portfolio. To protect its shareholders, the
Trust has filed legal documents with the Commonwealth of Massachusetts
that expressly disclaim the liability of Portfolio shareholders for such
acts or obligations of the Trust. These documents require that notice of
this disclaimer be given in each agreement, obligation or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Portfolio.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Portfolio, the Trust is required to
use the property of the Portfolio to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder for any act or obligation of the
Trust on behalf of the Portfolio. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from the assets of the Portfolio.
Capitalization
The following table sets forth the unaudited capitalization of the Fund
and the Portfolio as of December 31, 1994 and on a pro forma basis as of
that date:
Pro Forma
Fund Portfolio Combined
Net Assets $411,672,068 $ 83,387 $411,755,455
Price Per Share 10.02 7.98 10.02
(NAV)
Concurrent with the Reorganization, the Fund also anticipates that it
will acquire the assets of several other investment portfolios, each of
which is individually, and all of which in the aggregate, are immaterial
in size relative to the Fund. Accordingly, pro forma capitalization
information concerning such transactions has been omitted from this
Prospectus/Proxy Statement.
Information About The Fund, The Portfolio And The Trust
Fortress Municipal Income Fund, Inc.
Information about the Fund is contained in the Fund's current Prospectus
dated October 31, 1994, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund
is included in the Fund's Statement of Additional Information dated
October 31, 1994, which is incorporated herein by reference. Copies of
the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5000 or by writing the Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is
subject to the informational requirements of the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements and other information filed by
the Fund, can be obtained by calling or writing the Fund and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World
Trade Center, New York, NY 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Fund with the SEC under the 1933
Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Fund
and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the SEC.
Virginia Municipal Income Fund, a portfolio of Municipal Securities
Income Trust
Information about the Portfolio and the Trust is contained in the
Portfolio's current Prospectus dated December 31, 1994 and its Statement
of Additional Information dated December 31, 1994, which are
incorporated herein by reference. Copies of such Prospectus and
Statement of Additional Information may be obtained without charge from
the Fund by calling 1-800-245-5000 or by writing to the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is
subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements and
other information filed by the Portfolio can be obtained by calling or
writing the Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on
March 30, 1995 and at any adjournment thereof. The proxy confers
discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned and not
revoked, will be voted in accordance with the specifications thereon; if
no instructions are given, such proxy will be voted in favor of the
Plan. A shareholder may revoke a proxy at any time prior to use by
filing with the Secretary of the Trust an instrument revoking the proxy,
by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents of the Trust and the Adviser at no additional cost
to the Trust. Such solicitations may be by telephone. The Adviser will
reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Trust has fixed the close of business on
February 10, 1995 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting of
Shareholders and any adjournment thereof. As of the record date, there
were 5,336.75 shares of the Portfolio outstanding. Each Portfolio share
is entitled to one vote and fractional shares have proportionate voting
rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as
record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 526 shares, or 9.86% of the Portfolio's outstanding
shares; Frank E. Mann, Alexandria, Virginia, owned approximately
1,029.48 shares, or 19.29% of the Portfolio's outstanding shares;
Painewebber, for the benefit of James W. Stewart and Margaret R.
Stewart, Chesapeake, Virginia, owned approximately 921.66 shares, or
17.27% of the Portfolio's outstanding shares; and George E. Briers,
Lebanon, Virginia, owned approximately 2,468 shares, or 46.25% of the
Portfolio's outstanding shares, and therefore, may, for certain
purposes, be deemed to control the Portfolio and be able to affect the
outcome of certain matters presented for a vote of shareholders. On such
date, no other person owned of record, or to the knowledge of the
Adviser, beneficially owned, 5% or more of the Portfolio's outstanding
shares. On the record date, the trustees and officers of the Portfolio
as a group owned less than 1% of the outstanding shares of the
Portfolio.
