-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lxxa9BbWBn62uUQM/tiO13UFbj3ORzc8jYszr8Ocitt3sfR0OYc7N4gVV8OTe/8a 17ZCC+A+XHYTfwcW7mhzzw== 0000807607-95-000002.txt : 19950224 0000807607-95-000002.hdr.sgml : 19950224 ACCESSION NUMBER: 0000807607-95-000002 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19950223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTRESS MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000807607 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-57355 FILM NUMBER: 95514379 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122881900 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWERS CITY: PITTSBURG STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD MUNICIPAL FUND INC DATE OF NAME CHANGE: 19900814 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD TAX FREE FUND INC DATE OF NAME CHANGE: 19881024 497 1 'DICKSTEIN, SHAPIRO & MORIN, L.L.P. 2101 L Street, N.W. Washington, D.C. 20037 (202) 785-9700 February 23, 1995 Via EDGAR EDGAR Operations Branch Division of Investment Management Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Bruce R. MacNeil Re: FORTRESS MUNICIPAL INCOME FUND, INC. Registration Statement on Form N-14 (File No. 33-57355) Ladies and Gentlemen: Enclosed for filing pursuant to Rule 497(b) of the General Rules and Regulations promulgated pursuant to the Securities Act of 1933, as amended, and Regulation S-T are the definitive Prospectus/Proxy Statements contained in the above-captioned Registration Statement, in the exact form in which such Prospectus/Proxy Statements have been used. The enclosed have been redlined to reflect changes made from the registration statement previously filed on Form N-14 on January 19, 1995. Very truly yours, /s/ Matthew G. Maloney Matthew G. Maloney Enclosures Reg. No. 33-57355 811-4533 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FORTRESS MUNICIPAL INCOME FUND, INC. (Exact Name of Registrant as Specified in Charter) (412) 288-1900 (Area Code and Telephone Number) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) JOHN W. MCGONIGLE, ESQUIRE Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) Copies to: Charles H. Field, Esquire Matthew G. Maloney, Esquire Corporate Counsel Dickstein, Shapiro & Morin, L.L.P. Federated Investors 2101 L Street, N.W. Pittsburgh, PA 15222 Washington, D.C. 20037 It is proposed that this filing will become effective on February 18, 1995, or as soon thereafter as is practicable, pursuant to Rule 488. (Approximate Date of Proposed Public Offering) Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 that it elects to register an indefinite amount of securities under the Securities Act of 1933 and filed the Notice required by that Rule for Registrant's most recent fiscal year on October 14, 1994. CROSS REFERENCE SHEET Pursuant to Item 1(a) of Form N-14 Showing Location in Prospectus of Information Required by Form N-14 This Registration Statement is comprised of six prospectus/proxy statements, and related statements of additional information relating to the acquisition by the Registrant of: (1) Florida Municipal Income Fund; (2) Maryland Municipal Income Fund; (3) New Jersey Municipal Income Fund; (4) Texas Municipal Income Fund; (5) Virginia Municipal Income Fund; each of which is a portfolio of Municipal Securities Income Trust; and (6) Multi-State Income Fund, a portfolio of Fixed Income Securities, Inc. The numbers below correspond to the prospectus/proxy statement numbers. Item of Part A of Form N-14 and Caption or Location in Caption Prospectus 1.Beginning of Registration Statement and Outside Front Cover Page of Prospectus (1-6) Cross Reference Sheet; Cover Page 2.Beginning and Outside Back Cover Page of Prospectus (1-6) Table of Contents 3.Synopsis Information and Risk Factors (1-6) Summary; Risk Factors 4.Information About the Transaction (1-6) Information About the Reorganization 5.Information About the Registrant (1-5) Information About the Trust, the Portfolio and the Fund; (6) Information About the Corporation; the Portfolio and the Fund 6.Information About the Company Being Acquired (1-5)Information About the Trust, the Portfolio and the Fund; (6) Information About the Corporation; the Portfolio and the Fund 7.Voting Information (1-6) Voting Information 8.Interest of Certain Persons and Experts Not Applicable 9.Additional Information Required for Reoffering by Persons Deemed to be Underwriters Not Applicable FLORIDA MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Trustees and management of Municipal Securities Income Trust (the "Trust") are pleased to submit for your vote a proposal to transfer all of the assets of Florida Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio in that it seeks current income which is exempt from the federal regular income tax. The Portfolio also seeks current income which is exempt from the Florida intangibles tax. Income earned by the Fund is not exempt from the Florida intangibles tax. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Trustees of the Trust, as well as Federated Advisers, the Trust's adviser, and Federated Securities Corp., the Trust's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - the Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President FLORIDA MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF FLORIDA MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of Florida Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of the Trust, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Trust, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of FLORIDA MUNICIPAL INCOME FUND, a portfolio of MUNICIPAL SECURITIES INCOME TRUST Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of Florida Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust, a Massachusetts business trust (the "Trust"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a non-diversified portfolio of securities of an open-end management investment company whose investment objective is to provide current income which is exempt from federal regular income tax and to maintain an investment portfolio which will cause its shares to be exempt from the Florida intangibles tax. The Portfolio pursues this objective by investing primarily in a portfolio of municipal securities which are exempt from federal regular income tax and the Florida intangibles tax. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary-Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 3 Distribution Arrangements 4 Purchase and Redemption Procedures 5 Tax Consequences 5 Risk Factors 6 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 8 Federal Income Tax Consequences 8 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 9 Information About The Fund, The Portfolio And The Trust 9 Fortress Municipal Income Fund, Inc. 9 Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust 9 Voting Information 10 Outstanding Shares and Voting Requirements 10 Dissenter's Right of Appraisal 11 Other Matters 11 Exhibit A 12 Exhibit B 21 Summary About the Proposed Reorganization The Board of Trustees of Municipal Securities Income Trust (the "Trust") has voted to recommend to shareholders of its portfolio, Florida Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation and dissolution of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Income earned by the Fund will be exempt from the federal regular income tax but will not be exempt from the Florida intangibles tax. As discussed below, income earned by the Portfolio is exempt from the federal regular income tax and the Florida intangibles tax. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference thereto. The investment objective of the Portfolio is to provide current income which is exempt from federal regular income tax and to maintain an investment portfolio which will cause its shares to be exempt from the Florida intangibles tax. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing primarily in securities which are exempt from federal regular income tax and the Florida intangibles tax. As a matter of investment policy which cannot be changed without the approval of shareholders, the Portfolio invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax. The Fund is a diversified investment company. In contrast, the Portfolio is a non-diversified portfolio of securities. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high-risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. An investment in the Fund may entail greater risks than an investment in the Portfolio as a result of the Fund's ability to invest in high-yield, high-risk municipal bonds. The risks may include a greater risk of default in the payment of principal and interest on such securities as a result of the issuer's weaker financial condition. The Adviser seeks to minimize these risks through various portfolio management techniques described in the Fund's prospectus dated October 31, 1994. There can be no assurance that the Adviser will be successful in minimizing these risks. The Portfolio invests primarily in Florida municipal securities, which are obligations issued by or on behalf of the State of Florida and Florida municipalities, as well as those issued by states, territories and possessions of the United States and participation interests in such instruments, the interest from which is exempt from federal regular income tax and the Florida intangibles tax in the opinion of the issuer's bond counsel, the Trust, its officers or the Adviser ("Florida Municipal Securities"). The Florida Municipal Securities, and any other securities, which the Portfolio buys are investment grade bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to bonds having such ratings. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated December 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated December 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. The Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee or reimburse the Portfolio for operating expenses but may likewise terminate such waiver or reimbursement at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 3.37% , respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's most recent fiscal year was 1.29% of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its most recent fiscal year and would have been 4.12% of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated December 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated December 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of October 17, 1994 the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated December 31, 1994 and the Statement of Additional Information dated December 31, 1994. Such risks include, but are not limited to, fluctuating yields on Florida Municipal Securities based on factors such as general market conditions, the size of the offering, the maturity of the obligations and the rating of the issue; the ability of issuers to meet their obligations for payment of interest and principal when due; legislative, executive or administrative changes or voter initiatives which could result in adverse consequences for Florida Municipal Securities; and any adverse economic conditions or developments affecting the State of Florida or its municipalities. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn income exempt from both the federal regular income tax and the Florida intangibles tax. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $263,489 for the Portfolio's fiscal year ended August 31, 1994. However, by August 31, 1994, the Portfolio's net assets had grown only to $11,634,652. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Trust's Board of Trustees that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $100,000, or approximately $0.077 per share. As a result, FSC and the Adviser recommended to the Board of Trustees of the Trust that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax-free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Trust's Board of Trustees a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax (although not exempt from the Florida intangibles tax). The Board of Trustees of the Trust evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Trustees concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Trust's Board of Trustees concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Trustees also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Trustees noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Trust's Board of Trustees, including a majority of the independent Trustees, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Trustees of the Trust unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Trust's Board of Trustees will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Trust, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Trust, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Trust is organized as a business trust pursuant to a Declaration of Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a brief summary of the significant rights of shareholders of the Portfolio. The Trust is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of trustees under certain circumstances. A special meeting of shareholders of the Trust for any permissible purpose shall be called by the Trustees upon the written request of the holders of at least 10% of the outstanding shares of the Trust or of the relevant portfolio. Each share of the Portfolio is entitled to one vote. All shares of the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Under certain circumstances, shareholders of the Portfolio may be held personally liable as partners under Massachusetts law for obligations of the Trust on behalf of the Portfolio. To protect its shareholders, the Trust has filed legal documents with the Commonwealth of Massachusetts that expressly disclaim the liability of Portfolio shareholders for such acts or obligations of the Trust. These documents require that notice of this disclaimer be given in each agreement, obligation or instrument that the Trust or its Trustees enter into or sign on behalf of the Portfolio. In the unlikely event a shareholder is held personally liable for the Trust's obligations on behalf of the Portfolio, the Trust is required to use the property of the Portfolio to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust on behalf of the Portfolio. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from the assets of the Portfolio. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $971,744 $412,643,812 Price Per Share 10.02 8.30 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Trust Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust Information about the Portfolio and the Trust is contained in the Portfolio's current Prospectus dated December 31, 1994 and its Statement of Additional Information dated December 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Portfolio can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Trustees of the Trust of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Trust an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Trust and the Adviser at no additional cost to the Trust. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Trustees of the Trust has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 88,159.23 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, TROBAR, as custodian for the benefit of Robert B. Strother, Jacksonville, Florida, owned approximately 9,718.17 shares, or 11.02% of the Portfolio's outstanding shares; and Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 66,842 shares, or 75.82%, of the Portfolio's outstanding shares, and, therefore, may, for certain purposes, be deemed to control the Portfolio and be able to affect the outcome of certain matters presented for a vote of shareholders. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the trustees and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the trustees and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (i) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. A majority of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Trust's Declaration of Trust or Massachusetts law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Trust knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A Agreement And Plan Of Reorganization AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter called the "Trust") on behalf of its portfolio FLORIDA MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Trust. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry out this Agreement. (b) The Trust is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Trust's Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statements of Assets and Liabilities of the Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since August 31, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Trustees and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Trust's Declaration of Trust. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Trustees of the Trust or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Trustees of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Trustees of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 The Acquiring Fund is hereby expressly put on notice of the limitation of liability as set forth in Article XI of the Declaration of Trust of the Acquired Fund and agrees that the obligations assumed by the Acquired Fund pursuant to this Agreement shall be limited in any case to the Acquired Fund and its assets and the Acquiring Fund shall not seek satisfaction of any such obligation from the shareholders of the Acquired Fund, the trustees, officers, employees or agents of the Acquired Fund or any of them. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: MUNICIPAL SECURITIES INCOME TRUST, on behalf of its portfolio, FLORIDA MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/J. Crilley Kelly Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of FLORIDA MUNICIPAL INCOME FUND (A Portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated December 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated August 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of Florida Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust"), dated December 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 17 to the Trust's Registration Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the Securities and Exchange Commission on or about December 30, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated August 31, 1994, are incorporated herein by reference to the Portfolio's Annual Report to Shareholders for the fiscal year ended August 31, 1994, which was filed with the Securities and Exchange Commission on or about November 1, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $971,744. MARYLAND MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Trustees and management of Municipal Securities Income Trust (the "Trust") are pleased to submit for your vote a proposal to transfer all of the assets of Maryland Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio in that it seeks current income which is exempt from the federal regular income tax. The Portfolio also seeks current income which is exempt from the personal income taxes imposed by the State of Maryland and Maryland municipalities. Income earned by the Fund will not be exempt from the personal income taxes imposed by the State of Maryland and Maryland municipalities. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Trustees of the Trust, as well as Federated Advisers, the Trust's adviser, and Federated Securities Corp., the Trust's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - the Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President MARYLAND MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF MARYLAND MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of Maryland Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of the Trust, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Trust, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of MARYLAND MUNICIPAL INCOME FUND, a portfolio of MUNICIPAL SECURITIES INCOME TRUST Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of Maryland Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust, a Massachusetts business trust (the "Trust"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a non-diversified portfolio of securities of an open-end management investment company whose investment objective is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities. The Portfolio pursues this objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the State of Maryland and Maryland municipalities. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary-Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 3 Distribution Arrangements 4 Purchase and Redemption Procedures 5 Tax Consequences 5 Risk Factors 6 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 8 Federal Income Tax Consequences 8 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 9 Information About The Fund, The Portfolio And The Trust 9 Fortress Municipal Income Fund, Inc. 9 Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust 9 Voting Information 10 Outstanding Shares and Voting Requirements 10 Dissenter's Right of Appraisal 11 Other Matters 11 Exhibit A 12 Exhibit B 21 Summary About the Proposed Reorganization The Board of Trustees of Municipal Securities Income Trust (the "Trust") has voted to recommend to shareholders of its portfolio, Maryland Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation and dissolution of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Income earned by the Fund will be exempt from the federal regular income tax but will not be exempt from the personal income taxes imposed by the State of Maryland and Maryland municipalities. As discussed below, income earned by the Portfolio is exempt from the federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference thereto. The investment objective of the Portfolio is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the State of Maryland and Maryland municipalities. As a matter of investment policy which cannot be changed without the approval of shareholders, the Portfolio invests its assets so that, under normal circumstances, at least 80% of its annual interest income is exempt from federal regular income tax, or that at least 80% of its net assets are invested in securities the interest from which is exempt from federal regular income tax. For the most recent fiscal year of the Portfolio, 100% of the Portfolio's annual interest income was exempt from the federal regular income tax. The Fund is a diversified investment company. In contrast, the Portfolio is a non-diversified portfolio of securities. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high-risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. An investment in the Fund may entail greater risks than an investment in the Portfolio as a result of the Fund's ability to invest in high-yield, high-risk municipal bonds. The risks may include a greater risk of default in the payment of principal and interest on such securities as a result of the issuer's weaker financial condition. The Adviser seeks to minimize these risks through various portfolio management techniques described in the Fund's prospectus dated October 31, 1994. There can be no assurance that the Adviser will be successful in minimizing these risks. Under normal circumstances, the Portfolio will invest at least 65% of its total assets in Maryland municipal securities, which are obligations issued by or on behalf of the State of Maryland, its political subdivisions, or agencies, debt obligations of any state, territory or possession of the United States, including the District of Columbia, or any political subdivision of any of these, and participation interests in such instruments, the interest from which is exempt from both federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities in the opinion of the issuer's bond counsel, the Trust, its officers or the Adviser ("Maryland Municipal Securities"). The Maryland Municipal Securities which the Portfolio buys are investment grade bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to bonds having such ratings. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated December 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated December 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. The Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee or reimburse the Portfolio for operating expenses but may likewise terminate such waiver or reimbursement at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 4.64%, respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's most recent fiscal year was 1.68% of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its most recent fiscal year and would have been 5.39% of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated December 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated December 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of December 1, 1994, the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by State Street Bank. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated December 31, 1994 and the Statement of Additional Information dated December 31, 1994. Such risks include, but are not limited to, fluctuating yields on Maryland Municipal Securities based on factors such as general market conditions in the municipal bond market, the size of the offering, the maturity of the obligations and the rating of the issue; the ability of issuers and participation interests, or the guarantors of either, to meet their obligations for payment of interest and principal when due; legislative, executive or administrative changes or voter initiatives which could result in adverse consequences for Maryland Municipal Securities; and any adverse economic conditions or developments affecting the State of Maryland or its municipalities. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn income exempt from both the federal regular income tax and the personal income tax imposed by the State of Maryland and Maryland municipalities. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $155,732 for the Portfolio's fiscal year ended August 31, 1994. However, by August 31, 1994, the Portfolio's net assets had grown only to $5,996,564. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Trust's Board of Trustees that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $150,000, or approximately $0.205 per share. As a result, FSC and the Adviser recommended to the Board of Trustees of the Trust that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax-free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Trust's Board of Trustees a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax (although not exempt from the personal income tax imposed by the State of Maryland and Maryland municipalities). The Board of Trustees of the Trust evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Trustees concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Trust's Board of Trustees concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Trustees also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Trustees noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Trust's Board of Trustees, including a majority of the independent Trustees, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Trustees of the Trust unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Trust's Board of Trustees will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Trust, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Trust, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Trust is organized as a business trust pursuant to a Declaration of Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a brief summary of the significant rights of shareholders of the Portfolio. The Trust is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of trustees under certain circumstances. A special meeting of shareholders of the Trust for any permissible purpose shall be called by the Trustees upon the written request of the holders of at least 10% of the outstanding shares of the Trust or of the relevant portfolio. Each share of the Portfolio is entitled to one vote. All shares of the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Under certain circumstances, shareholders of the Portfolio may be held personally liable as partners under Massachusetts law for obligations of the Trust on behalf of the Portfolio. To protect its shareholders, the Trust has filed legal documents with the Commonwealth of Massachusetts that expressly disclaim the liability of Portfolio shareholders for such acts or obligations of the Trust. These documents require that notice of this disclaimer be given in each agreement, obligation or instrument that the Trust or its Trustees enter into or sign on behalf of the Portfolio. In the unlikely event a shareholder is held personally liable for the Trust's obligations on behalf of the Portfolio, the Trust is required to use the property of the Portfolio to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust on behalf of the Portfolio. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from the assets of the Portfolio. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $912,252 $412,584,320 Price Per Share 10.02 7.80 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Trust Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust Information about the Portfolio and the Trust is contained in the Portfolio's current Prospectus dated December 31, 1994 and its Statement of Additional Information dated December 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Portfolio can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Trustees of the Trust of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Trust an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Trust and the Adviser at no additional cost to the Trust. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Trustees of the Trust has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 82,243.85 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 8,146 shares, or 9.90%, of the Portfolio's outstanding shares; Alex Brown & Sons, Incorporated (as record owner holding shares for its clients), Baltimore, Maryland, owned approximately 44,944.59 shares, or 54.65%, of the Portfolio's outstanding shares; and Ben Hamed, Silver Spring, Maryland, owned approximately 5,521.52 shares, or 6.71%, of the Portfolio's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the trustees and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the trustees and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (i) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. A majority of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Trust's Declaration of Trust or Massachusetts law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Trust knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter called the "Trust") on behalf of its portfolio MARYLAND MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Trust. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry out this Agreement. (b) The Trust is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Trust's Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statement of Assets and Liabilities of the Acquired Fund at August 31, 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since August 31, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Trustees and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Trust's Declaration of Trust. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Trustees of the Trust or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Trustees of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Trustees of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 The Acquiring Fund is hereby expressly put on notice of the limitation of liability as set forth in Article XI of the Declaration of Trust of the Acquired Fund and agrees that the obligations assumed by the Acquired Fund pursuant to this Agreement shall be limited in any case to the Acquired Fund and its assets and the Acquiring Fund shall not seek satisfaction of any such obligation from the shareholders of the Acquired Fund, the trustees, officers, employees or agents of the Acquired Fund or any of them. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: MUNICIPAL SECURITIES INCOME TRUST, on behalf of its portfolio, MARYLAND MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/J. Crilley Kelly Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of MARYLAND MUNICIPAL INCOME FUND (A Portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement Of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated December 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated August 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of Maryland Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust"), dated December 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 17 to the Trust's Registration Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the Securities and Exchange Commission on or about December 30, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated August 31, 1994, are incorporated herein by reference to the Portfolio's Annual Report to Shareholders for the fiscal year ended August 31, 1994 which was filed with the Securities and Exchange Commission on or about November 1, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $912,252. MULTI-STATE MUNICIPAL INCOME FUND, (A portfolio of FIXED INCOME SECURITIES, INC.) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Directors and management of Fixed Income Securities, Inc. (the "Corporation") are pleased to submit for your vote a proposal to transfer all of the assets of Multi-State Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Directors of the Corporation, as well as Federated Advisers, the Corporation's adviser, and Federated Securities Corp., the Corporation's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - the Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President MULTI-STATE MUNICIPAL INCOME FUND (A portfolio of FIXED INCOME SECURITIES, INC.) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF MULTI-STATE MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of Multi-State Municipal Income Fund (the "Portfolio"), a portfolio of Fixed Income Securities, Inc. (the "Corporation") will be held at 2:00 p.m. on March 30, 1995 at the office of the Corporation, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Corporation, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of MULTI-STATE MUNICIPAL INCOME FUND, a portfolio of FIXED INCOME SECURITIES, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of Multi-State Municipal Income Fund (the "Portfolio"), a portfolio of Fixed Income Securities, Inc., a Maryland corporation (the "Corporation"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a diversified portfolio of securities of an open-end management investment company whose investment objective is to provide a high level of current income which is exempt from federal regular income tax. The Portfolio pursues this objective by investing in a diversified portfolio primarily limited to municipal securities. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary- Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 2 Distribution Arrangements 3 Purchase and Redemption Procedures 4 Tax Consequences 5 Risk Factors 5 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 7 Federal Income Tax Consequences 7 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 8 Information About The Fund, The Portfolio And The Corporation 8 Fortress Municipal Income Fund, Inc. 8 Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc. 9 Voting Information 9 Outstanding Shares and Voting Requirements 9 Dissenter's Right of Appraisal 10 Other Matters 10 Exhibit A 11 Exhibit B 20 Summary About the Proposed Reorganization The Board of Directors of Fixed Income Securities, Inc. (the "Corporation") has voted to recommend to shareholders of its portfolio, Multi-State Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Corporation will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference thereto. The investment objective of the Portfolio is to provide a high level of current income which is exempt from federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing in a diversified portfolio primarily limited to municipal securities. As a matter of investment policy which cannot be changed without the approval of shareholders, under normal circumstances the Portfolio invests its assets so that at least 80% of its income from investments is exempt from federal regular income tax or so that at least 80% of its net assets are invested in obligations, the interest from which is exempt from federal regular income tax. For the most recent fiscal year of the Portfolio, 100% of the Portfolio's annual interest income was exempt from the federal regular income tax. The Portfolio will also, under normal circumstances, invest at least 65% of its assets in municipal securities issued by more than two states, although this investment policy may be changed without shareholder approval. The Fund is a diversified investment company. In contrast, the Portfolio is a non-diversified portfolio of securities. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high-risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio invests primarily in municipal securities, which are debt obligations issued by or on behalf of states, territories and possessions of the United States, including the District of Columbia, and their political subdivisions, agencies and instrumentalities, the interest from which is exempt from federal regular income tax. The municipal securities, and any other securities, in which the Portfolio invests are rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to investment grade bonds. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated January 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated January 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. Under the advisory contract, the Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee but may likewise terminate such waiver at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 3.88, respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's fiscal year ended November 30, 1993 and for the six months ended May 31, 1994 was 0.14 of 1% and 2.84%, respectively, of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its fiscal year ended November 30, 1993 and for the six months ended May 31, 1994 and would have been 4.63% and 7.00%, respectively, of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by the Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated January 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares, or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated January 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of October 17, 1994, the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Corporation will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated January 31, 1994 and the Statement of Additional Information dated January 31, 1994. Such risks include, but are not limited to, general market conditions in the municipal note market and the municipal bond market; the size of the offering; the maturity of the obligations and the rating of the issue; and the ability of issuers or guarantors to meet their obligations for payment of interest and principal when due. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn a high level of current income exempt from the federal regular income tax. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $50,173 for the Portfolio's fiscal year ended November 30, 1993 and $199,042 for the six month ended May 31, 1994. However, by September 30, 1994, the Portfolio's net assets had grown only to $6,443,205. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Corporation's Board of Directors that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $60,000, or approximately $0.084 per share. As a result, FSC and the Adviser recommended to the Board of Directors of the Corporation that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax- free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Corporation's Board of Directors a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax. The Board of Directors of the Corporation evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Directors concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Corporation's Board of Directors concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Directors also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Directors noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Corporation's Board of Directors, including a majority of the independent Directors, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Directors of the Corporation unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Board of Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Corporation's Board of Directors will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Corporation, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Corporation, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Corporation, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Corporation, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Corporation is organized as a corporation under the laws of the State of Maryland. The Corporation is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of Directors under certain circumstances. A special meeting of shareholders of the Corporation for any permissible purpose shall be called by the Directors upon the written request of the holders of at least 25% of the outstanding shares entitled to be cast at the meeting. Each share of the Portfolio is entitled to one vote. All shares of the Corporation have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $306,943 $411,979,011 Price Per Share 10.02 8.30 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Corporation Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc. Information about the Portfolio and the Corporation is contained in the Portfolio's current Prospectus dated January 31, 1994 and its Statement of Additional Information dated January 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Corporation is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Corporation can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Directors of the Corporation of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Corporation an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Corporation and the Adviser at no additional cost to the Corporation. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Directors of the Corporation has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 37,116.42 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, Painewebber, for the benefit of James C. Haselden, and Mildred A. Haselden, as joint tenants in common, Aurora, Colorado, owned approximately 3,774.23 shares, or 10.17%, of the Portfolio's outstanding shares; and Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 31,023 shares, or 83.58%, of the Portfolio's outstanding shares, and therefore, may, for certain purposes, be deemed to control the Portfolio and be able to affect the outcome of certain matters presented for a vote of shareholders. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the Directors and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the Directors and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (1) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. One-third of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Corporation's Articles of Incorporation or Maryland law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Corporation knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and FIXED INCOME SECURITIES, INC., a Maryland corporation (hereinafter called the "Corporation") on behalf of its portfolio MULTI-STATE MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open- end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Corporation. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has power to own all of its properties and assets and to carry out this Agreement. (b) The Corporation is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Corporation's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statements of Assets and Liabilities of the Acquired Fund at November 30, 1993 and 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since November 30, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Directors and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Corporation's Articles of Incorporation. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Directors of the Corporation or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Directors of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Directors of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: FIXED INCOME SECURITIES, INC., on behalf of its portfolio, MULTI-STATE MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/Charles H. Field Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of MULTI-STATE MUNICIPAL INCOME FUND (A Portfolio of FIXED INCOME SECURITIES, INC.) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc., dated January 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc., dated November 30, 1993 5. Financial Statements (Unaudited) of Multi-State Municipal Income Fund, dated May 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of Multi-State Municipal Income Fund (the "Portfolio"), a portfolio of Fixed Income Securities, Inc. (the "Corporation"), dated January 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 8 to the Corporation's Registration Statement on Form N-1A (File Nos. 33-43472 and 811-6447) which was filed with the Securities and Exchange Commission on or about January 28, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated November 30, 1993, are incorporated herein by reference to the Portfolio's Prospectus dated January 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 8 to the Corporation's Registration Statement on Form N-1A (File Nos. 33-43472 and 811-6447) on or about January 28, 1994. The unaudited financial statements of the Portfolio, dated May 31, 1994, are incorporated herein by reference to the Portfolio's Semi-Annual Report to the Shareholders which was filed with the Securities and Exchange Commission on or about July 28, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $306,943. NEW JERSEY MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Trustees and management of Municipal Securities Income Trust (the "Trust") are pleased to submit for your vote a proposal to transfer all of the assets of New Jersey Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio in that it seeks current income which is exempt from the federal regular income tax. The Portfolio also seeks current income which is exempt from the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. Income earned by the Fund will not be exempt from the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Trustees of the Trust, as well as Federated Advisers, the Trust's adviser, and Federated Securities Corp., the Trust's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - The Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President NEW JERSEY MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF NEW JERSEY MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of New Jersey Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of the Trust, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Trust, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of NEW JERSEY MUNICIPAL INCOME FUND, a portfolio of MUNICIPAL SECURITIES INCOME TRUST Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of New Jersey Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust, a Massachusetts business trust (the "Trust"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a non-diversified portfolio of securities of an open-end management investment company whose investment objective is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. The Portfolio pursues this objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the State of New Jersey and New Jersey municipalities. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary-Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 3 Distribution Arrangements 3 Purchase and Redemption Procedures 4 Tax Consequences 5 Risk Factors 5 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 7 Federal Income Tax Consequences 8 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 9 Information About The Fund, The Portfolio And The Trust 9 Fortress Municipal Income Fund, Inc. 9 New Jersey Municipal Income Fund, 9 Voting Information 10 Outstanding Shares and Voting Requirements 10 Dissenter's Right of Appraisal 11 Other Matters 11 Exhibit A 12 Exhibit B 21 Summary About the Proposed Reorganization The Board of Trustees of Municipal Securities Income Trust (the "Trust") has voted to recommend to shareholders of its portfolio, New Jersey Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation and dissolution of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Income earned by the Fund will be exempt from the federal regular income tax but will not be exempt from the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. As discussed below, income earned by the Portfolio is exempt from the federal regular income tax and the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference thereto. The investment objective of the Portfolio is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the State of New Jersey and New Jersey municipalities. As a matter of investment policy which cannot be changed without the approval of shareholders, the Portfolio invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and New Jersey state and municipal income tax. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high-risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. An investment in the Fund may entail greater risks than an investment in the Portfolio as a result of the Fund's ability to invest in high-yield, high-risk municipal bonds. The risks may include a greater risk of default in the payment of principal and interest on such securities as a result of the issuer's weaker financial condition. The Adviser seeks to minimize these risks through various portfolio management techniques described in the Fund's prospectus dated October 31, 1994. There can be no assurance that the Adviser will be successful in minimizing these risks. The Portfolio invests primarily in New Jersey municipal securities, which are obligations issued by or on behalf of the State of New Jersey, its political subdivisions, or agencies, debt obligations of any state, territory or possession of the United States, including the District of Columbia, or any political subdivision of any of these, and participation interests in any of the above obligations, the interest from which is exempt from both federal regular income tax and the personal income taxes imposed by the State of New Jersey and New Jersey municipalities in the opinion of the issuer's bond counsel, the Trust, its officers or the Adviser ("New Jersey Municipal Securities"). The New Jersey Municipal Securities, and any other securities, which the Portfolio buys are investment grade bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to bonds having such ratings. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated December 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated December 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. The Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee or reimburse the Portfolio for operating expenses but may likewise terminate such waiver or reimbursement at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 3.22% , respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's most recent fiscal year was 1.22% of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its most recent fiscal year and would have been 3.97% of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated December 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated December 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of October 17, 1994 the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by State Street Bank. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated December 31, 1994 and the Statement of Additional Information dated December 31, 1994. Such risks include, but are not limited to, fluctuating yields on New Jersey Municipal Securities based on factors such as the general conditions of the short-term municipal note market and the municipal bond market, the size of the offering, the maturity of the obligations and the rating of the issue; the ability of issuers and participation interests, or the guarantors of either, to meet their obligations for payment of interest and principal when due; and any adverse economic conditions or developments affecting the State of New Jersey or its municipalities. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn income exempt from both the federal regular income tax and the personal income taxes imposed by the State of New Jersey and New Jersey municipalities. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $267,395 for the Portfolio's fiscal year ended August 31, 1994. However, by August 31, 1994, the Portfolio's net assets had grown only to $11,166,179. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Trust's Board of Trustees that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $500,000, or approximately $0.421 per share. As a result, FSC and the Adviser recommended to the Board of Trustees of the Trust that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax-free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Trust's Board of Trustees a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax (although not exempt from the personal income taxes imposed by the State of New Jersey and New Jersey municipalities). The Board of Trustees of the Trust evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Trustees concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Trust's Board of Trustees concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Trustees also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Trustees noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Trust's Board of Trustees, including a majority of the independent Trustees, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Trustees of the Trust unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Trust's Board of Trustees will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Trust, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Trust, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Trust is organized as a business trust pursuant to a Declaration of Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a brief summary of the significant rights of shareholders of the Portfolio. The Trust is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of trustees under certain circumstances. A special meeting of shareholders of the Trust for any permissible purpose shall be called by the Trustees upon the written request of the holders of at least 10% of the outstanding shares of the Trust or of the relevant portfolio. Each share of the Portfolio is entitled to one vote. All shares of the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Under certain circumstances, shareholders of the Portfolio may be held personally liable as partners under Massachusetts law for obligations of the Trust on behalf of the Portfolio. To protect its shareholders, the Trust has filed legal documents with the Commonwealth of Massachusetts that expressly disclaim the liability of Portfolio shareholders for such acts or obligations of the Trust. These documents require that notice of this disclaimer be given in each agreement, obligation or instrument that the Trust or its Trustees enter into or sign on behalf of the Portfolio. In the unlikely event a shareholder is held personally liable for the Trust's obligations on behalf of the Portfolio, the Trust is required to use the property of the Portfolio to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust on behalf of the Portfolio. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from the assets of the Portfolio. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $944,673 $412,616,741 Price Per Share 10.02 8.08 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Trust Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. New Jersey Municipal Income Fund, a portfolio of Municipal Securities Income Trust Information about the Portfolio and the Trust is contained in the Portfolio's current Prospectus dated December 31, 1994 and its Statement of Additional Information dated December 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Portfolio can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Trustees of the Trust of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Trust an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Trust and the Adviser at no additional cost to the Trust. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Trustees of the Trust has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 83,954.24 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, Painewebber, as custodian for the benefit of Rita Wasserstein, Marlboro, New Jersey, owned approximately 5,904.69 shares, or 7.03% of the Portfolio's outstanding shares; Frank Palermo, Cliffside Park, New Jersey, owned approximately 5,328.46 shares, or 6.35% of the Portfolio's outstanding shares; Lawrence B. Zazzo, Cherry Hill, New Jersey, owned approximately 7,938.78 shares, or 9.46% of the Portfolio's outstanding shares; LEWCO Securities, Corp. (as record owner for its client), New York, New York, owned approximately 6,397 shares, or 7.62% of the Portfolio's outstanding shares; and Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 35,486 shares, or 42.27% of the Portfolio's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the trustees and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the trustees and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (i) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. A majority of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Trust's Declaration of Trust or Massachusetts law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Trust knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter called the "Trust") on behalf of its portfolio NEW JERSEY MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Trust. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry out this Agreement. (b) The Trust is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Trust's Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statements of Assets and Liabilities of the Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since August 31, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Trustees and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Trust's Declaration of Trust. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Trustees of the Trust or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Trustees of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Trustees of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 The Acquiring Fund is hereby expressly put on notice of the limitation of liability as set forth in Article XI of the Declaration of Trust of the Acquired Fund and agrees that the obligations assumed by the Acquired Fund pursuant to this Agreement shall be limited in any case to the Acquired Fund and its assets and the Acquiring Fund shall not seek satisfaction of any such obligation from the shareholders of the Acquired Fund, the trustees, officers, employees or agents of the Acquired Fund or any of them. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: MUNICIPAL SECURITIES INCOME TRUST, on behalf of its portfolio, NEW JERSEY MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/J. Crilley Kelly Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of NEW JERSEY MUNICIPAL INCOME FUND (A Portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of New Jersey Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated December 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of New Jersey Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated August 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of New Jersey Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust"), dated December 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 17 to the Trust's Registration Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the Securities and Exchange Commission on or about December 31, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated August 31, 1994, are incorporated herein by reference to the Portfolio's Annual Report to Shareholders for the fiscal year ended August 31, 1994 which was filed with the Securities and Exchange Commission on or about November 1, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $944,673. TEXAS MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Trustees and management of Municipal Securities Income Trust (the "Trust") are pleased to submit for your vote a proposal to transfer all of the assets of Texas Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio in that it seeks current income which is exempt from the federal regular income tax. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Trustees of the Trust, as well as Federated Advisers, the Trust's adviser, and Federated Securities Corp., the Trust's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - The Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President TEXAS MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF TEXAS MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of Texas Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of the Trust, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Trust, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of TEXAS MUNICIPAL INCOME FUND, a portfolio of MUNICIPAL SECURITIES INCOME TRUST Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of Texas Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust, a Massachusetts business trust (the "Trust"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a non-diversified portfolio of securities of an open-end management investment company whose investment objective is to provide current income which is exempt from federal regular income tax. The Portfolio pursues this objective by investing primarily in securities which are exempt from federal regular income tax. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary- Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 3 Distribution Arrangements 3 Purchase and Redemption Procedures 4 Tax Consequences 5 Risk Factors 5 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 8 Federal Income Tax Consequences 8 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 9 Information About The Fund, The Portfolio And The Trust 9 Fortress Municipal Income Fund, Inc. 9 Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust 9 Voting Information 10 Outstanding Shares and Voting Requirements 10 Dissenter's Right of Appraisal 11 Other Matters 11 Exhibit A 12 Exhibit B 21 Summary About the Proposed Reorganization The Board of Trustees of Municipal Securities Income Trust (the "Trust") has voted to recommend to shareholders of its portfolio, Texas Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation and dissolution of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference hereto. The investment objective of the Portfolio is to provide current income which is exempt from federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing primarily in securities which are exempt from federal regular income tax. As a matter of investment policy which cannot be changed without the approval of shareholders, the Portfolio invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax. The Fund is a diversified investment company. In contrast, the Portfolio is a non-diversified portfolio of securities. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high-risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. An investment in the Fund may entail greater risks than an investment in the Portfolio as a result of the Fund's ability to invest in high- yield, high-risk municipal bonds. The risks may include a greater risk of default in the payment of principal and interest on such securities as a result of the issuer's weaker financial condition. The Adviser seeks to minimize these risks through various portfolio management techniques described in the Fund's prospectus dated October 31, 1994. There can be no assurance that the Adviser will be successful in minimizing these risks. The Portfolio invests primarily in Texas municipal securities, which are obligations issued by or on behalf of the State of Texas or its political subdivisions and participation interests in any of the above obligations, the interest from which is exempt from federal regular income tax in the opinion of the issuer's bond counsel, the Trust, its officers or the Adviser ("Texas Municipal Securities"). The Texas Municipal Securities, and any other securities, which the Portfolio buys are investment grade bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to bonds having such ratings. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated December 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated December 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. The Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee or reimburse the Portfolio for operating expenses but may likewise terminate such waiver or reimbursement at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 2.98%, respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's most recent fiscal year was 1.09% of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its most recent fiscal year and would have been 3.73% of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated December 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated December 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of December 1, 1994, the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated December 31, 1994 and the Statement of Additional Information dated December 31, 1994. Such risks include, but are not limited to, fluctuating yields on Texas Municipal Securities based on factors such as general conditions of the short-term municipal market and the municipal bond market, the size of the offering, the maturity of the obligations and the rating of the issue; the ability of issuers or credit enhancers to meet their obligations for payment of interest and principal when due; legislative, executive or administrative changes or voter initiatives which could result in adverse consequences for Texas Municipal Securities; and any adverse economic conditions or developments affecting the State of Texas or its municipalities. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn income exempt from the federal regular income tax. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $277,377 for the Portfolio's fiscal year ended August 31, 1994. However, by August 31, 1994, the Portfolio's net assets had grown only to $11,130,471. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Trust's Board of Trustees that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $150,000, or approximately $0.125 per share. As a result, FSC and the Adviser recommended to the Board of Trustees of the Trust that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax-free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Trust's Board of Trustees a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax. The Board of Trustees of the Trust evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Trustees concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Trust's Board of Trustees concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Trustees also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Trustees noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Trust's Board of Trustees, including a majority of the independent Trustees, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Trustees of the Trust unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Trust's Board of Trustees will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Trust, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Trust, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Trust is organized as a business trust pursuant to a Declaration of Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a brief summary of the significant rights of shareholders of the Portfolio. The Trust is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of trustees under certain circumstances. A special meeting of shareholders of the Trust for any permissible purpose shall be called by the Trustees upon the written request of the holders of at least 10% of the outstanding shares of the Trust or of the relevant portfolio. Each share of the Portfolio is entitled to one vote. All shares of the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Under certain circumstances, shareholders of the Portfolio may be held personally liable as partners under Massachusetts law for obligations of the Trust on behalf of the Portfolio. To protect its shareholders, the Trust has filed legal documents with the Commonwealth of Massachusetts that expressly disclaim the liability of Portfolio shareholders for such acts or obligations of the Trust. These documents require that notice of this disclaimer be given in each agreement, obligation or instrument that the Trust or its Trustees enter into or sign on behalf of the Portfolio. In the unlikely event a shareholder is held personally liable for the Trust's obligations on behalf of the Portfolio, the Trust is required to use the property of the Portfolio to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust on behalf of the Portfolio. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from the assets of the Portfolio. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $1,596,568 $413,268,636 Price Per Share 10.02 8.35 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Trust Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust Information about the Portfolio and the Trust is contained in the Portfolio's current Prospectus dated December 31, 1994 and its Statement of Additional Information dated December 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Portfolio can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Trustees of the Trust of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Trust an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Trust and the Adviser at no additional cost to the Trust. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Trustees of the Trust has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 163,613.14 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 150,345 shares, or 91.89%, of the Portfolio's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the trustees and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the trustees and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (i) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. A majority of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Trust's Declaration of Trust or Massachusetts law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Trust knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter called the "Trust") on behalf of its portfolio TEXAS MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Trust. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry out this Agreement. (b) The Trust is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Trust's Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statements of Assets and Liabilities of the Acquired Fund at August 31, 1993 and 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since August 31, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Trustees and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Trust's Declaration of Trust. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Trustees of the Trust or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Trustees of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Trustees of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 The Acquiring Fund is hereby expressly put on notice of the limitation of liability as set forth in Article XI of the Declaration of Trust of the Acquired Fund and agrees that the obligations assumed by the Acquired Fund pursuant to this Agreement shall be limited in any case to the Acquired Fund and its assets and the Acquiring Fund shall not seek satisfaction of any such obligation from the shareholders of the Acquired Fund, the trustees, officers, employees or agents of the Acquired Fund or any of them. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: MUNICIPAL SECURITIES INCOME TRUST, on behalf of its portfolio, TEXAS MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/J. Crilley Kelly Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of TEXAS MUNICIPAL INCOME FUND (A Portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated December 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated August 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of Texas Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust"), dated December 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 17 to the Trust's Registration Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the Securities and Exchange Commission on or about December 30, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated August 31, 1994, are incorporated herein by reference to the Portfolio's Annual Report to Shareholders for the fiscal year ended August 31, 1994 which was filed with the Securities and Exchange Commission on or about November 1, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $1,596,568. VIRGINIA MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Dear Shareholder: The Board of Trustees and management of Municipal Securities Income Trust (the "Trust") are pleased to submit for your vote a proposal to transfer all of the assets of Virginia Municipal Income Fund (the "Portfolio") to Fortress Municipal Income Fund, Inc. (the "Fund"), a mutual fund advised by Federated Advisers. The Fund has an investment objective similar to that of the Portfolio in that it seeks current income which is exempt from the federal regular income tax. The Portfolio also seeks current income which is exempt from the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. Income earned by the Fund will not be exempt from the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. As part of the transaction, shareholders in the Portfolio would receive shares in the Fund equal in value to their shares in the Portfolio and the Portfolio would be liquidated. The Board of Trustees of the Trust, as well as Federated Advisers, the Trust's adviser, and Federated Securities Corp., the Trust's principal underwriter, believe the proposed agreement and plan of reorganization is in the best interests of Portfolio shareholders for the following reasons: - The Portfolio has not reached a size, and is not expected to reach a size, in which it can provide shareholders with a reasonable, competitive return on its investments. - The reorganization of the Portfolio into the Fund is expected to provide operating efficiencies as a result of the size of the Fund which were not available to Portfolio shareholders due to the smaller size of the Portfolio's assets. - The Fund offers an investment portfolio which invests in municipal bonds the interest from which is exempt from the federal regular income tax. We believe the transfer of the Portfolio's assets in this transaction will present an excellent investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of the Portfolio's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. If you have any questions, please feel free to call us at 1-800-245-5000. Thank you for your prompt attention and participation. Sincerely, Richard B. Fisher President VIRGINIA MUNICIPAL INCOME FUND (A portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF VIRGINIA MUNICIPAL INCOME FUND: A Special Meeting of Shareholders of Virginia Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust") will be held at 2:15 p.m. on March 30, 1995 at the office of the Trust, Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the Trust, on behalf of the Portfolio, and Fortress Municipal Income Fund, Inc. (the "Fund"), whereby the Fund would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Trustees, Dated: February 18, 1995 John W. McGonigle Secretary Shareholders of record at the close of business February 10, 1995 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. To secure the largest possible representation and to save the expense of further mailings, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting. PROSPECTUS/PROXY STATEMENT FEBRUARY 18, 1995 Acquisition of the Assets of VIRGINIA MUNICIPAL INCOME FUND, a portfolio of MUNICIPAL SECURITIES INCOME TRUST Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of Virginia Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust, a Massachusetts business trust (the "Trust"), in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio. As a result of the Plan, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio. The Fund is an open-end, diversified management investment company whose investment objective is a high level of current income which is generally exempt from the federal regular income tax. The Fund pursues this investment objective by investing primarily in a professionally managed, diverse portfolio of municipal bonds. The Fund may invest up to 35% of its net assets in lower quality municipal bonds. The Portfolio is a non-diversified portfolio of securities of an open-end management investment company whose investment objective is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. The Portfolio pursues this objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. For a comparison of the investment policies of the Portfolio and the Fund, see "Summary-Investment Objectives and Policies". This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Fund dated October 31, 1994 which is incorporated herein by reference. Statements of Additional Information for the Fund dated October 31, 1994 (relating to the Fund's prospectus of the same date) and February 18, 1995 (relating to this Prospectus/Proxy Statement) containing additional information have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table Of Contents Summary 1 About the Proposed Reorganization 1 Investment Objectives and Policies 1 Advisory and Other Fees 3 Distribution Arrangements 4 Purchase and Redemption Procedures 5 Tax Consequences 5 Risk Factors 6 Information About The Reorganization 6 Background and Reasons for the Proposed Reorganization 6 Description of the Plan of Reorganization 7 Description of Portfolio Shares 8 Federal Income Tax Consequences 8 Comparative Information on Shareholder Rights and Obligations 8 Capitalization 9 Information About the Fund, The Portfolio and The Trust 9 Fortress Municipal Income Fund, Inc. 9 Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust 10 Voting Information 10 Outstanding Shares and Voting Requirements 10 Dissenter's Right of Appraisal 11 Other Matters 11 Exhibit A 12 Exhibit B 21 Summary About the Proposed Reorganization The Board of Trustees of Municipal Securities Income Trust (the "Trust") has voted to recommend to shareholders of its portfolio, Virginia Municipal Income Fund (the "Portfolio"), the approval of an Agreement and Plan of Reorganization (the "Plan") whereby Fortress Municipal Income Fund, Inc., a Maryland corporation (the "Fund"), would acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation and dissolution of the Portfolio (the "Reorganization"). As a result of the Reorganization, each shareholder of the Portfolio will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio on the date of the Reorganization, i.e., the Closing Date. As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. After the acquisition is completed, the Portfolio will be liquidated. Investment Objectives and Policies The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax. This investment objective may not be changed without the approval of shareholders. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds, and may invest up to 35% of its net assets in lower quality (i.e. "junk") municipal bonds. As a matter of investment policy that cannot be changed without the approval of shareholders, except when investing on a temporary basis for defensive purposes, the Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. Income earned by the Fund will be exempt from the federal regular income tax but will not be exempt from the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. As discussed below, income earned by the Portfolio is exempt from the federal regular income tax and the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. Both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. Information concerning the alternative minimum tax is included in the Prospectus of the Fund dated October 31, 1994, which is incorporated herein by reference thereto. The investment objective of the Portfolio is to provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. This investment objective may not be changed without the approval of shareholders. The Portfolio pursues its investment objective by investing primarily in securities which are exempt from federal regular income tax and personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. As a matter of investment policy which cannot be changed without the approval of shareholders, the Portfolio invests its assets so that, under normal circumstances, at least 80% of its annual interest income is exempt from federal regular income tax, or that at least 80% of its net assets are invested in securities the interest from which is exempt from federal regular income tax. For the most recent fiscal year of the Portfolio, 100% of the Portfolio's annual interest income was exempt from the federal regular income tax. The Fund is a diversified investment company. In contrast, the Portfolio is a non-diversified portfolio of securities. The Fund invests in municipal bonds which are rated Ba or higher by Moody's Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's Ratings Group ("S&P") and bonds which are not rated but which the adviser judges to be of comparable quality to bonds having such ratings. The Fund will limit its purchases of high-yield, high risk municipal bonds rated Ba and BB to less than 35% of its net assets. Information concerning the ratings of municipal bonds in which the Fund may invest is contained in Exhibit B hereto. If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. An investment in the Fund may entail greater risks than an investment in the Portfolio as a result of the Fund's ability to invest in high-yield, high-risk municipal bonds. The risks may include a greater risk of default in the payment of principal and interest on such securities as a result of the issuer's weaker financial condition. The Adviser seeks to minimize these risks through various portfolio management techniques described in the Fund's prospectus dated October 31, 1994. There can be no assurance that the Adviser will be successful in minimizing these risks. Under normal circumstances, the Portfolio will invest at least 65% of its total assets in Virginia municipal securities, which are obligations issued by or on behalf of the Commonwealth of Virginia, its political subdivisions, or agencies, debt obligations of any state, territory, or possession or the United States, including the District of Columbia, or any political subdivision of any of these, and participation interests in any of the above obligations, the interest from which is exempt from both the federal regular income tax and personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities in the opinion of the issuer's bond counsel, the Trust, its officers or the Adviser ("Virginia Municipal Securities"). The Virginia Municipal Securities, and any other securities, which the Portfolio buys are investment grade bonds rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P or by Fitch Investors Service, Inc. and bonds which are not rated if the Adviser determines that such bonds are of comparable quality or have similar characteristics to bonds having such ratings. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security but may consider doing so. Unless otherwise designated, the investment policies of the Portfolio may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Currently, the Portfolio invests primarily in variable rate municipal securities. Both the Fund and the Portfolio may invest in derivative municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index ("inverse floaters"). Neither the Fund nor the Portfolio intend to invest more than 5% of their respective total assets in inverse floaters. The Fund has reserved the right to hedge a portion of its investments by entering into futures contracts or options on futures contracts. The Fund will notify shareholders before it engages in such transactions. The Portfolio also may utilize futures contracts and options to a limited extent. Reference is hereby made to the Prospectus of the Portfolio dated December 30, 1994 for a more complete description of futures contracts and options, including risks associated therewith, which is incorporated herein by reference thereto. Both the Fund and the Portfolio are subject to certain investment limitations. For the Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one- third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 (the "1933 Act"); (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and United States government obligations); and (4) investing more than 5% of its total assets in industrial development bonds of issuers that have records of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The Portfolio has investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except that, under certain circumstances, the Portfolio may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; and (2) investing more than 5% of its total assets in industrial development bonds when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. The Portfolio's first investment limitation cannot be changed without shareholder approval; the second may be changed by the Board of Trustees without shareholder approval, although shareholders will be notified before any material change becomes effective. Both the Portfolio and the Fund are also subject to certain additional investment limitations which are similar, although not identical, described in the Fund's Statement of Additional Information dated October 31, 1994, and the Portfolio's Statement of Additional Information dated December 31, 1994. Reference is hereby made to the Fund's Prospectus and Statement of Additional Information, each dated October 31, 1994, and to the Portfolio's Prospectus and Statement of Additional Information, each dated December 31, 1994, which set forth in full the investment objectives and policies and investment limitations of each of the Fund and the Portfolio, each of which is incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Fund is 0.60 of 1% of the Fund's average daily net assets. Federated Advisers (the "Adviser"), the investment adviser to the Fund, may voluntarily choose to waive a portion of its advisory fee or reimburse the Fund for certain operating expenses. This voluntary waiver of fees may be terminated by the Adviser at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. The annual investment advisory fee for the Portfolio is 0.40 of 1% of the Portfolio's average daily net assets. The Adviser, which also serves as investment adviser to the Portfolio, may similarly voluntarily choose to waive a portion of its advisory fee or reimburse the Portfolio for operating expenses but may likewise terminate such waiver or reimbursement at any time in its sole discretion. The Adviser has also undertaken to reimburse the Portfolio for operating expenses in excess of limitations established by certain states. Without such waiver or reimbursement, the expense ratio of each of the Fund and the Portfolio would be higher by 0.0 and 5.55%, respectively, of average daily net assets. Federated Administrative Services, an affiliate of the Adviser, provides certain administrative personnel and services necessary to operate both the Fund and the Portfolio at an annual rate based upon the average aggregate daily net assets of all funds advised by the Adviser and its affiliates. The rate charged is 0.15 of 1% of the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of such portfolio. Federated Administrative Services may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Fund's most recent fiscal year was 0.09 of 1% of its average aggregate daily net assets and for the Portfolio's most recent fiscal year was 2.15% of its average aggregate daily net assets. The Fund has adopted a Shareholder Services Plan under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Fund has entered into a Shareholder Services Agreement pursuant to which Federated Shareholder Services, an affiliate of the Adviser, either performs shareholder services directly or selects certain financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their customers. The schedule of such fees is determined from time to time by the Fund and Federated Shareholder Services. The Portfolio has a similar Shareholder Services Plan pursuant to which financial institutions enter into shareholder service agreements with the Portfolio to provide administrative support services to their customers who own Portfolio shares. Such services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Portfolio may make payments to a financial institution of up to 0.25 of 1% of the average daily net assets of Portfolio shares beneficially owned by such financial institution's customers for such services. The total annual operating expenses for the Fund were 1.09% of average daily net assets for its most recent fiscal year. The total annual operating expenses for the Portfolio were 0.75% of average daily net assets for its most recent fiscal year. and would have been 6.30% of average daily net assets absent the voluntary waiver by the Adviser of a portion of the investment advisory fee and reimbursement of certain other operating expenses. As of December 1, 1994, the Adviser ceased its voluntary waiver of investment advisory fees as well as its voluntary reimbursement of certain Portfolio operating expenses. As a result, the maximum total annual operating expenses for the Portfolio for its current fiscal year are expected to be 2.50% of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC") is the principal distributor for shares of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to which the Fund may pay to the distributor an amount equal to an annual rate of 0.25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund is not currently making payments under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b- 1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual rate of 0.75 of 1% of the average daily net asset value of the Portfolio to reimburse FSC for payments paid to dealers and to finance any activity which is principally intended to result in the sale of shares subject to the 12b-1 Plan. In connection with the distribution of Portfolio shares, FSC paid dealers from its assets up to 2% of the net asset value of Portfolio shares purchased by their customers. The Fund will not assume any liabilities or make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan. In connection with the distribution of and/or administrative services relating to Fund shares, FSC pays brokers and financial institutions 1% of the offering price of the Fund shares acquired by their customers on purchases up to $1,999,999; 0.50% on purchases of $2 million to $4,999,999; and 0.25% on purchases of $5 million or more. Any fees paid by FSC pursuant to these arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the contingent deferred sales charge and/or the holding period used to calculate such fee upon the sale of such shares described below. In addition, FSC may pay a fee to financial institutions as financial assistance for providing substantial marketing and sales support, which payments would be determined by the amount of shares sold by such financial institution and/or the nature of the marketing or sales support furnished. Although such payments would be made from the assets of FSC, the Adviser or its affiliates may reimburse them. Certain costs exist with respect to the purchase and sale of Fund and Portfolio shares. Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales load of 1% of the offering price for purchases of less than $1 million in all of the Fortress Investment Program funds and purchases which are not made through designated institutions. Shares of the Fund received by Portfolio shareholders as a result of the Reorganization will not be subject to a sales charge. Shares of the Portfolio were sold at their net asset value next determined after an order was received. Absent an exemption, shareholders redeeming Fund shares within certain time periods of the purchase of those shares will be charged a contingent deferred sales charge by FSC based on the lesser of the original price or the net asset value of the shares redeemed, as follows: for purchases up to $1,999,999 held less than four years the charge is 1%; for purchases of $2 million to $4,999,999 held less than two years the charge is 0.50%; and for purchases of more than $5 million held less than one year, the charge is 0.25%. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Fund shares received by shareholders of the Portfolio as a result of the consummation of the Reorganization. Effective in late 1994, FSC has waived all contingent deferred sales charges in connection with redemptions of Portfolio shares. Absent such waiver or another exemption, shareholders redeeming Portfolio shares within three full years of the purchase of such shares were charged a contingent deferred sales charge by FSC based on the lesser of the net asset value of the redeemed shares at the time of purchase or the net asset value of the redeemed shares at the time of redemption, as follows: for shares held less than one year the charge was 3%; for shares held more than one year but less than three years the charge was 2%. These sales charges were not imposed in connection with an exercise of exchange rights. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Fund dated October 31, 1994 and the Prospectus of the Portfolio dated December 31, 1994, each of which is incorporated herein by reference thereto. Purchase and Redemption Procedures The transfer agent and dividend disbursing agent for each of the Fund and the Portfolio is Federated Services Company. Procedures for the purchase and redemption of Fund shares differ slightly from procedures applicable to the purchase and redemption of Portfolio shares. Any questions about such procedures may be directed to, and assistance in effecting purchases or redemptions of Fund shares or redemptions of Portfolio shares, may be obtained from, FSC, principal distributor for each of the Fund and the Portfolio, at 800-245-5000. Reference is made to the Prospectus of the Fund dated October 31, 1994, and the Prospectus of the Portfolio dated December 31, 1994 for a complete description of the purchase and redemption procedures applicable to purchases and redemptions of Fund and Portfolio shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase and redemption procedures of each of the Fund and the Portfolio. Purchases of shares of the Fund may be made through an investment dealer who has an agreement with FSC or by wire or check. The minimum initial investment in the Fund is $1,500. Subsequent investments must be in amounts of at least $100. As of October 17, 1994 the Portfolio ceased offering its shares for sale except for dividend reinvestments by existing shareholders. Prior to that time, the minimum initial investment in the Portfolio also was $1,500 and the minimum for subsequent investments also was $100. The purchase price of shares of both the Fund and the Portfolio is based on net asset value. The net asset value for each of the Fund and the Portfolio is calculated at 4:00 p.m. (Eastern time) on each day on which the Fund and the Portfolio compute their net asset value. Purchase and redemption orders for the Fund and redemption orders for the Portfolio received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders by wire are considered received when the Fund's transfer agent's bank, State Street Bank and Trust Company ("State Street Bank"), receives payment by wire. Purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs one day after receipt by State Street Bank. Fund shareholders have exchange rights with respect to shares in a family of thirteen funds known as the Fortress Investment Program (the "Program"), each of which has different investment objectives and policies. Shares in the Fund may be exchanged for shares in the Program at net asset value without a sales load (if previously paid) or a contingent deferred sales charge. Portfolio shareholders also had exchange rights with respect to certain other investment companies. However, such other investment companies are no longer offering their shares for sale. Shares of the Fund may be exchanged on a periodic systematic basis or upon individual request, and must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from FSC. Redemptions of Fund shares may be made through a financial institution, by mailing a written request or through the Fund's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by FSC. Proceeds will be distributed by check within seven days after receipt of a redemption request. Generally, redemption of Portfolio shares may be made through a financial institution, by mailing a written request or through the Portfolio's Systematic Withdrawal Program. Shares are redeemed at their net asset value next determined after the redemption request is received by State Street Bank. Proceeds will be distributed by check within seven days after receipt of a redemption request. Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Fund or the Portfolio or their shareholders. The tax cost basis of the Fund shares received by Portfolio shareholders will be the same as the tax cost basis of their shares in the Portfolio. Risk Factors Investment in the Fund is subject to certain risks which are set forth in the Fund's Prospectus dated October 31, 1994 and the Statement of Additional Information dated October 31, 1994 and incorporated herein by reference thereto. Briefly, these risks include, but are not limited to, the ability of the issuers of bonds owned by the Fund to meet their obligations for the payment of principal and interest when due; fluctuation in the value of the shares; gain or loss in the sale of bonds by the Fund based on interest rate sensitivity and changes in the perceived quality of the credit of the issuer; economic, political and regulatory developments which affect bonds whose revenues are from similar projects or where issuers share the same geographic location when such bonds constitute a large portion of the Fund's portfolio; and narrow markets for lower rated and unrated bonds. The Fund's ability to invest in lower quality bonds increases the risk associated with an investment in the Fund. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers to make principal and interest payments than occurs with higher rated bonds. Investment in the Portfolio carries risks as well, as more fully described in the Portfolio's Prospectus dated December 31, 1994 and the Statement of Additional Information dated December 31, 1994. Such risks include, but are not limited to, fluctuating yields on Virginia Municipal Securities based on factors such as general market conditions, the size of the offering, the maturity of the obligations and the rating of the issue; the ability of issuers and participation interests, or the guarantors of either, to meet their obligations for payment of interest and principal when due; legislative, executive or administrative changes or voter initiatives which could result in adverse consequences for Virginia Municipal Securities; and any adverse economic conditions or developments affecting the Commonwealth of Virginia or its municipalities. Information About The Reorganization Background and Reasons for the Proposed Reorganization The Portfolio was established in 1993 to provide investors with the opportunity to earn income exempt from both the federal regular income tax and personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities. In an effort to remain competitive with other investment companies with similar investment objectives, the Adviser waived all of its investment advisory fees and reimbursed the Portfolio for certain operating expenses, resulting in aggregate fee waivers and expense reimbursements of $145,296 for the Portfolio's fiscal year ended August 31, 1994. However, by August 31, 1994, the Portfolio's net assets had grown only to $4,375,390. In the opinion of FSC, the Portfolio's principal underwriter, the Portfolio suffered from a lack of investor interest sufficient to permit it to grow to a size which would permit it to operate efficiently. Although FSC expended significant marketing efforts to promote sales of the Portfolio's shares, the negative investment climate for municipal securities throughout 1994 impeded sales of Portfolio shares and FSC concluded that it was unlikely that the situation would improve materially in the foreseeable future. In addition, the Adviser and its affiliates concluded that they would be unable to continue to waive investment advisory fees and reimburse operating expenses in order for the Portfolio to continue to earn a yield on its investments competitive with other investment companies with similar investment objectives. As a result of these factors, in early November 1994, FSC notified shareholders that it had ceased offering shares of the Portfolio for sale and that it would recommend to the Trust's Board of Trustees that the Portfolio be liquidated. It also indicated that the Adviser would cease waiving its investment advisory fee after November 30, 1994 and that as a result, the Portfolio's operating expenses could be expected to increase to approximately 2.5%. FSC accordingly recommended to shareholders that they voluntarily redeem their shares and indicated that all contingent deferred sales charges that would otherwise be applicable to such redemptions would be waived. In anticipation of voluntary redemptions, the Adviser restructured the Portfolio's investments by emphasizing shorter-term municipal securities. Although many shareholders of the Portfolio elected to redeem their shares as a result of the foregoing developments, a significant number of shareholders expressed dissatisfaction both with this alternative and the overall determination to recommend liquidation of the Portfolio. After consultation with many shareholders as well as various broker dealers and other financial institutions who had sold Portfolio shares, FSC voluntarily determined to reimburse shareholders of the Portfolio as of October 13, 1994, $40,000, or approximately $0.081 per share. As a result, FSC and the Adviser recommended to the Board of Trustees of the Trust that it consider the feasibility of transferring the Portfolio's assets to another investment company in exchange for shares of such other investment company in a transaction which would be tax-free to the Portfolio and its shareholders. Recognizing that many shareholders may not have wished to redeem their shares of the Portfolio, FSC and the Adviser recommended to the Trust's Board of Trustees a transfer of the Portfolio's assets to the Fund, which seeks to earn interest income exempt from the federal regular income tax (although not exempt from the personal income taxes imposed by the Commonwealth of Virginia and Virginia municipalities). The Board of Trustees of the Trust evaluated this proposal as well as other alternatives, including liquidation of the Portfolio. The Trustees concluded that this transaction would be in the best interests of shareholders because the Portfolio was unlikely to reach economic size on its own, as a result of relatively high expenses, and that net yield on an investment in the Portfolio would not be attractive to shareholders. With assets of approximately $411,672,068 at December 31, 1994, the Trust's Board of Trustees concluded that the Fund was of a size to provide operating efficiencies and economies of scale sufficient to provide shareholders with competitive investment returns and net income exempt from the federal regular income tax. The Trustees also took account of the fact that the Fund also receives investment advisory services from the Adviser and that the Fund and its shareholders receive similar administrative and other shareholder services as presently enjoyed by the Portfolio and its shareholders. The Trustees noted that the Fund's investment advisory fee of 0.60% of average daily net assets is higher than the Portfolio's investment advisory fee of 0.40% of average daily net assets, but concluded that this difference in advisory fees is offset by the lower overall expenses of the Fund as compared to the Portfolio. Accordingly, the Trust's Board of Trustees, including a majority of the independent Trustees, determined that participation in the Reorganization is in the best interests of the Portfolio and that the interests of Portfolio shareholders would not be diluted as a result of its effecting the Reorganization. Based upon the foregoing considerations, and the fact that shareholders of the Portfolio will not suffer any adverse tax consequences as a result of the Reorganization, the Board of Trustees of the Trust unanimously voted to approve, and recommend to Portfolio shareholders the approval of, the Reorganization. The Directors of the Fund, including the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Fund and the shareholders of the Fund and that the interests of Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously approved the Plan. In the event shareholders of the Portfolio do not approve the Plan, the Trust's Board of Trustees will consider other alternatives which would address the Portfolio's uneconomic size. These may include a plan of liquidation or another transaction. Description of the Plan of Reorganization The Plan provides that the Fund will acquire all of the assets of the Portfolio in exchange for Fund shares to be distributed pro rata by the Portfolio to its shareholders in complete liquidation of the Portfolio on or about March 30, 1995 (the "Closing Date"). Shareholders of the Portfolio will become shareholders of the Fund as of the close of business on the Closing Date and will begin accruing dividends on the next day. Shareholders of the Fund will accrue their last dividend from the Fund on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the Trust, on behalf of the Portfolio, and the Fund as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the Portfolio prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. The Adviser is responsible for the payment of all expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Portfolio's shareholders and the costs of holding the Special Meeting of Shareholders. The foregoing description of the Plan entered into between the Fund and the Trust, on behalf of the Portfolio, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Portfolio Shares Shares of the Fund to be issued to shareholders of the Portfolio under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Fund dated October 31, 1994 provided herewith for additional information about Fund shares. Federal Income Tax Consequences As a condition to the Reorganization transactions, the Fund and the Trust, on behalf of the Portfolio, will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Fund and the Trust, to the effect that, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Fund upon its receipt of the Portfolio's assets solely in exchange for Fund shares; (3) no gain or loss will be recognized by the Portfolio upon the transfer of its assets to the Fund in exchange for Fund shares or upon the distribution (whether actual or constructive) of the Fund shares to the Portfolio shareholders in exchange for their shares of the Portfolio; (4) no gain or loss will be recognized by shareholders of the Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by the Fund will be the same as the tax basis of such assets to the Portfolio immediately prior to the Reorganization; (6) the tax basis of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will be the same as the tax basis of Portfolio shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the Portfolio in the hands of the Fund will include the period during which those assets were held by the Portfolio; and (8) the holding period of Fund shares received by each shareholder of the Portfolio pursuant to the Plan will include the period during which the Portfolio shares exchanged therefor were held by such shareholder, provided the Portfolio shares were held as capital assets on the date of the Reorganization. Comparative Information on Shareholder Rights and Obligations The Fund is organized as a corporation under the laws of the State of Maryland. The Fund is not required to hold annual meetings of shareholders except when required to do so under the 1940 Act. A special meeting of shareholders of the Fund shall be called by the Chairman, Secretary or any Director upon the written request of the holders of at least 25% of the outstanding shares of the Fund. Each share of the Fund is entitled to one vote at all meetings of shareholders. The Trust is organized as a business trust pursuant to a Declaration of Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a brief summary of the significant rights of shareholders of the Portfolio. The Trust is not required to hold annual meetings of shareholders. Shareholder approval is necessary only for certain changes in operations or the election of trustees under certain circumstances. A special meeting of shareholders of the Trust for any permissible purpose shall be called by the Trustees upon the written request of the holders of at least 10% of the outstanding shares of the Trust or of the relevant portfolio. Each share of the Portfolio is entitled to one vote. All shares of the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. Under certain circumstances, shareholders of the Portfolio may be held personally liable as partners under Massachusetts law for obligations of the Trust on behalf of the Portfolio. To protect its shareholders, the Trust has filed legal documents with the Commonwealth of Massachusetts that expressly disclaim the liability of Portfolio shareholders for such acts or obligations of the Trust. These documents require that notice of this disclaimer be given in each agreement, obligation or instrument that the Trust or its Trustees enter into or sign on behalf of the Portfolio. In the unlikely event a shareholder is held personally liable for the Trust's obligations on behalf of the Portfolio, the Trust is required to use the property of the Portfolio to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust on behalf of the Portfolio. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from the assets of the Portfolio. Capitalization The following table sets forth the unaudited capitalization of the Fund and the Portfolio as of December 31, 1994 and on a pro forma basis as of that date: Pro Forma Fund Portfolio Combined Net Assets $411,672,068 $ 83,387 $411,755,455 Price Per Share 10.02 7.98 10.02 (NAV) Concurrent with the Reorganization, the Fund also anticipates that it will acquire the assets of several other investment portfolios, each of which is individually, and all of which in the aggregate, are immaterial in size relative to the Fund. Accordingly, pro forma capitalization information concerning such transactions has been omitted from this Prospectus/Proxy Statement. Information About The Fund, The Portfolio And The Trust Fortress Municipal Income Fund, Inc. Information about the Fund is contained in the Fund's current Prospectus dated October 31, 1994, a copy of which is included herewith and incorporated by reference herein. Additional information about the Fund is included in the Fund's Statement of Additional Information dated October 31, 1994, which is incorporated herein by reference. Copies of the Statement of Additional Information, which has been filed with the Securities and Exchange Commission (the "SEC"), may be obtained without charge by contacting the Fund at 1-800-245-5000 or by writing the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Fund, can be obtained by calling or writing the Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC. Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust Information about the Portfolio and the Trust is contained in the Portfolio's current Prospectus dated December 31, 1994 and its Statement of Additional Information dated December 31, 1994, which are incorporated herein by reference. Copies of such Prospectus and Statement of Additional Information may be obtained without charge from the Fund by calling 1-800-245-5000 or by writing to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements and other information filed by the Portfolio can be obtained by calling or writing the Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. Voting Information This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Trustees of the Trust of proxies for use at the Special Meeting of Shareholders (the "Meeting") to be held on March 30, 1995 and at any adjournment thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the Trust an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by the Adviser. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the Trust and the Adviser at no additional cost to the Trust. Such solicitations may be by telephone. The Adviser will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Trustees of the Trust has fixed the close of business on February 10, 1995 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting of Shareholders and any adjournment thereof. As of the record date, there were 5,336.75 shares of the Portfolio outstanding. Each Portfolio share is entitled to one vote and fractional shares have proportionate voting rights. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 526 shares, or 9.86% of the Portfolio's outstanding shares; Frank E. Mann, Alexandria, Virginia, owned approximately 1,029.48 shares, or 19.29% of the Portfolio's outstanding shares; Painewebber, for the benefit of James W. Stewart and Margaret R. Stewart, Chesapeake, Virginia, owned approximately 921.66 shares, or 17.27% of the Portfolio's outstanding shares; and George E. Briers, Lebanon, Virginia, owned approximately 2,468 shares, or 46.25% of the Portfolio's outstanding shares, and therefore, may, for certain purposes, be deemed to control the Portfolio and be able to affect the outcome of certain matters presented for a vote of shareholders. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's outstanding shares. On the record date, the trustees and officers of the Portfolio as a group owned less than 1% of the outstanding shares of the Portfolio. As of the record date, there were 41,019,047.51 shares of the Fund outstanding. On the record date, Merrill Lynch, Pierce, Fenner & Smith (as record owner holding shares for its clients), Jacksonville, Florida, owned approximately 11,532,828 shares, or 28.12%, of the Fund's outstanding shares. On such date, no other person owned of record, or to the knowledge of the Adviser, beneficially owned, 5% or more of the Fund's outstanding shares. On the record date, the trustees and officers of the Fund as a group owned less than 1% of the outstanding shares of the Fund. Approval of the Plan requires the affirmative vote of the lesser of (i) 67% of the shares of the Portfolio present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) a majority of the outstanding shares of the Portfolio. The votes of shareholders of the Fund are not being solicited since their approval is not required in order to effect the Reorganization. A majority of the outstanding shares of the Portfolio, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Under the 1940 Act, however, which governs this transaction, matters subject to the requirements of the 1940 Act, including the Reorganization, are determined on the basis of a percentage of votes present at the Special Meeting, which would have the effect of treating abstentions and "broker non-votes" as if they were votes against the proposal. Dissenter's Right of Appraisal Shareholders of the Portfolio objecting to the Reorganization have no appraisal rights under the Trust's Declaration of Trust or Massachusetts law. Under the Plan, if approved by Portfolio shareholders, each Portfolio shareholder will become the owner of Fund shares having a total net asset value equal to the total net asset value of his or her holdings in the Portfolio at the Closing Date. Other Matters Management of the Trust knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. So far as management is presently informed, there is no litigation pending or threatened against the Fund. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. exhibit a AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated January 5, 1995 (the "Agreement"), between FORTRESS MUNICIPAL INCOME FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts business trust (hereinafter called the "Trust") on behalf of its portfolio VIRGINIA MUNICIPAL INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Fund in exchange solely for shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined under the 1940 Act), of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the assets of the Acquired Fund, including all securities and cash, and the Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge all of its liabilities and obligations prior to the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of currency and immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Trust. 2. VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of 4:00 p.m. (Eastern time) on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of 4:00 p.m. (Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be March 30, 1995 or such later date as the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Federated Services Company, as transfer agent for each of the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Acquired Fund represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry out this Agreement. (b) The Trust is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Trust's Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") hereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein as necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statement of Assets and Liabilities of the Acquired Fund at August 31, 1994 have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since August 31, 1994, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund Shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund's Trustees and, subject to the approval of the Acquired Fund Shareholders, this Agreement will constitute the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquired Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 4.2 The Acquiring Fund represents and warrants to the Acquired Fund as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and the Acquiring Fund has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1993 and 1994, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) Since August 31, 1994, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Acquiring Fund's Trustees, and this Agreement will constitute the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (m) The Acquiring Fund has entered into an agreement under which Federated Advisers will assume the expenses of the reorganization including accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Acquired Fund's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Trust's Declaration of Trust. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for Federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Fund assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9. TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Trustees of the Trust or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Board of Trustees of the Acquired Fund) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors, officers or shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Trustees of the Acquiring Fund or of the Acquired Fund, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without giving effect to principles of conflict of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 The Acquiring Fund is hereby expressly put on notice of the limitation of liability as set forth in Article XI of the Declaration of Trust of the Acquired Fund and agrees that the obligations assumed by the Acquired Fund pursuant to this Agreement shall be limited in any case to the Acquired Fund and its assets and the Acquiring Fund shall not seek satisfaction of any such obligation from the shareholders of the Acquired Fund, the trustees, officers, employees or agents of the Acquired Fund or any of them. IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: MUNICIPAL SECURITIES INCOME TRUST, on behalf of its portfolio, VIRGINIA MUNICIPAL INCOME FUND Attest: By:/s/John W. McGonigle /s/J. Crilley Kelly Assistant Secretary Name:John W. McGonigle Title:Vice President Acquiring Fund: FORTRESS MUNICIPAL INCOME FUND, INC. Attest: By: /s/Richard B. Fisher /s/Charles H. Field Assistant Secretary Name:Richard B. Fisher Title:President EXHIBIT B Standard & Poor's Ratings Group Corporate Bond Ratings AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. Moody's Investors Service, Inc., Corporate Bond Ratings Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured.) Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Fitch Investors Service, Inc. Investment Grade Bond Ratings Definitions AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Acquisition of the assets of VIRGINIA MUNICIPAL INCOME FUND (A Portfolio of MUNICIPAL SECURITIES INCOME TRUST) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 By and in exchange for shares of FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-245-5000 Statement of Additional Information This Statement of Additional Information dated February 18, 1995 is not a prospectus. A Prospectus/Proxy Statement dated February 18, 1995 related to the above-referenced matter may be obtained from Fortress Municipal Income Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. Federated Investors Tower Pittsburgh, PA 15222-3779 Statement dated February 18, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors Table Of Contents 1. Statement of Additional Information of Fortress Municipal Income Fund, Inc., dated October 31, 1994 2. Statement of Additional Information of Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated December 31, 1994 3. Financial Statements of Fortress Municipal Income Fund, Inc., dated August 31, 1994 4. Financial Statements of Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust, dated August 31, 1994 The Statement of Additional Information of Fortress Municipal Income Fund, Inc. (the "Fund"), dated October 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about October 26, 1994. A copy may be obtained from the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-245- 5000. The Statement of Additional Information of Virginia Municipal Income Fund (the "Portfolio"), a portfolio of Municipal Securities Income Trust (the "Trust"), dated December 31, 1994, is incorporated herein by reference to Post-Effective Amendment No. 17 to the Trust's Registration Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was filed with the Securities and Exchange Commission on or about December 30, 1994. The audited financial statements of the Fund, dated August 31, 1994, are incorporated herein by reference to the Fund's Prospectus dated October 31, 1994 which was filed with the Securities and Exchange Commission in Post-Effective Amendment No. 10 to the Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) on or about October 26, 1994. The audited financial statements of the Portfolio, dated August 31, 1994, are incorporated herein by reference to the Portfolio's Annual Report to Shareholders for the fiscal year ended August 31, 1994 which was filed with the Securities and Exchange Commission on or about November 1, 1994. Pro forma financial statements are not included herein as the total net assets of the Portfolio do not exceed 10% of the total net assets of the Fund. At December 31, 1994, the total net assets of the Fund were $411,672,068 and the total net assets of the Portfolio were $83,387. Exhibit 17.7 MULTI-STATE MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 MULTI-STATE MUNICIPAL INCOME FUND a Portfolio of FIXED INCOME SECURITIES, INC. CUSIP NO. 338319205 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc., hereby appoint Patricia F. Conner, Charles H. Field, Laura Goldner, Suzanne W. Land, and Jody L. Petras, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of Multi-State Municipal Income Fund, a portfolio of Fixed Income Securities, Inc., which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:00 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. Multi-State Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT AND RECORD DATE SHARES PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. _____________________________________ Signature(s) of Shareholder(s) Date:________________________________ Exhibit 17.2 FLORIDA MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 FLORIDA MUNICIPAL INCOME FUND a Portfolio of MUNICIPAL SECURITIES INCOME TRUST CUSIP NO. 625922802 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of Florida Municipal Income Fund, a portfolio of Municipal Securities Income Trust, which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. Florida Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT RECORD DATE SHARES AND PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. _______________________________ Signature(s) of Shareholder(s) Date:__________________________ Exhibit 17.3 MARYLAND MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 MARYLAND MUNICIPAL INCOME FUND a Portfolio of MUNICIPAL SECURITIES INCOME TRUST CUSIP NO. 625922851 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of Maryland Municipal Income Fund, a portfolio of Municipal Securities Income Trust, which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. Maryland Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT RECORD DATE SHARES AND PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. ____________________________________ Signature(s) of Shareholder(s) Date:_______________________________ Exhibit 17.4 NEW JERSEY MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 NEW JERSEY MUNICIPAL INCOME FUND a Portfolio of MUNICIPAL SECURITIES INCOME TRUST CUSIP NO. 625922885 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of New Jersey Municipal Income Fund, a portfolio of