SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________________
3) Filing Party:
____________________________________________________________
4) Date Filed:
____________________________________________________________
i
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 19, 2006
A special meeting of the shareholders of Federated Municipal High
Yield Advantage Fund, Inc. (the "Fund" or "Corporation") will be held at 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (Eastern
Time), on October 19, 2006 to consider proposals:
(1)To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Fund and Federated Municipal
Securities Income Trust, on behalf of its series, the
Federated Municipal High Yield Advantage Fund (the
"Reorganized Fund"), whereby the Reorganized Fund would
acquire all of the assets (subject to the stated liabilities)
of the Fund in exchange for shares of beneficial interest of
the Reorganized Fund to be distributed pro rata by the Fund to
its shareholders in complete liquidation and dissolution of
the Fund.
(2)To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed August 22, 2006 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of
Directors,
John W. McGonigle
Secretary
September 13, 2006
YOU CAN HELP THE FUND AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
1
SUMMARY OF TERMS
The following is a brief description of the material terms of the proposed
mutual fund reorganization that you are being asked to approve or disapprove as
a shareholder of Federated Municipal High Yield Advantage Fund, Inc. Please see
the more detailed information that follows this Summary of Terms for a more
complete description of the proposed mutual fund reorganization:
{circle}You are being asked to approve or disapprove a proposed Agreement and
Plan of Reorganization between Federated Municipal High Yield Advantage
Fund, Inc. (the "Fund"), and Federated Municipal Securities Income Trust
("FMSIT"), on behalf of its series, the Federated Municipal High Yield
Advantage Fund (the "Reorganized Fund"), whereby the Reorganized Fund
would acquire all of the assets (subject to the stated liabilities) of the
Fund in exchange for shares of beneficial interest of the Reorganized Fund
to be distributed pro rata by the Fund to its shareholders in complete
liquidation and dissolution of the Fund (the "Reorganization"). See the
"Notice of Special Meeting of Shareholders," and "Approval of Agreement
and Plan of Reorganization" below, for further information.
{circle}A special meeting of the shareholders of the Fund will be held on
October 19, 2006 at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-
7000 at 2:00 p.m. to vote to approve or disapprove the proposed Agreement
and Plan of Reorganization. The Board of Directors has fixed August 22,
2006 as the record date for determination of shareholders entitled to vote
at the meeting. See the "Notice of Special Meeting of Shareholders," and
"About the Proxy Solicitation and the Special Meeting" and "Information
About the Fund" below, for further information.
{circle}As a result of the Reorganization, there will be no changes in the
investment adviser ("Adviser"), distributor, administrator, custodian,
transfer agent, independent public account firm, trustees, officers or
portfolio manager between the Fund and the Reorganized Fund. See
"Approval of Agreement and Plan of Reorganization" below for further
information.
{circle}Like the Fund, the Reorganized Fund will have four share classes,
which will have front-end sales loads, contingent deferred sales charges,
management fees, distribution (12b-1) fees, and expense ratios similar to
the Fund. See "Comparison of Share Classes, Loads and Expenses" for
further information.
{circle}The investment objective, investment strategies, and risks of the
Reorganized Fund are the same, in all material respects, as the investment
objective, investment strategies and risks of the Fund (except that there
are certain differences in the investment limitations between the Fund and
the Reorganized Fund). Like the Fund, the Reorganized Fund also will be
non-diversified. See "Comparison of Investment Objectives, Strategy and
Risks" below for further information.
{circle}The primary difference in investment limitations between the Fund and
the Reorganized Fund is the fact that the Reorganized Fund's fundamental
investment limitation on "Borrowing Money and Issuing Senior Securities"
differs from the Fund's fundamental investment limitation in that the
Reorganized Fund's investment limitation permits the Adviser to borrow
money and engage in reverse repurchase agreement transactions, including
for investment leverage, subject only to the limitations on borrowing
under the Investment Company Act of 1940 ("1940 Act"), and to issue senior
securities to the maximum extent permitted under the 1940 Act. See
"Comparison of Investment Limitations" below for a more complete
description of the differences in investment limitations.
{circle}The Fund is a Maryland corporation. The Reorganized Fund is a series
of FMSIT, which is a Massachusetts business trust. The Reorganization is
being proposed to convert the Fund from a Maryland corporation to a series
of a Massachusetts business trust in order to eliminate the need to pay
Pennsylvania franchise tax. Unlike the Fund, as a portfolio of FMSIT, the
Reorganized Fund will not be subject to the Pennsylvania Franchise Tax.
Also, due to the differences in investment limitations between the Fund
and the Reorganized Fund, after the Reorganization, the Trustees of the
Reorganized Fund will have the ability to respond more quickly to changes
in competitive and regulatory conditions, which also is expected to allow
the Reorganized Fund to operate in a more efficient and economical manner.
See "Reasons for the Proposed Reorganizations," "Comparison of
Massachusetts and Maryland Law" and "Comparative Information on
Shareholder Rights and Obligations" below for further information.
{circle}If the Agreement and Plan of Reorganization is approved by the
shareholders of the Fund, following the Reorganization, shareholders of
the Fund will be shareholders of the Reorganized Fund. The Reorganization
is intended to be a tax-free "reorganization" under applicable provisions
of the Internal Revenue Code with respect to the Reorganized Fund and the
Fund, and the Fund's shareholders. Upon the completion of the
Reorganization, the Fund will be deregistered as an investment company
under the 1940 Act and its existence terminated under state law. See
"Description of the Reorganization Agreement" and "Additional Information
Regarding the Reorganization" below for further information.
2
TABLE OF CONTENTS
ABOUT THE PROXY SOLICITATION AND THE SPECIAL MEETING................
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION....................
DESCRIPTION OF THE REORGANIZATION AGREEMENT......................
REASONS FOR THE PROPOSED REORGANIZATION..........................
COMPARISON OF THE FUND AND THE REORGANIZED FUND.....................
COMPARISON OF INVESTMENT OBJECTIVES, STRATEGY AND RISKS..........
COMPARISON OF INVESTMENT LIMITATIONS.............................
COMPARISON OF SHARE CLASSES, LOADS, AND EXPENSES.................
COMPARISON OF MASSACHUSETTS AND MARYLAND LAW.....................
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS....
ADDITIONAL INFORMATION REGARDING THE REORGANIZATION.................
PROXIES, QUORUM AND VOTING AT THE SPECIAL MEETING...................
SHARE OWNERSHIP OF THE FUND.........................................
LEGAL PROCEEDINGS...................................................
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY........
APPENDIX I..........................................................
3
PROXY STATEMENT
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
ABOUT THE PROXY SOLICITATION AND THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors of the
Fund (the "Board"). The proxies will be voted at the special meeting of
shareholders of the Fund to be held on October 19, 2006 at 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (Eastern time) (such special
meeting and any adjournment or postponement thereof are referred to as the
"Special Meeting").
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by the Fund. In addition to solicitations through the
mails, proxies may be solicited by officers, employees, and agents of the Fund
or through a communications firm retained for this purpose. Such solicitations
may be by telephone, telegraph, through the Internet or otherwise. Any
telephonic solicitations will follow procedures designed to ensure accuracy and
prevent fraud, including requiring identifying shareholder information,
recording the shareholder's instructions, and confirming to the shareholder
after the fact. Shareholders who communicate proxies by telephone or by other
electronic means have the same power and authority to issue, revoke, or
otherwise change their voting instruction as shareholders submitting proxies in
written form. The Fund 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.
At its meeting on May 18, 2006, the Board reviewed the proposed
reorganization of the Fund and approved it subject to shareholder approval. The
purposes of the Special Meeting are set forth in the accompanying Notice. The
Directors know of no business other than that mentioned in the Notice that will
be presented for consideration at the Special Meeting. Should other business
properly be brought before the Special Meeting, proxies will be voted in
accordance with the best judgment of the persons named as proxies. This proxy
statement and the enclosed proxy card are expected to be mailed on or about
September 13, 2006, to shareholders of record at the close of business on August
22, 2006 (the "Record Date"). On the Record Date, the Fund had outstanding
57,554,996 shares of common stock.
At a meeting on February 16, 2006, the Board approved revisions to certain
investment limitations of the Fund, which action did not require shareholder
approval. This action was reflected in a supplement to the Fund's Statement of
Additional Information, which was dated and filed with the Securities and
Exchange Commission ("SEC") on February 22, 2006, and is available, free of
charge, by calling the Fund's toll-free telephone number identified below.
The Fund's annual report, which includes audited financial statements for
the fiscal year ended August 31, 2005, was previously mailed to shareholders. A
copy of the Fund's most recent annual report is available free of charge by
calling the Fund's toll-free number identified below. The Fund's principal
executive offices are located at Federated Investors Funds, 5800 Corporate
Drive, Pittsburgh, Pennsylvania 15237-7000. The Fund's toll-free telephone
number is 1- 800-341-7400.
PROPOSAL #1:
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors of the Fund has voted to recommend to shareholders
of the Fund the approval of an Agreement and Plan of Reorganization (the
"Reorganization Agreement") whereby Federated Municipal Securities Income Trust,
a Massachusetts business trust ("FMSIT"), on behalf of its portfolio, Federated
Municipal High Yield Advantage Fund (the "Reorganized Fund"), would acquire all
of the assets (subject to stated liabilities) of the Fund in exchange for shares
of beneficial interest of the Reorganized Fund to be distributed pro rata by the
Fund to its shareholders in complete liquidation and dissolution of the Fund
(the "Reorganization"). A form of the Reorganization Agreement is attached as
Appendix I to this Proxy Statement. A copy of the Prospectus for the
Reorganized Fund dated August 7, 2006, is included with this Proxy Statement as
well. As a result of the Reorganization, each shareholder of the Fund will
become the owner of the same number of Reorganized Fund shares having a total
net asset value equal to the total net asset value of his or her holdings in the
Fund on the date of the Reorganization. The Fund will be the accounting
survivor in the Reorganization.