As of the record date, there were 41,019,047.51 shares of the Fund
outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith
(as record owner holding shares for its clients), Jacksonville, Florida,
owned approximately 11,532,828 shares, or 28.12%, of the Fund's
outstanding shares. On such date, no other person owned of record, or to
the knowledge of the Adviser, beneficially owned, 5% or more of the
Fund's outstanding shares. On the record date, the trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of
the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i)
67% of the shares of the Portfolio present at the Special Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) a majority of the outstanding shares of the
Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the
Reorganization.
A majority of the outstanding shares of the Portfolio, represented in
person or by proxy, will be required to constitute a quorum at the
Special Meeting for the purpose of voting on the proposed
Reorganization. For purposes of determining the presence of a quorum,
shares represented by abstentions and "broker non-votes" will be counted
as present, but not as votes cast, at the Special Meeting. Under the
1940 Act, however, which governs this transaction, matters subject to
the requirements of the 1940 Act, including the Reorganization, are
determined on the basis of a percentage of votes present at the Special
Meeting, which would have the effect of treating abstentions and "broker
non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Trust's Declaration of Trust or Massachusetts
law. Under the Plan, if approved by Portfolio shareholders, each
Portfolio shareholder will become the owner of Fund shares having a
total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
Other Matters
Management of the Trust knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named
in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Fund.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
exhibit a
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the
"Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL
SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter
called the "Trust") on behalf of its portfolio VIRGINIA MUNICIPAL INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund in
exchange solely for shares of common stock of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are
registered open-end management investment companies and the Acquired
Fund owns securities in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
Directors who are not "interested persons" (as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), of the
Acquiring Fund has determined that the exchange of all or substantially
all of the assets of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not
be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940
Act), of the Acquired Fund has determined that the exchange of all of
the assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquired Fund shareholders and that the interests of
the existing shareholders of the Acquired Fund would not be diluted as a
result of this transaction;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3. Such transaction shall take place at the closing (the
"Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the stock record books of the Acquiring Fund
and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be
transferred shall be made on the Closing Date and shall be delivered to
State Street Bank and Trust Company (hereinafter called "State Street"),
Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"),
for the account of the Acquiring Fund, together with proper instructions
and all necessary documents to transfer to the account of the Acquiring
Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and
immediately available funds payable to the order of the Custodian for
the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any dividends or interest received on or after the
Closing Date with respect to assets transferred to the Acquiring Fund
thereunder. The Acquired Fund will transfer to the Acquiring Fund any
distributions, rights or other assets received by the Acquired Fund
after the Closing Date as distributions on or with respect to the
securities transferred. Such assets shall be deemed included in assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently
practicable, the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund. Share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance
with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as
a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Trust.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets
computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the
net asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.3 The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net
assets of the Acquired Fund determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with
the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be March 30, 1995 or such later date
as the parties may mutually agree. All acts taking place at the Closing
Date shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing
shall be held at 4:00 p.m. (Eastern time) at the offices of the
Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or
such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund,
or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring
Fund as follows:
(a) The Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as
an open-end, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or
other commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of
additional information of the Acquired Fund conform in all material
respects to the applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
hereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein as
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the
Acquired Fund at August 31, 1994 have been audited by Deloitte & Touche
LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired
Fund as of such dates not disclosed therein.
(h) Since August 31, 1994, there has not been any
material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax
returns and reports of the Acquired Fund required by law to have been
filed by such dates shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund
Shares.
