FEDERATED
FORTRESS
MUNICIPAL
INCOME
FUND, INC.
8th SEMI-ANNUAL REPORT
February 28, 1995
Established 1987
President's Message
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the 8th Semi-Annual Report for Fortress
Municipal Income Fund, Inc. (the "Fund") for the six-month period ended
February 28, 1995.
This report begins with our customary update from the Fund's portfolio
manager, Jonathan C. Conley, Vice President of Federated Advisers.
Jonathan will discuss municipal bond market activity for the past six
months, and then outline the Fund's performance and his management
strategies.
During the past six months, the Federal Reserve Board raised interest
rates twice. However, during January and February of 1995, interest
rates declined, so the net asset value ("NAV") per share of the Fund
rose from a low of $9.65 on November 21, 1994, to $10.48 on February
28, 1995. The Fund also paid shareholders tax-free dividends amounting
to $0.31 per share for the six-month period. Assets were $428 million
as of February 28, 1995.
I urge you to pay special attention to the share performance charts
that follow Jonathan's interview. These charts illustrate the growth of
a hypothetical investment in the Fund from April 10, 1987 to February
28, 1995. Because they span a period of eight years, rather than just
six months, these charts reflect the Fund's long-term investment
performance.
The Fund, created in 1987, is designed to pursue competitive monthly
income that is free from federal regular income tax.* The Fund invests
in a diversified portfolio of municipal securities issued by more than
80 municipalities across the country.
Over the past six months, there were many stories in the news about
municipalities and their investment techniques. Happily, we are able to
report that the Fund did not own issues of the municipalities in
California, Florida or Oklahoma that caused such a stir in the press.
Thank you for selecting Fortress Municipal Income Fund, Inc. If you
have any questions concerning the Fund's portfolio or your account,
please do not hesitate to write.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
*Income may be subject to the federal alternative minimum tax and state
and local taxes.
Investment Review
- -------------------------------------------------------------------------------
Jonathan C. Conley,
Vice President
Federated Advisers
Q. Jonathan, what has occurred in the long-term, fixed-income markets
during the six month period ending February 28, 1995?
A. Interest rates in the long-term, fixed-income markets exhibited
considerable volatility during the past six months. On August 31, 1994,
the yield for the current 30-year U.S. Treasury bond
(7.50% due November 15, 2024) stood at 7.45%. From there, the yield
rose to 8.17% by November 7, 1994 before dropping to 7.51% as of
February 28, 1995.
As for the long-term municipal market, the Bond Buyer 40 Index,
representing on a daily basis "A" to "AAA" long-term municipal issues,
registered 6.36% on August 31, 1994.* It then increased to 7.37% by
November 22, 1994, and fell thereafter to 6.42% by February 28, 1995.
Q. How have these interest rate changes translated to bond price
movements?
A. From August 31, 1994, to November 7, 1994, the price of the bellwether
U.S. Treasury bond declined from $100.53 to $92.56.
By February 28, 1995, the price largely recovered, climbing to
$99.91. From August 31, 1994, to November 7, 1994, the Municipal Bond
Index declined from $91.78 to $82.13, then appreciated to $90.97 by
February 28, 1995.*
Q. Why was the municipal bond market more volatile than its Treasury
counterpart?
First, many issues in the secondary market had been quoted at prices
representing discounts to face value in excess of Internal Revenue
Service provisions allowing for capital gains treatment. Excessive
discounts were, and continue to be, treated as ordinary income, taxable
at ordinary income rates. Such issues trade at lower
nominal prices to allow the incremental investor to strive to acheive a
market yield after tax.
* This index is unmanaged.
Q. What has an investor in the Fund experienced during this
period?
A. For the six months ended February 28, 1995, an investor in the Fund
experienced a total return of 2.30% based on NAV, which does not
reflect the sales load or contingent deferred sales charge, and 0.28%
based on offering price, which includes all applicable sales charges.*
These figures are not annualized. During the past six months, an
investor received $0.31 per share in dividends, while the NAV fell from
$10.56 on August 31, 1994, to $10.48 on February 28, 1995, a decline of
only 0.76%.
Q. Jonathan, how do you control the volatility of the net asset value per
share?
A. I favor, in a variety of interest rate environments, securities which
have coupons or yields greater than the Bond Buyer 40 Index.** For
equal credit quality and maturity, the bond with the higher coupon rate
or market yield will be less price sensitive with respect to market
rate changes. The Fund, therefore, would swap into
higher coupon (or yield) issues in each municipal market sector during
rising rates to secure coupon-price protection, and to seek attractive
income distribution to shareholders.
Q. In what areas of the municipal market has the Fund invested over the
past six months?
A. Between August 31, 1994, and February 28, 1995, the Fund purchased
$37,300,000 face amount of medium-to-upper grade municipal issues.
These transactions were financed by the sale of higher-grade issues.
Sectors represented in the Fund's investment activity included:
hospital issues, pollution control obligations of investor-owned
utilities, industrial development bonds of non-financial corporations,
college and university tuition revenue issues, single-family housing
mortgage revenue issues, and resource recovery project finance
obligations. The average yield on issues bought during the past six
months by the Fund was 7.32%.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** This index is unmanaged.
Q. What is the composition of the investments of the Fund by credit
quality?
A. The credit quality of the portfolio of investments for the Fund at
August 31, 1994 and February 28, 1995, is shown below:
<TABLE>
<CAPTION>
August 31, 1994 February 28, 1995
--------------- -----------------
<S> <C> <C>
AAA 8.0% 7.4%
AA 17.8% 14.1%
A 10.5% 8.6%
BBB 39.8% 45.3%
BB 2.7% 3.5%
NR 21.2% 21.1%
--------------- -----------------
Total 100.0% 100.0%
</TABLE>
Q. Could you explain the rationale for the changes in the portfolio
holdings?
A. Medium- and lower-grade issues tend to outperform higher-grade issues
during periods of economic recovery. As state and local governments
receive greater tax revenue from sales, income, business use, and
property, and as corporations, on the whole, increase profitability and
cashflow generation, the potential for credit rating upgrades
increases. This bodes well for medium/lower-grade issues as a class of
debt instruments. Over the past six months, the Fund has been investing
in what it considers upgrade candidates.
Because of their higher than general market coupons (yields) at issue,
medium/lower-grade bonds have shorter durations than their higher-grade
brethren. Furthermore, medium/lower-grade issues tend to be core
holdings; municipal bond portfolio managers typically accommodate
shareholder purchases in and redemptions from a Fund through
transactions involving higher-grade issues. Consequently, assuming
stable credit quality, secondary market pricing for medium/lower-grade
bonds is less volatile than that for higher-grade issues. A portfolio
which holds a diversified mix of the former types of issues should
display the attributes of those issues.
Two Ways You May Seek to Invest for Success in
Fortress Municipal Income Fund, Inc.
