1933 Act File No. 33-11410
1940 Act File No. 811-4533
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 12 ........... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 ........................... X
FORTRESS MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on October 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
X filed the Notice required by that Rule on October 16, 1995; or
intends to file the Notice required by that Rule on or about ;
------------
or
during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to: Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FORTRESS MUNICIPAL INCOME
FUND, INC. is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............Cover Page.
Item 2. Synopsis.................Summary of Fund Expenses.
Item 3. Condensed Financial
Information.............Financial Highlights; Performance Information.
Item 4. General Description of
Registrant..............General Information; Fortress Investment Program;
Investment Information; Investment Objective;
Investment Policies; Portfolio Turnover;
Municipal Bonds; Investment Risks; Investment
Limitations.
Item 5. Management of the Fund...Fund Information; Management of the Fund;
Distribution of Fund Shares; Administration of
the Fund.
Item 6. Capital Stock and Other
Securities..............Dividends and Distributions; Shareholder
Information; Voting Rights; Tax Information;
Federal Income Tax; Pennsylvania Corporate and
Personal Property Taxes; Other State and Local
Taxes.
Item 7. Purchase of Securities Being
Offered.................Net Asset Value; Investing in the Fund; Share
Purchases; Minimum Investment Required; What
Shares Cost; Eliminating the Sales Charge;
Systematic Investment Program; Exchange
Privilege; Certificates and Confirmations.
Item 8. Redemption or Repurchase.Redeeming Shares; Through a Financial
Institution; Directly By Mail; Contingent
Deferred Sales Charge; Systematic Withdrawal
Program; Accounts With Low Balances.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............Cover Page.
Item 11. Table of Contents........Table of Contents.
Item 12. General Information and
History.................General Information About the Fund.
Item 13. Investment Objectives and
Policies................Investment Objectives and Policies; Investment
Limitations.
Item 14.Management of the Fund..Fortress Municipal Income Fund, Inc. Management.
Item 15. Control Persons and Principal
Holders of Securities...Not applicable.
Item 16. Investment Advisory and
Other Services..........Investment Advisory Services; Administrative
Services.
Item 17. Brokerage Allocation.....Brokerage Transactions.
Item 18. Capital Stock and Other
Securities..............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered...........Purchasing Shares; Determining Net Asset Value;
Exchange Privilege; Redeeming Shares.
Item 20. Tax Status...............Tax Status.
Item 21. Underwriters.............Not applicable.
Item 22. Calculation of Performance
Data....................Total Return; Yield; Tax-Equivalent Yield;
Performance Comparisons.
Item 23. Financial Statements.Incorporated by reference to the Annual Report to
Shareholders of Fortress Municipal Income Fund,
Inc. dated August 31, 1995, pursuant to Rule 411
under the Securities Act of 1933. (File No. 811-
4533).
FORTRESS MUNICIPAL INCOME FUND, INC.
PROSPECTUS
An open-end, diversified management investment company (a mutual fund) that
seeks a high level of current income exempt from the federal regular income tax
by investing primarily in a professionally managed, diversified portfolio of
municipal bonds.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Fortress Municipal Income Fund, Inc. (the "Fund"). Keep this
prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated October 31,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information,
which is in paper form only, or a paper copy of this prospectus, if you have
received your prospectus electronically, of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
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.
Prospectus dated October 31, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................2
General Information............................................................3
Fortress Investment Program....................................................3
Investment Information.........................................................4
Investment Objective.........................................................4
Investment Policies..........................................................4
Acceptable Investments....................................................4
Characteristics.........................................................5
When-Issued and Delayed
Delivery Transactions...................................................5
Temporary Investments.....................................................5
Other Investment Techniques...............................................5
Portfolio Turnover...........................................................6
Municipal Bonds..............................................................6
Investment Risks.............................................................6
Reducing Risks of Lower-Rated
Securities..............................................................7
Credit Research.........................................................7
Diversification.........................................................7
Economic Analysis.......................................................7
Investment Limitations.......................................................7
Net Asset Value................................................................8
Investing in the Fund..........................................................9
Share Purchases..............................................................9
Through a Financial Institution...........................................9
Directly by Mail..........................................................9
Directly by Wire..........................................................9
Minimum Investment Required..................................................9
What Shares Cost.............................................................9
Dealer Concession........................................................10
Eliminating the Sales Charge................................................10
Quantity Discounts and
Accumulated Purchases..................................................10
Letter of Intent.........................................................11
Reinvestment Privilege...................................................11
Concurrent Purchases.....................................................11
Systematic Investment Program...............................................11
Exchange Privilege..........................................................12
Certificates and Confirmations..............................................12
Dividends and Distributions.................................................12
Redeeming Shares..............................................................13
Through a Financial Institution.............................................13
Directly by Mail............................................................13
Signatures...............................................................13
Receiving Payment........................................................14
Contingent Deferred Sales Charge............................................14
Systematic Withdrawal Program...............................................15
Accounts with Low Balances..................................................15
Fund Information..............................................................16
Management of the Fund......................................................16
Board of Directors.......................................................16
Investment Adviser.......................................................16
Advisory Fees............................................................16
Adviser's Background.....................................................16
Distribution of Fund Shares.................................................17
Distribution and Shareholder Services....................................17
Supplemental Payments to Financial
Institutions...........................................................17
Administration of the Fund..................................................18
Administrative Services..................................................18
Custodian................................................................18
Transfer Agent and Dividend
Disbursing Agent.......................................................18
Independent Auditor......................................................18
Shareholder Information.......................................................19
Voting Rights...............................................................19
Tax Information...............................................................19
Federal Income Tax..........................................................19
Pennsylvania Personal Property Taxes........................................20
Other State and Local Taxes.................................................20
Performance Information.......................................................21
Appendix......................................................................21
Addresses.....................................................................23
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SUMMARY OF FUND EXPENSES
FORTRESS MUNICIPAL INCOME FUND, INC.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................................................................ 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1).................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee............................................................................................... 0.60%
12b-1 Fee (2)................................................................................................ 0.00%
Total Other Expenses......................................................................................... 0.48%
Shareholder Services Fee..................................................................... 0.25%
Total Operating Expenses........................................................................... 1.08%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the original
purchase price or the net asset value of shares redeemed within four years
of their purchase date. For a more complete description see "Contingent
Deferred Sales Charge".
(2) The Fund has no present intention of paying or accruing the 12b-1 fee
during the fiscal year ending August 31, 1996. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.25% of its
average daily net assets for the 12b-1 fee. See "Fund Information".
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information". Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period............................. $31 $55 $69 $140
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $21 $44 $69 $140
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FORTRESS MUNICIPAL INCOME FUND, INC.
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 13, 1995 on the Fund's
financial statements for the year ended August 31, 1995, and on the following
table for each of the periods presented, is included in the Annual Report dated
August 31, 1995, which is incorporated by reference. This table should be read
in conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23 $ 9.76 $ 10.07 $ 10.00
- -------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------------
Net investment income 0.63 0.61 0.62 0.66 0.70 0.72 0.74 0.78 0.26
- -------------------------------
Net realized and unrealized
gain (loss) on investments 0.15 (0.73) 0.51 0.39 0.40 (0.23) 0.49 (0.36) 0.07
- ------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from investment
operations 0.78 (0.12) 1.13 1.05 1.10 0.49 1.23 0.42 0.33
- ------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------
Distributions from net
investment income (0.63) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76) (0.73)
(0.26)
- ------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.71 $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23 $ 9.76 $ 10.07
- ------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 7.73% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09% 4.43% 3.48%
- -------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------
Expenses 1.08% 1.09% 1.09% 1.05% 1.02% 1.01% 0.90% 1.02% 0.86%(c)
- -------------------------------
Net investment income 6.18% 5.56% 5.65% 6.18% 6.86% 7.07% 7.27% 8.03% 7.14%(c)
- -------------------------------
Expense waiver/
reimbursement (d) 0.00% 0.00% 0.00% 0.14% 0.33% 0.39% 0.83% 0.70% 0.29%(c)
- -------------------------------
SUPPLEMENTAL DATA
- -------------------------------
Net assets, end of period
(000 omitted) $426,010 $472,232 $458,331 $248,768 $135,628 $89,907 $62,501 $25,151 $22,829
- -------------------------------
Portfolio turnover 13% 27% 7% 14% 18% 24% 24% 34% 0%
- -------------------------------
</TABLE>
(a) Reflects operations for the period from April 10, 1987, (date of initial
public investment) to August 31, 1987. For the peroid from the start of
business, April 1, 1987 to April 9, 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 the Fund shares which commenced on April 10,
1987.
(b) Based on net asset value, which does not reflect the sales charge 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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated August 31, 1995, which can be obtained free of charge.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on November
26, 1986. The Fund is designed primarily for individuals seeking high current
income through a professionally managed, diversified portfolio of lower quality
municipal bonds. A minimum initial investment of $1,500 is required. Fund shares
are sold at net asset value plus an applicable sales charge and are redeemed at
net asset value. However, a contingent deferred sales charge is imposed on
certain shares, other than shares purchased through reinvestment of dividends,
which are redeemed within one to four years of their purchase dates. Fund assets
may be used in connection with the distribution of Fund shares.