(l) On the Closing Date, the Acquired Fund will have
full right, power and authority to sell, assign, transfer and deliver
the assets to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Acquired Fund's Trustees and,
subject to the approval of the Acquired Fund Shareholders, this
Agreement will constitute the valid and legally binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired
Fund (the "Prospectus/Proxy Statement") to be included in the
Registration Statement referred to in paragraph 5.5 (other than
information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired
Fund as follows:
(a) The Acquiring Fund is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and the Acquiring Fund has the power to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940
Act as an open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of
additional information of the Acquiring Fund conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at August 31, 1993 and 1994, have been audited by
Deloitte & Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1994, there has not been any
material adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such date shall have been filed, and all Federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary action, if any, on the part of the Acquiring Fund's
Trustees, and this Agreement will constitute the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in
the Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement
under which Federated Advisers will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents and
the costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's shareholders and the costs of holding
the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for Federal income tax purposes which will be carried over to the
Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to
in paragraph 4.1(m), all to be included in a Registration Statement on
Form N-14 of the Acquiring Fund (the "Registration Statement"), in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended, and the 1940 Act in connection with the meeting of the Acquired
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and, in addition thereto,
the following conditions:
6.1 All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund
a statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund
on the Closing Date a certificate executed in its name by its President
or Vice President and its Treasurer, in form and substance satisfactory
to the Acquired Fund, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business
since the date hereof other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Trust's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received
an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund assets in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares; (c) No gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for
the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) The holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund; and (h) The holding period of the Acquiring Fund Shares
to be received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Trustees of
the Trust or the Board of Directors of the Acquiring Fund at any time
prior to the Closing Date (and notwithstanding any vote of the Board of
Trustees of the Acquired Fund) if circumstances should develop that, in
the opinion of either of the parties' Board, make proceeding with the
Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange
contemplated hereby is abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the directors, officers
or shareholders of the Acquiring Fund or of the Acquired Fund, in
respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as
the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
11.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty or representation, other than as set
forth or provided in this Agreement or as may be set forth in a later
writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by
the Acquired Fund pursuant to this Agreement shall be limited in any
case to the Acquired Fund and its assets and the Acquiring Fund shall
not seek satisfaction of any such obligation from the shareholders of
the Acquired Fund, the trustees, officers, employees or agents of the
Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
MUNICIPAL SECURITIES INCOME TRUST,
on behalf of its portfolio,
VIRGINIA MUNICIPAL INCOME FUND
Attest:
By:/s/John W. McGonigle
/s/J. Crilley Kelly
Assistant Secretary Name:John W. McGonigle
Title:Vice President
Acquiring Fund:
FORTRESS MUNICIPAL INCOME
FUND, INC.
Attest:
By: /s/Richard B. Fisher
/s/Charles H. Field
Assistant Secretary Name:Richard B. Fisher
Title:President
EXHIBIT B
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured.) Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
Acquisition of the assets of
VIRGINIA MUNICIPAL INCOME FUND
(A Portfolio of MUNICIPAL SECURITIES INCOME TRUST)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
FORTRESS MUNICIPAL INCOME FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
Statement of Additional Information
This Statement of Additional Information dated February 18, 1995
is not a prospectus. A Prospectus/Proxy Statement dated February
18, 1995 related to the above-referenced matter may be obtained
from Fortress Municipal Income Fund, Inc., Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Table Of Contents
1. Statement of Additional Information of Fortress Municipal Income
Fund, Inc., dated October 31, 1994
2. Statement of Additional Information of Virginia Municipal Income
Fund, a portfolio of Municipal Securities Income Trust, dated
December 31, 1994
3. Financial Statements of Fortress Municipal Income Fund, Inc., dated
August 31, 1994
4. Financial Statements of Virginia Municipal Income Fund, a portfolio
of Municipal Securities Income Trust, dated August 31, 1994
The Statement of Additional Information of Fortress Municipal Income
Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Fund's
Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533)
which was filed with the Securities and Exchange Commission on or about
October 26, 1994. A copy may be obtained from the Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245-
5000.
The Statement of Additional Information of Virginia Municipal Income
Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust
(the "Trust"), dated December 31, 1994, is incorporated herein by
reference to Post-Effective Amendment No. 17 to the Trust's Registration
Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed
with the Securities and Exchange Commission on or about December 30,
1994.
The audited financial statements of the Fund, dated August 31, 1994, are
incorporated herein by reference to the Fund's Prospectus dated October
31, 1994 which was filed with the Securities and Exchange Commission in
Post-Effective Amendment No. 10 to the Fund's Registration Statement on
Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26,
1994.