- -------------------------------------------------------------------------------
Initial Investment:
If you made an initial investment of $8,000 in Fortress Municipal
Income Fund, Inc. on April 10, 1987, reinvested your dividends and
capital gains, and did not redeem any shares, your account would be
worth $14,024 on February 28, 1995. You would have earned a 7.37%
average annual total return for the eight-year investment life span.*
One key to investing wisely is to reinvest all tax-free distributions
in Fund shares.This increases the number of shares on which you can
earn future tax-free dividends, and you gain the benefit of compounding
tax-free.
As of March 31, 1995, the average annual one-year, five-year and since
inception (4/10/87) returns were 4.00%, 7.10%, and 7.41%,
respectively.*
Graphic representation "A" omitted. See Appendix.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1%
sales load and the 1% contingent deferred sales charge.
Data quoted represent past performance and do not guarantee future
results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
Fortress Municipal Income Fund, Inc.
- -------------------------------------------------------------------------------
One Step at a Time:
$1,000 invested each year for eight years (reinvesting all dividends
and capital gains) grew to $10,921.
With this approach, the key is consistency.
If you had started investing $1,000 annually in Fortress Municipal
Income Fund, Inc. on April 10, 1987, reinvested your dividends and
capital gains and did not redeem any shares, you would have invested
only $8,000, but your account would have reached a total value of
$10,921* by February 28, 1995. You would have earned an average annual
total return of 7.13%.
A practical investment plan helps you pursue a high level of income
through tax-free municipal bonds. Through systematic investing, you buy
shares on a regular basis and reinvest all tax-free earnings. An
investment plan works for you when you invest only $1,000 annually. You
can take it one step at a time. Put time, money, and compounding to
work!
Graphic representation "B" omitted. See Appendix.
* No method of investing can guarantee a profit or protect against loss
in down markets. However, by investing regularly over time and buying
shares at various prices, investors can purchase more shares at lower
prices, and all accumulated shares have the ability to pay income to
the investor.
Because such a plan involves continuous investment, regardless of
changing price levels, the investor should consider whether or not to
continue purchases through periods of low price levels.
Fortress Municipal Income Fund, Inc. Investing for Tax-Free Monthly
Income
- -------------------------------------------------------------------------------
Fred and Margie both work, and have no children. At the peak of their
careers, this tax-sensitive couple was seeking a way to keep more of
what they earn. On April 10, 1987, they invested $5,000 in Fortress
Municipal Income Fund, Inc., and continue to invest $500 in the Fund on
the first of every month.
As this chart shows, since that time, their investment has grown_on a
tax-free basis_to $70,392.* This represents a 6.94% average annual
total return.<dagger> For the Potters, the decision to invest tax-free has
made the future worth waiting for.
*Income may be subject to the federal alternative minimum tax.
Graphic representation "C" omitted. See Appendix.
<dagger>This hypothetical scenario is provided for illustrative purposes only
and does not represent the results obtained by any particular
shareholder. Past performance does not guarantee future results.
Fortress Municipal Income Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
February 28, 1995 (unaudited)
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
SECURITIES-1.0% --------------------------------------------------------------------
ALABAMA--0.2%
----------------------------------------------------------------------
$ 900,000 Birmingham, AL, Medical Clinic Board Daily VRDNs (University of
Alabama Health System)/(Morgan Guaranty Trust Co. LOC) A-1+ $ 900,000
---------------------------------------------------------------------- --------------
MARYLAND--0.4%
----------------------------------------------------------------------
1,800,000 Montgomery County, MD, EDA Weekly VRDNs (U.S. Pharmacopeial Convention
Facility)/(Chemical Bank LOC) VMIG1 1,800,000
---------------------------------------------------------------------- --------------
PUERTO RICO--0.3%
----------------------------------------------------------------------
1,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse
and Sumitomo Bank Ltd. LOCs) A-1 1,400,000
---------------------------------------------------------------------- --------------
TEXAS--0.1%
----------------------------------------------------------------------
300,000 Harris County, TX, HFDC Daily VRDNs (Series 1994)/ (Methodist Hospital
Guaranty) A-1+ 300,000
---------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 4,400,000
---------------------------------------------------------------------- --------------
LONG-TERM MUNICIPAL SECURITIES--97.3%
- -------------------------------------------------------------------------------------
ALABAMA--1.3%
----------------------------------------------------------------------
6,000,000 Courtland, AL, IDB, 6.375% Solid Waste Disposal Revenue Bonds (Series
A)/(Champion International Corporation)/ (Original Issue Yield:
6.52%)/(Subject to AMT), 3/1/2029 BBB 5,574,120
---------------------------------------------------------------------- --------------
ARKANSAS--1.9%
----------------------------------------------------------------------
2,920,000 Conway, AR, 7.125% Hospital Revenue Bonds (Series 1992), 2/1/2013 BBB 2,918,277
----------------------------------------------------------------------
3,000,000 Conway, AR, 8.125% Hospital Revenue Bonds (Series 1990), 7/1/2005 BBB 3,194,880
----------------------------------------------------------------------
1,000,000 Conway, AR, 8.375% Hospital Revenue Bonds (Series 1990), 7/1/2011 BBB 1,073,180
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
ARKANSAS--CONTINUED
----------------------------------------------------------------------
$ 1,000,000 Little Rock, AR, 7.00% Refunding Revenue Bonds Arkansas Health
Facility Board (Baptist Medical Center)/(Series 1992)/(Parkway Village
Project), 10/1/2017 A+ $ 1,033,410
---------------------------------------------------------------------- --------------
Total 8,219,747
---------------------------------------------------------------------- --------------
COLORADO--1.1%
----------------------------------------------------------------------
3,135,000 Colorado HFA, 7.375% SFM Revenue Bonds (Subject to AMT), 8/1/2023 AA 3,205,099
----------------------------------------------------------------------
910,000 Colorado HFA, 7.70% SFM Revenue Bonds (Subject to AMT), 2/1/2023 AA 907,973
----------------------------------------------------------------------
580,000 El Paso County, CO, HFA, 8.00% SFM Revenue Bonds (Series 1990A)/(GNMA
Collateralized)/(Subject to AMT),
9/1/2022 AAA 370,167
---------------------------------------------------------------------- --------------
Total 4,483,239
---------------------------------------------------------------------- --------------
CONNECTICUT--1.3%
----------------------------------------------------------------------
6,400,000 Connecticut State Health And Education Facility Authority 6.80%
Revenue Bonds (University of Hartford)/(Original Issue Yield: 6.84%),
7/1/2022 Baa 5,732,544
---------------------------------------------------------------------- --------------
FLORIDA---1.0%
----------------------------------------------------------------------