FMSIT will not issue share certificates with respect to shares of the
Reorganized Fund issued in connection with the Reorganization. Shareholders who
currently hold certificates for their Fund shares are urged to surrender those
certificates before the Reorganization takes place.
The investment adviser (the "Adviser") for the Fund and the Reorganized
Fund is Federated Investment Management Company, a subsidiary of Federated
Investors, Inc. ("Federated"). The advisory contract between the Fund and the
Adviser also provides for the same management fee, and is otherwise
substantially similar in all material respects, to the advisory contract between
the Reorganized Fund and the Adviser. The distributor for the Fund and the
Reorganized Fund is Federated Securities Corp., an affiliate of the Adviser.
The administrator for the Fund and the Reorganized Fund is Federated
Administrative Services, an affiliate of the Adviser. The custodian and
transfer agent for the Fund and the Reorganized Fund is State Street Bank and
Trust Company. The independent registered public accounting firm for the Fund
and the Reorganized Fund is Ernst & Young LLP. The trustees, officers and
portfolio manager for the Fund and the Reorganized Fund also are the same. As a
result of the Reorganization, there will be no changes in the Adviser,
distributor, administrator, custodian, transfer agent, independent public
account firm, trustees, officers or portfolio manager between the Fund and the
Reorganized Fund. Please see "Comparison of the Fund and the Reorganized Fund"
below for information regarding the differences between the Fund and the
Reorganized Fund.
Description of the Reorganization Agreement
Significant aspects of the Reorganization and provisions of the
Reorganization Agreement are summarized below; however, this summary of the
Reorganization Agreement is qualified in its entirety by reference to the full
text of the Reorganization Agreement between the Fund and FMSIT, a form of
which is attached as Appendix I to this Proxy Statement.
The Reorganization Agreement provides that all of the assets of the Fund
will be transferred to the Reorganized Fund, subject to the stated liabilities
of the Fund. In exchange for these assets, the Reorganized Fund will issue
shares in the same amount as each class of outstanding shares of the Fund at
the time of the Reorganization. The Fund will distribute these shares so that
each holder of shares of the Fund will receive the same number (with the same
aggregate value) of the same class of shares of the Reorganized Fund as the
shareholder had in the Fund immediately prior to the Reorganization. The Fund's
shareholders will not pay a sales charge, commission or other transaction cost
in connection with their receipt of the shares of the Reorganized Fund in
connection with the Reorganization. Any contingent deferred sales charges
payable upon redemption of shares received in the Reorganization will be
calculated as if those shares had continued to be Fund shares.
As a condition to the Reorganization, the Fund and FMSIT 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 for federal income tax purposes will be recognized by
either the Fund or the Reorganized Fund or by the shareholders of the Fund. The
tax basis of the Reorganized Fund shares received by Fund shareholders will be
the same as the tax basis of their shares in the Fund.
Reasons for the Proposed Reorganization
The Reorganization is being proposed to convert the Fund from a Maryland
corporation to a series of a Massachusetts business trust in order to eliminate
the need to pay Pennsylvania franchise tax. Unlike the Fund, as a portfolio of
FMSIT, the Reorganized Fund will not be subject to the Pennsylvania franchise
tax. Due to the differences in investment limitations between the Fund and the
Reorganized Fund as described below (See "Comparison of Investment Limitations"
below), after the Reorganization, the Trustees of the Reorganized Fund will have
the ability to respond more quickly to changes in competitive and regulatory
conditions, which is expected to allow the Reorganized Fund to operate in a more
efficient and economical manner.
COMPARISON OF THE FUND AND THE REORGANIZED FUND
The Fund is an open-end management investment company currently organized
as a Maryland corporation. The Fund offers four classes of shares (Class A,
Class B, Class C and Class F Shares). FMSIT is an open-end management investment
company that consists of a number of portfolios, each of which has its own
investment objective. The Reorganized Fund is a newly organized portfolio of
FMSIT that will offer four classes of shares that are identical to each of the
four classes of shares offered by the Fund. The Reorganized Fund will not
engage in any operations prior to the Reorganization.
Comparison of Investment Objectives, Strategy, and Risks
The investment objective, investment strategies, and risks of the
Reorganized Fund are the same, in all material respects, as the investment
objective, investment strategies and risks of the Fund (except to the extent of
certain changes in investment limitations; see "Comparison of Investment
Limitations" below).
The Fund's investment objective is to provide a high level of current
income which is generally exempt from the federal regular income tax. The Fund
invests its assets so that, normally, distributions of annual interest income
are exempt from federal regular income tax (except when investing for
"defensive" purposes). Interest from the Fund's investments may be subject to
the federal alternative minimum tax for individuals and corporations ("AMT").
The Fund invests primarily in long-term, tax-exempt securities that are: (1)
medium quality (i.e., securities rated in the third or fourth highest rating
category by a nationally recognized statistical rating organization (NRSRO) or
unrated securities of comparable quality); or (2) non-investment grade or
unrated securities of comparable quality. The Fund's investment adviser
(Adviser) actively manages the Fund's portfolio, seeking to manage credit risk
assumed by the Fund and provide superior levels of income.
Like the Fund, the Reorganized Fund's investment objective is to provide a
high level of current income which is generally exempt from the federal regular
income tax. The Reorganized Fund also invests its assets so that, normally,
distributions of annual interest income are exempt from federal regular income
tax (except when investing for "defensive" purposes). Interest from the
Reorganized Fund's investments may be subject to AMT. The Reorganized Fund
invests primarily in long-term, tax-exempt securities that are (1) medium
quality, or (2) non-investment grade or unrated securities of comparable
quality. Long-term tax-exempt securities generally include tax-exempt
securities with remaining maturities of 15 or more years. The Reorganized Fund
also may invest in tax-exempt securities with remaining maturities of less than
15 years. Medium quality securities generally include securities rated in the
third or fourth highest rating category by a NRSRO and unrated securities of
comparable quality. For example, tax-exempt securities rated "A" and "BBB" by
Standard & Poor's, an NRSRO, are rated in the third ("A") and fourth ("BBB")
highest rating categories. Under relevant SEC guidance, the Reorganized Fund
(like the Fund) is permitted to invest in medium quality and other investment
grade tax-exempt securities to a greater degree than a high yield bond fund that
does not invest primarily in tax-exempt municipal securities. The Reorganized
Fund invests primarily in medium-quality and non-investment grade, tax-exempt
securities in an attempt to pursue a higher level of current income than a tax-
exempt bond fund that invests purely in investment grade securities. Although
medium quality securities are still considered investment grade securities,
lower credit ratings do correspond to higher credit risk.
Regarding both the Fund and Reorganized Fund, the Adviser manages credit
risk by performing a fundamental credit analysis on all tax-exempt securities
before the Fund or Reorganized Fund purchases such securities. The Adviser
considers various factors, including the economic feasibility of revenue bond
financings and general purpose financings; the financial condition of the issuer
or guarantor; and political developments that may affect credit quality. The
Adviser monitors the credit risks of all tax exempt securities on an ongoing
basis by reviewing periodic financial data and ratings of NRSROs. The Adviser
performs a more intensive credit analysis on non-investment grade, tax-exempt
securities. In addition to the review process described above, the Adviser, when
appropriate, visits the site that the issuer is developing with the proceeds of
the offering and engages in discussions with the issuer regarding the offering.
The Adviser also attempts to provide superior levels of income by
investing in long-term, tax-exempt securities and managing the duration of the
Fund. "Duration" measures the sensitivity of a security's price to changes in
interest rates. The greater a portfolio's duration, the greater the change in
the portfolio's value in response to a change in market interest rates. The
Adviser increases or reduces the Fund's or Reorganized Fund's portfolio duration
based on its interest rate outlook. When the Adviser expects interest rates to
fall, it maintains a longer portfolio duration. When the Adviser expects
interest rates to increase, it shortens the portfolio duration. The Adviser uses
hedging transactions for purposes of duration management. The Adviser considers
a variety of factors in formulating its interest rate outlook, including current
and expected U.S. economic growth; current and expected interest rates and
inflation; the Federal Reserve's monetary policy; and supply and demand factors
related to the municipal market and the effect they may have on the returns
offered for various bond maturities. Duration management is less important when
a greater portion of the Fund or Reorganized Fund is allocated to non-investment
grade, tax-exempt securities, because such securities are less sensitive to
interest rate changes.
The Adviser also attempts to provide superior levels of income by
investing in non-investment grade, tax-exempt securities, which generally
provide higher yields. The percentage that the Adviser allocates to non-
investment grade securities will vary depending on the supply of non-investment
grade, tax-exempt securities and the credit spread between investment grade,
tax-exempt securities and non-investment grade, tax-exempt securities. If the
credit spread narrows, the Adviser may increase its allocation to investment
grade securities without limitation; if the credit spread broadens, the Adviser
may increase its allocation to non-investment grade securities without
limitation. The Adviser may invest up to 100% of the Fund's and the Reorganized
Fund's assets in non-investment grade, tax-exempt securities.
The Fund and Reorganized Fund each have the ability to principally invest
in tax-exempt securities, including general obligation bonds, special revenue
bonds, private activity bonds, tax-incremental financing bonds, municipal
leases, zero coupon securities, inverse floaters, and municipal mortgage-backed
securities.