The audited financial statements of the Portfolio, dated August 31,
1994, are incorporated herein by reference to the Portfolio's Annual
Report to Shareholders for the fiscal year ended August 31, 1994 which
was filed with the Securities and Exchange Commission on or about
November 1, 1994.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At December 31, 1994, the total net assets of the Fund were
$411,672,068 and the total net assets of the Portfolio were $83,387.
Exhibit 17.7
MULTI-STATE MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
MULTI-STATE MUNICIPAL INCOME FUND
a Portfolio of
FIXED INCOME SECURITIES, INC.
CUSIP NO. 338319205
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Multi-State Municipal Income Fund, a portfolio of Fixed Income
Securities, Inc., hereby appoint Patricia F. Conner, Charles H. Field,
Laura Goldner, Suzanne W. Land, and Jody L. Petras, or any of them true
and lawful attorneys, with power of substitution of each, to vote all
shares of Multi-State Municipal Income Fund, a portfolio of Fixed Income
Securities, Inc., which the undersigned is entitled to vote, at the
Special Meeting of Shareholders to be held on March 30, 1995, at
Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:00 p.m.
(Eastern Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF
REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
Multi-State Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT AND
RECORD DATE SHARES PLAN OF REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
_____________________________________
Signature(s) of Shareholder(s)
Date:________________________________
Exhibit 17.2
FLORIDA MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
FLORIDA MUNICIPAL INCOME FUND
a Portfolio of
MUNICIPAL SECURITIES INCOME TRUST
CUSIP NO. 625922802
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Florida Municipal Income Fund, a portfolio of Municipal Securities
Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J.
Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them
true and lawful attorneys, with power of substitution of each, to vote
all shares of Florida Municipal Income Fund, a portfolio of Municipal
Securities Income Trust, which the undersigned is entitled to vote, at
the Special Meeting of Shareholders to be held on March 30, 1995, at
Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m.
(Eastern Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The
attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
Florida Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT
RECORD DATE SHARES AND PLAN OF
REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
_______________________________
Signature(s) of Shareholder(s)
Date:__________________________
Exhibit 17.3
MARYLAND MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
MARYLAND MUNICIPAL INCOME FUND
a Portfolio of
MUNICIPAL SECURITIES INCOME TRUST
CUSIP NO. 625922851
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Maryland Municipal Income Fund, a portfolio of Municipal Securities
Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J.
Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them
true and lawful attorneys, with power of substitution of each, to vote
all shares of Maryland Municipal Income Fund, a portfolio of Municipal
Securities Income Trust, which the undersigned is entitled to vote, at
the Special Meeting of Shareholders to be held on March 30, 1995, at
Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m.
(Eastern Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF
REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The
attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
Maryland Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT
RECORD DATE SHARES AND PLAN OF
REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
____________________________________
Signature(s) of Shareholder(s)
Date:_______________________________
Exhibit 17.4
NEW JERSEY MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
NEW JERSEY MUNICIPAL INCOME FUND
a Portfolio of
MUNICIPAL SECURITIES INCOME TRUST
CUSIP NO. 625922885
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
New Jersey Municipal Income Fund, a portfolio of Municipal Securities
Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J.
Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them
true and lawful attorneys, with power of substitution of each, to vote
all shares of New Jersey Municipal Income Fund, a portfolio of Municipal
Securities Income Trust, which the undersigned is entitled to vote, at
the Special Meeting of Shareholders to be held on March 30, 1995, at
Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m.
(Eastern Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The
attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
.