2,835,000 Dade County, FL, HFA, 8.75% SFM Revenue Bonds (GNMA
Collateralized)/(Subject to AMT), 7/1/2017 AAA 3,036,512
----------------------------------------------------------------------
1,120,000 Jacksonville, Fl, Health Facilities Authority, 6.40% Revenue Bonds
(National Benevolent Association), 12/1/2016 Baa1 1,028,989
---------------------------------------------------------------------- --------------
Total 4,065,501
---------------------------------------------------------------------- --------------
GEORGIA--0.4%
----------------------------------------------------------------------
2,000,000 Fulco County, GA, Hospital Authority, 6.25% Revenue Anticipation
Certificates (Georgia Baptist Health Care)/ (Series 1992A)/(Original
Issue Yield: 6.27%), 9/1/2013 Baa 1,786,760
---------------------------------------------------------------------- --------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
IDAHO--1.1%
----------------------------------------------------------------------
$ 1,300,000 Idaho HFA, 7.50% SFM Revenue Bonds (Subject to AMT), 7/1/2024 AA $ 1,366,599
----------------------------------------------------------------------
3,310,000 Idaho HFA, 7.80% SFM Revenue Bonds (Subject to AMT), 1/1/2023 AA 3,483,742
---------------------------------------------------------------------- --------------
Total 4,850,341
---------------------------------------------------------------------- --------------
ILLINOIS--5.2%
----------------------------------------------------------------------
4,500,000 Granite City, IL, 8.125% Hospital Revenue Bonds
(St. Elizabeth's Medical Centre), 6/1/2008 Baa1 4,615,065
----------------------------------------------------------------------
3,000,000 Illinois Development Finance Authority, 6.10% Revenue Bonds (Series
1993C)/(Catholic Charities Housing Development Corp.)/(Archdiocese of
Chicago Guaranty),
1/1/2020 NR 2,658,120
----------------------------------------------------------------------
1,000,000 Illinois HFA, 5.95% Revenue Refunding Bonds (Series 1994)/(Passavant
Memorial Area Hospital Association),
10/1/2011 A- 909,210
----------------------------------------------------------------------
4,500,000 Illinois HFA, 6.125% Revenue Bonds 8/15/2020 NR 3,726,720
----------------------------------------------------------------------
10,000,000 Illinois HFA, 9.25% Revenue Refunding Bonds (Series 1994A)/(Edgewater
Hospital & Medical Center), 7/1/2024 NR 10,262,500
---------------------------------------------------------------------- --------------
Total 22,171,615
---------------------------------------------------------------------- --------------
INDIANA--9.5%
----------------------------------------------------------------------
2,785,000 Indiana HFA, 7.75% SFM Revenue Bonds (GNMA Collateralized)/(Subject to
AMT), 7/1/2022 AAA 2,968,921
----------------------------------------------------------------------
1,065,000 Indiana HFA, 8.20% SFM Revenue Bonds (GNMA Collateralized)/(Subject to
AMT), 7/1/2020 AAA 1,136,919
----------------------------------------------------------------------
3,000,000 Indiana Port Commission, 6.875% Refunding Revenue Bonds (Series
1992)/(Cargill, Inc. Project), 5/1/2012 Aa3 3,182,790
----------------------------------------------------------------------
17,100,000 Indianapolis, IN, Airport Authority, 7.10% Special Facility Revenue
Bonds (Series 1994)/(Federal Express Corp.)/ (Original Issue Yield:
7.178%)/(Subject to AMT), 1/15/2017 BBB 17,398,395
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
INDIANA--CONTINUED
----------------------------------------------------------------------
$ 4,350,000 Kokomo, IN, 6.35% Hospital Revenue Bonds (Original Issue Yield:
6.40%), 8/15/2013 Baa $ 3,991,951
----------------------------------------------------------------------
5,000,000 Laporte County, IN, 6.25% Hospital Revenue Bonds (Original Issue
Yield: 6.35%), 3/1/2012 Baa 4,630,450
----------------------------------------------------------------------
5,000,000 Laporte County, IN, 6.25% Hospital Revenue Bonds (Original Issue
Yield: 6.35%), 3/1/2023 Baa 4,255,150
----------------------------------------------------------------------
2,750,000 Laporte County, IN, 8.75% Hospital Revenue Bonds (LaPorte Hospital,
Inc.) Refunded, 3/1/2012 Aaa 3,005,035
---------------------------------------------------------------------- --------------
Total 40,569,611
---------------------------------------------------------------------- --------------
IOWA--0.3%
----------------------------------------------------------------------
1,000,000 Davenport, IA, IDA, 8.375% Revenue Bonds (Nichols-Homeshield/Quanex
Corp.), 12/1/2005 NR 1,058,050
---------------------------------------------------------------------- --------------
KENTUCKY--0.8%
----------------------------------------------------------------------
3,500,000 Kenton County, KY, 7.50% Airport Revenue Bonds (Delta Airlines
Project)/(Original Issue Yield: 7.60%)/(Subject to AMT), 2/1/2020 A3 3,542,735
---------------------------------------------------------------------- --------------
LOUISIANA--6.2%
----------------------------------------------------------------------
5,000,000 Lake Charles Harbor, LA, 7.75% Port Facilities Revenue Bonds (Series
1992)/(Trunkline LNG Company Project)/ (Panhandler Eastern Corp.),
8/15/2022 Ba2 5,347,450
----------------------------------------------------------------------
3,000,000 Louisiana State, Parish of De Soto, 7.70% Environmental Improvement
Revenue Bonds (Series 1994A)/(International Paper Company)/(Subject to
AMT), 11/1/2018 A- 3,271,590
----------------------------------------------------------------------
3,650,000 Louisiana State, Parish of St. Charles, 7.00% Revenue Bonds (Louisiana
Power & Light Co.)/(Original Issue Yield: 7.04%)/(Subject to AMT),
12/1/2022 BBB+ 3,672,484
----------------------------------------------------------------------
1,650,000 Louisiana State, Parish of St. James, 6.20% Revenue Bonds (Series
1993A)/(Louisiana Power & Light Co.)/(Original Issue Yield:
6.25%)/(Subject to AMT), 5/1/2023 BBB+ 1,479,093
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
LOUISIANA--CONTINUED
----------------------------------------------------------------------
$ 3,000,000 Louisiana State, Parish of St. James, 7.70% Revenue Bonds (Freeport
McMoran)/(Original Issue Yield: 7.75%)/(Subject to AMT), 10/1/2022 NR $ 3,013,770
----------------------------------------------------------------------
5,645,000 St. Charles Parish, LA, 7.50% PCR Bonds (Louisiana Power & Light Co.),
6/1/2021 Baa3 5,786,859
----------------------------------------------------------------------
1,400,000 St. Charles Parish, LA, 8.00% PCR Bonds (Louisiana Power & Light Co.),
12/1/2014 Baa3 1,512,532
----------------------------------------------------------------------
2,100,000 St. Charles Parish, LA, 8.25% PCR Bonds (Louisiana Power & Light Co.),
6/1/2014 Baa3 2,274,237
---------------------------------------------------------------------- --------------
Total 26,358,015
---------------------------------------------------------------------- --------------
MAINE--1.1%
----------------------------------------------------------------------
4,200,000 Maine State Housing Authority, 8.20% SFM Revenue Bonds (Series
1988D)/(Subject to AMT), 11/15/2019 A1 4,503,534
---------------------------------------------------------------------- --------------
MARYLAND--0.6%
----------------------------------------------------------------------
900,000 Gaithersburg, MD, 5.50% First Mortgage EDR Bonds (Asbury Methodist
Homes)/(Original Issue Yield: 6.05%), 1/1/2020 NR 747,459
----------------------------------------------------------------------
2,550,000 Maryland State HEFA, 5.50% Revenue Bonds (Series 1993)/ (Howard