The Fund and the Reorganized Fund may enter into derivatives contracts as
hedging transactions. The Fund and the Reorganized Fund also may use derivative
contracts to implement their overall investment strategies in a more cost
effective or efficient manner. For example, the Fund and the Reorganized Fund
may purchase derivatives contracts rather than individual securities in order to
gain exposure to the municipal bond sector. Both the Fund and Reorganized Fund
are permitted to invest in futures contracts (including interest rate and index
financial futures contracts), options (including put and call options, exchange
traded and over-the-counter options and options on a wide variety of underlying
assets and instruments, such as financial indices, individual securities, and
other derivative instruments), and swaps (including interest rate swaps, caps
and floors, total return swaps and credit default swaps).
The Fund and the Reorganized Fund each have the ability to invest, as a
non-principal investment, in other fixed income securities, such as variable
rate demand instruments, municipal notes and asset-backed securities, and in
securities of other investment companies and credit linked notes. The
Reorganized Fund also has the ability to invest in repurchase agreements and
reverse repurchase agreements. (See "Comparison of Investment Limitations"
below for a further discussion of the Reorganized Fund's ability to invest in
reverse repurchase agreements). The Fund may only invest in repurchase
agreements and reverse repurchase agreements for temporary defensive purposes.
Both the Fund and the Reorganized Fund may invest in treasury securities, bank
instruments, agency securities, corporate debt securities and commercial paper
for temporary defensive purposes. The Fund and Reorganized Fund may invest in
these securities for temporary defensive purposes to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions.
Each of the Fund and the Reorganized Fund invest its assets so that at
least 80% of the income that it distributes will be exempt from federal regular
income tax, except when investing for "defensive" purposes.
The Fund and the Reorganized Fund are both subject to credit risk, call
risk, sector risk, tax risk, leverage risks, liquidity risks, prepayment risks,
the risks of investing in derivative contracts, the risks associated with non-
investment grade securities and non-diversification risk.
As noted above, the investment objective, investment strategies, and risks
of the Reorganized Fund are the same, in all material respects, as the
investment objective, investment strategies and risks of the Fund (except to the
extent of certain changes in investment limitations; see "Comparison of
Investment Limitations" below). Also, like the Fund, the Reorganized Fund will
be non-diversified.
Comparison of Investment Limitations
In addition to the investment objectives and strategy described above, the
Fund and the Reorganized Fund are each subject to certain investment
limitations. A summary of the fundamental and non-fundamental investment
limitations of the Fund and the Reorganized Fund is set forth below.
"Fundamental investment limitations" cannot be changed unless authorized by the
Board of Directors/Trustees of a mutual fund and by the "vote of a majority of
its outstanding voting securities" as defined in the Investment Company Act of
1940 ("1940 Act"). "Non-fundamental investment limitations" may be changed by
the Board of Directors/Trustees of a mutual fund without shareholder approval.
The investment limitations of the Reorganized Fund are similar to the
investment limitations of the Fund, and the overall differences in the
investment limitations will not materially affect the investment strategies of
the Reorganized Fund, except that the Reorganized Fund's fundamental investment
limitation on Borrowing Money and Issuing Senior Securities differs from the
Fund's fundamental investment limitation in that the Reorganized Fund's
investment limitation permits the Adviser to borrow money and engage in reverse
repurchase agreement transactions, including for investment leverage, subject
only to the limitations on borrowing under the 1940 Act, and to issue senior
securities to the maximum extent permitted under the 1940 Act. This primary
difference in investment limitations is discussed in more detail following the
summary of the Fund's and Reorganized Fund's investment limitations set forth
below.
The Reorganized Fund's investment limitations also differ from the Fund's
investment limitations in that the Reorganized Fund's "Lending" investment
limitation clarifies that the Reorganized Fund is permitted to make loans to
affiliated mutual funds pursuant to exemptive relief granted by the U.S.
Securities and Exchange Commission. Certain fundamental investment limitations
of the Fund will be non-fundamental investment limitations of the Reorganized
Fund (see the "Buying on Margin" and "Pledging Assets" investment limitations
below). As noted above, this means that the non-fundamental investment
limitations may be changed by the Board of Trustees of the Reorganized Fund
without shareholder approval. The Reorganized Fund does not have a "Selling
Short" investment limitation. Finally, the wording of certain of the
Reorganized Fund's investment limitations differs from the wording of the Fund's
investment limitations because the investment limitations of the Reorganized
Fund have been updated to be more consistent with the investment limitations for
other mutual funds in the Federated family of mutual funds, to provide
flexibility to the Reorganized Fund and its Adviser, and to give the Trustees of
the Reorganized Fund the ability to respond more quickly to changes in
competitive and regulatory conditions, which is expected to allow the
Reorganized Fund to operate in a more efficient and economical manner. See the
summary of the fundamental and non-fundamental investment limitations of the
Fund and the Reorganized Fund below for more specific information regarding the
differences between the investment limitations of the Fund and the Reorganized
Fund.
SUMMARY OF INVESTMENT LIMITATIONS
FUND REORGANIZED FUND EXPLANATION OF DIFFERENCES
DIVERSIFICATION DIVERSIFICATION No difference.
The Fund does not The Reorganized
have a Fund does not
diversification have a
limitation. It diversification
is a non- limitation. It
diversified fund. is a non-
diversified
fund.
BUYING ON MARGIN BUYING ON MARGIN "Buying on Margin" is a non-fundamental investment limitation for the Reorganized Fund, meaning
(Fundamental) (Non- that this investment limitation may be changed by the Board of Trustees of the Reorganized Fund
The Fund will not Fundamental) without shareholder approval.
purchase any The Reorganized The Reorganized Fund's "Buying on Margin" non-fundamental investment limitation also differs from
securities on Fund does not the Fund's fundamental investment limitation in that the types of derivatives contracts for which
margin, but may have a similar margin deposits can be made are not limited to certain specific-types of derivatives contracts
obtain such fundamental enumerated in the investment limitation. This difference is reflected in the generic reference
short-term investment to "permissible activities" in the Reorganized Fund's investment limitation (rather than listing
credits as are limitation. specific types of derivatives contracts).
necessary for The Reorganized
clearance of Fund has a
transactions. similar non-
The deposit or fundamental
payment by the investment
Fund of initial limitation,
or variation which reads as
margin in follows:
connection with "The Fund will
financial futures not purchase any
contracts or securities on
related options margin, provided
transactions is that the Fund
not considered may obtain
the purchase of a short-term
security on credits
margin. necessary for
the clearance of
purchases and
sales of
securities and
further provided
that the Fund
may make margin
deposits and/or
collateral
arrangements in
connection with
permissible
activities."
SELLING SHORT SELLING SHORT The Reorganized Fund does not have an investment limitation prohibiting the Reorganized Fund from
The Fund will not selling securities short.
sell securities The Reorganized Certain restrictions imposed by state laws and regulations were preempted by the National
short. Fund does not Securities Markets Improvement Act of 1996 ("NSMIA") and no longer apply to mutual funds created
have a similar after 1996. Until NSMIA was adopted in 1996, the securities laws of several states required
fundamental or every investment company which intended to sell its shares in those states to adopt policies
non-fundamental governing a variety of operational issues, including investments in certain securities. As a
investment consequence of those restrictions, the Fund adopted the investment limitation on "Selling Short"
limitation. and agreed that the limitation would be changed only upon the approval of shareholders. Since
these prohibitions are no longer required under current law, the Board of the Reorganized Fund
did not believe this policy was necessary. Without this policy, the Reorganized Fund has greater
flexibility in the management of the Reorganized Fund because the Reorganized Fund is permitted
to purchase a broader range of securities that are permitted investments and that are consistent
with the Reorganized Fund's investment objectives and policies.
ISSUING SENIOR BORROWING MONEY The Reorganized Fund's fundamental investment limitation on
SECURITIES AND AND ISSUING Borrowing Money and Issuing Senior Securities" differs from the Fund's fundamental investment
BORROWING MONEY SENIOR limitation in that the Reorganized Fund's investment limitation will permit the Adviser to borrow
(Fundamental) SECURITIES money and engage in reverse repurchase agreement transactions, including for investment leverage,
The Fund will not (Fundamental) subject only to the limitations on borrowing under the 1940 Act. The Reorganized Fund also will
issue senior The Reorganized be able to issue senior securities to the maximum extent permitted under the 1940 Act. See the
securities except Fund may borrow discussion following this summary for more information regarding the differences between the
that the Fund may money, directly Reorganized Fund's fundamental investment limitation and the Fund's fundamental investment
borrow money and or indirectly, limitation on "Borrowing Money and Issuing Senior Securities."
engage in reverse and issue senior
repurchase securities to
agreements in the maximum
amounts up to extent permitted
one-third of the under the 1940
value of its Act, any rule or
total assets, order
including the thereunder, or
amounts borrowed. any SEC staff
The Fund will not interpretation
borrow money or thereof.
engage in reverse
repurchase
agreements for
investment
leverage, but
rather as a
temporary,
extraordinary, or
emergency measure
or to facilitate
management of the
portfolio by
enabling the Fund
to meet
redemption
requests when the
liquidation of
portfolio
securities is
deemed to be
inconvenient or
disadvantageous.
During the period
any reverse
repurchase
agreements are
outstanding, but
only to the
extent necessary
to assure
completion of the
reverse
repurchase
agreements, the
Fund will
restrict the
purchase of
portfolio
instruments to
money market
instruments
maturing on or
before the
expiration date
of the reverse
repurchase
agreements.