- --------------------------------------------------------------------------------
FORTRESS INVESTMENT PROGRAM
This Fund is a member of a family of funds, collectively known as the Fortress
Investment Program (the "Program"). The other funds in the Program are:
American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
California Municipal Income Fund, providing current income exempt from
federal regular income tax and California personal income taxes;
Fortress Adjustable Rate U.S. Government Fund, Inc., providing current income
consistent with lower volatility of principal through a diversified portfolio
of adjustable and floating rate mortgage securities which are issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
Fortress Bond Fund, providing current income primarily through high-quality
corporate debt;
Fortress Utility Fund, Inc., providing high current income and moderate
capital appreciation primarily through equity and debt securities of utility
companies;
Government Income Securities, Inc., providing current income through
long-term U.S. government securities;
Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;
Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value;
Limited Term Municipal Fund, providing a high level of current income which
is exempt from federal regular income tax consistent with the preservation of
capital;
Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
New York Municipal Income Fund, providing current income exempt from federal
regular income tax, New York personal income taxes, and New York City income
taxes;
Ohio Municipal Income Fund, providing current income exempt from federal
regular income tax and Ohio personal income taxes;
Strategic Income Fund, providing high current income through investing in
domestic corporate debt obligations, U.S. government securities, and foreign
government and corporate debt obligations; and
World Utility Fund, providing total return by investing primarily in
securities issued by domestic and foreign companies in the utilities
industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Program provides flexibility and diversification for an investor's long-term
investment planning. It enables an investor to meet the challenges of changing
market conditions by offering convenient exchange privileges which give access
to various investment vehicles and by providing the investment services of
proven, professional investment advisers.
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
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 (federal
regular income tax does not include the federal alternative minimum tax). The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of municipal bonds. The Fund invests its assets so that at
least 80% of its annual interest income is exempt from federal regular income
tax. The Fund may invest up to but less than 35% of its net assets in lower
quality municipal bonds. These bonds will usually offer higher yields than
higher-rated bonds but involve greater investment risk at the time of issue.
(See "Investment Risks.")
INVESTMENT POLICIES
Unless otherwise designated, the investment policies described below may be
changed by the Board of Directors without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal bonds. Municipal bonds 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 the federal regular income tax. It is likely, however, that
shareholders will be required to include interest from a portion of the
municipal bonds owned by the Fund in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
CHARACTERISTICS
The municipal bonds which the Fund buys 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"). The Fund will limit its purchases of municipal bonds
rated Ba and BB (commonly known as "junk bonds") to up to but less than 35% of
its net assets. The Fund may buy bonds which are unrated but which the adviser
judges to be similar in quality to those rated bonds which it purchases. A
description of the ratings categories is contained in the Appendix to this
prospectus.
While the Fund normally will invest its assets in lower quality municipal bonds,
it may invest in higher quality issues, particularly when the difference in
returns between securities of different quality classifications is, and is
expected to remain, very narrow.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual interest income
is exempt from the federal regular income tax, except when investing for
"defensive" purposes as described below. This policy cannot be changed without
approval of shareholders. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: fixed or variable
rate notes issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the Fund a
bond or temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality.
OTHER INVESTMENT TECHNIQUES
The Fund may purchase a right to sell a security held by it back to the issuer
or to another party at an agreed upon price at any time during a stated period
or on a certain date. These rights
may be referred to as "liquidity puts" or "standby commitments."
The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on futures contracts
and options thereon are taxable. The Fund will notify shareholders before it
engages in these futures transactions.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. Municipal bonds are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities. Certain types of
"private activity" municipal bonds are issued to obtain funding for privately
operated facilities.
There are two categories of municipal bonds: general obligation and revenue.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Payment of principal and interest on such bonds is dependent solely on the
revenue generated by the facility financed by the bond or other specified
sources of revenue or collateral. Private activity bonds are typically one type
of "revenue" bonds.
In most cases, lower quality bonds are private activity bonds or other revenue
bonds which are not payable from general tax revenues. The Fund may invest more
than 25% of the value of its assets in private activity bonds which may result
in more than 25% of the Fund's assets being invested in one industry. It is also
possible that the Fund may from time to time invest more than 25% of its assets
in health care facilities revenue obligations, housing agency revenue
obligations or electric utility obligations. Economic, business, political and
other developments generally affecting the revenues of issuers in such a market
segment (for example, proposed legislation or pending court decisions affecting
the financing of projects and market factors affecting the demand for their
services or products) may have a general adverse impact on all municipal bonds
in the segment.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory
or possession of the United States.
INVESTMENT RISKS
The value of the shares will fluctuate. The amount of this fluctuation is
dependent upon the quality and maturity of the municipal bonds in the Fund's
portfolio as well as on market conditions. Generally speaking, the lower
quality, long-term bonds in which the Fund invests have greater fluctuation in
value than high quality, shorter-term bonds.
Municipal bond prices are interest rate sensitive, which means that their value
varies inversely with market interest rates. Thus, if market interest rates have
increased from the time a bond was purchased, the bond, if sold, might be sold
at a price less than its cost. Similarly, if market interest rates have declined
from the time a bond was purchased, the bond, if
sold, might be sold at a price greater than its cost. (In either instance, if
the bond was held
to maturity, no loss or gain normally would
be realized as a result of interim market fluctuations.)
Prices of lower grade bonds also fluctuate with changes in the perceived quality
of the credit of their issuers. Consequently, shares may not be suitable for
persons who cannot assume the somewhat greater risks of capital depreciation
associated with higher tax-exempt income yields. In addition, bonds rated "BBB"
by S&P or "Baa" by Moody's have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than higher rated bonds.
A large portion of the Fund's portfolio may be invested in bonds whose interest
payments are from revenues of similar projects (such as housing or hospitals) or
where issuers share the same geographic location. As a result, the Fund may be
more susceptible to similar economic, political or regulatory developments than
would a portfolio of bonds with a greater geographic and project variety. This
susceptibility may result in greater fluctuations in share price.
Many issuers of municipal bonds which have characteristics of rated bonds choose
to not have their obligations rated. Unrated bonds may carry a greater risk and
a higher yield than rated securities. Although unrated bonds are not necessarily
of lower quality, the market for them may not be as broad as that for rated
bonds since many investors rely solely on the major rating agencies for credit
appraisal.
Further, the lower rated or unrated municipal bonds which the Fund may purchase
are frequently traded only in markets where the number of potential purchasers
and sellers is limited. This consideration may have the effect of limiting the
availability of such bonds for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell such bonds at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets. The Fund will not invest more than 10% of its total
assets in securities which are not readily marketable.
REDUCING RISKS OF
LOWER-RATED SECURITIES
The Fund's investment adviser believes that the risks of investing in lower
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:
CREDIT RESEARCH
When purchasing bonds, rated or unrated, the Fund's investment adviser performs
its own credit analysis in addition to using recognized rating agencies. This
credit analysis considers the economic feasibility of revenue bond project
financing and general purpose borrowings, the financial condition of the issuer
or guarantor with respect to liquidity, cash flow and ability to meet
anticipated debt service requirements, and political developments that may
affect credit quality.
DIVERSIFICATION
The Fund invests in securities of many different issuers to reduce portfolio
risks.
ECONOMIC ANALYSIS
The Fund's adviser also considers trends in the overall economy, in geographic
areas, in various industries, and in the financial markets.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements (arrangements
in
which the Fund sells a portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set date) or pledge securities
except, 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; or
invest more than 10% of its net assets in securities subject to restrictions
on resale under the Securities Act of 1933.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Board of Directors
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or
invest more than 5% of its total assets in industrial development bonds of
issuers that have a record of less than three years of continuous operations.
- --------------------------------------------------------------------------------
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of shares outstanding.
- --------------------------------------------------------------------------------
INVESTING IN THE FUND
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares of
the Fund may be purchased through an investment dealer who has a sales agreement
with the distributor, Federated Securities Corp., or directly from Federated
Securities Corp. either by mail or wire. The Fund reserves the right to reject
any purchase request.
THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase shares. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 P.M.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
P.M. (Eastern time) in order for shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 P.M. (Eastern
time) in order for shares to be purchased at that day's price. Orders through a
financial institution are considered received when the Fund is notified of the
purchase order. It is the financial institution's responsibility to transmit
orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Supplemental Payments to Financial Institutions").
DIRECTLY BY MAIL
To purchase shares directly from Federated Securities Corp.:
complete and sign the application available from the Fund;
enclose a check made payable to Fortress Municipal Income Fund, Inc.; and
send both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, MA 02266-8600.
Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank, into federal funds. This is
generally the next business day after State Street Bank receives the check.
DIRECTLY BY WIRE
To purchase shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when the transfer agent's bank, State
Street Bank, receives payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales charge for purchases of $1 million or
more. However, those unaffiliated institutions through whom shares are purchased
may charge fees for services provided which may be related to the
ownership of shares. This prospectus should, therefore, be read together with
any agreement between the customer and the institution with regard to services
provided, the fees charged for these services, and any restrictions and
limitations imposed. No sales charge is imposed for shares purchased through
bank trust departments or investment advisers registered under the Investment
Advisers Act of 1940 purchasing on behalf of their clients.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; or (iii) the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Shares," shareholders may
be charged a contingent deferred sales charge by the distributor at the time
shares are redeemed.
DEALER CONCESSION
For sales of shares of the Fund, the distributor will normally receive up to
100% of the sales charge retained by it. The sales charge for shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp. Federated Securities Corp. may pay fees to banks out of the sales charge
in exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of shares.
ELIMINATING THE SALES CHARGE
The sales charge can be eliminated on the purchase of shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES
There is no sales charge for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge. In addition, the
sales charge is eliminated for purchases of $1 million or more made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $900,000, and he
purchases $100,000 or more at the current public offering price, there will be
no sales charge on the additional purchase.
The Fund will also combine purchases for the purpose of reducing the contingent
deferred sales charge imposed on some share redemptions. For example, if a
shareholder already owns shares having a current value at public offering price
of $1 million and purchases an additional $1 million at the current public
offering price, the applicable contingent deferred sales charge would be reduced
to .50% of those additional shares. For more information on the levels of
contingent deferred sales charges and holding periods, see the section entitled
"Contingent Deferred Sales Charge."