General Hospital Issue)/(Original Issue Yield: 5.80%), 7/1/2025 BBB 1,994,890
---------------------------------------------------------------------- --------------
Total 2,742,349
---------------------------------------------------------------------- --------------
MASSACHUSETTS--5.9%
----------------------------------------------------------------------
1,110,000 Massachusetts HFA, 6.30% SFM Revenue Bonds (Series 21)/(Subject to
AMT), 6/1/2025 Aa 1,069,274
----------------------------------------------------------------------
2,000,000 Massachusetts HFA, 8.10% SFM Revenue Bonds (Subject to AMT), 12/1/2021 A 2,129,440
----------------------------------------------------------------------
380,000 Massachusetts HFA, 8.10% SFM Revenue Bonds (Subject to AMT), 8/1/2023 A 399,498
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
----------------------------------------------------------------------
$ 21,000,000 Massachusetts State, IFA, 9.00% Solid Waste Disposal Revenue Bonds
(Series 1994A)/(Sr. Lien--Massachusetts Recycling
Association)/(Subject to AMT), 8/1/2016 NR $ 21,827,820
---------------------------------------------------------------------- --------------
Total 25,426,032
---------------------------------------------------------------------- --------------
MICHIGAN--1.7%
----------------------------------------------------------------------
6,150,000 Dickinson County, MI, Economic Development Corp., PCR 5.85% Refunding
Revenue Bonds (Series 1993)/(Champion International Corp.), 10/1/2018 BBB 5,554,249
----------------------------------------------------------------------
1,500,000 Western Townships Utility Authority, MI, 8.20% System Revenue Bonds
1/1/2018 BBB+ 1,671,000
---------------------------------------------------------------------- --------------
Total 7,225,249
---------------------------------------------------------------------- --------------
MINNESOTA--5.3%
----------------------------------------------------------------------
3,000,000 Minnesota HFA, 6.85%, SFM Revenue Bonds (Series 1992E)/(Subject to
AMT), 1/1/2024 AA 3,080,730
----------------------------------------------------------------------
1,830,000 Minnesota HFA, 7.95% SFM Revenue Bonds (Series 1990A)/(Subject to
AMT), 7/1/2022 AA 1,952,537
----------------------------------------------------------------------
715,000 Minnesota HFA, 8.05% SFM Revenue Bonds (Series 1989D)/(Subject to
AMT), 8/1/2018 AA 737,594
----------------------------------------------------------------------
795,000 Minnesota HFA, 8.25% SFM Revenue Bonds (Series 1990D)/(Subject to
AMT), 8/1/2020 AA 832,667
----------------------------------------------------------------------
17,000,000 Saint Paul MN, Housing & Redevelopment Authority, 6.625% Refunding
Revenue Bonds (Series A)/(Healtheast Project)/(Original Issue Yield:
6.50%), 11/1/2017 BBB- 16,094,070
---------------------------------------------------------------------- --------------
Total 22,697,598
---------------------------------------------------------------------- --------------
MISSISSIPPI--1.0%
----------------------------------------------------------------------
2,000,000 Columbus, MS, IDA, 8.25% Revenue Bonds (Baldor Electric)/(Subject to
AMT), 5/1/2004 NR 2,076,480
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
MISSISSIPPI--CONTINUED
----------------------------------------------------------------------
$ 1,910,000 Mississippi HFDC, 8.25% SFM Revenue Bonds (GNMA Collateralized/FGIC
Insured)/(Subject to AMT), 10/15/2018 AAA $ 2,043,070
---------------------------------------------------------------------- --------------
Total 4,119,550
---------------------------------------------------------------------- --------------
MISSOURI--0.2%
----------------------------------------------------------------------
1,150,000 Missouri HEFA, 6.00% Revenue Bonds (National Benevolent
Association)/(Original Issue Yield: 6.15%),
2/1/2024 Baa2 975,695
---------------------------------------------------------------------- --------------
MONTANA--0.5%
----------------------------------------------------------------------
1,195,000 Montana Board of Housing, 7.50% SFM Revenue Bonds (Series B2)/(Subject
to AMT), 4/1/2023 Aa 1,257,666
----------------------------------------------------------------------
955,000 Montana Board of Housing, 8.30% SFM Revenue Bonds (Subject to AMT),
10/1/2020 Aa 987,470
---------------------------------------------------------------------- --------------
Total 2,245,136
---------------------------------------------------------------------- --------------
NEW HAMPSHIRE--5.5%
----------------------------------------------------------------------
7,075,000 New Hampshire HFA, 7.25% SFM Revenue Bonds (Subject to AMT), 7/1/2015 AA 7,353,967
----------------------------------------------------------------------
1,420,000 New Hampshire HFA, 7.75% SFM Revenue Bonds (Subject to AMT), 7/1/2023 AA 1,501,835
----------------------------------------------------------------------
1,275,000 New Hampshire HFA, 7.90% SFM Revenue Bonds (Subject to AMT), 7/1/2022 AA 1,342,754
----------------------------------------------------------------------
1,500,000 New Hampshire IDA, 10.75% PCR Bonds (United Illuminating,
Inc.)/(Subject to AMT), 10/1/2012 BBB 1,695,465
----------------------------------------------------------------------
2,865,000 New Hampshire IDA, 8.00% PCR Bonds (United Illuminating,
Inc.)/(Subject to AMT), 12/1/2014 BBB 2,992,005
----------------------------------------------------------------------
10,000,000 New Hampshire, 6.00% Higher Educational & Hospital Revenue Bonds
(Nashua Memorial Hospital)/(Original Issue Yield: 6.40%), 10/1/2023 A- 8,781,500
---------------------------------------------------------------------- --------------
Total 23,667,526
---------------------------------------------------------------------- --------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
NEW YORK--0.6%
----------------------------------------------------------------------
$ 2,500,000 New York State Energy Research & Development Authority Electric
Facility, 7.50% Revenue Bonds (Series 1991A)/(Consolidated
Edison)/(Subject to AMT), 1/1/2026 Aa2 $ 2,617,275
---------------------------------------------------------------------- --------------
NORTH DAKOTA--1.0%
----------------------------------------------------------------------
2,965,000 North Dakota HFA, 7.20% SFM Revenue Bonds (Subject to AMT), 7/1/2024 Aa 3,068,093
----------------------------------------------------------------------
370,000 North Dakota HFA, 8.375% SFM Revenue Bonds (Subject to AMT), 7/1/2019 AA 390,805
----------------------------------------------------------------------
635,000 North Dakota HFA, 8.375% SFM Revenue Bonds (Subject to AMT), 7/1/2021 AA 664,369
---------------------------------------------------------------------- --------------
Total 4,123,267
---------------------------------------------------------------------- --------------
OHIO--2.8%
----------------------------------------------------------------------
1,000,000 Franklin County, OH, 7.60% Hospital Facility Refunding and Improvement
Revenue Bonds (Riverside United Methodist Hospital)/(Prerefunded
@102), 5/15/2000 Aa 1,129,440
----------------------------------------------------------------------
2,400,000 Hamilton County, OH, 7.00% Hospital Facility Revenue Refunding and
Improvement Bonds (Deaconess Hospital of Cincinnati)/(Series
1992)/(Original Issue Yield: 7.046%), 1/1/2012 A 2,521,896
----------------------------------------------------------------------
1,400,000 Lucas County, OH, 7.625% Hospital Revenue Bonds (Riverside Hospital),
6/1/2015 BBB+ 1,435,644
----------------------------------------------------------------------