PLEDGING ASSETS PLEDGING ASSETS "Pledging Assets" is a non-fundamental investment limitation for the Reorganized Fund, meaning
(Fundamental) (Non- that this investment limitation may be changed by the Board of Trustees of the Reorganized Fund
The Fund will not Fundamental) without shareholder approval.
mortgage, pledge The Reorganized The Reorganized Fund's "Pledging Assets" non-fundamental investment limitation also differs from
or hypothecate Fund does not the Fund's fundamental investment limitation in that there is no express 10% of total assets
any assets except have a similar limitation on the amount of assets the Reorganized Fund is permitted to pledge to secure
to secure fundamental permitted borrowings and the Reorganized Fund's non-fundamental investment policy makes clear
permitted investment that the Reorganized Fund may pledge assets for collateral arrangements in connection with
borrowings. In limitation. permissible activities, such as, for example, derivative contracts (rather than listing specific
those cases, it The Reorganized types of instruments for which collateral arrangements may be made without being deemed a pledge
may pledge assets Fund has a of assets).
having a market similar non-
value not fundamental
exceeding the investment
lesser of the limitation,
dollar amounts which reads as
borrowed or 10% follows:
of the value of "The Reorganized
total assets at Fund will not
the time of the mortgage,
borrowing. pledge, or
Neither the hypothecate any
deposit of of its assets,
underlying provided that
securities and this shall not
other assets in apply to the
escrow in transfer of
connection with securities in
the writing of connection with
put or call any permissible
options on borrowing or to
municipal bonds collateral
nor margin arrangements in
deposits for the connection with
purchase and sale permissible
of financial activities."
futures contracts
and related
options are
deemed to be a
pledge.
INVESTING IN REAL INVESTING IN The Reorganized Fund's fundamental investment limitation on "Investing in Real Estate" differs
ESTATE REAL ESTATE from the Fund's fundamental investment limitation in that it makes clear that the Reorganized
(Fundamental) (Fundamental) Fund may invest in issuers which not only invest, but also deal or otherwise engage in,
The Fund will not The Reorganized transactions in real estate, or interests therein, and that the Reorganized Fund may exercise
buy or sell real Fund may not rights under arrangements relating to securities that are secured by real estate, including the
estate, although purchase or sell right to enforce security interests and to hold real estate acquired by reason of such
it may invest in real estate, enforcement until that real estate can be liquidated.
securities of provided that
companies whose this restriction
business involves does not prevent
the purchase or the Reorganized
sale of real Fund from
estate or in investing in
securities which issuers which
are secured by invest, deal, or
real estate or otherwise engage
interests in real in transactions
estate. in real estate
or interests
therein, or
investing in
securities that
are secured by
real estate or
interests
therein. The
Reorganized Fund
may exercise its
rights under
agreements
relating to such
securities,
including the
right to enforce
security
interests and to
hold real estate
acquired by
reason of such
enforcement
until that real
estate can be
liquidated in an
orderly manner.
INVESTING IN INVESTING IN The Reorganized Fund's fundamental investment limitation on "Investing in Commodities" differs
COMMODITIES COMMODITIES from the Fund's fundamental investment limitation in that the Reorganized Fund is permitted to
(Fundamental) (Fundamental) invest in commodities to the maximum extent permitted under the 1940 Act (rather than
The Fund will not specifically listing the types of activities that the Reorganized Fund may engage in). This
purchase or sell The Fund may difference makes clear that the Board and Adviser have greater flexibility as to the types of
commodities, invest in instruments in which the Reorganized Fund may invest (such as, for example, particular types of
except that the commodities to derivative contracts, including non-cash settled, as well as cash settled, derivatives
Fund may purchase the maximum contracts).
and sell extent permitted
financial futures under the 1940
contracts and Act.
related options.
UNDERWRITING UNDERWRITING The Reorganized Fund's fundamental investment limitation on "Underwriting" differs from the
(Fundamental) (Fundamental) Fund's fundamental investment limitation in that it makes clear that the Reorganized Fund may
The Fund will not The Fund may not engage in transactions involving the acquisition, disposition or resale of its portfolio
underwrite any underwrite the securities (rather than just "restricted securities," or securities subject to restrictions on
issue of securities of resale under federal securities laws) under circumstances where the Reorganized Fund may be
securities, other issuers, considered to be an underwriter under the Securities Act of 1933.
except as it may except that the
be deemed to be Fund may engage
an underwriter in transactions
under the involving the
Securities Act of acquisition,
1933 in disposition or
connection with resale of its
the sale of portfolio
restricted securities,
securities which under
the Fund may circumstances
purchase pursuant where it may be
to its investment considered to be
objective, an underwriter
policies and under the
limitations. Securities Act
of 1933.
LENDING LENDING The Reorganized Fund's fundamental investment limitation on "Lending" differs from the Fund's
(Fundamental) (Fundamental) fundamental investment limitation in that there is no express reference to the "one-third of the
The Fund will not The Reorganized value of its total assets" limitation contained in the Fund's fundamental investment limitation,
lend any of its Fund may not and the Reorganized Fund is expressly permitted to engage in inter-fund lending with affiliated
assets except make loans, investment companies.
portfolio except it may
securities up to make loans to The SEC has granted an exemption that permits the Reorganized Fund and all other funds advised by
one-third of the affiliated subsidiaries of Federated Investors, Inc. (Federated funds) to lend and borrow money for certain
value of its investment temporary purposes directly to and from other Federated funds. Participation in this inter-fund
total assets companies in lending program is voluntary for both borrowing and lending Federated funds, and an inter-fund
(this shall not accordance with loan is only made if it benefits each participating Federated fund. Federated Investors, Inc.
prevent the SEC exemptive (Federated) and its subsidiaries, administers the program according to procedures approved by the
purchase or relief. This Reorganized Fund's Board, and the Board monitors the operation of the program. Any inter-fund
holding of restriction does loan must comply with certain conditions set out in the exemption, which are designed to assure
municipal bonds, not prevent the fairness and protect all participating Federated funds.
repurchase Reorganized Fund
agreements, or from purchasing For example, inter-fund lending is permitted only (a) to meet shareholder redemption requests,
other debt and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in
transactions obligations, seven days or less. The Reorganized Fund's participation in this program must be consistent with
which are entering into its investment policies and limitations, and must meet certain percentage tests. Inter-fund
permitted by the repurchase loans may be made only when the rate of interest to be charged is more attractive to the lending
Fund's investment agreements Federated fund than market-competitive rates on overnight repurchase agreements (Repo Rate) and
objective and and/or more attractive to the borrowing Federated fund than the rate of interest that would be charged
policies). derivatives by an unaffiliated bank for short-term borrowings (Bank Loan Rate), as determined by the Board.
contracts, The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan
lending its Rate.
assets to
broker/dealers
or institutional
investors and
investing in
loans, including
assignments and
participation
interests.
CONCENTRATION CONCENTRATION The Reorganizing Fund's fundamental investment limitation on "Concentration" differs from the
(Fundamental) (Fundamental) Fund's fundamental investment limitation in that it clarifies, by eliminating certain language,
The Fund will not The Reorganized that the concentration policy of the Reorganizing Fund applies to its investments in industrial
make investments Fund will not development bonds and that bank instruments are not included as a type of securities (such as
that will result make investments government securities and municipal securities) that will not be deemed to constitute an
in the that will result industry.
concentration of in the
its investments concentration of
in the securities its investments
of issuers in the
primarily engaged securities of
in the same issuers
industry, primarily
provided that the engaged in the
Fund may invest same industry.
more than 25% of For purposes of
the value of its this limitation,
assets in the term
industrial concentration
development has the meaning
bonds. For set forth in the
purposes of this 1940 Act, any
restriction, the rule or order
term thereunder, or
concentration has any SEC staff
the meaning set interpretation
forth in the 1940 thereof.
Act, any rule or Government
order thereunder, securities and
or any SEC staff municipal
interpretation securities will
thereof. not be deemed to
Government constitute an
securities, industry.
municipal
securities and
bank instruments
will not be
deemed to
constitute an
industry. As to
industrial
development
bonds, the Fund
may purchase
securities of an
issuer resulting
in the ownership
of more than 25%
of the Fund's
assets in one
industry, and the
Fund reserves the
right to invest
more than 25% of
its assets in
industrial
development bonds
in the same
state.
RESTRICTED RESTRICTED There are no significant differences with respect to the Fund's and Reorganized Fund's non-
ILLIQUID SECURITIES AND fundamental investment limitations on investments in restricted or illiquid securities.
SECURITIES ILLIQUID
(Non-Fundamental) SECURITIES
The Fund may (Non-
invest in Fundamental)
restricted The Reorganized
securities. Fund's
Restricted investment
securities are limitations on
any securities "Restricted
that are subject Securities" and
to restrictions "Illiquid
on resale under Securities" are
federal broken out
securities law. separately as
Under criteria follows:
established by RESTRICTED
the Directors, SECURITIES
certain The Reorganized
restricted Fund may
securities are purchase
determined to be securities
liquid. To the subject to
extent that restriction on
restricted resale under the
securities are federal
not determined to securities laws.
be liquid, the ILLIQUID
Fund will limit SECURITIES
their purchase, The Reorganized
together with Fund will not
other illiquid purchase
securities, to securities for
15% of its net which there is
assets. no readily
available
market, or enter
into repurchase
agreements or
purchase time
deposits that
the Fund cannot
dispose of
within seven
days, if
immediately
after and as a
result, the
value of such
securities would
exceed, in the
aggregate, 15%
of the
Reorganized
Fund's net
assets.
In addition to the investment limitations noted above, the Board of
Directors of the Fund adopted the following clarifying language related to the
Fund's investment limitations:
"The Fund considers certificates of deposits and demand and time deposits
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items. Except with respect to borrowing
money, if a percentage limitation is adhered to at the time of the
investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such
limitation. The preceding limitations regarding buying on margin,
borrowing money and pledging assets do not apply to intra-day cash
advances made by the Fund's custodian, or the grant of a security
interest in securities by the Fund to its custodian to collateralize such
intra-day cash advances, in order to enable the Fund to settle securities
purchases or to redeem Shares of the Fund."