New Jersey Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO
APPROVE OR
DISAPPROVE AN AGREEMENT
RECORD DATE SHARES AND PLAN OF
REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
_______________________________________
Signature(s) of Shareholder(s)
Date:__________________________________
Exhibit 17.5
TEXAS MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
TEXAS MUNICIPAL INCOME FUND
a Portfolio of
MUNICIPAL SECURITIES INCOME TRUST
CUSIP NO. 625922877
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Texas Municipal Income Fund, a portfolio of Municipal Securities Income
Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin
Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and
lawful attorneys, with power of substitution of each, to vote all shares
of Texas Municipal Income Fund, a portfolio of Municipal Securities
Income Trust, which the undersigned is entitled to vote, at the Special
Meeting of Shareholders to be held on March 30, 1995, at Federated
Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern
Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The
attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
Texas Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT
RECORD DATE SHARES AND PLAN OF
REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
_______________________________
Signature(s) of Shareholder(s)
Date:__________________________
Exhibit 17.6
VIRGINIA MUNICIPAL INCOME FUND
P.O. Box 8606
Boston, MA 02266-8606
VIRGINIA MUNICIPAL INCOME FUND
a Portfolio of
MUNICIPAL SECURITIES INCOME TRUST
CUSIP NO. 625922844
FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Virginia Municipal Income Fund, a portfolio of Municipal Securities
Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J.
Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them
true and lawful attorneys, with power of substitution of each, to vote
all shares of Virginia Municipal Income Fund, a portfolio of Municipal
Securities Income Trust, which the undersigned is entitled to vote, at
the Special Meeting of Shareholders to be held on March 30, 1995, at
Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m.
(Eastern Standard Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
PROPOSAL
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The
attorneys named will vote the shares represented by this proxy in
accordance with the choices made on this card. IF NO CHOICE IS
INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN
THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so
that the return address, located on the reverse side of the mail-in-
stub, appears through the window of the envelope.
Virginia Municipal Income Fund PROXY VOTING MAIL-IN STUB
PROPOSAL 1: TO APPROVE OR
DISAPPROVE AN AGREEMENT
RECORD DATE SHARES AND PLAN OF
REORGANIZATION
R FOR the Agreement and Plan
of Reorganization
R AGAINST the Agreement and
Plan of Reorganization
R ABSTAIN
Please sign EXACTLY as your name(s) appear
above. When signing as attorney, executor,
administrator, guardian, trustee, custodian,
etc., please give your full title as such. If a
corporation or partnership, please sign the full
name by an authorized officer or partner. If
stock is owned jointly, all owners should sign.
_______________________________
Signature(s) of Shareholder(s)
Date:__________________________
DICKSTEIN, SHAPIRO & MORIN, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
(202) 785-9700
February 23, 1995
Via EDGAR
EDGAR Operations Branch
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Bruce R. MacNeil
Re: FORTRESS MUNICIPAL INCOME FUND, INC.
Registration Statement on Form N-14 (File No. 33-57355)
Ladies and Gentlemen:
Enclosed please find the responses of Fortress Municipal Income
Fund, Inc. (the "Fund" or the "Registrant") to comments received from
the Staff on the Registration Statement in a letter dated February 16,
1995 from Bruce R. MacNeil to the undersigned. Set forth below are the
captions of the Staff's comments and the Fund's responses thereto:
INFORMATION ABOUT THE REORGANIZATION -- TAX CONSEQUENCES
State-Specific Tax-Free Status
Staff Comment
1. The President's letter and the prospectus/proxy statement's
synopsis disclose that the Fund has a similar investment objective to
that of the State Portfolios in that it seeks current income which is
exempt from the federal regular income tax. However, the
prospectus/proxy statement also discloses that the Fund's shares will
not be exempt from either the income tax or the intangibles tax of the
respective state of each State Portfolio. The President's letter and a
separate paragraph in the synopsis should prominently disclose the loss
of state-specific tax-free status for each portfolio except the Texas
Portfolio. In addition, please prominently disclose in the synopsis and
elsewhere in the prospectus/proxy statement any other adverse tax-
consequences to shareholders as a result of the proposed mergers.
Response
The disclosure relating to the investment objective of the Fund
and the State Portfolios has been revised in accordance with the Staff's
comment. The Fund is not aware of any other adverse tax consequences to
shareholders as a result of the proposed Reorganizations which are not
disclosed in the prospectus/proxy statements.