1,770,000 Ohio HFA, 7.65% SFM Revenue Bonds (Series 1989A)/ (GNMA
Collateralized)/(Subject to AMT), 3/1/2029 AAA 1,876,377
----------------------------------------------------------------------
1,575,000 Ohio HFA, 8.25% SFM Revenue Bonds (Series B)/(GNMA
Collateralized)/(Subject to AMT), 12/15/2019 AAA 1,694,952
----------------------------------------------------------------------
500,000 Ohio Water Development Authority, 8.10% PCR Bonds (Ohio Edison
Company)/(Subject to AMT), 10/1/2023 Baa3 523,190
----------------------------------------------------------------------
1,250,000 Ohio Water Development Authority, 9.75% PCR Bonds (Cleveland Electric
Illuminating, Inc.)/(Subject to AMT), Optional Tender, 11/1/97 Baa2 1,371,175
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------------
$ 1,350,000 Trumbull County, OH, 7.75% Hospital Revenue Bonds
(St. Joseph Riverside Hospital, 11/1/2013 BBB+ $ 1,473,579
---------------------------------------------------------------------- --------------
Total 12,026,253
---------------------------------------------------------------------- --------------
OKLAHOMA--1.8%
----------------------------------------------------------------------
1,250,000 Tulsa, OK, Municipal Airport, 7.375% Revenue Bonds (American Airlines
Corp.)/(Original Issue Yield: 7.375%)/ (Subject to AMT), 12/1/2020 Baa2 1,254,538
----------------------------------------------------------------------
6,200,000 Tulsa, OK, Municipal Airport, 7.60% Revenue Bonds (American Airlines
Corp.)/(Original Issue Yield: 7.392%)/ (Subject to AMT), 12/1/2030 Baa2 6,308,934
---------------------------------------------------------------------- --------------
Total 7,563,472
---------------------------------------------------------------------- --------------
PENNSYLVANIA--16.1%
----------------------------------------------------------------------
3,500,000 Allegheny County, PA, HDA, 5.875% Revenue Bonds (Ohio Valley General
Hospital)/(Original Issue Yield: 6.125%),
4/1/2011 Baa1 3,151,190
----------------------------------------------------------------------
5,850,000 Allegheny County, PA, HDA, 6.00% Revenue Bonds (Series 1992)/(South
Hills Health System)/(Original Issue Yield: 6.40%), 5/1/2020 A 5,427,981
----------------------------------------------------------------------
3,000,000 Allegheny County, PA, HDA, 7.00% Revenue Bonds (Series 1992)/(The
Rehabilitation Institute of Pittsburgh)/(Original Issue Yield:
7.049%), 6/1/2010 BBB 3,032 070
----------------------------------------------------------------------
4,000,000 Allegheny County, PA, HDA, 7.282% OID Revenue Bonds (Series 1992)/(The
Rehabilitation Institute of Pittsburgh),
6/1/2022 BBB 3,913,760
----------------------------------------------------------------------
1,595,000 Allegheny County, PA, HFA, 7.95% SFM Revenue Bonds (GNMA
Collateralized)/(Subject to AMT), 6/1/2023 AAA 1,709,744
----------------------------------------------------------------------
665,000 Allegheny County, PA, HFA, 9.50% SFM Revenue Bonds (GNMA
Collateralized)/(Subject to AMT), 12/1/2018 AAA 715,354
----------------------------------------------------------------------
5,710,000 Allegheny County, PA, Higher Education Building Authority, 7.375%
Revenue Bonds (La Roche College),
7/15/2012 NR 5,995,214
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
----------------------------------------------------------------------
$ 1,750,000 Allegheny County, PA, IDA, 8.75% Revenue Bonds
(Air Cargo III: United Parcel Services/Federal Express)/
(Subject to AMT), 2/15/2009 NR $ 1,851,762
----------------------------------------------------------------------
500,000 Allegheny County, PA, Residential Finance Authority, 7.75% SFH
Mortgage Revenue Bonds (Series K)/(GNMA Collateralized)/(Subject to
AMT), 12/1/2022 Aaa 529,695
----------------------------------------------------------------------
3,000,000 Delaware County, PA, 7.875% OID Revenue Bonds (Eastern
College)/(Series 1992A) 3/1/2012 NR 3,189,390
----------------------------------------------------------------------
2,055,000 Erie County, PA, Hospital Authority, 7.50% Revenue Bonds (Erie Infants
and Youth Home)/(Marine Bank, LOC), 10/1/ 2011 NR 2,128,343
----------------------------------------------------------------------
2,000,000 Erie, PA, Municipal Airport Parking Authority, 8.25% Revenue Bonds
(Subject to AMT), 7/1/2009 NR 2,148,220
----------------------------------------------------------------------
1,000,000 Montgomery County, PA, IDA, 8.875% PCR Bonds, (Philadelphia Electric),
6/1/2016 Baa3 1,056,260
----------------------------------------------------------------------
1,730,000 Northeastern, PA, Hospital & Education Authority, 6.00% (Series
1993B)/(Kings College)/(Original Issue Yield: 6.174%), 7/15/2018 BBB 1,642,497
----------------------------------------------------------------------
10,000,000 Pennsylvania EDA, 7.60% Wastewater Treatment Revenue Bonds (Series
1994A)/(Sun Company)/(Original Issue Yield: 7.653%)/(Subject to AMT),
12/1/2024 BBB- 10,548,800
----------------------------------------------------------------------
3,875,000 Pennsylvania HEFA, 7.375% OID Revenue Bonds (Medical College of
Pennsylvania)/(Original Issue Yield: 7.45%),
3/1/2021 Baa1 3,887,671
----------------------------------------------------------------------
1,750,000 Pennsylvania HEFA, 8.375% Revenue Bonds (Medical College of
Pennsylvania), 3/1/2011 Baa1 1,841,840
----------------------------------------------------------------------
6,000,000 Pennsylvania HFA, 7.00% SFM Revenue Bonds (Series 1992B34)/(Subject to
AMT), 4/1/2024 Aa 6,190,560
----------------------------------------------------------------------
2,660,000 Pennsylvania HFA, 7.65% SFM Revenue Bonds (Series 28)/ (Subject to
AMT), 10/1/2023 Aa 2,833,299
----------------------------------------------------------------------
$ 435,000 Pennsylvania HFA, 8.15% SFM Revenue Bonds (Series X)/ (Subject to
AMT), 4/1/2024 Aa $ 458,085
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
----------------------------------------------------------------------
1,740,000 Pennsylvania Higher Educational Facilities Agency 6.75% (Thiel
College), 9/1/2017 NR 1,782,038
----------------------------------------------------------------------
1,640,000 Pennsylvania State Higher Educational Facilities Authority, 6.00%
College Revenue Bonds (Allegheny College)/(Series 1993B)/(Original
Issue Yield: 6.30%), 11/1/2022 BBB+ 1,553,211
----------------------------------------------------------------------
3,250,000 Pennsylvania State Higher Educational Facilities Authority, 6.10%
College Revenue Bonds (Allegheny College)/(Series 1993A)/(Original
Issue Yield: 6.23%), 11/1/2008 BBB+ 3,321,273
---------------------------------------------------------------------- --------------
Total 68,908,257
---------------------------------------------------------------------- --------------
SOUTH CAROLINA--0.5%
----------------------------------------------------------------------
1,250,000 Charleston County, SC, 9.25% Resource Recovery Revenue Bonds
(Foster-Wheeler, Inc.)/(Subject to AMT), 1/1/2010 A 1,398,450
----------------------------------------------------------------------
810,000 South Carolina State Housing Finance and Development Authority, 7.40%
Homeownership Mortgage Revenue Bonds (Subject to AMT), 7/1/2023 Aa 843,583
---------------------------------------------------------------------- --------------
Total 2,242,033
---------------------------------------------------------------------- --------------
TENNESSEE--4.1%
----------------------------------------------------------------------
2,475,000 Memphis-Shelby County, TN, Airport Authority, 6.75% Special Facilities
Revenue Bonds (Series 1992)/(Federal Express Corp.), 9/1/2012 Baa3 2,496,533