The Board of Trustees of the Reorganized Fund also adopted the above
language regarding the Reorganized Fund's investment limitations, as well as
the following additional language:
"In applying the Fund's concentration limitation, investments in certain
industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry. The Fund's
concentration limitation will not restrict the Fund's investment in
economic sectors. The Fund will consider concentration to be the
investment of more than 25% of the value of its total assets in any one
industry."
"The Fund will not invest more than 25% of the value of its total assets
in securities insured by the same single bond insurer."
"The preceding limitations regarding buying on margin, borrowing money,
lending, and pledging assets do not apply to the Fund's use of derivative
contracts, including, without limitation, the Fund's granting of a
security interest in connection with such permissible activities."
Of the differences in investment limitations between the Fund and the
Reorganized Fund noted above, the most significant difference is that, under
the investment limitations of the Reorganized Fund, the Reorganized Fund,
unlike the Fund, is permitted to borrow money and engage in reverse repurchase
agreement transactions for the purpose of investment leverage. Reverse
repurchase agreements involve the purchase of securities with the agreement to
sell them at a higher price at a specific future date. For the party selling
the security (and agreeing to repurchase it in the future) it is a repurchase
agreement transaction (a "repo"); for the party on the other end of the
transaction (buying the security and agreeing to sell in the future) it is a
reverse repurchase agreement.
For example, in a repurchase agreement transaction, the Reorganized Fund
could buy a security from a dealer or bank and agree to sell the security back
at a mutually agreed upon time and price. The repurchase price would exceed
the sale price, reflecting the Reorganized Fund's return on the transaction.
This return is unrelated to the interest rate on the underlying security. The
Reorganized Fund's custodian or subcustodian typically would take possession of
the securities subject to repurchase agreements, and the Adviser would monitor
the value of the underlying security each day to ensure that the value of the
security equals or exceeds the repurchase price.
Reverse repurchase agreements are repurchase agreements in which the
Reorganized Fund is the seller (rather than the buyer) of the securities, and
agrees to repurchase them at an agreed upon time and price. A reverse
repurchase agreement may be viewed as a type of borrowing by the Reorganized
Fund. Reverse repurchase agreements are subject to credit risks. In addition,
reverse repurchase agreements create leverage risks because the Reorganized
Fund must repurchase the underlying security at a higher price, regardless of
the market value of the security at the time of repurchase. Using leverage,
the Reorganized Fund may invest more than it owns, up to the limit permitted
under the 1940 Act (or one-third of its total assets).
The Fund's fundamental investment limitation regarding issuing senior
securities and borrowing money limits the ability of the Fund to borrow money
or engage in reverse repurchase agreements to one-third of the total assets of
the Fund and, unlike the Reorganized Fund, prevents borrowing money or the use
of reverse repurchase agreements for investment leverage (borrowing money and
reverse repurchase agreements may only be used for temporary, extraordinary, or
emergency measures or to facilitate the management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous). Under the Fund's
fundamental investment limitation, during the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Fund also is required to
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreement.
Comparison of Share Classes, Loads and Expenses
Like the Fund, the Reorganized Fund will have four share classes: Class
A Shares; Class B Shares; Class C Shares and Class F Shares. Like the Fund,
the Reorganized Fund's share classes will have expense ratios and fees, after
the Reorganization, as shown in the table below.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Class A Shares of Federated Municipal High Yield Advantage Fund, Inc.,
Federated Municipal High Yield Advantage Fund and Federated Municipal High Yield
Advantage Fund - Pro Forma Combined.
SHAREHOLDER FEES FEDERATED MUNICIPAL HIGH YIELD
FEDERATED FEDERATED ADVANTAGE FUND - PRO FORMA
MUNICIPAL MUNICIPAL COMBINED CLASS A SHARS
HIGH YIELD HIGH YIELD
ADVANTAGE ADVANTAGE
FUND, INC. FUND -
- CLASS A CLASS A
SHARES SHARES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.50% 4.50% 4.50%
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) 0.00% 0.00% 0.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of
average net assets)
Management Fee2 0.6000% 0.6000% 0.6000%
Distribution (12b-1) Fee 0.2500%3 0.2500%3 0.2500%4
Other Expenses5 0.4708% 0.4708% 0.4583%
Total Annual Fund Operating Expenses 1.3208% 1.3208% 1.3083%
1 For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the percentages
shown are based on expenses for the entire fiscal year ended August 31, 2006. For the Pro Forma Combined, the anticipated expenses
for the entire fiscal year ending August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not
be constant, and at any particular point, may be greater or less than the stated average percentage. Although not obligated to do
so (except as discussed in note 2 with respect to management fees), the Adviser and distributor expect to waive certain amounts.
For Federated Municipal High Yield Advantage Fund, Inc. and the Federated Municipal High Yield Advantage Fund, these are shown
below along with the net expenses the Fund paid for the fiscal year ended August 31, 2006. For the Pro Forma Combined, these are
shown below along with the net expenses the Fund expects to pay for the fiscal year ending August 31, 2007.
Total Waivers of Fund Expenses 0.4221% 0.4221% 0.5267%
Total Actual Annual Fund Operating Expenses (after anticipated 0.8987% 0.8987% 0.7816%
waivers)
2 Pursuant to a settlement with the New York Attorney General, the management fees will be waived by the Adviser in compliance with
an Assurance of Discontinuance dated November 17, 2005. The net management fee was reduced to 0.3233% effective January 1, 2006
and may not be increased until after December 31, 2010. As a separate matter, beginning February 23, 2006, although not obligated
to do so, the Adviser will waive the amount, if any, by which the Fund's aggregate annual operating expenses for Class A Shares
exceed 0.7949%. For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the net
management fee paid by the Fund (after the waiver) was 0.4279% for the fiscal year ended August 31, 2006. For the Pro Forma
Combined, the net management fee paid by the Fund (after the anticipated waiver) is expected to be 0.3233% for the fiscal year
ending August 31, 2007.
For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the "net management fee"
disclosed in this footnote 2, and the "Total Actual Annual Fund Operating Expenses (after anticipated waivers)" disclosed on
footnote 1 above, are higher than the net management fee and aggregate annual operating expense caps disclosed in this footnote 2
because such caps/waivers would not have been effective until January 1, 2006, and February 23, 2006, and was not in effect for the
entire fiscal year ended August 31, 2006.
3 Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage
Fund did not pay or accrue the distribution (12b-1) fee for Class A Shares during the fiscal year ended
August 31, 2006. Each Fund has no present intention of paying or accruing the distribution (12b-1)
fee for Class A Shares during the fiscal year ending August 31, 2007.
4 The Pro Forma Combined has no present intention of paying or accruing the distribution (12b-1) fee
for Class A Shares during the fiscal year ending August 31, 2007.
5 Includes a shareholder services/account administration fee which is used to compensate
intermediaries for shareholder services or account administrative services. Also includes a record
keeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments
to Financial Intermediaries" herein.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds'
Class A Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each respective Fund's Class A
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that each Fund's Class A Shares operating expenses are
BEFORE WAIVERS as shown in the table and remain the same. Although your actual
costs and returns may be higher or lower, based on these assumptions your costs
would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Federated Municipal High Yield Advantage Fund, Inc. - Class A Shares
$578 $850 $1,141 $1,970
Federated Municipal High Yield Advantage Fund - Class A Shares
$578 $850 $1,141 $1,970
Federated Municipal High Yield Advantage Fund - Pro Forma Combined Class A Shares
$577 $846 $1,135 $1,956
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Class B Shares of Federated Municipal High Yield Advantage Fund, Inc.,
Federated Municipal High Yield Advantage Fund and Federated Municipal High Yield
Advantage Fund - Pro Forma Combined.
SHAREHOLDER FEES FEDERATED MUNICIPAL HIGH YIELD
FEDERATED FEDERATED ADVANTAGE FUND - PRO FORMA
MUNICIPAL MUNICIPAL COMBINED CLASS B SHARS
HIGH YIELD HIGH YIELD
ADVANTAGE ADVANTAGE
FUND, INC. FUND -
- CLASS B CLASS B
SHARES SHARES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a None None None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) 5.50% 5.50% 5.50%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of
average net assets)
Management Fee2 0.6000% 0.6000% 0.6000%
Distribution (12b-1) Fee 0.7500% 0.7500% 0.7500%
Other Expenses3 0.4723% 0.4723% 0.4617%
Total Annual Fund Operating Expenses4 1.8223% 1.8223% 1.8117%
1 For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the percentages
shown are based on expenses for the entire fiscal year ended August 31, 2006. For the Pro Forma Combined, the anticipated expenses
for the entire fiscal year ending August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not
be constant, and at any particular point, may be greater or less than the stated average percentage. Although not obligated to do
so (except as discussed in note 2 with respect to management fees), the Adviser expects to waive certain amounts. For Federated
Municipal High Yield Advantage Fund, Inc. and the Federated Municipal High Yield Advantage Fund, these are shown below along with
the net expenses the Fund paid for the fiscal year ended August 31, 2006. For the Pro Forma Combined, these are shown below along
with the net expenses the Fund expects to pay for the fiscal year ending August 31, 2007.
Total Waivers of Fund Expenses 0.1721% 0.1721% 0.2767%
Total Actual Annual Fund Operating Expenses (after anticipated 1.6502% 1.6502% 1.5350%
waivers)
2 Pursuant to a settlement with the New York Attorney General, the management fees will be waived by the Adviser in compliance with
an Assurance of Discontinuance dated November 17, 2005. The net management fee was reduced to 0.3233% effective January 1, 2006
and may not be increased until after December 31, 2010. As a separate matter, beginning February 23, 2006, although not obligated
to do so, the Adviser will waive the amount, if any, by which the Fund's aggregate annual operating expenses for Class B Shares
exceed 0.7949%. For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the net
management fee paid by the Fund (after the waiver) was 0.4279% for the fiscal year ended August 31, 2006. For the Pro Forma
Combined, the net management fee paid by the Fund (after the anticipated waiver) is expected to be 0.3233% for the fiscal year
ending August 31, 2007.