Opinion of Counsel
Staff Comment
2. The prospectus/proxy statement discloses that "[a]s a
condition to the Reorganization transactions, the Fund and the Trust
will receive an opinion of counsel that the Reorganization will be
considered a tax-free reorganization . . ." (Emphasis added.) However,
the Trust has already received this opinion and has filed it as an
exhibit to the registration statement. Please revise this disclosure to
make it clear that the Trust has already received the opinion.
Response
The Fund and the portfolios have received an opinion of counsel
that the respective Reorganizations will be considered tax-free. Such
opinions are conditioned upon the existence of certain facts which must
exist at the time the Reorganization is consummated. The Fund and the
portfolios will receive confirming opinions at the time of consummation
which are not conditional.
Accordingly, no change to the disclosure is necessary.
INVESTMENT POLICIES AND PRACTICES
Investments in Tax-Exempt Securities
Staff Comment
3. The Maryland, Virginia and Multi-State Portfolios disclose
that they invest their assets so that, under normal circumstances, at
least 80% of their annual interest income is exempt from federal regular
income tax, or that at least 80% of its net assets are invested in
securities the interest from which is exempt from federal regular income
tax. The Fund discloses that it invests its assets so that at least 80%
of its annual interest income is exempt from the federal regular income
tax. It is the staff's position that a policy that allows the selection
of either test in the alternative does not meet the standard set forth
in Guide 1 to Form N-1A. Please disclose the actual operating policy of
the Maryland, Virginia and Multi-State's Portfolios with respect to the
80% test. If any of these Portfolios operate under the 80% asset test,
please disclose in the synopsis what effect, if any, the different test
will have on the shareholders of the Maryland, Virginia or Multi-State
Portfolios following the reorganization.
Response
The disclosure has been revised to indicate that, for the most
recent fiscal year of the Portfolio, 100% of the Portfolio's annual
interest income was exempt from the federal regular income tax.
SECURITY RATINGS
Junk Bonds -- Legend
Staff Comment
4. The prospectus/proxy statement discloses that the Fund may
invest up to 35% of its net assets in lower quality municipal bonds
rated no lower than BB by Standard & Poor's Corporation or Ba by Moody's
Investors Service, Inc. Please revise this disclosure to make it clear
that these debt securities are commonly known as either "junk bonds" or
"high-yield, high-risk" bonds. See Letter to Registrants dated February
23, 1990 (the "Junk Bond Letter"). Further, the Portfolios do not
disclose a policy of investing in junk bonds. Please prominently
disclose in a separate paragraph of the prospectus/proxy statement's
synopsis the greater risk an investment in the Fund entails because of
its policy of investing up to 35% of its net assets in junk bonds. In
addition, the Fund should disclose the specific risk factors associated
with investments in junk bonds and should include on the cover page of
the prospectus/proxy statement a legend indicating that the Fund may
invest up to 35% of its net assets in junk bonds. See the Junk Bond
Letter. Also, please add the risk of investing in junk bonds to the
"Risk Factors" section of the prospectus/proxy statement.
Response
The disclosure has been clarified to indicate that the Fund will
limit its investments in lower quality municipal bonds to less than 35%
of its net assets. The disclosure has been revised in accordance with
the Staff's comment, except that no legend is required because the Fund
may not invest 35% or more of its net assets in junk bonds.
Lowest Rated Security
Staff Comment
5. The State Portfolios disclose that they invest at least 65% of
the value of their respective total assets in municipal securities,
rated investment grade or better, of the particular state. The Multi-
State Portfolio discloses that it invests primarily in municipal
securities which are rated investment grade or better. Please disclose
the lowest acceptable rating of all of the non-municipal debt securities
in which the Portfolios may invest.