----------------------------------------------------------------------
3,100,000 Springfield, TN, HEFA, 8.25% Revenue Bonds (Jesse Holman Jones
Hospital)/(Original Issue Yield: 8.50%),
4/1/2012 NR 3,159,272
----------------------------------------------------------------------
7,800,000 Springfield, TN, HEFA, 8.50% Revenue Bonds (Jesse Holman Jones
Hospital)/(Original Issue Yield: 8.875%),
4/1/2024 NR 7,817,238
----------------------------------------------------------------------
2,825,000 Tennessee HDA, 7.65% SFM Revenue Bonds (Subject to AMT), 7/1/2022 A 2,993,992
----------------------------------------------------------------------
$ 935,000 Tennessee HDA, 8.25% SFM Revenue Bonds (Home Ownership
Program)/(Subject to AMT), 7/1/2020 A $ 962,620
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
TENNESSEE--CONTINUED
----------------------------------------------------------------------
300,000 Tennessee HDA, 8.375% SFM Revenue Bonds (Subject to AMT), 7/1/2019 A 310,566
---------------------------------------------------------------------- --------------
Total 17,740,221
---------------------------------------------------------------------- --------------
TEXAS--13.2%
----------------------------------------------------------------------
2,500,000 Brazos River Authority, TX, 7.875% PCR Bonds (Texas Utilities Electric
Company)/(Subject to AMT), 3/1/2021 Baa2 2,674,400
----------------------------------------------------------------------
1,800,000 Brazos River Authority, TX, 8.125% PCR Bonds (Houston Power &
Light)/(Subject to AMT), 2/1/2020 Baa2 1,940,616
----------------------------------------------------------------------
2,260,000 Brazos River Authority, TX, 8.25% PCR Bonds (Texas Utilities Electric
Company)/(Subject to AMT), 12/1/2016 Baa2 2,367,418
----------------------------------------------------------------------
1,250,000 Brazos River Authority, TX, 9.875% PCR Bonds (Texas Utilities Electric
Company)/(Subject to AMT), 10/1/2017 BBB 1,393,012
----------------------------------------------------------------------
7,320,000 Dallas-Fort Worth, TX International Airport, 7.125% Revenue Bonds
(Delta Airlines)/(Original Issue Yield: 7.55%)/(Subject to AMT),
11/1/2026 Baa3 7,152,738
----------------------------------------------------------------------
2,500,000 Dallas-Fort Worth, TX, International Airport, 7.25% Revenue Bonds
(Delta Airlines)/(Original Issue Yield: 7.625%)/(Subject to AMT),
11/1/2021 Baa3 2,549,550
----------------------------------------------------------------------
3,000,000 Dallas-Fort Worth, TX, International Airport Facilities Improvement
Corp., 7.25% Revenue Bonds (American Airlines, Inc.)/(Original Issue
Yield: 7.428%)/(Subject to AMT), 11/1/2030 Baa2 2,976,810
----------------------------------------------------------------------
2,370,000 Dallas-Fort Worth, TX, International Airport Facilities Improvement
Corp., 7.50% Revenue Bonds (American Airlines Corp.)/(Original Issue
Yield: 8.20%)/(Subject to AMT), 11/1/2025 Baa2 2,395,714
----------------------------------------------------------------------
1,000,000 Guadalupe-Blanco River Authority, TX, IDA, 8.60% Revenue Pollution
Control Bonds (A.P. Green Industries, 4/1/2009 NR 1,049,840
----------------------------------------------------------------------
$ 2,500,000 Guadalupe-Blanco River Authority, TX, IDA, 8.60% Revenue Pollution
Control Bonds (A.P. Green Industries, Inc.), 4/1/2009 NR $ 2,651,225
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
TEXAS--CONTINUED
----------------------------------------------------------------------
9,445,000 Richardson, TX, 6.50% Hospital Authority Revenue Refunding &
Improvement Bonds (Richardson Medical Center)/(Original Issue Yield:
6.72%), 12/1/2012 Baa 8,876,694
----------------------------------------------------------------------
7,630,000 Richardson, TX, 6.75% Hospital Authority Revenue Refunding &
Improvement Bonds (Richardson Medical Center)/(Original Issue Yield:
6.82%), 12/1/2023 Baa 7,135,729
----------------------------------------------------------------------
11,915,000 Sabine River Authority, TX, 5.85% PCR Refunding Bonds (Texas Utilities
Electric Co.)/(Original Issue Yield: 5.875%), 5/1/2022 AAA 10,559,669
----------------------------------------------------------------------
1,000,000 Texarkana, TX, HFDC, 8.50% Hospital Revenue Bonds (Wadley Regional
Medical Centre), 10/1/2012 A- 1,093,160
----------------------------------------------------------------------
1,700,000 Tyler, TX, HFDC, 6.75% Revenue Bonds (Series A)/(East Texas Medical
Center)/(Original Issue Yield: 7.00%),
1/11/2025 Baa 1,564,595
---------------------------------------------------------------------- --------------
Total 56,381,170
---------------------------------------------------------------------- --------------
UTAH 1.4%
----------------------------------------------------------------------
1,095,000 Utah, HFA, 7.10% SFM Revenue Bonds (Subject to AMT), 7/1/2024 AA 1,124,904
----------------------------------------------------------------------
1,675,000 Utah HFA, 7.15% SFM Revenue Bonds (Series 1991E-2)/ (Original Issue
Yield: 7.179%)/(Subject to AMT), 7/1/2024 AA 1,725,585
----------------------------------------------------------------------
2,455,000 Utah HFA, 7.55% SFM Revenue Bonds (Series 1991D)/ (Subject to AMT),
7/1/2023 AA 2,587,963
----------------------------------------------------------------------
680,000 Utah HFA, 7.75% SFM Revenue Bonds (Series A2)/(Subject to AMT),
1/1/2023 AA 727,981
---------------------------------------------------------------------- --------------
Total 6,166,433
---------------------------------------------------------------------- --------------
WASHINGTON 2.6%
----------------------------------------------------------------------
$ 4,250,000 Pierce County, WA, Economic Development Corp., 5.80% Revenue Bonds
(Occidental Petroleum)/(Original Issue Yield: 5.90%)/(Subject to AMT),
9/1/2029 BBB $ 3,627,843
----------------------------------------------------------------------
</TABLE>
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S,
AMOUNT OR S&P* VALUE
<S> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
WASHINGTON 2.6%--CONTINUED
----------------------------------------------------------------------
4,075,000 Pilchuck Public Development Corp., WA, 6.00% Revenue Bonds (Special
Facilities Airport)/(Tramco Inc.)/(BF Goodrich Guaranty)/(Subject to
AMT), 8/1/2023 BBB 3,517,051
----------------------------------------------------------------------
4,300,000 Port Camas Washougal, WA, Public Industrial Corp., 6.70% Revenue Bonds
(James River Corp. Project)/(Original Issue Yield: 6.75%), 4/1/2023 Baa 4,141,975
---------------------------------------------------------------------- --------------
Total 11,286,869
---------------------------------------------------------------------- --------------
WEST VIRGINIA--1.1%
----------------------------------------------------------------------
5,000,000 Marion County, WV, 7.75% Solid Waste Disposal Revenue Bonds (Series
1993)/(American Power Paper Recycling)/ (Subject to AMT), 12/1/2011 NR 4,902,800
---------------------------------------------------------------------- --------------
WISCONSIN--0.2%
----------------------------------------------------------------------
775,000 Wisconsin State Housing and Economic Development Authority, 8.00% SFM
Revenue Bonds (Subject to AMT),
3/1/2021 Aa 824,546
---------------------------------------------------------------------- --------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST, $416,915,980) 416,797,543
---------------------------------------------------------------------- --------------
TOTAL MUNICIPAL SECURITIES
(IDENTIFIED COST, $421,315,980)(A) $ 421,197,543