For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the "net management fee"
disclosed in this footnote 2, and the "Total Actual Annual Fund Operating Expenses (after anticipated waivers)" disclosed on
footnote 1 above, are higher than the net management fee and aggregate annual operating expense caps disclosed in this footnote 2
because such caps/waivers would not have been effective until January 1, 2006, and February 23, 2006, and was not in effect for the
entire fiscal year ended August 31, 2006.
3 Includes a shareholder services/account administration fee which is used to compensate
intermediaries for shareholder services or account administrative services. Also includes a record
keeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments
to Financial Intermediaries" herein.
4 After Class B Shares have been held for eight years from the date of purchase, they will
automatically convert to Class A Shares on or about the last day of the following month. Class A
Shares pay lower operating expenses than Class B Shares.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds'
Class B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each respective Fund's Class B
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that
each Fund's Class B Shares operating expenses are BEFORE WAIVERS as shown in the
table and remain the same. Although your actual costs and returns may be higher
or lower, based on these assumptions your costs would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC. - CLASS B SHARES
Expenses assuming redemption $735 $973 $1,186 $2,009
Expenses assuming no redemption $185 $573 $986 $2,009
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - CLASS B SHARES
Expenses assuming redemption $735 $973 $1,186 $2,009
Expenses assuming no redemption $185 $573 $986 $2,009
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - PRO FORMA COMBINED CLASS B SHARES
Expenses assuming redemption $734 $970 $1,181 $1,997
Expenses assuming no redemption $185 $570 $981 $1,997
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Class C Shares of Federated Municipal High Yield Advantage Fund, Inc.,
Federated Municipal High Yield Advantage Fund and Federated Municipal High Yield
Advantage Fund - Pro Forma Combined.
SHAREHOLDER FEES FEDERATED MUNICIPAL HIGH YIELD
FEDERATED FEDERATED ADVANTAGE FUND - PRO FORMA
MUNICIPAL MUNICIPAL COMBINED CLASS C SHARS
HIGH YIELD HIGH YIELD
ADVANTAGE ADVANTAGE
FUND, INC. FUND -
- CLASS C CLASS C
SHARES SHARES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a 1.00% 1.00% 1.00%
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) 1.00% 1.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of
average net assets)
Management Fee2 0.6000% 0.6000% 0.6000%
Distribution (12b-1) Fee 0.7500% 0.7500% 0.7500%
Other Expenses3 0.4703% 0.4703% 0.4545%
Total Annual Fund Operating Expenses 1.8203% 1.8203% 1.8045%
1 For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the percentages
shown are based on expenses for the entire fiscal year ended August 31, 2006. For the Pro Forma Combined, the anticipated expenses
for the entire fiscal year ending August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not
be constant, and at any particular point, may be greater or less than the stated average percentage. Although not obligated to do
so (except as discussed in note 2 with respect to management fees), the Adviser expects to waive certain amounts. For Federated
Municipal High Yield Advantage Fund, Inc. and the Federated Municipal High Yield Advantage Fund, these are shown below along with
the net expenses the Fund paid for the fiscal year ended August 31, 2006. For the Pro Forma Combined, these are shown below along
with the net expenses the Fund expects to pay for the fiscal year ending August 31, 2007.
Total Waivers of Fund Expenses 0.1721% 0.1721% 0.2767%
Total Actual Annual Fund Operating Expenses (after anticipated 1.6482% 1.6482% 1.5278%
waivers)
2 Pursuant to a settlement with the New York Attorney General, the management fees will be waived by the Adviser in compliance with
an Assurance of Discontinuance dated November 17, 2005. The net management fee was reduced to 0.3233% effective January 1, 2006
and may not be increased until after December 31, 2010. As a separate matter, beginning February 23, 2006, although not obligated
to do so, the Adviser will waive the amount, if any, by which the Fund's aggregate annual operating expenses for Class C Shares
exceed 0.7949%. For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the net
management fee paid by the Fund (after the waiver) was 0.4279% for the fiscal year ended August 31, 2006. For the Pro Forma
Combined, the net management fee paid by the Fund (after the anticipated waiver) is expected to be 0.3233% for the fiscal year
ending August 31, 2007.
For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the "net management fee"
disclosed in this footnote 2, and the "Total Actual Annual Fund Operating Expenses (after anticipated waivers)" disclosed on
footnote 1 above, are higher than the net management fee and aggregate annual operating expense caps disclosed in this footnote 2
because such caps/waivers would not have been effective until January 1, 2006, and February 23, 2006, and was not in effect for the
entire fiscal year ended August 31, 2006.
3 Includes a shareholder services/account administration fee which is used to compensate
intermediaries for shareholder services or account administrative services. Also includes a record
keeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments
to Financial Intermediaries" herein.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds'
Class C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each respective Fund's Class C
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that
each Fund's Class C Shares operating expenses are BEFORE WAIVERS as shown in the
table and remain the same. Although your actual costs and returns may be higher
or lower, based on these assumptions your costs would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC. - CLASS C SHARES
Expenses assuming redemption $383 $667 $1,075 $2,216
Expenses assuming no redemption $283 $667 $1,075 $2,216
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - CLASS C SHARES
Expenses assuming redemption $383 $667 $1,075 $2,216
Expenses assuming no redemption $283 $667 $1,075 $2,216
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - PRO FORMA COMBINED CLASS C SHARES
Expenses assuming redemption $382 $662 $1,067 $2,200
Expenses assuming no redemption $282 $662 $1,067 $2,200
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Class F Shares of Federated Municipal High Yield Advantage Fund, Inc.,
Federated Municipal High Yield Advantage Fund and Federated Municipal High Yield
Advantage Fund - Pro Forma Combined.
SHAREHOLDER FEES FEDERATED MUNICIPAL HIGH YIELD
FEDERATED FEDERATED ADVANTAGE FUND - PRO FORMA
MUNICIPAL MUNICIPAL COMBINED CLASS F SHARS
HIGH YIELD HIGH YIELD
ADVANTAGE ADVANTAGE
FUND, INC. FUND -
- CLASS F CLASS F
SHARES SHARES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a 1.00% 1.00% 1.00%
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) 1.00% 1.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of
average net assets)
Management Fee2 0.6000% 0.6000% 0.6000%
Distribution (12b-1) Fee 0.2500%3 0.2500%3 0.2500%4
Other Expenses5 0.4705% 0.4705% 0.4571%
Total Annual Fund Operating Expenses 1.3205% 1.3205% 1.3071%
1 For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the percentages
shown are based on expenses for the entire fiscal year ended August 31, 2006. For the Pro Forma Combined, the anticipated expenses
for the entire fiscal year ending August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not
be constant, and at any particular point, may be greater or less than the stated average percentage. Although not obligated to do
so (except as discussed in note 2 with respect to management fees), the Adviser and distributor expect to waive certain amounts.
For Federated Municipal High Yield Advantage Fund, Inc. and the Federated Municipal High Yield Advantage Fund, these are shown
below along with the net expenses the Fund paid for the fiscal year ended August 31, 2006. For the Pro Forma Combined, these are
shown below along with the net expenses the Fund expects to pay for the fiscal year ending August 31, 2007.
Total Waivers of Fund Expenses 0.4221% 0.4221% 0.5267%
Total Actual Annual Fund Operating Expenses (after anticipated 0.8984% 0.8984% 0.7804%
waivers)
2 Pursuant to a settlement with the New York Attorney General, the management fees will be waived by the Adviser in compliance with
an Assurance of Discontinuance dated November 17, 2005. The net management fee was reduced to 0.3233% effective January 1, 2006
and may not be increased until after December 31, 2010. As a separate matter, beginning February 23, 2006, although not obligated
to do so, the Adviser will waive the amount, if any, by which the Fund's aggregate annual operating expenses for Class F Shares
exceed 0.7949%. For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the net
management fee paid by the Fund (after the waiver) was 0.4279% for the fiscal year ended August 31, 2006. For the Pro Forma
Combined, the net management fee paid by the Fund (after the anticipated waiver) is expected to be 0.3233% for the fiscal year
ending August 31, 2007.
For Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage Fund, the "net management fee"
disclosed in this footnote 2, and the "Total Actual Annual Fund Operating Expenses (after anticipated waivers)" disclosed on
footnote 1 above, are higher than the net management fee and aggregate annual operating expense caps disclosed in this footnote 2
because such caps/waivers would not have been effective until January 1, 2006, and February 23, 2006, and was not in effect for the
entire fiscal year ended August 31, 2006.
3 Federated Municipal High Yield Advantage Fund, Inc. and Federated Municipal High Yield Advantage
Fund did not pay or accrue the distribution (12b-1) fee for Class F Shares during the fiscal year ended
August 31, 2006. Each Fund has no present intention of paying or accruing the distribution (12b-1)
fee for Class F Shares during the fiscal year ending August 31, 2007.
4 The Pro Forma Combined has no present intention of paying or accruing the distribution (12b-1) fee
for Class F Shares during the fiscal year ending August 31, 2007.