Municipal Securities Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of New Jersey Municipal Income Fund, a portfolio of Municipal Securities Income Trust, which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. . New Jersey Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT RECORD DATE SHARES AND PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. _______________________________________ Signature(s) of Shareholder(s) Date:__________________________________ Exhibit 17.5 TEXAS MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 TEXAS MUNICIPAL INCOME FUND a Portfolio of MUNICIPAL SECURITIES INCOME TRUST CUSIP NO. 625922877 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of Texas Municipal Income Fund, a portfolio of Municipal Securities Income Trust, which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. Texas Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT RECORD DATE SHARES AND PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. _______________________________ Signature(s) of Shareholder(s) Date:__________________________ Exhibit 17.6 VIRGINIA MUNICIPAL INCOME FUND P.O. Box 8606 Boston, MA 02266-8606 VIRGINIA MUNICIPAL INCOME FUND a Portfolio of MUNICIPAL SECURITIES INCOME TRUST CUSIP NO. 625922844 FOR SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1995 KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust, hereby appoint J. Crilley Kelly, Suzanne W. Land, J. Martin Levine, Marjorie B. Sellers and Scott Tretter, or any of them true and lawful attorneys, with power of substitution of each, to vote all shares of Virginia Municipal Income Fund, a portfolio of Municipal Securities Income Trust, which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on March 30, 1995, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:15 p.m. (Eastern Standard Time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. PROPOSAL 1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys named will vote the shares represented by this proxy in accordance with the choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. Place the ballot so that the return address, located on the reverse side of the mail-in- stub, appears through the window of the envelope. Virginia Municipal Income Fund PROXY VOTING MAIL-IN STUB PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT RECORD DATE SHARES AND PLAN OF REORGANIZATION R FOR the Agreement and Plan of Reorganization R AGAINST the Agreement and Plan of Reorganization R ABSTAIN Please sign EXACTLY as your name(s) appear above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. _______________________________ Signature(s) of Shareholder(s) Date:__________________________ EX-99.COVER 2 DICKSTEIN, SHAPIRO & MORIN, L.L.P. 2101 L Street, N.W. Washington, D.C. 20037 (202) 785-9700 February 23, 1995 Via EDGAR EDGAR Operations Branch Division of Investment Management Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Bruce R. MacNeil Re: FORTRESS MUNICIPAL INCOME FUND, INC. Registration Statement on Form N-14 (File No. 33-57355) Ladies and Gentlemen: Enclosed please find the responses of Fortress Municipal Income Fund, Inc. (the "Fund" or the "Registrant") to comments received from the Staff on the Registration Statement in a letter dated February 16, 1995 from Bruce R. MacNeil to the undersigned. Set forth below are the captions of the Staff's comments and the Fund's responses thereto: INFORMATION ABOUT THE REORGANIZATION -- TAX CONSEQUENCES State-Specific Tax-Free Status Staff Comment 1. The President's letter and the prospectus/proxy statement's synopsis disclose that the Fund has a similar investment objective to that of the State Portfolios in that it seeks current income which is exempt from the federal regular income tax. However, the prospectus/proxy statement also discloses that the Fund's shares will not be exempt from either the income tax or the intangibles tax of the respective state of each State Portfolio. The President's letter and a separate paragraph in the synopsis should prominently disclose the loss of state-specific tax-free status for each portfolio except the Texas Portfolio. In addition, please prominently disclose in the synopsis and elsewhere in the prospectus/proxy statement any other adverse tax- consequences to shareholders as a result of the proposed mergers. Response The disclosure relating to the investment objective of the Fund and the State Portfolios has been revised in accordance with the Staff's comment. The Fund is not aware of any other adverse tax consequences to shareholders as a result of the proposed Reorganizations which are not disclosed in the prospectus/proxy statements. Opinion of Counsel Staff Comment 2. The prospectus/proxy statement discloses that "[a]s a condition to the Reorganization transactions, the Fund and the Trust will receive an opinion of counsel that the Reorganization will be considered a tax-free reorganization . . ." (Emphasis added.) However, the Trust has already received this opinion and has filed it as an exhibit to the registration statement. Please revise this disclosure to make it clear that the Trust has already received the opinion. Response The Fund and the portfolios have received an opinion of counsel that the respective Reorganizations will be considered tax-free. Such opinions are conditioned upon the existence of certain facts which must exist at the time the Reorganization is consummated. The Fund and the portfolios will receive confirming opinions at the time of consummation which are not conditional. Accordingly, no change to the disclosure is necessary. INVESTMENT POLICIES AND PRACTICES Investments in Tax-Exempt Securities Staff Comment 3. The Maryland, Virginia and Multi-State Portfolios disclose that they invest their assets so that, under normal circumstances, at least 80% of their annual interest income is exempt from federal regular income tax, or that at least 80% of its net assets are invested in securities the interest from which is exempt from federal regular income tax. The Fund discloses that it invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax. It is the staff's position that a policy that allows the selection of either test in the alternative does not meet the standard set forth in Guide 1 to Form N-1A. Please disclose the actual operating policy of the Maryland, Virginia and Multi-State's Portfolios with respect to the 80% test. If any of these Portfolios operate under the 80% asset test, please disclose in the synopsis what effect, if any, the different test will have on the shareholders of the Maryland, Virginia or Multi-State Portfolios following the reorganization. Response The disclosure has been revised to indicate that, for the most recent fiscal year of the Portfolio, 100% of the Portfolio's annual interest income was exempt from the federal regular income tax. SECURITY RATINGS Junk Bonds -- Legend Staff Comment 4. The prospectus/proxy statement discloses that the Fund may invest up to 35% of its net assets in lower quality municipal bonds rated no lower than BB by Standard & Poor's Corporation or Ba by Moody's Investors Service, Inc. Please revise this disclosure to make it clear that these debt securities are commonly known as either "junk bonds" or "high-yield, high-risk" bonds. See Letter to Registrants dated February 23, 1990 (the "Junk Bond Letter"). Further, the Portfolios do not disclose a policy of investing in junk bonds. Please prominently disclose in a separate paragraph of the prospectus/proxy statement's synopsis the greater risk an investment in the Fund entails because of its policy of investing up to 35% of its net assets in junk bonds. In addition, the Fund should disclose the specific risk factors associated with investments in junk bonds and should include on the cover page of the prospectus/proxy statement a legend indicating that the Fund may invest up to 35% of its net assets in junk bonds. See the Junk Bond Letter. Also, please add the risk of investing in junk bonds to the "Risk Factors" section of the prospectus/proxy statement. Response The disclosure has been clarified to indicate that the Fund will limit its investments in lower quality municipal bonds to less than 35% of its net assets. The disclosure has been revised in accordance with the Staff's comment, except that no legend is required because the Fund may not invest 35% or more of its net assets in junk bonds. Lowest Rated Security Staff Comment 5. The State Portfolios disclose that they invest at least 65% of the value of their respective total assets in municipal securities, rated investment grade or better, of the particular state. The Multi- State Portfolio discloses that it invests primarily in municipal securities which are rated investment grade or better. Please disclose the lowest acceptable rating of all of the non-municipal debt securities in which the Portfolios may invest. Response The Portfolios do not currently invest in non-municipal debt securities. If such investments were made, the securities purchased would be of the same quality as the municipal securities purchased by the Portfolios pursuant to their investment policies. The disclosure has been revised to clarify this point. Downgrading Policy Staff Comment 6. The prospectus/proxy statement does not disclose what actions the Portfolios and the Fund will take in the event of a downgrading of a security below the minimum standard specified for investment. Please include this disclosure. Response The disclosure has been revised in accordance with the Staff's comment. OTHER INVESTMENT POLICIES Diversification Policy Staff Comment 7. The prospectus/proxy statement discloses that the Fund is a registered diversified portfolio and the State Portfolios are non- diversified portfolios. Please specifically state this investment policy as a difference between the Fund and the State Portfolios. Response The classification as diversified or non-diversified is simply that; it is not an investment policy. The disclosure has, however, been revised to specifically point out this difference. Derivative Instruments Staff Comment 8. The Fund and the Portfolios do not disclose any investment policies with respect to derivative instruments, including inverse floaters, structured notes, options, futures and stripped securities (interest-only and principal-only). Please supplementally represent to the staff that neither the Fund or the Portfolios invest in derivative instruments. Response The Fund and the Portfolios have the ability to invest in certain derivative instruments under limited circumstances and the disclosure has been revised to clarify the extent to which the Fund and the Portfolios may do so and to include comparative disclosure of these practices and attendant risks. MISCELLANEOUS Redemption Fee Staff Comment 9. The prospectus/proxy statement discloses that, in connection with the Fund's distribution plan and administrative services, the administrator may pay fees to brokers and financial institutions and that "[t]he administrator may elect to receive amounts less than those stated, which would reduce the redemption fee and/or the holding period used to calculate such fee upon the sale of such shares . . ." (Emphasis added.) It is the staff's position that any fee paid by a fund upon redemption of shares to a broker, administrator or distributor should be characterized as a contingent deferred sales load. Please conform this disclosure to the staff's position. Response The disclosure has been revised in accordance with the Staff's comment. Expense Ratios Staff Comment 10. The prospectus/proxy statement discloses that the adviser has undertaken to reimburse the Fund and each Portfolio for operating expenses in excess of limitations established by certain states. In addition, the prospectus/proxy statement discloses how much higher the Fund's and each Portfolio's expense ratio would be absent the voluntary waiver. However, the Fund and the Portfolios do not disclose the actual expense ratios prior to any waiver. Please disclose the expense ratios in the prospectus/proxy statement. Response The disclosure requested by the Staff is currently contained in the prospectus/proxy statement section entitled "Investment Objectives and Policies-Advisory and Other Fees". Minimum Initial and Subsequent Investments Staff Comment 11. The Fund discloses that its minimum initial investment is $1,500 and that subsequent investment must be in amounts of at least $100. The Portfolios do not disclose their minimum initial investment or minimum subsequent investment. Although the Portfolios disclose that they have ceased offering their shares for sale, please disclose their minimum initial and minimum subsequent investments in the prospectus/proxy statement. Response The disclosure has been revised in accordance with the Staff's comment. Telephonic Proxies Staff Comment 12. The prospectus/proxy statement discloses that proxy solicitations may be made by telephone. Please advise us supplementally whether the Fund in fact intends to use telephonic proxies (actual transcriptions of votes over the telephone). If so, we will have additional comments concerning information which must appear in either the prospectus/proxy statement or in additional soliciting material which must be furnished to shareholders in advance of the telephonic transcription of votes. Response The portfolios intend to solicit written proxies by telephone but not to solicit or use telephonic proxies. Proxy Card Staff Comment 13. The proxy card describes each Portfolio's Proposal 1 as "[t]o approve or disapprove an agreement and plan of reorganization." However, there is no further description of the transaction on the proxy card. Please include on each proxy card a brief description of the proposal (e.g., approve or disapprove a plan of reorganization for the acquisition of the respective Portfolio by the Fund). Response In the Registrant's view, the wording currently used on the proxy cards is adequate to describe the proposal. Any additional disclosure which could be added to the proxy card would be legalistic in nature; in the Registrant's view, such disclosure is potentially more confusing to shareholders in the exercise of their voting rights and is, accordingly, unwarranted. Moreover, the same form of wording has previously been used on multiple occasions without Staff comment. Finally, in reliance on the lack of prior objection to this formulation, the Registrant has already printed proxy cards. It would therefore result in a hardship to the Registrant to revise this wording. Accordingly, the Registrant will not revise such cards. ACCOUNTING COMMENTS Pro Forma Capitalization Table Staff Comments 14. The Fund proposes to merge with six different portfolios. Each prospectus/proxy statement includes a pro forma capitalization table for the Fund and the respective Portfolio and pro forma information for the Fund combined with the respective Portfolio. However, the capitalization table does not present the capitalization information for the other Portfolios (i.e., the Portfolios which are not the Portfolio to which that prospectus/proxy statement relates) and pro forma information for the Fund combined with all of the Portfolios. Please include in the table the capitalization information for the other Portfolios and the combined pro forma capitalization information. Response In the Registrant's view, the capitalization information relating to other transactions is not material to investors because of the small size of the Portfolios in the aggregate relative to the Fund. A statement to that effect has been included under the caption "Capitalization." Portfolio Holdings -- AMT Staff Comment 15. The Fund and the State Portfolios' Schedule of Portfolio Securities contained in their annual reports of August 31, 1994 and the Multi-State Portfolio's Schedule of Portfolio Securities contained in its annual report of November 30, 1994 show investment holdings in securities subject to the alternative minimum tax (AMT). Please compare and contrast the Fund's and the Portfolio's investment policy with respect to investment in securities subject to AMT in the appropriate section of the prospectus/proxy statement. In addition, please disclose the tax-consequences in the appropriate tax section of the prospectus/proxy statement as a result of such investments. Response The disclosure has been revised in accordance with the Staff's comment to state that both the Fund and the Portfolio may invest in securities which are subject to the alternative minimum tax. The policies of each of the Fund and the Portfolio with respect to such investments are identical. Fund Realignment Staff Comment 16. The prospectus/proxy statement discloses that the reorganization will be considered a tax-free reorganization under applicable provisions of the Internal Revenue Code so that no gain or loss will be recognized by either the Portfolios or the Fund or its shareholders. Please discuss the extent to which securities of the combined portfolios are expected to be sold in order to effect a realignment with the policies and investment practices of the Fund and disclose the tax consequences, if any. Response The Fund does not anticipate selling any securities of the combined portfolio to effect a realignment with the policies and investment practices of the Fund. If any such sales were to occur, the Fund anticipates that there would be no material tax consequences to the Fund or its shareholders. Consequently, the Fund is of the view that no additional disclosure is required. Distribution Arrangements Staff Comment 17. The prospectus/proxy statement discloses that both the Portfolios and the Fund have distribution plans under Rule 12b-1. However, the prospectus/proxy statement does not disclose whether the Fund will assume any liabilities or make any voluntary reimbursements on account of any Portfolio's 12b-1 plan. Please provide this disclosure in the prospectus/proxy statement. Response The disclosure has been revised in accordance with the Staff's comment. In the event the Staff has any further questions on this filing, please feel free to contact the undersigned at (202) 828-2218. Very truly yours, /s/ Matthew G. Maloney Matthew G. Maloney Enclosure cc: John W. McGonigle, Esq. Charles H. Field, Esq. -----END PRIVACY-ENHANCED MESSAGE-----