To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by their financial institution at the time the purchase is made
that shares are already owned or that purchases are being combined. The Fund
will eliminate the sales charge and/or reduce the contingent deferred sales
charge after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $1 million of shares over the next
13 months, the sales charge may be eliminated by signing a letter of intent to
that effect. This letter of intent includes a provision for a sales charge
elimination depending on the amount actually purchased within the 13-month
period and a provision for the Fund's custodian to hold 1% of the total amount
intended to be purchased in escrow (in shares of the Fund) until such purchase
is completed.
The 1% held in escrow will be applied to the shareholder's account at the end of
the 13-month period unless the amount specified in the letter of intent, which
must be $1 million or more of shares, is not purchased. In this event, an
appropriate number of escrowed shares may be redeemed in order to realize the 1%
sales charge.
This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."
This letter of intent will not obligate the shareholder to purchase shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days.
REINVESTMENT PRIVILEGE
If shares have been redeemed in the Fund, the shareholder has a one-time right,
within 120 days, to reinvest the redemption proceeds at the next-determined net
asset value without any sales charge. Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution of the
reinvestment in order to receive this elimination of the sales charge. If the
shareholder redeems his shares, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Program,
the purchase prices of which include a sales charge. For example, if a
shareholder concurrently invested $400,000 in one of the other Fortress Funds
and $600,000 in the Fund, the sales charge would be eliminated.
To receive this sales charge elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales charge
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account and invested in Fund shares at
the net asset value next determined after an order is received by State Street
Bank, plus the 1% sales charge for purchases under $1 million. A shareholder may
apply for participation in this program through Federated Securities Corp.
EXCHANGE PRIVILEGE
Shares in Fortress Municipal Income Fund, Inc. or in other Fortress Funds may be
exchanged for shares in the Program at net asset value without a sales charge
(if previously paid) or a contingent deferred sales charge. The exchange
privilege is available to shareholders residing in any state in which the shares
being acquired may be legally sold.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for shares at net asset
value (plus a sales charge, if applicable). With the exception of exchanges into
other Fortress Funds, such exchanges may be subject to a contingent deferred
sales charge and possibly a sales charge.
Shareholders using the exchange privilege must exchange shares having a net
asset value which at least meets the minimum investment for the fund into which
the exchange is being made. Shareholders who desire to automatically exchange
shares of a pre-determined amount on a monthly, quarterly, annual or other
periodic basis may take advantage of a systematic exchange privilege. Further
information on these exchange privileges is available by calling Federated
Securities Corp. or the shareholder's financial institution.
Before a financial institution may request exchange by telephone on behalf of a
shareholder, an authorization form permitting the Fund to accept exchange by
telephone must first be completed. Exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Exercise of the exchange privilege is treated as a sale for federal income tax
purposes. Depending on the circumstances, a short or long-term capital gain or
loss may be realized. Before making any exchange, a shareholder must receive a
prospectus of the fund for which the exchange is being made.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the transfer agent.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional shares on payment dates at the
ex-dividend date net asset value without a sales charge unless cash payments are
requested by shareholders on the application or by writing to Federated Services
Company.
- --------------------------------------------------------------------------------
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial institution or
directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time) in order
for shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Directly by Mail," should be considered.
DIRECTLY BY MAIL
Shareholders may also redeem Shares by sending a written request to Federated
Services Company, P.O. Box 8600, Boston, MA 02266-8600. This written request
must include the shareholder's name, the Fund name, the Fund account number, and
the share or dollar amount to be redeemed. Shares will be redeemed at their net
asset value next determined after the transfer agent receives the redemption
request.
If share certificates have been issued, they should be sent by insured mail with
the written request to: Federated Services Company, 500 Victory Road-2nd Floor,
North Quincy, MA 02171. Shareholders may call the Fund for assistance in
redeeming by mail.
SIGNATURES
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have signatures on written redemption requests
guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT
A check for the proceeds is mailed within seven days after receipt of proper
written redemption instructions from a broker or from the shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from their Fund accounts within certain time
periods of the purchase date of those shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
4 years or
Up to $1,999,999 less 1%
$2,000,000 to 2 years or
$4,999,999 less .50%
$5,000,000 or more 1 year or less .25%
</TABLE>
In instances in which shares have been acquired in exchange for shares in other
Fortress Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on shares acquired through: (i) the reinvestment of
dividends or distributions of long-term capital gains; or (ii) the exchange of
shares of Government Income Securities, Inc. where those shares were purchased
during that fund's Charter Offering Period. In computing the amount of
contingent deferred sales charge for accounts with shares subject to a single
holding period, if any, redemptions are deemed to have occurred first of shares
acquired through the reinvestment of dividends and long-term capital gains,
second of purchases of shares occurring prior to the number of years necessary
to satisfy the applicable hold period, and finally of purchases of shares
occurring within the current hold period. For accounts with shares subject to
multiple holding periods, the redemption sequence will be determined first, with
reinvested dividends and long-term capital gains, and second, on a first-in,
first-out basis.
The contingent deferred sales charge will not be imposed when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account, after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan or a custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Contingent deferred sales charges are not charged in connection with exchanges
of shares for shares in other Fortress Funds or in connection with redemptions
by the Fund of accounts with low balances. Shares originally purchased through a
bank trust department or investment adviser registered under the Investment
Advisers Act of 1940, as
amended, to the extent that no advanced payments are made for purchases made
through such entities. In addition, shares held in the Fund by a financial
institution for its own account which were originally purchased by the financial
institution directly from the Fund's distributor without a sales charge may be
redeemed without a contingent deferred sales charge. For more information, see
"Supplemental Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to shares, and the fluctuation of the net asset value
of shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price).
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that shares are sold with a sales charge, it is
not advisable for shareholders to be purchasing Shares while participating in
this program.
Contingent deferred sales charges are charged for shares redeemed through this
program within four years of their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$1,000. This requirement does not apply, however, if the balance falls below
$1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
- --------------------------------------------------------------------------------
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors ("Directors"). The Directors are
responsible for managing the Fund's business affairs and for exercising all the
Fund's powers except those reserved for the shareholders. An Executive Committee
of the Board of Directors handles the Board's responsibilities between meetings
of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .60 of 1% of the
Fund's average daily net assets. The Adviser may voluntarily choose to waive a
portion of its fee or reimburse the fund for certain operating expenses. The
Adviser can terminate this voluntary waiver of its advisory fee at any time at
its sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the Trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.
Jonathan C. Conley has been the Fund's portfolio manager since July 1987. Mr.
Conley joined Federated Investors in 1979 and has been a Vice President of the
Fund's Adviser since 1982. Mr. Conley is a Chartered Financial Analyst and
received his M.B.A. in Finance from the University of Virginia.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND
SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Plan"), the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers and
brokers/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. The Fund is not currently
making payments under the Distribution Plan, nor does it anticipate doing so in
the immediate future.
The distributor will pay financial institutions a fee based upon shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the Board of Directors of the Fund provided that for any period the
total amount of these fees shall not exceed an annual rate of .25 of 1% of the
average net asset value of shares subject to the Plan held during the period by
clients or customers of financial institutions. The current annual rate of such
fees is .25 of 1%. Any fees paid by the distributor under the Plan, will be
reimbursed from the assets of the Fund.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments 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. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS
The distributor will pay brokers and financial institutions, for distribution
and/or administrative services, an amount equal to 1% of the offering price of
the shares acquired by their clients or customers on purchases up to $1,999,999,
.50% of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in addition
to the 1% sales charge on purchases of less than $1 million.) Any fees paid by
the distributor pursuant to these administrative arrangements will be reimbursed
by the Adviser. The administrator may elect to receive amounts less than those
stated, which would reduce the stated redemption fee and/or the holding period
used to calculate the fee.
Furthermore, in addition to payments made pursuant to the Plan and Shareholder
Services Agreement, the distributor may pay a supplemental fee from its own
assets to financial institutions as financial assistance for providing
substantial sales services, distribution-related support services, or
shareholder services. The
support may include sponsoring sales, educational and training seminars at
recreational-type facilities for their employees, providing sales literature,
and engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. However, in the opinion of the Directors with the advice of
counsel, depository institutions are not prohibited from acting in other
capacities for investment companies, such as the administrative capacities
described above. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in these capacities, or should Congress
relax current restrictions on depository institutions, the Directors will
consider appropriate changes in the services, but such changes are not expected
to affect the net asset value of the Fund.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Boston, Massachusetts, is transfer agent for the
shares of the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITOR
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings of shareholders.
As of October 3, 1995, Merrill Lynch Pierce Fenner & Smith (as owner of record
holding shares for its clients), Jacksonville, Florida, owned 27.54% of the
voting securities of the Fund, and, therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
- --------------------------------------------------------------------------------
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. Shareholders are
not required to pay the federal regular income tax on any dividends received
from the Fund that represent net interest on tax-exempt municipal bonds.
However, under the Tax Reform Act of 1986, dividends representing net interest
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternate minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield.
Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a specific tax rate. The yield and
the tax-equivalent yield do not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return, yield, and tax-
equivalent yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
- --------------------------------------------------------------------------------
APPENDIX
MUNICIPAL BOND RATING DEFINITIONS
STANDARD AND POOR'S RATINGS GROUP
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group ("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 rated "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.
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 "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.
- --------------------------------------------------------------------------------
ADDRESSES
Fortress Municipal Income Fund, Inc.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corporation
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Federated Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
FORTRESS MUNICIPAL
INCOME FUND, INC.
PROSPECTUS
An Open-End, Diversified
Management Investment Company
October 31, 1995
FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 349557108
8092709A (10/95)
Fortress Municipal Income Fund, Inc.
Statement of Additional Information
This Statement of Additional Information should be read with the prospectus
of the Fund dated October 31, ^ 1995. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or call
Fortress Municipal Income Fund, Inc.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated October 31, ^ 1995
^
FEDERATED SECURITIES
CORP.