5 Includes a shareholder services/account administration fee which is used to compensate
intermediaries for shareholder services or account administrative services. Also includes a record
keeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments
to Financial Intermediaries" herein.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds'
Class F Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each respective Fund's Class F
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that
each Fund's Class F Shares operating expenses are BEFORE WAIVERS as shown in the
table and remain the same. Although your actual costs and returns may be higher
or lower, based on these assumptions your costs would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC. - CLASS F SHARES
Expenses assuming redemption $333 $625 $816 $1,675
Expenses assuming no redemption $233 $525 $816 $1,675
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - CLASS F SHARES
Expenses assuming redemption $333 $625 $816 $1,675
Expenses assuming no redemption $233 $525 $816 $1,675
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND - PRO FORMA COMBINED CLASS F SHARES
Expenses assuming redemption $332 $621 $809 $1,660
Expenses assuming no redemption $232 $521 $809 $1,660
As indicated in footnote #2 in each of the above fee tables, like the
Fund, the Adviser will waive management fees on the Reorganized Fund in
compliance with the Assurance of Discontinuance dated November 17, 2005. The
Assurance of Discontinuance is a settlement agreement executed between the
Attorney General of the State of New York, the Adviser and the Adviser's
affiliates, Federated Securities Corp. and Federated Shareholder Services
Corp., pursuant to which the Adviser and its affiliates made certain agreements
with the New York Attorney General in order to resolve an investigation of the
Adviser and its affiliates commenced by the New York Attorney General in August
of 2003. (See "Legal Proceedings" below). The net management fee on the
Reorganized Fund will be reduced to 0.3233% and will not be able to be
increased until after December 31, 2010. Also, like the Fund, as a separate
matter, although not obligated to do so, the Adviser will waive the amount, if
any, by which the Reorganized Fund's aggregate annual operating expenses for
Class A Shares, Class B Shares, Class C Shares and Class F Shares exceed
0.7949%, 1.5449%, 1.5449% and 0.7949%, respectively. The Adviser also has no
present intention of paying or accruing the distribution (12b-1) fee for Class
A Shares and Class F Shares during the Reorganized Fund's fiscal year ending
August 31, 2006.
Comparison of Massachusetts and Maryland Law
The table below compares certain important aspects of Maryland corporate
law and Massachusetts trust law. The Reorganized Fund is a series of a business
trust organized under the laws of the Commonwealth of Massachusetts. and will
operate under Massachusetts law. The Fund is organized as a Maryland
corporation. For purposes of the Reorganization, it is important to note the
differences between Massachusetts trust law and Maryland corporate law.
CATEGORY MARYLAND MASSACHUSETTS TRUST LAW
CORPORATE LAW
Liability of Under Maryland Under Massachusetts law, shareholders of a fund operating as a Massachusetts business trust could
Shareholders corporate law under certain circumstances be held personally liable for the obligations of the trust. Typically
no personal this liability can be waived by the declaration of trust. If the declaration of trust includes a
liability provision declaring shareholders will not be subject to any personal liability in connection with
passes through the assets of the trust or the acts, obligations or affairs of the trust, then the liability of the
to shareholders will be waived. However, the waiver of liability must be accomplished through an
shareholders affirmative provision within the fund's organizational documents.
of the fund.
Under Maryland The Declaration of Trust for the Fund provides that the Trustees, officers, employees or agents of
corporate law, the Trust shall have no power to bind any shareholder of any series or class personally or to call
there is upon any shareholder for the payment of any sum of money or assessment whatsoever, other than such
generally no as the shareholder may at any time agree to pay by way of subscription to any shares or otherwise.
shareholder The Declaration of Trust for the Reorganized Fund also provides that no shareholder or former
liability for shareholder of any series or class shall be liable solely by reason of his being or having been a
acts or shareholder for any debt, claim, action, demand, suit, proceeding, judgment, decree, liability or
obligations of obligation of any kind, against, or with respect to the Trust or any series or class arising out of
the any action taken or omitted for or on behalf of the Trust or such series or class, and the Trust or
corporation. such series or class shall be solely liable therefore and resort shall be had solely to the
property of the relevant series or class of the Trust for the payment or performance thereof.
Liquidation or Maryland law The trustees of a Massachusetts business trust may resolve to liquidate or dissolve a fund or new
Dissolution requires fund, or any class thereof, without prior shareholder approval and without first redeeming all of
shareholder the shares of the respective fund. Although Massachusetts law allows the trust to liquidate
approval to without shareholder approval, the declaration of trust can amend this allowance. The declaration
dissolve a of trust for the Federated Municipal Securities Income Trust provides that the Trust may sell all
fund. To of its assets upon approval by a majority of the shareholders.
circumvent the
shareholder
approval
requirement,
the Directors
can first
redeem all of
the
outstanding
shares of the
fund. The
Directors can
redeem the
shares without
shareholder
approval, and
once the
shares have
been redeemed,
the Directors
can liquidate
the series or
class without
shareholder
approval.
Also, in the
event that no
shares of a
class or
series are
outstanding, a
majority of
the Directors
may vote to
liquidate any
class or
series without
shareholder
approval.
Liability of The Fund's The Declaration of Trust for the Reorganized Fund provides that Trustees acting on behalf of the
Trustees and Articles of trust will be indemnified for their actions provided those actions were not the result of (i)
Indemnification Incorporation willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the
provide that duties involved in the conduct of his office.
Directors The Bylaws for the Reorganized Fund provide that indemnitee was not liable for an act of willful
acting on misfeasance, bad faith, gross negligence, or reckless disregard of duties.
behalf of a
Maryland
corporation
will be
indemnified
for their
actions to the
extent
permitted by
law, provided
those actions
were not the
result of (i)
willful
misfeasance,
(ii) bad
faith, (iii)
gross
negligence or
(iv) reckless
disregard of
the duties
involved in
the conduct of
the office.
Rights of Under the Under Massachusetts law, and under the Bylaws of the Trust, the trustees of a Massachusetts
Inspection General Laws business trust may from time to time determine whether and to what extent, and at what times and
of the State places, and under what conditions and regulations the accounts and books of the trust maintained on
of Maryland, behalf of each series and class of shares of the trust or any of them may be open to the inspection
the by-laws of the shareholders of any series or class; and no shareholder may have any right to inspect any
and the account or book or document of the trust except that, to the extent such account or book or
minutes must document relates to the series or class in which he is a shareholder or the trust generally, such
be available shareholder will have such right of inspection as conferred by laws or authorized by the trustees
for inspection or by resolution of the shareholders of the relevant series or class.
by
shareholders.
Maryland law
provides that
one or more
persons who
together are
shareholders
of at least 5%
of the
outstanding
shares of the
corporation
for at least
six months may
inspect the
fund's books
of account and
stock ledger,
statement of
the
corporation's
affairs, and
present to any
officer or
resident agent
a written
request for a
list of the
Maryland
fund's
shareholders.
Derivative and Under Maryland Massachusetts law applicable to business trusts is silent on this issue. Massachusetts corporate
Class Actions law, law, while not entirely on point for Massachusetts business trusts, can provide persuasive
shareholders authority for matters concerning derivative actions by a Massachusetts business trust's
may not bring shareholders. Under Massachusetts corporate law any shareholder, who was a shareholder at the time
derivative that the act or omission occurred, may commence a derivative proceeding after written demand has
actions unless been made upon the corporation to take suitable action and at least 90 days have elapsed. The 90-
they have day period can be avoided if it is shown that irreparable injury to the corporation will occur as a
first made a result of waiting for the expiration of such 90-day period.
demand upon
the
corporation to
sue on its own
behalf, and
that demand
was
subsequently
refused. If
the Directors
improperly
refuse demand
to bring a
derivative
suit or if
demand is
excused, the
shareholders
bring the
derivative
suit must then
make demand on
the
corporation's
other
shareholders
before
commencing
suit.
Comparative Information on Shareholder Rights and Obligations
As noted above, the Fund is organized as a Maryland corporation, while the
Reorganized Fund is a series of a business trust organized under the laws of the
Commonwealth of Massachusetts. The rights of shareholders of the Fund, as
defined in its Charter, By-Laws and under the laws of the State of Maryland, and
the rights of shareholders of the Reorganized Fund, as set forth in FMSIT's
Charter, By-Laws, and under the laws of the Commonwealth of Massachusetts,
relating to voting, distributions and redemptions, are substantively similar.
The chart below describes certain differences between your rights as a
shareholder of the Fund and your rights as a shareholder of the Reorganized
Fund.
FUND REORGANIZED FUND
CATEGORY
Preemptive None None
Rights
Appraisal None None
Rights
Conversion None None
Rights (other
than the
automatic
conversion of
Class B into
Class A
shares as
provided in
prospectuses
of the Fund
and the
Reorganized
Fund)
Exchange None None
Rights (other
than the
right to
exchange for
shares of
other mutual
funds as
provided in
the
prospectuses
of the Fund
and the
Reorganized
Fund)
Minimum None Determined by the Trustees in
Account Size their sole discretion.
Annual The Corporation is not required to hold an annual meeting of shareholders in any year No annual meeting held.
Meetings in which the election of directors is not required to be acted upon under the 1940 Shareholder meeting held
Act. The Board of Directors must meet annually to elect officers and conduct any after the initial public
other business. offering as set by the
Trustees.
Right to Call May be called as requested in writing by Shareholders entitled to cast at least 10% Special Meetings of the
Shareholder of the shares entitled to be cast at the meeting. shareholders may be called by
Meetings the Trustees or the Chief
Executive Officer of the
Trust and must be called by
the Trustees upon the written
request of shareholders
owning at least one-tenth of
the outstanding shares
entitled to fifteen days'
notice of any meeting.
Notice of Not less than ten or more than ninety days before the date of every Special Meeting Notice must be given by the
Meetings of shareholders, the Secretary of the Corporation must give each shareholder written Secretary of the Trust at
notice of such meeting. least 15 days before the
meeting.