Response
The Portfolios do not currently invest in non-municipal debt
securities. If such investments were made, the securities purchased
would be of the same quality as the municipal securities purchased by
the Portfolios pursuant to their investment policies. The disclosure
has been revised to clarify this point.
Downgrading Policy
Staff Comment
6. The prospectus/proxy statement does not disclose what actions
the Portfolios and the Fund will take in the event of a downgrading of a
security below the minimum standard specified for investment. Please
include this disclosure.
Response
The disclosure has been revised in accordance with the Staff's
comment.
OTHER INVESTMENT POLICIES
Diversification Policy
Staff Comment
7. The prospectus/proxy statement discloses that the Fund is a
registered diversified portfolio and the State Portfolios are non-
diversified portfolios. Please specifically state this investment
policy as a difference between the Fund and the State Portfolios.
Response
The classification as diversified or non-diversified is simply
that; it is not an investment policy. The disclosure has, however, been
revised to specifically point out this difference.
Derivative Instruments
Staff Comment
8. The Fund and the Portfolios do not disclose any investment
policies with respect to derivative instruments, including inverse
floaters, structured notes, options, futures and stripped securities
(interest-only and principal-only). Please supplementally represent to
the staff that neither the Fund or the Portfolios invest in derivative
instruments.
Response
The Fund and the Portfolios have the ability to invest in certain
derivative instruments under limited circumstances and the disclosure
has been revised to clarify the extent to which the Fund and the
Portfolios may do so and to include comparative disclosure of these
practices and attendant risks.
MISCELLANEOUS
Redemption Fee
Staff Comment
9. The prospectus/proxy statement discloses that, in connection
with the Fund's distribution plan and administrative services, the
administrator may pay fees to brokers and financial institutions and
that "[t]he administrator may elect to receive amounts less than those
stated, which would reduce the redemption fee and/or the holding period
used to calculate such fee upon the sale of such
shares . . ." (Emphasis added.) It is the staff's position that any
fee paid by a fund upon redemption of shares to a broker, administrator
or distributor should be characterized as a contingent deferred sales
load. Please conform this disclosure to the staff's position.
Response
The disclosure has been revised in accordance with the Staff's
comment.
Expense Ratios
Staff Comment
10. The prospectus/proxy statement discloses that the adviser has
undertaken to reimburse the Fund and each Portfolio for operating
expenses in excess of limitations established by certain states. In
addition, the prospectus/proxy statement discloses how much higher the
Fund's and each Portfolio's expense ratio would be absent the voluntary
waiver. However, the Fund and the Portfolios do not disclose the actual
expense ratios prior to any waiver. Please disclose the expense ratios
in the prospectus/proxy statement.
Response
The disclosure requested by the Staff is currently contained in
the prospectus/proxy statement section entitled "Investment Objectives
and Policies-Advisory and Other Fees".
Minimum Initial and Subsequent Investments
Staff Comment
11. The Fund discloses that its minimum initial investment is
$1,500 and that subsequent investment must be in amounts of at least
$100. The Portfolios do not disclose their minimum initial investment
or minimum subsequent investment. Although the Portfolios disclose that
they have ceased offering their shares for sale, please disclose their
minimum initial and minimum subsequent investments in the
prospectus/proxy statement.
Response
The disclosure has been revised in accordance with the Staff's
comment.
Telephonic Proxies
Staff Comment
12. The prospectus/proxy statement discloses that proxy
solicitations may be made by telephone. Please advise us supplementally
whether the Fund in fact intends to use telephonic proxies (actual
transcriptions of votes over the telephone). If so, we will have
additional comments concerning information which must appear in either
the prospectus/proxy statement or in additional soliciting material
which must be furnished to shareholders in advance of the telephonic
transcription of votes.
Response
The portfolios intend to solicit written proxies by telephone but
not to solicit or use telephonic proxies.
Proxy Card
Staff Comment
13. The proxy card describes each Portfolio's Proposal 1 as "[t]o
approve or disapprove an agreement and plan of reorganization."