---------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $421,315,980.
The net unrealized depreciation on a federal tax cost basis amounts to
$118,437, and is comprised of $11,092,050 appreciation and $11,210,487
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($428,487,492) at February 28, 1995.
Fortress Municipal Income Fund, Inc.
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMT -- Alternative Minimum Tax
EDA -- Economic Development Authority
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Corporation
GNMA -- Government National Mortgage Association
HDA -- Hospital Development Authority
HEFA -- Health and Education Facilities Authority
HFA -- Housing Finance Authority
HFDC -- Health Facility Development
Corporation
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IFA -- Industrial Finance Authority
LOC(s) -- Letter(s) of Credit
OID -- Original Issue Discount
PCR -- Pollution Control Revenue
SFH -- Single Family Housing
SFM -- Single Family Mortgage
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Fortress Municipal Income Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 28, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost: $421,315,980) $ 421,197,543
- -------------------------------------------------------------------------------------------------
Cash 37,723
- -------------------------------------------------------------------------------------------------
Income receivable 8,106,557
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 139,723
- ------------------------------------------------------------------------------------------------- --------------
Total assets 429,481,546
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 901,912
- -------------------------------------------------------------------------------------
Accrued expenses 92,142
- ------------------------------------------------------------------------------------- ----------
Total liabilities 994,054
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 40,869,398 shares outstanding $ 428,487,492
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 436,951,621
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (118,437)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (9,761,742)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 1,416,050
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 428,487,492
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Shares:
- -------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($428,487,492 / 40,869,398 shares outstanding) $10.48
- ------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/99.00 of $10.48)* $10.59
- ------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds Per Share (99.00/100 of $10.48)* $10.38
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Fortress Municipal Income Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Six months ended February 28, 1995 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 15,952,771
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee $ 1,282,977
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 161,869
- -------------------------------------------------------------------------------------
Custodian fees 48,639
- -------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 123,214
- -------------------------------------------------------------------------------------
Trustees/Directors fees 5,973
- -------------------------------------------------------------------------------------
Auditing fees 9,231
- -------------------------------------------------------------------------------------
Legal fees 7,240
- -------------------------------------------------------------------------------------
Portfolio accounting fees 54,736
- -------------------------------------------------------------------------------------
Shareholder services fee 534,574
- -------------------------------------------------------------------------------------
Share registration costs 20,453
- -------------------------------------------------------------------------------------
Printing and postage 13,394
- -------------------------------------------------------------------------------------
Insurance premiums 5,792
- -------------------------------------------------------------------------------------
Taxes 27,693
- -------------------------------------------------------------------------------------
Miscellaneous 5,068
- ------------------------------------------------------------------------------------- ------------
Total expenses 2,300,853
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 13,651,918
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (4,632,110)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (928,000)
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (5,560,110)
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 8,091,808
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Municipal Income Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 13,651,918 $ 26,933,085
- ----------------------------------------------------------------------
Net realized gain/(loss) on investments ($4,632,110 net loss and
$556,193 net loss, respectively, as computed for federal income tax
purposes) (4,632,110) (3,581,669)
- ----------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) (928,000) (29,837,590)
- ---------------------------------------------------------------------- --------------------- -------------------
Change in net assets resulting from operations 8,091,808 (6,486,174)
- ---------------------------------------------------------------------- --------------------- -------------------
NET EQUALIZATION CREDITS/DEBITS (56,345) 18,561
- ----------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income (13,121,174) (26,673,902)
- ----------------------------------------------------------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of Shares 21,428,220 116,065,745
- ----------------------------------------------------------------------
Net asset value of Shares issued to shareholders
in payment of distributions declared 5,851,895 11,587,689
- ----------------------------------------------------------------------
Cost of shares redeemed (65,938,489) (80,611,519)
- ---------------------------------------------------------------------- --------------------- -------------------
Change in net assets from share transactions (38,658,374) 47,041,915
- ---------------------------------------------------------------------- --------------------- -------------------
Change in net assets (43,744,085) 13,900,400
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 472,231,577 458,331,177
- ---------------------------------------------------------------------- --------------------- -------------------
End of period (including undistributed net investment income of
$1,416,050 and $941,652, respectively) $ 428,487,492 $ 472,231,577
- ---------------------------------------------------------------------- --------------------- -------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Municipal Income Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28,
1995 YEARS ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23 $ 9.76 $ 10.07
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.32 0.61 0.62 0.66 0.70 0.72 0.74 0.78
- ----------------------------------
Net realized and unrealized gain
(loss) on investments (0.09) (0.73) 0.51 0.39 0.40 (0.23) 0.49 (0.36)
- ---------------------------------- ----- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.23 (0.12) 1.13 1.05 1.10 0.49 1.23 0.42
- ---------------------------------- ----- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net investment
income (0.31) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76) (0.73)