A subsidiary of FEDERATED
INVESTORS
General Information About The Fund Directors, And Employees 12
1 Determining Net Asset Value 13
Investment Objective And Policies1 Valuing Municipal Bonds 13
Acceptable Investments 1 Use of Amortized Cost 13
When-Issued and Delayed Delivery Exchange Privilege 13
Transactions 1 Reduced Sales Charge 13
Temporary Investments 1 Requirements for Exchange 13
Repurchase Agreements 1 Tax Consequences 13
Reverse Repurchase Agreements 2 Making an Exchange 13
Portfolio Turnover 2 Redeeming Shares 14
Investment Limitations 2 Redemption In Kind 14
Fortress Municipal Income Fund, Inc. Tax Status 14
Management 5 The Fund's Tax Status 14
Fund Ownership 9 Shareholders' Tax Status 14
Directors Compensation 10 Total Return 15
Investment Advisory Services 10 Yield 15
Adviser to the Fund 10 Tax-Equivalent Yield 15
Advisory Fees 11 Tax-Equivalency Table 15
Administrative Services 11 Performance Comparisons 16
Transfer Agent And Dividend About Federated Investors 17
Disbursing Agent 11 Financial Statements 18
Brokerage Transactions 11
Purchasing Shares 12
Distribution and Shareholder
Services Plan 12
Conversion to Federal Funds 12
Purchases By Sales Representatives,
Fund
General Information About the Fund
Fortress Municipal Income Fund, Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on November 26, 1986. It is qualified to do
business as a foreign corporation in Pennsylvania.
Investment Objective and Policies
The Fund's investment objective is to provide a high level of current income
which is generally exempt from federal regular income tax. The objective cannot
be changed without approval of shareholders.
Acceptable Investments
The Fund invests primarily in municipal bonds.
Characteristics
The municipal bonds in which the Fund invests have the characteristics set
forth in the prospectus.
If a bond loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to drop the bond from the portfolio,
but may consider doing so. If ratings made by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") change because
of changes in those organizations or in their rating systems, the Fund will
try to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. ^ No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
Temporary Investments
The Fund may also invest in temporary investments from time to time for
defensive purposes. The Fund does not presently intend to invest in temporary
investments other than repurchase agreements.
The Fund might invest in temporary investments:
o as a reaction to market conditions;
o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally proceeds from sales of shares will be
invested in municipal bonds as quickly as possible; or
o in anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of the
U.S. government, its agencies or instrumentalities) if, as a result of the
purchase, 25% or more of the value of its total assets would be invested in any
one industry. However, the Fund may, for temporary defensive purposes, invest
25% or more of the value of its assets in cash or cash items, U.S. Treasury
bills or securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
Repurchase Agreements
Repurchase agreements are arrangements in which banks, broker/dealers and other
recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price within one year from the date of
acquisition. The Fund or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked-to-market
daily. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund may only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are found by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Board of
Directors ("Directors"). From time to time, such as when suitable municipal
bonds are not available, the Fund may retain a portion of its assets in cash.
Any portion of the Fund's assets maintained in cash will reduce the amount of
assets in municipal bonds and thereby reduce the Fund's yield.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction is settled.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended August 31,
^ 1995 and August 31, ^ 1994, the portfolio turnover
rates were ^ 13% and 27%, respectively.
Investment Limitations
Buying on Margin
The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-
third of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings are outstanding. During
the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 10%
of the value of total assets at the time of the borrowing. Neither the
deposit of underlying securities and other assets in escrow in connection
with the writing of put or call options on municipal bonds nor margin
deposits for the purchase and sale of financial futures contracts and
related options are deemed to be a pledge.
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to its
custodian to collateralize such intra-day cash advances, in order to enable the
Fund to settle securities purchases or to redeem shares of the Fund.
Investing in Real Estate
The Fund will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or interests
in real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the
purchase or holding of municipal bonds, repurchase agreements, or other
transactions which are permitted by the Fund's investment objective and
policies.
Selling Short
The Fund will not sell securities short.
Restricted Securities
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies except
as part of a merger, consolidation, or other acquisition.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
Diversification of Investments
The Fund will not invest more than 5% of its total assets in the securities
of any one issuer (except cash and cash instruments, securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities or
instruments secured by money market instruments such as repurchase
agreements).
Under this limitation, each governmental subdivision, including states and
the District of Columbia, territories, possessions of the United States or
their political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets and
revenues are separate from those of the governmental body creating it and
the security is backed only by its own assets and revenues.
Private activity bonds backed only by the assets and revenues of a non-
governmental user are considered to be issued solely by that user. If, in
the case of a private activity bond or government-issued security, a
governmental or other entity guarantees the security, such guarantee would
be considered a separate security issued by the guarantor as well as the
other issuer, subject to limited exclusions allowed by the Investment
Company Act of 1940.
Investing in New Issuers
The Fund will not invest more than 5% of its total assets in industrial
development bonds where the payment of principal and interest is the
responsibility of companies with less than three years of operating
history.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases.
Investing in Issuers Whose Securities are Owned by Officers of the Fund
The Fund will not purchase or retain the securities of any issuer if the
Officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
During the past fiscal year, the Fund did not (1) purchase or sell options on
securities, as permitted by the investment limitations, without first notifying
shareholders; (2) purchase "liquidity puts" or "standby commitments" as
described in the prospectus, engage in reverse repurchase agreements, or borrow
money in excess of 5% of the value of its total assets; or (3) lend portfolio
securities. The Fund does not expect to engage in any of the above activities
during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
Fortress Municipal Income Fund, Inc. Management
Officers and Directors are listed with their addresses, present positions with
Fortress Municipal Income Fund, Inc., and principal occupations.
^
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; Executive Vice President and
Treasurer of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Vice President, Federated Shareholder
Services; Senior Vice President, Federated Administrative Services; Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research Corp.
; Trustee, Federated Services Company; Executive Vice President, Secretary, and
Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
^ * This Director is deemed to be an "interested person" as
defined in the Investment Company Act of 1940, as amended.
^ @ Member of the Executive Committee. The Executive Committee
of the Board of Directors handles the responsibilities of the Board of
Directors between meetings of the Board.
^
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated ^ Government Money Trust; ^ Blanchard
Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
^ High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated
^ Master Trust; Federated Municipal Trust; Federated ^ Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S, Government Securities Fund: 3-5 Years; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; ^ Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. ^ -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
^ Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; ^ Newpoint Funds;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; ^ RIMCO Monument
Funds; The Shawmut Funds; ^ Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; ^ The Virtus
Funds; World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the Fund's outstanding shares.
^ Merrill Lynch Pierce Fenner & ^ Smith, Jacksonville, Florida,
as record owner holding Fund shares for its ^ clients,
owned approximately ^ 10,893,330 shares ^ (27.5%) of the
Fund as of October 3, 1995.
Directors Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION*# FROM FUND COMPLEX +
John F. Donahue $ -0- $-0- for the Corporation and
Chairman and Director 68 other investment companies in the Fund Complex
Thomas G. Bigley $1,453 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $1,583 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $1,583 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $1,583 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,453 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher$-0- $-0- for the Corporation and
President and Director 8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,583 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $1,231 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $1,453 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $1,083 $-0- for the Corporation and
Director 64 other investment companies in the Fund Complex
Wesley W. Posvar $1,453 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts$1,453 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended August 31, 1995.
#The aggregate compensation is provided for the Corporation which is comprised
of one portfolio.
+The information is provided for the last calendar year.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
Advisory Fees
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
August 31, 1995, 1994, and 1993, ^ the Fund's Adviser earned
$2,576,669, $2,908,854, and $2,017,241,
^ respectively.
State Expense Limitation
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators".) For the
fiscal year ended August 31, 1995, Federated Administrative Services earned
$325,090. For the fiscal year ended August 31, 1994, the Administrators
collectively earned ^ $458,072. For the fiscal ^ year
ended August 31, ^ 1993, Federated Administrative Services, Inc.,
earned ^ $395,122. Dr. Henry J. Gailliot, an officer of Federated
Advisers, the Adviser to the Fund, holds approximately 20%, of the outstanding
common stock and serves as director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Administrative
Services.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee is based on the size, type and number of accounts
and transactions made by shareholders.
Federated Services Company also maintains the Corporation'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.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Directors.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
For the fiscal years ended August 31, 1995, 1994, and 1993,
^ the Fund paid no brokerage commissions on brokerage transactions.
Purchasing Shares
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales ^ charge on days the New York
Stock Exchange is open for business. The procedure for purchasing shares of the
Fund is explained in the prospectus under "Investing in the Fund."
Distribution Plan and Shareholder Services ^ Agreement
These arrangements permit the payment of fees to ^ financial
institutions, the distributor, and Federated Shareholder Services, to
stimulate distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, the Board of Directors expects that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's objectives,
and properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ending August 31, ^ 1995, no payments
^ were made pursuant to the Distribution Plan. In addition, for this
period, ^ the Fund paid shareholder services fees in the amount of
^ $1,073,612, of which $16,649 was waived.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
Purchases by Sales Representatives, Fund Directors, and Employees
Directors, employees, and sales representatives of the Fund, Federated Advisers,
and Federated Securities Corp. or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp., and their spouses and
children under 21, may buy shares at net asset value without a sales
^ charge. Shares may also be sold without a sales
^ charge to trusts or pension or profit-sharing plans for these
persons.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
Valuing Municipal Bonds
The Directors use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issuer, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities and does not rely exclusively on quoted
prices.
Use of Amortized Cost
The Directors have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase shall be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Directors.
Exchange Privilege
The Securities and Exchange Commission has issued an order exempting the Fund
from certain provisions of the Investment Company Act of 1940. As a result, Fund
shareholders are allowed to exchange all or some of their shares for shares in
other Fortress Funds or certain Federated Funds which are sold with a sales
^ charge different from that of the Fund's or with no sales
^ charge and which are advised by subsidiaries or affiliates of
Federated Investors. These exchanges are made at net asset value plus the
difference between the Fund's sales ^ charge already paid and any
sales ^ charge of the fund into which the shares are to be
exchanged, if higher.