However, there is no further description of the transaction on the proxy
card. Please include on each proxy card a brief description of the
proposal (e.g., approve or disapprove a plan of reorganization for the
acquisition of the respective Portfolio by the Fund).
Response
In the Registrant's view, the wording currently used on the proxy
cards is adequate to describe the proposal. Any additional disclosure
which could be added to the proxy card would be legalistic in nature; in
the Registrant's view, such disclosure is potentially more confusing to
shareholders in the exercise of their voting rights and is, accordingly,
unwarranted. Moreover, the same form of wording has previously been
used on multiple occasions without Staff comment. Finally, in reliance
on the lack of prior objection to this formulation, the Registrant has
already printed proxy cards. It would therefore result in a hardship to
the Registrant to revise this wording. Accordingly, the Registrant will
not revise such cards.
ACCOUNTING COMMENTS
Pro Forma Capitalization Table
Staff Comments
14. The Fund proposes to merge with six different portfolios.
Each prospectus/proxy statement includes a pro forma capitalization
table for the Fund and the respective Portfolio and pro forma
information for the Fund combined with the respective Portfolio.
However, the capitalization table does not present the capitalization
information for the other Portfolios (i.e., the Portfolios which are not
the Portfolio to which that prospectus/proxy statement relates) and pro
forma information for the Fund combined with all of the Portfolios.
Please include in the table the capitalization information for the other
Portfolios and the combined pro forma capitalization information.
Response
In the Registrant's view, the capitalization information relating
to other transactions is not material to investors because of the small
size of the Portfolios in the aggregate relative to the Fund. A
statement to that effect has been included under the caption
"Capitalization."
Portfolio Holdings -- AMT
Staff Comment
15. The Fund and the State Portfolios' Schedule of Portfolio
Securities contained in their annual reports of August 31, 1994 and the
Multi-State Portfolio's Schedule of Portfolio Securities contained in
its annual report of November 30, 1994 show investment holdings in
securities subject to the alternative minimum tax (AMT). Please compare
and contrast the Fund's and the Portfolio's investment policy with
respect to investment in securities subject to AMT in the appropriate
section of the prospectus/proxy statement. In addition, please disclose
the tax-consequences in the appropriate tax section of the
prospectus/proxy statement as a result of such investments.
Response
The disclosure has been revised in accordance with the
Staff's comment to state that both the Fund and the Portfolio may invest
in securities which are subject to the alternative minimum tax. The
policies of each of the Fund and the Portfolio with respect to such
investments are identical.
Fund Realignment
Staff Comment
16. The prospectus/proxy statement discloses that the
reorganization will be considered a tax-free reorganization under
applicable provisions of the Internal Revenue Code so that no gain or
loss will be recognized by either the Portfolios or the Fund or its
shareholders. Please discuss the extent to which securities of the
combined portfolios are expected to be sold in order to effect a
realignment with the policies and investment practices of the Fund and
disclose the tax consequences, if any.
Response
The Fund does not anticipate selling any securities of the
combined portfolio to effect a realignment with the policies and
investment practices of the Fund. If any such sales were to occur, the
Fund anticipates that there would be no material tax consequences to the
Fund or its shareholders. Consequently, the Fund is of the view that no
additional disclosure is required.
Distribution Arrangements
Staff Comment
17. The prospectus/proxy statement discloses that both the
Portfolios and the Fund have distribution plans under Rule 12b-1.
However, the prospectus/proxy statement does not disclose whether the
Fund will assume any liabilities or make any voluntary reimbursements on
account of any Portfolio's
12b-1 plan. Please provide this disclosure in the prospectus/proxy
statement.
Response
The disclosure has been revised in accordance with the Staff's
comment.
In the event the Staff has any further questions on this
filing, please feel free to contact the undersigned at (202) 828-2218.
Very truly yours,
/s/ Matthew G. Maloney
Matthew G. Maloney
Enclosure
cc: John W. McGonigle, Esq.
Charles H. Field, Esq.