- ---------------------------------- ----- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.48 $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23 $ 9.76
- ---------------------------------- ----- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 2.30% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09% 4.43%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 1.08%(c) 1.09% 1.09% 1.05% 1.02% 1.01% 0.90% 1.02%
- ----------------------------------
Net investment income 6.38%(c) 5.56% 5.65% 6.18% 6.86% 7.07% 7.27% 8.03%
- ----------------------------------
Expense waiver/reimbursement (d) 0.00%(c) 0.00% 0.00% 0.14% 0.33% 0.39% 0.83% 0.70%
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period (000
omitted) $428,487 $472,232 $458,331 $248,768 $135,628 $89,907 $62,50 $25,151
- ----------------------------------
Portfolio Turnover 8 % 27% 7% 14% 18% 24% 24% 34%
- ----------------------------------
<CAPTION>
<S> <C>
1987(A)
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.26
- ----------------------------------
Net realized and unrealized gain
(loss) on investments 0.07
- ---------------------------------- -----
Total from investment operations 0.33
- ---------------------------------- -----
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net investment
income (0.26)
- ---------------------------------- -----
NET ASSET VALUE, END OF PERIOD $ 10.07
- ---------------------------------- -----
TOTAL RETURN (B) 3.48%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 0.86%(c)
- ----------------------------------
Net investment income 7.14%(c)
- ----------------------------------
Expense waiver/reimbursement (d) 0.29%(c)
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period (000
omitted) $22,829
- ----------------------------------
Portfolio Turnover 0 %
- ----------------------------------
</TABLE>
(a) Reflects operations for the period from April 10, 1987 (date of initial
public investment) to August 31, 1987. For the period from the start of
business, April 1, 1987, to April 29, 1987, net investment income
aggregating $0.01 per share was distributed to the Fund's investment
adviser. Such distribution represented the net investment income of the
Fund prior to the initial public offering of fund shares which commenced
on April 10, 1987.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fortress Municipal Income Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
February 28, 1995 (unaudited)
(1) ORGANIZATION
Fortress Municipal Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant in determining valuations for normal
institutional size trading units of debt securities. The independent
pricing service does not rely exclusively on quoted prices. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
D. OTHER--Investment transactions are accounted for on the trade date.
E. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1994, the Fund, for
federal tax purposes, had a capital loss carryforward of $1,559,308, which
will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward will expire in
1996 ($661,371), 1998 ($168,972), 1999 ($47,025), 2000 ($68,565), 2001
($57,182) and 2002 ($556,193). Additionally, net capital losses of
$3,544,487 attributable to security transactions incurred after October 31,
1993, are treated as arising on September 1, 1994, the first day of the
Fund's next taxable year.
F. EQUALIZATION--The Fund follows the accounting practice known as
equalization in which a portion of the proceeds from sales and costs of
redemptions of capital stock equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of capital stock.
(3) CAPITAL STOCK
At February 28, 1995, there were 2,000,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1995 1994
<S> <C> <C>
Shares sold 2,127,304 10,474,491
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 577,995 1,069,132
- ---------------------------------------------------------------------------------
Shares redeemed (6,557,335) (7,469,095)
- --------------------------------------------------------------------------------- --------------- --------------
Net change resulting from capital stock transactions (3,852,036) 4,074,528
- --------------------------------------------------------------------------------- --------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Services Company, the Fund will pay Federated Services Company up
to .25 of 1% of average net assets of the Fund for the period. This fee is to
obtain certain personal services for shareholders and to maintain the
shareholder accounts.
TRANSFER AGENT FEES--Federated Services Company serves as transfer and dividend
disbursing agent for the Fund. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records. The fee is based on the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995, the Fund
engaged in purchase and sale transactions with funds at current market value
pursuant to Rule 17a-7 under the Act amounting to $24,300,000 and $36,800,000,
respectively.
GENERAL--Certain of the Officers and Directors of the Fund are Officers,
Directors and/or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
February 28, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 35,025,063
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 79,011,369
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
[LOGO] FEDERATED SECURITIES CORP.
----------------------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
349557108
8040407 (4/95)
FORTRESS MUNICIPAL INCOME FUND, INC.
APPENDIX
A. The graphic representation here displayed consists of a legend in
the top left hand corner indicating the components of the corresponding
line graph. The line graph is a visual representation which illustrates
the growth of a hypothetical initial investment of $8,000 in the Fund
from April 10, 1987 to February 28, 1995. The principal value of the
$8,000 investment is represented by black shading. Reinvested income is
represented by gray shading. The "y" axis reflects the cost of
investment. The "x" axis reflects computation periods from the Fund's
inception, April 10, 1987, through February 28, 1995. The right margin
reflects the ending value of the hypothetical investment in the Fund ;
the ending value is $14,024.
B. The graphic representation here displayed consists of a legend in
the top left hand corner indicating the components of the corresponding
line graph. The line graph is a visual representation which illustrates
the growth of hypothetical annual investments of $1,000 in the Fund from
April 10, 1987 to February 28, 1995. The principal value of annual
$1,000 investments is represented by black shading. Reinvested income
is represented by gray shading. The "y" axis reflects the cost of
investment. The "x" axis reflects computation periods from the Fund's
inception, April 10, 1987, through February 28, 1995. The right margin
reflects the ending value of the hypothetical investment in the Fund ;
the ending value is $10,921.
B. The graphic representation here displayed consists of a legend in
the top left hand corner indicating the components of the corresponding
line graph. The line graph is a visual representation which illustrates
the growth of a hypothetical initial investment of $5,000 in the Fund in
addition to monthly investments of $500 from April 10, 1987 to February
28, 1995. The principal value of continuing investments is represented
by black shading. Reinvested income is represented by gray shading.
The "y" axis reflects the cost of investment. The "x" axis reflects
computation periods from the Fund's inception, April 10, 1987, through
February 28, 1995. The right margin reflects the ending value of the
hypothetical investment in the Fund ; the ending value is $70,392.