The order also allows certain other funds, including funds that are not advised
by subsidiaries or affiliates of Federated Investors which do not have a sales
^ charge, to exchange their shares for Fund shares on a basis other
than their current offering price. These exchanges may be made to the extent
that such shares were acquired in a prior exchange, at net asset value, for
shares of a Federated Fund carrying a sales ^ charge.
Reduced Sales ^ Charge
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales ^ charge, the shareholder must notify
Federated Securities Corp. or State Street Bank in writing.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made. This privilege is
available to shareholders residing in any state in which the fund shares being
acquired may be sold. Upon receipt of proper instructions and required
supporting documents, shares submitted for exchange are redeemed and the
proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for Fortress
Funds or certain Federated Funds are available by calling the Fund.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short or long-term capital gain or
loss may be realized.
Making an Exchange
Instructions for exchanges for Fortress Funds or certain Federated Funds must be
given in writing by the shareholder. Written instructions may require a
signature guarantee.
Redeeming Shares
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although ^ the transfer agent
does not charge for telephone redemptions, ^ the transfer agent's
bank reserves the right to charge a fee for the cost of wire-transferred
redemptions of less than $5,000.
Certain shares redeemed within one to four years of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the administrator for services rendered, and the
length of time the investor remains a shareholder in the Fund. Should
administrators elect to receive an advance payment that is less than that stated
in the prospectus for servicing a particular shareholder, the contingent
deferred sales charge and/or holding period for that particular shareholder will
be reduced accordingly.
Redemption In Kind
The Fund is obligated to redeem shares solely in cash up to $250,000, or
^ 1% of the Fund's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
Shareholders' Tax Status
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
Capital Gains
Capital gains or losses may be realized on the sale of portfolio securities
and as a result of discounts from par value on securities held to maturity.
Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested and regardless of the length of time the
shareholder has owned the shares. Any loss by a shareholder on Fund shares
held for less than six months and sold after a capital gains distribution
will be treated as a long-term capital loss to the extent of the capital
gains distribution.
Total Return
The Fund's average annual total returns for the one-year and five-year periods
ended August 31, ^ 1995 and the period from April 10, 1987
(effective date of the Fund's registration statement) to August 31,
^ 1995 were 5.53%, 7.55% and 7.58%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales
^ charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions. Any
applicable redemption fee is deducted from the ending value of the investment
based on the lesser of the original purchase price or the net asset value of
shares redeemed.
Yield
The Fund's yield for the thirty-day period ended August 31, ^ 1995 was
5.76%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is annualized using semi-annual
compounding. This means that the amount of income generated during the thirty-
day period is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in the Fund, performance
will be reduced for those shareholders paying those fees.
Tax-Equivalent Yield
The Fund's tax-equivalent yield for the thirty-day period ended August 31,
^ 1995 was 8.00%.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 28% tax rate (the maximum effective federal
rate for individuals) and assuming that income is 100% tax-exempt.
Tax-Equivalency Table
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-exempt"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR ^ 1995
^
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
^ 15.00% 28.00% 31.00% 36.00% 39.60%
^
JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
Tax-Exempt
Yield
Taxable Yield Equivalent
^
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions. ^
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time. From time to time, the Fund will quote its Lipper ranking in the
high yield municipal bond funds category in advertising and sales
literature.
o Lehman Brothers Revenue Bond Index is a total return performance benchmark
for the long-term, investment grade, revenue bond market. Returns and
attributes for the index are calculated semi-monthly.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales ^ charge.
^
About Federated Investors
Federated is dedicated to meeting investor needs which is reflected in its
investment decision making-structured, straightforward, and consistent. This
has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands
of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the municipal sector, as of December 31, 1994, Federated managed 18 bond
funds with approximately $1.9 billion in assets and 18 money market funds
with approximately $6.6 billion in total assets. In 1976, Federated
introduced one of the first municipal bond mutual funds in the industry and
is now one of the largest institutional buyers of municipal securities.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
Mutual Fund Market
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
*source: Investment Company Institute
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
Institutional
Federated meets the needs of more than 4,000 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs,
cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
Trust Organizations
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated mutual funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported by
more wholesalers than any other mutual fund distributor. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Division.
Financial Statements
The financial statements for the Fund for the fiscal year ended
August 31, 1995, are incorporated herein by reference to the Annual
Report to Shareholders of the Fund dated August 31, 1995.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference to the Annual Report
to Shareholders of Fortress Municipal Income Fund, Inc. dated August 31,
1995 pursuant to Rule 411 under the Securities Act of 1933.) (File No.
811-4533)
(b) Exhibits:
(1) (i)Conformed copy of Articles of Incorporation of the
Registrant (1);
(ii)Conformed copy of Amendment to Articles of Incorporation
(6);
(2) Copy of By-Laws of the Registrant (6);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital Stock of the
Registrant (1);
(5) Conformed copy of the Investment Advisory Contract of the
Registrant (4);
(6) (i) Conformed copy of Administrative Support and
Distributor's Contract of the Registrant (5);
(ii) The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement; Mutual
Funds Service Agreement and Plan Trustee/Mutual Funds Service
Agreement from Item 24(b)6 of the Cash Trust Series II
Registration Statement on Form N-1A, filed with the Commission
Cusip 349557108
8092709B (10/95)
on July 24, 1995. (File Nos. 33-38550 and 811-6269)
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the Registrant;+
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 filed August 25, 1989. (File Nos. 33-11410 and 811-4533)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 filed October 25, 1989. (File Nos. 33-11410 and 811-4533)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 filed October 24, 1990. (File Nos. 33-11410 and 811-4533)
(9) (i) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement;+
(ii) Conformed copy of Administrative Services Agreement;(7)
(iii) Conformed copy of Shareholder Services
Agreement;(7)
(iv) The responses described in Item 24(b)6 are hereby
incorporated by reference.
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; +
(11) Conformed copy of Consent of Independent Public Accountants;
+
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding ; +
(14) Not applicable;
(15) (i)Conformed copy of Distribution Plan as amended (5);
(ii) The responses described in Item 24(b)6
are hereby incorporated by reference.
(16) Copy of Schedule for Computation of Yield Calculation; +
(17) Copy of Financial Data Schedule;+
(18) Conformed copy of Power of Attorney;+
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 3,1995
Shares of capital stock 12,814
($0.001 per Share par value)
Item 27. Indemnification: (1)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 filed April 9, 1987 (File Nos. 33-11410 and 811-4533)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 filed October 25, 1988. (File Nos. 33-11410 and 811-4533)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 filed October 25, 1989. (File Nos. 33-11410 and 811-4533)
7. Repsonse incorporated by reference to Registrant's Post-Effective
Amendment No. 10 filed October 26, 1994. (File Nos. 33-11410 and 811-4533)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Fund Information - Management of the Fund" in Part A. The
affiliations with the Registrant of four of the Directors and four of the
Officers of the investment adviser and their business addresses are included in
Part B of this Registration Statement under "Fortress Municipal Income Fund,
Inc. Management". The remaining Director of the investment adviser, his
position with the investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W.
Market Street, Georgetown, Delaware 19947.
9/22 The remaining Officers of the investment adviser are: William D. Dawson,
III, Henry A. Frantzen, J. Thomas Madden and Mark L. Mallon, Executive
Vice Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, Drew J. Collins, Jonathan C. Conley and J. Alan
Minteer, Senior Vice Presidents; J. Scott Albrecht, Joseph J. Balestrino,
Randall S. Bauer, David A. Briggs, Kenneth J. Cody, Deborah A. Cunningham,
Michael P. Donnelly, Mark E. Durbiano, Kathleen M. Foody-Malus, Thomas M.
Franks, Edward C. Gonzales, Stephen A. Keen, Mark S. Kopinski, Jeff A.
Kozemchak, Marian R. Marinack, Susan M. Nason, Mary Jo Ochson, Robert J.
Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter, James D. Roberge,
Frank Semack, Sandra L. Weber and Christopher H. Wiles, Vice Presidents;
Thomas R. Donahue, Treasurer; and Stephen A. Keen, Secretary. The
business address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, PA 15222-3779. These individuals
are also officers of a majority of the investment advisers to the Funds
listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end
investment companies: Alexander Hamilton Funds; American Leaders
Fund, Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; Blanchard Funds; Blanchard Precious Metals, Inc.;
Cash Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
3-5 Years;First Priority Funds; First Union Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
SouthTrust Vulcan Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Tower Mutual
Funds; Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus Funds;
Vision Fiduciary Funds, Inc.; Vision Group of Funds, Inc.; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.-
1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant...............Federated Investors Tower
.........................Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent
Federated Administrative.Federated Investors Tower
Services ...........Pittsburgh, PA 15222-3779
Administrator
Federated Advisers.......Federated Investors Tower
Adviser..................Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8600
Company.............Boston, MA 02266-8600
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings: Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with respect to the
removal of Directors and the calling of special shareholder
meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FORTRESS MUNICIPAL INCOME FUND,
INC., has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of October, 1995
FORTRESS MUNICIPAL INCOME FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
October 25, 1995
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By:/s/Charles H. Field
Charles H. Field Attorney In Fact October 25, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
Fortress Municipal Income Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 12 to Registration
Statement (No. 33-11410) of Fortress Municipal Income Fund, Inc. of our report
dated October 13, 1995, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
By:/s/DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
EXHIBT 8 UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K
CUSTODIAN CONTRACT
BETWEEN
FEDERATED INVESTMENT COMPANIES
AND
STATE STREET BANK AND TRUST COMPANY
AND
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It......1
2. Duties of the Custodian With Respect to Property of
the Funds Held by the Custodian............................2
2.1 Holding Securities....................................2
2.2 Delivery of Securities................................2
2.3 Registration of Securities............................5
2.4 Bank Accounts.........................................6
2.5 Payments for Shares...................................7
2.6 Availability of Federal Funds.........................7
2.7 Collection of Income..................................7
2.8 Payment of Fund Moneys................................8
2.9 Liability for Payment in Advance of Receipt
of Securities Purchased....................................9
2.10 Payments for Repurchases or Redemptions of
Shares of a Fund...........................................9
2.11 Appointment of Agents................................10
2.12 Deposit of Fund Assets in Securities System..........10
2.13 Segregated Account...................................12
2.14 Joint Repurchase Agreements..........................13
2.15 Ownership Certificates for Tax Purposes..............13
2.16 Proxies..............................................13
2.17 Communications Relating to Fund Portfolio
Securities................................................13
2.18 Proper Instructions..................................14
2.19 Actions Permitted Without Express Authority..........14
2.20 Evidence of Authority................................15
2.21 Notice to Trust by Custodian Regarding
Cash Movement.............................................15
3. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income............................................15
4. Records ..................................................16
5. Opinion of Funds' Independent Public
Accountants/Auditors......................................16
6. Reports to Trust by Independent Public
Accountants/Auditors......................................17
7. Compensation of Custodian.................................17
8. Responsibility of Custodian...............................17
9. Effective Period, Termination and Amendment...............19
10. Successor Custodian.......................................20
11. Interpretive and Additional Provisions....................21
12. Massachusetts Law to Apply................................22
13. Notices ..................................................22
14. Counterparts..............................................22
15. Limitations of Liability..................................22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and FEDERATED SERVICES COMPANY, a Delaware business trust
company, having its principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of the Funds of the Trust. Except as otherwise expressly provided
herein, the securities and other assets of each of the Funds shall be
segregated from the assets of each of the other Funds and from all other
persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income,
payments of principal or capital distributions received by them with
respect to all securities owned by the Funds from time to time, and the
cash consideration received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of the
Funds held or received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or liability
to the Trust or any of the Funds on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian
2.1Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic physical
inspections of certificates representing stocks, bonds and other
securities held by it under this Contract in such manner as the
Custodian shall determine from time to time to be advisable in order
to verify the accuracy of such inventory. With respect to securities
held by any agent appointed pursuant to Section 2.11 hereof, and with
respect to securities held by any sub-custodian appointed pursuant to
Section 1 hereof, the Custodian may rely upon certificates from such
agent as to the holdings of such agent and from such sub-custodian as
to the holdings of such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to the Trust
the results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in accordance
with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom"; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any higher
standard of care imposed upon the Custodian by any applicable law
or regulation if such above-stated standard of reasonable care
were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(10) For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by the
Trust, (b) certificated securities of a description specified by
the Trust, registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer, or (c) securities of a description
specified by the Trust, transferred through a Securities System
in accordance with Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against receipt
of amounts borrowed, except that in cases where additional
collateral is required to secure a borrowing already made,
further securities may be released for the purpose;
(12) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(13) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transaction for a Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of a
Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned exclusively
to the Fund, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies affiliated with the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.11 or in
the name or nominee name of any sub-custodian appointed pursuant to
Section 1. All securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
each Fund, other than cash maintained in a joint repurchase account
with other affiliated funds pursuant to Section 2.14 of this Contract
or by a particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940,
as amended, (the "1940 Act"). Funds held by the Custodian for a Fund
may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the Fund
and shall be withdrawable by the Custodian only in that capacity. If
requested by the Trust, the Custodian shall furnish the Trust, not
later than twenty (20) days after the last business day of each
month, an internal reconciliation of the closing balance as of that
day in all accounts described in this section to the balance shown on
the daily cash report for that day rendered to the Trust.
2.5Payments for Shares. The Custodian shall make such arrangements with
the Transfer Agent of each Fund, as will enable the Custodian to
receive the cash consideration due to each Fund and will deposit into
each Fund's account such payments as are received from the Transfer
Agent. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks, clearing
house funds, and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. The collection of income due the Funds on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Trust. The Custodian will have no duty
or responsibility in connection therewith, other than to provide
the Trust with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to the
Custodian of the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income due
on securities is not collected in due course and will provide the
Trust with monthly reports of the status of past due income
unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against
the delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form
for transfer, (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in
Section 2.12 hereof or (c) in the case of repurchase agreements
entered into between the Trust and any other party, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Executive Committee of the Trust on behalf of a Fund
signed by an officer of the Trust and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for
the account of a Fund is made by the Custodian in advance of receipt
of the securities purchased, in the absence of specific written
instructions from the Trust to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the Funds,
the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the 1940 Act and any
applicable state law or regulation, to act as a custodian, as its
agent to carry out such of the provisions of this Section 2 as the
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission ("SEC")
under Section 17A of the Exchange Act, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall identify
by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account
of each Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of a
Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of
securities for the account of a Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the
Trust at its request. Upon request, the Custodian shall furnish
the Trust confirmation of each transfer to or from the account of
a Fund in the form of a written advice or notice and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
a Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Trust, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that a Fund has not been made whole for any such loss or
damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence in
making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.12 hereof, (i)
in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for
purpose of segregating cash or government securities in connection
with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund,
(iii) for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the SEC relating to
the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board or of the
Executive Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to
be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any assets
of a Fund and any affiliated funds which are subject to joint
repurchase transactions in an account established solely for such
transactions for the Fund and its affiliated funds. For purposes of
this Section 2.14, "affiliated funds" shall include all investment
companies and their portfolios for which subsidiaries or affiliates
of Federated Investors serve as investment advisers, distributors or
administrators in accordance with applicable exemptive orders from
the SEC. The requirements of segregation set forth in Section 2.1
shall be deemed to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it and
in connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and
the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held
for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian in writing
at least three business days prior to the date on which the Custodian
is to take such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the event that
notification is received three business days or less prior to the
date on which action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type of
transaction involved. Oral instructions will be deemed to be Proper
Instructions if (a) the Custodian reasonably believes them to have
been given by a person previously authorized in Proper Instructions
to give such instructions with respect to the transaction involved,
and (b) the Trust promptly causes such oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary
or an Assistant Secretary as to the authorization by the Board of the
Trust accompanied by a detailed description of procedures approved by
the Board, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided
that the Board and the Custodian are satisfied that such procedures
afford adequate safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Trust in such form that it may be allocated to the
affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of each Fund
except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to
have been properly executed on behalf of a Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of the
Trust as conclusive evidence (a) of the authority of any person to
act in accordance with such vote or (b) of any determination of or
any action by the Board pursuant to the Declaration of Trust/Articles
of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian
of written notice to the contrary.
2.21 Notice to Trust by Custodian Regarding Cash Movement. The Custodian
will provide timely notification to the Trust of any receipt of cash,
income or payments to the Trust and the release of cash or payment by
the Trust.
3. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in writing
to do so by the Trust, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of a Fund as described in the
Fund's currently effective prospectus and Statement of Additional
Information ("Prospectus") and shall advise the Trust and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Trust to do so, shall advise the Transfer
Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the
daily income of a Fund shall be made at the time or times described from
time to time in the Fund's currently effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of
termination of this Contract, the Custodian will deliver all such records
to the Trust, to a successor Custodian, or to such other person as the
Trust may direct. The Custodian shall supply daily to the Trust a
tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from
each Fund's independent public accountants/auditors with respect to its
activities hereunder in connection with the preparation of the Fund's
registration statement, periodic reports, or any other reports to the SEC
and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust, to provide reasonable assurance that
any material inadequacies would be disclosed by such examination and, if
there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the
assets of the Fund involved in the issue at hand and be without liability
for any action taken or thing done by it in carrying out the terms and
provisions of this Contract in accordance with the above standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may
be asked to indemnify or save the Custodian harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian
will use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have
the option to defend the Custodian against any claim which may be the
subject of this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust shall take
over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the Trust's prior
written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money
or incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from it
or its nominee's own failure to act in accordance with the standard of
reasonable care or any higher standard of care which would be imposed
upon the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract. To
secure any authorized charges and any advances of cash or securities made
by the Custodian to or for the benefit of a Fund for any purpose which
results in the Fund incurring an overdraft at the end of any business day
or for extraordinary or emergency purposes during any business day, the
Trust hereby grants to the Custodian a security interest in and pledges
to the Custodian securities held for the Fund by the Custodian, in an
amount not to exceed 10 percent of the Fund's gross assets, the specific
securities to be designated in writing from time to time by the Trust or
the Fund's investment adviser. Should the Trust fail to make such
designation, or should it instruct the Custodian to make advances
exceeding the percentage amount set forth above and should the Custodian
do so, the Trust hereby agrees that the Custodian shall have a security
interest in all securities or other property purchased for a Fund with
the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of
the Trust instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes of
the requirements of the Uniform Commercial Code. Should the Trust fail
to cause a Fund to repay promptly any authorized charges or advances of
cash or securities, subject to the provision of the second paragraph of
this Section 8 regarding indemnification, the Custodian shall be entitled
to use available cash and to dispose of pledged securities and property
as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery or
mailing; provided, however that the Custodian shall not act under Section
2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of the Trust has
approved the initial use of a particular Securities System as required in
each case by Rule 17f-4 under the 1940 Act; provided further, however,
that the Trust shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust/Articles of Incorporation, and
further provided, that the Trust may at any time by action of its Board
(i) substitute another bank or trust company for the Custodian by giving
notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the appropriate banking regulatory agency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form
for transfer, all securities then held by it hereunder for each Fund and
shall transfer to separate accounts of the successor custodian all of
each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, (delete
"doing business ... Massachusetts" unless SSBT is the Custodian) doing
business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds
and other properties held by the Custodian and all instruments held by
the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of such
successor custodian all of each Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred
to or of the Board to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to
be an amendment of this Contract.
12.Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Trust or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust of those Trusts
which are business trusts and agrees that the obligations and liabilities
assumed by the Trust and any Fund pursuant to this Contract, including,
without limitation, any obligation or liability to indemnify the
Custodian pursuant to Section 8 hereof, shall be limited in any case to
the relevant Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the relevant
Fund, from any other Fund or its shareholders or from the Trustees,
Officers, employees or agents of the Trust, or any of them. In addition,
in connection with the discharge and satisfaction of any claim made by
the Custodian against the Trust, for whatever reasons, involving more
than one Fund, the Trust shall have the exclusive right to determine the
appropriate allocations of liability for any such claim between or among
the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle By /s/John G. Donahue
--------- ----------
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie By /s/ F. J. Sidoti, Jr.
-------------- -------------
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By /s/ James J. Dolan
------ ------------
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
FOR
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Trust"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of
the Trust, and FEDERATED SERVICES COMPANY, a Delaware business trust, having
its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company is willing to furnish such services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer agent,
dividend disbursing agent if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved list
of qualified banks if so indicated on Exhibit 1, and the Company desires to
accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or another
agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for those
investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Trust's Board of Trustees or
Directors ("Board"), the Company will assist the Trust with regard to fund
accounting for the Trust, and/or the Funds, and/or the Classes, and in
connection therewith undertakes to perform the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily,
if a designated pricing service does not provide a price for a security
which the Company believes should be available by market quotation, the
Company may obtain a price by calling brokers designated by the
investment adviser of the fund holding the security, or if the adviser
does not supply the names of such brokers, the Company will attempt on
its own to find brokers to price those securities; thirdly, for
securities for which no market price is available, the Pricing Committee
of the Board will determine a fair value in good faith. Consistent with
Rule 2a-4 of the 40 Act, estimates may be used where necessary or
appropriate. The Company's obligations with regard to the prices
received from outside pricing services and designated brokers or other
outside sources, is to exercise reasonable care in the supervision of
the pricing agent. The Company is not the guarantor of the securities
prices received from such agents and the Company is not liable to the
Fund for potential errors in valuing a Fund's assets or calculating the
net asset value per share of such Fund or Class when the calculations
are based upon such prices. All of the above sources of prices used as
described are deemed by the Company to be authorized sources of security
prices. The Company provides daily to the adviser the securities prices
used in calculating the net asset value of the fund, for its use in
preparing exception reports for those prices on which the adviser has
comment. Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board and
as set forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as required
under Section 31(a) of the 1940 Act and the Rules thereunder in
connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Trust are the property of the
Trust and further agrees to surrender promptly to the Trust such records
upon the Trust's request;
G. At the request of the Trust, prepare various reports or other financial
documents required by federal, state and other applicable laws and
regulations; and
H. Such other similar services as may be reasonably requested by the Trust.
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for its services rendered pursuant
to Section One of this Agreement in accordance with the fees agreed upon
from time to time between the parties hereto. Such fees do not include
out-of-pocket disbursements of the Company for which the Funds shall
reimburse the Company upon receipt of a separate invoice. Out-of-pocket
disbursements shall include, but shall not be limited to, the items
agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to
federal, state and other governmental agencies; fees of Trustees or
Directors of the Trust; independent auditors expenses; Federated
Administrative Services and/or Federated Administrative Services, Inc.
legal and audit department expenses billed to Federated Services Company
for work performed related to the Trust, the Funds, or the Classes; law
firm expenses; or other expenses not specified in this Article 3 which
may be properly payable by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
services under this Section One. Such person or persons may be third-
party service providers, or they may be officers and employees who are
employed by both the Company and the Funds. The compensation of such
person or persons shall be paid by the Company and no obligation shall
be incurred on behalf of the Trust, the Funds, or the Classes in such
respect.
SECTION TWO: SHAREHOLDER RECORDKEEPING.
ARTICLE 4. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent and dividend disbursing agent for each Fund's Shares, and agent
in connection with any accumulation, open-account or similar plans provided to
the shareholders of any Fund ("Shareholder(s)"), including without limitation
any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the Trust,
or the Fund, and the Company promptly cause such oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Trust, or the Fund, and the Company are satisfied that such procedures afford
adequate safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
ARTICLE 5. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the "Custodian").
The Company shall notify the Fund and the Custodian on a daily
basis of the total amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent, shall
countersign and mail by first class mail, a certificate to the
Shareholder at its address as set forth on the transfer books of
the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by the
number of Shares that had been credited to its account upon receipt
of the check or other order, promptly mail a debit advice to the
Shareholder, and notify the Fund and/or Class of its action. In the
event that the amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any dividends paid
with respect to such Shares, the Fund and/the Class or its
distributor will reimburse the Company on the amount of such
excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions of
its governing document and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit income, capital gain,
or any other payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of any such
distribution, notify the Custodian of the estimated amount required
to pay any portion of said distribution which is payable in cash
and request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution or dividend,
appropriate credits shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from the
Custodian with respect to any redemption, the Company shall pay or
cause to be paid the redemption proceeds in the manner instructed
by the redeeming Shareholders, pursuant to procedures described in
the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance
of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund to
the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution agreements,
allocations of sales loads, redemption fees, or other
transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed and
mailed and shall withhold such sums as are required to be withheld
under applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in each
state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky reporting
for each state and (ii) verify the classification of
transactions for each state on the system prior to activation
and thereafter monitor the daily activity for each state. The
responsibility of the Company for each Fund's and/or Class's
state blue sky registration status is limited solely to the
recording of the initial classification of transactions or
accounts with regard to blue sky compliance and the reporting
of such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder Meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
ARTICLE 6. DUTIES OF THE TRUST.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes' Prospectus
and for complying with all applicable requirements of the Securities Act
of 1933, as amended (the "1933 Act"), the 1940 Act and any laws, rules
and regulations of government authorities having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of blank
Share certificates and from time to time shall renew such supply upon
request of the Company. Such blank Share certificates shall be properly
signed, manually or by facsimile, if authorized by the Trust and shall
bear the seal of the Trust or facsimile thereof; and notwithstanding the
death, resignation or removal of any officer of the Trust authorized to
sign certificates, the Company may continue to countersign certificates
which bear the manual or facsimile signature of such officer until
otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 7. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an annual
maintenance fee for each Shareholder account as agreed upon between the
parties and as may be added to or amended from time to time. Such fees
may be changed from time to time subject to written agreement between
the Trust and the Company. Pursuant to information in the Fund
Prospectus or other information or instructions from the Fund, the
Company may sub-divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the same fees
for each such Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
ARTICLE 8. ASSIGNMENT OF SHAREHOLDER RECORDKEEPING.
Except as provided below, no right or obligation under this Section Two may
be assigned by either party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) State Street Bank and
its subsidiary, Boston Financial Data Services, Inc., a Massachusetts
Trust ("BFDS"), which is duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended, or
any succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS subsidiary
duly registered as a transfer agent pursuant to Section 17A(c)(1), or
(C) a BFDS affiliate, or (D) such other provider of services duly
registered as a transfer agent under Section 17A(c)(1) as Company shall
select; provided, however, that the Company shall be as fully
responsible to the Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions; or
C. The Company shall upon instruction from the Trust subcontract for the
performance hereof with an Agent selected by the Trust, other than BFDS
or a provider of services selected by Company, as described in (2)
above; provided, however, that the Company shall in no way be
responsible to the Trust for the acts and omissions of the Agent.
SECTION THREE: CUSTODY SERVICES PROCUREMENT.
ARTICLE 9. APPOINTMENT.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
ARTICLE 10. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set forth as
the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the benefit
of the Trust, with the Trust as a party to each such agreement. The
Company shall not be a party to any agreement with any such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services provided by
the Custodians; and
F. periodically provide to the Trust (i) written reports on the activities
and services of the Custodians; (ii) the nature and amount of
disbursement made on account of the Trust with respect to each custodial
agreement; and (iii) such other information as the Board shall
reasonably request to enable it to fulfill its duties and obligations
under Sections 17(f) and 36(b) of the 1940 Act and other duties and
obligations thereof.
ARTICLE 11. FEES AND EXPENSES.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, the Trust and/or the Fund agree to pay the Company an annual
fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
ARTICLE 12. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 13. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Trust shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Trust and all amendments
thereto;
(2) A copy of the resolution of the Board of the Trust authorizing this
Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Trust or the Funds in the forms approved by the Board of the Trust
with a certificate of the Secretary of the Trust as to such
approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Trust authorizing the original
issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of any
Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 14. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize it
to enter into and perform its obligations under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and in
good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under the
1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 15. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the
Trust) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice, provided that such
action is not in violation of applicable federal or state laws or
regulations, and is in good faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund shall
indemnify and hold the Company, including its officers, directors,
shareholders and their agents employees and affiliates, harmless against
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Trust or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form
which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by the Trust of Fund for use in the performance
of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the Trust.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 15.A. from liability for any act or omission resulting from
the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties of failure to meet the standard of
care set forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the Trust or Fund
for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the Trust
or the appropriate Fund for any action reasonably taken or omitted by it
in reliance upon such instructions or upon the opinion of such counsel
provided such action is not in violation of applicable federal or state
laws or regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Trust or the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
ARTICLE 16. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the Trust exercise its rights
to terminate, all out-of-pocket expenses associated with the movement of
records and materials will be borne by the Trust or the appropriate Fund.
Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of
Article 15 shall survive the termination of this Agreement.
ARTICLE 17. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 18. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall
be annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the Charter. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
ARTICLE 19. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 20. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Trust or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
ARTICLE 21. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
ARTICLE 22. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
ARTICLE 23. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the Trustees
or Shareholders of the Company, but bind only the property of the Company as
provided in the Declaration of Trust.
ARTICLE 24. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to the Trust or the Funds by either of the parties hereto except
by the specific written consent of the other party.
ARTICLE 25. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 26. SUCCESSOR AGENT.
If a successor agent for the Trust shall be appointed by the Trust, the
Company shall upon termination of this Agreement deliver to such successor
agent at the office of the Company all properties of the Trust held by it
hereunder. If no such successor agent shall be appointed, the Company shall at
its office upon receipt of Proper Instructions deliver such properties in
accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 27. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 28. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 28 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 29. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)
/s/ John W. McGonigle By: /s/ John F. Donahue
------- -- ---
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By: /s/ James J. Dolan
- -----
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.
----------
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
ROBERT CHARLES STODDART
April 8, 1987
Fortress High Yield Tax-Free Fund, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Fortress High Yield Tax-Free Fund, Inc. ("Corporation") proposes to offer and
sell shares of its capital stock in the manner and on the terms set forth in its
registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933 (File No. 33-11410).
As counsel we have participated in the organization of the Corporation and
the preparation of its amended registration statement under the Securities
Act of 1933 and the Investment Company Act of 1940.
Further, we have examined and are familiar with the Charter of the
Corporation, its Bylaws and other corporate records and documents deemed
relevant.
On the basis of the foregoing, it is our opinion that:
1. The Corporation has been duly organized and it is legally
existing under the laws of the State of Maryland.
2. The Corporation is authorized to issue 2,000,000,000 shares of
capital stock of a par value of $0.001 per share.
3. The authorized and unissued capital stock of the Corporation when issued
in the manner described in the prospectus comprising a part of the Corporation's
registration statement under the Securities Act of 1933 for consideration
equal to or exceeding its par value and not less than its net asset value
as required by
Fortress High Yield Tax-Free Fund, Inc.
Page 2
April 8, 1987
the Charter of the Corporation will be legally issued and outstanding capital
stock of the Corporation and will be fully-paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Corporation's registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and as part of any application
or registration statement filed under the securities laws of the States of
the United States.
We further consent to the reference to this opinion and the
reference to us as Legal Counsel to the Corporation in the prospectus,
registration statements and applications.
Very truly yours,
HOUSTON, HOUSTON & DONNELLEY
/s/ Thomas J. Donnelley
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
THE STANDARD FIRE INSURANCE COMPANY
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
January 21, 1987
Fortress High Yield Tax-Free Fund, Inc.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Sirs:
The Standard Fire Insurance Company agrees to purchase 10,000 shares of
Fortress High Yield Tax-Free Fund, Inc. at the cost of $10.00 each. These
shares are purchased for investment purposes, and The Standard Fire Insurance
Company has no present intention of redeeming these shares.
Very truly yours,
/s/ John A. Staley, IV
John A. Staley, IV
Exhibit 16 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
MONTHLY DIVIDEND
MUNICIPAL FUND
FORTRESS HIGH YIELD TAX-FREE TRUST
Computation of Yield
AS OF 9/30/88
Interest Income for the 30 days Ended 9/30/88...$191,895.00
-----------
Net Expenses for the Period ...........$21,352.00
----------
Average Daily Shares Outstanding and Entitled to
Receive Dividends...................... 2,570,474,000
-------------
Maximum Offering Price per Share as of 9/30/88........$10.01
------
Undistributed Net Income ...............0.0543
------
YIELD = 2[($191,895.00 - $21,352.00) +1 )^6 - 1] = 8.13%*
--------------------------- ======
2,570,474.00* $9.96
Tax Equivalent Yield = 8.13% = 11.29% **
----------
1.00-0.28
DECLARED: MONTHLY Schedule for Computation FUND: FORTRESS HIGH YIELD
PAID: MONTHLY of Fund Performance Data TAX FREE FUND
Performance ONE YEAR
ending 8-31-88
Average Total Return FYE: AUGUST 31
ONE YEAR Ending 8-31-88
Initial Investment of: $1,000 on 8-31-87
Offering Price/Share = $10.17
NAV = $10.07
Begin Capital Reinvest Ending Total
Reinvest Period Dividend Gain Price Period Ending Invest
Dates Shares /Share /Share /Share Shares Price Value
8/31/87 98.328 0.000000000 0.00000 $10.07 98.328 $10.07 $990.17
9/30/87 98.328 0.069167895 0.00000 $9.73 99.027 $9.73 $963.54
10/31/87 99.027 0.067035600 0.00000 $9.57 99.721 $9.57 $954.33
11/30/87 99.721 0.064187200 0.00000 $9.46 100.398 $9.46 $949.76
12/31/87 100.398 0.064720208 0.00000 $9.55 101.078 $9.55 $965.30
1/31/88 101.078 0.064180150 0.00000 $9.81 101.739 $9.81 $998.06
2/29/88 101.739 0.064317811 0.00000 $9.75 102.411 $9.75 $998.50
3/31/88 102.411 0.063678437 0.00000 $9.67 103.085 $9.67 $996.83
4/30/88 103.085 0.064026350 0.00000 $9.69 103.766 $9.69 $1,005.49
5/31/88 103.766 0.064130054 0.00000 $9.66 104.455 $9.66 $1,009.03
6/30/88 104.455 0.063899608 0.00000 $9.71 105.142 $9.71 $1,020.93
7/05/88 105.142 0.010400030 0.00000 $9.71 105.255 $9.71 $1,022.03
8/05/88 105.255 0.064000000 0.00000 $9.75 105.946 $9.75 $1,032.97
8/31/88 105.946 0.000000000 0.00000 $9.76 105.924 $9.69 $1,026.40
$1,000 (1+T)1 = Ending Redeemable Value = 1,026.40
T = 2.64%
[(1+T)1/12]12 = Average Annual Total Return (A)
A = 2.64%
DECLARED: DAILY Schedule for Computation FUND: FORTRESS HIGH YIELD
PAID: MONTHLY of Fund Performance Data TAX FREE FUND
Performance SINCE INCEPTION
ending 8-31-88
Average Total Return FYE: AUGUST 31
ONE YEAR Ending 8-31-88
Initial Investment of: $1,000 on 4-10-87
Offering Price/Share = $10.10
NAV = $10.00
Begin Capital Reinvest Ending Total
Reinvest Period Dividend Gain Price Period Ending Invest
Dates Shares /Share /Share /Share Shares Price Value
4/10/87 99.010 0.000000000 0.00000 $10.00 99.010 $10.00 $990.10
4/30/87 99.010 0.043591000 0.00000 $10.00 99.441 $10.00 $994.41
5/31/87 99.441 0.047411209 0.00000 $10.00 99.913 $10.00 $999.13
6/30/87 99.913 0.047275758 0.00000 $10.07 100.382 $10.07 $1,010.85
7/31/87 100.328 0.068201188 0.00000 $10.11 101.059 $10.11 $1,021.71
8/31/87 101.059 0.068600326 0.00000 $10.07 101.748 $10.07 $1,024.60
9/30/87 101.748 0.069167895 0.00000 $9.73 102.471 $9.73 $997.04
10/31/87 102.471 0.067035600 0.00000 $9.57 103.189 $9.57 $987.52
11/30/87 103.189 0.064187200 0.00000 $9.46 103.889 $9.46 $982.79
12/31/87 103.889 0.064720208 0.00000 $9.55 104.593 $9.55 $998.86
1/31/88 104.593 0.064180150 0.00000 $9.81 105.277 $9.81 $1,032.77
2/29/88 105.277 0.064317811 0.00000 $9.75 105.972 $9.75 $1,033.22
3/31/88 105.972 0.063678437 0.00000 $9.67 106.670 $9.67 $1,031.49
4/30/88 106.670 0.064026350 0.00000 $9.69 107.374 $9.69 $1,040.46
5/31/88 107.374 0.064130054 0.00000 $9.66 108.087 $9.66 $1,044.12
6/30/88 108.087 0.063899608 0.00000 $9.71 108.798 $9.71 $1,056.43
7/05/88 108.798 0.010400000 0.00000 $9.71 108.915 $9.71 $1,057.56
8/05/88 108.915 0.064000000 0.00000 $9.75 109.630 $9.75 $1,068.89
8/31/88 109.630 0.000000000 0.00000 $9.76 109.598 $9.69 $1,062.00
$1,000 (1+T)1 = Ending Redeemable Value = 1,062.00
T = 6.20%
[(1+T)1/127]12 = Average Annual Total Return (A)
Exhibit 18 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FORTRESS
MUNICIPAL INCOME FUND, INC. and the Deputy General
Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and DirectorOctober 3, 1995
John F. Donahue (Chief Executive Officer)
/s/ Richard B. Fisher President and DirectorOctober 3, 1995
Richard B. Fisher
/s/ J. Christopher Donahue Executive Vice PresidentOctober 3, 1995
J. Christopher Donahue
/s/ David M. Taylor Treasurer October 3, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director October 3, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Director October 3, 1995
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/ William J. Copeland Director October 3, 1995
William J. Copeland
/s/ James E. Dowd Director October 3, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Director October 3, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director October 3, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director October 3, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director October 3, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Director October 3, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Director October 3, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director October 3, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 3rd day of October, 1995
/s/ Marie M. Hamm
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996
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<NUMBER> 01
<NAME> Fortress Municipal Income Fund, Inc.
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 408,318,588
<INVESTMENTS-AT-VALUE> 418,522,314
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<APPREC-INCREASE-CURRENT> 9,394,163
<NET-CHANGE-FROM-OPS> 30,165,073
<EQUALIZATION> (83,189)
<DISTRIBUTIONS-OF-INCOME> 25,975,624
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,617,186
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<GROSS-ADVISORY-FEES> 2,576,669
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<GROSS-EXPENSE> 4,654,069
<AVERAGE-NET-ASSETS> 431,246,112
<PER-SHARE-NAV-BEGIN> 10.560
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