Action by Action taken at any meeting of shareholders may be taken without a meeting, if a Any action required or
Unanimous consent signed by all the shareholders entitled to vote on the subject matter permitted to be taken at any
Written thereof, and any other shareholders, entitled to notice of a meeting, but not meeting of shareholders may
Consent of entitled to vote, have waived in writing any rights which they may have to dissent be taken without a meeting,
Shareholders from such action, and such consent and waiver are filed with the records of the if a consent in writing,
Corporation. setting forth such action, is
signed by all the
shareholders entitled to vote
on the subject matter
thereof, and such consent is
filed with the records of the
Trust.
Personal The Corporation will indemnify its directors to the fullest extent that The Trust will indemnify
liability of indemnification of directors is permitted by the Maryland General Corporation Law. Trustees against liabilities
Directors or This does not protect such person against any liability to the Corporation to which and expenses that are
Trustees the person would otherwise be subject by reason of (i) willful misfeasance, (ii) bad incurred by virtue of having
faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in been a Trustee. However,
the conduct of the office. Trustees and officers of the
Trust will be liable for
their willful misfeasance,
bad faith, gross negligence
or reckless disregard of the
duties involved in the
conduct of the office of
Trustee or officer, as the
case may be, and for nothing
else.
Election of Requires a majority shareholder vote under the Investment Company Act of 1940. A plurality of the votes cast
Directors or is required to elect a
Trustees Trustee. (All other matters
must be decided by a majority
of the votes cast entitled to
vote thereon).
Removal of At any meeting of shareholders duly called for the purpose, any Director may be A Trustee may be removed at
Directors or removed from office by the vote of a majority of all of the shares entitled to vote. any special meeting of
Trustees by shareholders of the Trust by
Shareholders a vote of two-thirds of the
outstanding shares.
Quorum for Presence in person or by proxy of holders of (a) one-half of the shares of stock of There must be present in
Shareholder the Corporation on all matters requiring a majority shareholder vote or (b) one-third person or by proxy, holders
Meeting of shares of stock of the Corporation on all other matters permitted by law. of more than fifty percent of
the total number of
outstanding Shares of all
series or class entitled to
vote.
Adjournment Meetings may be adjourned from time to time without further notice other than by In the absence of a quorum, a
of Meetings announcement to be given at the meeting to a date not more than 120 days after the majority of the Trustees
record date and any business may be transacted at the meeting as originally called. present may adjourn the
meeting from time to time
until a quorum is present.
Notice of any adjourned
meeting need not be given.
Quorum for One-third of the entire Board of Directors but not less than two directors A majority of the Trustees
Director or constitutes a quorum. constitutes a quorum for the
Trustee transaction of business.
Meeting
Number of 500,000,000 shares of the Class A Shares; 500,000,000 shares of the Class B Shares; The number of shares for the
Authorized 500,000,000 shares of the Class C Shares; 500,000,000 shares of the Class F Shares. newly created series of the
Shares; Par Trust will be unlimited.
Value The Articles of Incorporation provide that par value will be $0.001 per share.
The beneficial interest in
the Trust shall at all times
be divided into transferable
Shares, without par value.
ADDITIONAL INFORMATION REGARDING THE REORGANIZATION
The Reorganization is subject to certain conditions, including: approval
of the Reorganization Agreement and the transactions and exchange contemplated
thereby as described in this Proxy Statement by the shareholders of the Fund;
the receipt of a legal opinion described in the Reorganization Agreement
regarding tax matters; the receipt of certain certificates from the parties
concerning the continuing accuracy of the representations and warranties in the
Reorganization Agreement and other matters; and the parties' performance, in
all material respects, of the agreements and undertakings in the Reorganization
Agreement. The Fund is not aware that any federal or state regulatory
requirement must be complied with or approval must be obtained in connection
with the Reorganization. Assuming satisfaction of the conditions in the
Reorganization Agreement, the Reorganization is expected to occur on or after
October 19, 2006.
The Reorganization may be terminated at any time prior to its consummation
by either the Fund or FMSIT if circumstances should develop that, in the opinion
of either the Board of Directors of the Fund or the Board of Trustees of FMSIT,
make proceeding with the Reorganization Agreement inadvisable. The
Reorganization Agreement provides further that at any time prior to the
consummation of the Reorganization: (i) the parties thereto may amend or modify
any of the provisions of the Reorganization Agreement provided that such
amendment or modification would not have a material adverse effect on the
benefits intended under the Reorganization Agreement and would be consistent
with the best interests of the shareholders of the Fund and the Reorganized
Fund; and (ii) either party may waive any of the conditions set forth in the
Reorganization Agreement if, in the judgment of the waiving party, such waiver
will not have a material adverse effect on the benefits intended under the
Reorganization Agreement to the shareholders of the Fund or the shareholders of
the Reorganized Fund, as the case may be.
Following the Reorganization, shareholders of the Fund will be
shareholders of the Reorganized Fund. Upon the completion of the
Reorganization, the Fund will be deregistered as an investment company under
the 1940 Act and its existence terminated under state law. The stock transfer
books of the Fund will be permanently closed after the Reorganization. FMSIT
will not issue share certificates with respect to shares of the Reorganized
Fund issued in connection with the Reorganization. Shareholders who currently
hold certificates for their Fund shares are urged to surrender those
certificates before the Reorganization takes place.
In considering the Reorganization, the Board of Directors of the Fund and
the Board of Trustees of FMSIT determined that the Reorganization is in the best
interest of the Fund and the Reorganized Fund, and will not dilute the interests
of the shareholders of the Fund and the Reorganized Fund. The Board also
requested and evaluated certain other information necessary for it to make these
determinations, including, without limitation, that (1) there would be no
adverse tax consequences to either the Fund or the Reorganized Fund, or their
respective shareholders; (2) the investment objectives and policies of the Fund
and the Reorganized Fund are the same, except for the differences in investment
limitations described above (See "Comparison of Investment Limitations" above),
and (3) that the Fund and Reorganized Fund are to bear registration fees, on an
as incurred basis, and the expenses of soliciting the Fund's shareholders.
Regarding the last factor, the Board considered that the Reorganization is being
proposed to benefit the shareholders of the Fund by reducing operating expenses
and that, due to the differences in investment limitations between the Fund and
the Reorganized Fund as described above (See "Comparison of Investment
Limitations" above), after the Reorganization, the Trustees of the Reorganized
Fund will have the ability to act more quickly to changes in competitive and
regulatory conditions, which is expected to allow the Reorganized Fund to
operate in a more efficient and economical manner. Finally, the Board
considered that expenses to shareholders are not expected to increase as a
result of the Reorganization and that shareholders of the Fund are expected to
get the benefit of cost savings through an elimination of the Pennsylvania
franchise tax (which was payable by the Fund as a Maryland corporation) and
increased efficiency and business flexibility.
INFORMATION ABOUT THE FUND
PROXIES, QUORUM AND VOTING AT THE SPECIAL MEETING
Only shareholders of record on the Record Date will be entitled to vote at
the Special Meeting. Each share of the Fund is entitled to one vote.
Fractional shares are entitled to proportionate shares of one vote. The
favorable vote of: (a) the holders of 67% or more of the outstanding voting
securities present at the Special Meeting, if the holders of 50% or more of the
outstanding voting securities of the Fund are present or represented by proxy;
or (b) the vote of the holders of more than 50% of the outstanding voting
securities, whichever is less, is required to approve all of the proposals,
except the election of Directors and the ratification of the selection of the
Auditors. Any person giving a proxy has the power to revoke it any time prior
to its exercise by executing a superseding proxy or by submitting a written
notice of revocation to the Secretary of the Fund. In addition, although mere
attendance at the Special Meeting will not revoke a proxy, a shareholder present
at the Special Meeting may withdraw his or her proxy and vote in person. All
properly executed and unrevoked proxies received in time for the Special Meeting
will be voted in accordance with the instructions contained in the proxies. If
no instruction is given ON THE PROXY, the persons named as proxies will vote the
shares represented thereby in favor of the matters set forth in the attached
Notice.
In order to hold the Special Meeting, a "quorum" of shareholders must be
present. Holders of one-half of the total number of outstanding shares of the
Fund, present in person or by proxy, are required to constitute a quorum for the
purpose of voting on the proposals made.
For purposes of determining a quorum for transacting business at the
Special Meeting, abstentions and broker "non-votes" (that is, proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. For this reason, abstentions and broker non-votes will have the
effect of a "no" vote for purposes of obtaining the requisite approval of some
of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies that have been received to adjourn the Special Meeting to a later date.
In the event that a quorum is present but sufficient votes in favor of one or
more of the proposals have not been received, the persons named as proxies may
propose one or more adjournments of the Special Meeting to permit further
solicitations of proxies with respect to such proposal(s). All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote AGAINST an adjournment those
proxies that they are required to vote against the proposal, and will vote in
FAVOR of such an adjournment all other proxies that they are authorized to vote.
A shareholder vote may be taken on the proposals in this proxy statement prior
to any such adjournment if sufficient votes have been received for approval.
SHARE OWNERSHIP OF THE FUND
Prior to the Reorganization, the Reorganized Fund will not engage in any
operations and will not be publicly offered.
Officers and Directors of the Fund own less than 1% of the Fund's outstanding
shares.
At the close of business on the Record Date, the following persons owned, to the
knowledge of management, more than 5% of the outstanding shares of the Fund:
CLASS A SHARES: Edward Jones and Co., Maryland Heights, MO owned approximately
9,095,413 Shares (39.48%).
CLASS B SHARES: Citigroup Global Markets Inc., New York, NY, owned
approximately 631,700 Shares (5.95%); Pershing LLC, Jersey City, NJ, owned
approximately 938,392 Shares (8.84%); Edward Jones and Co., Maryland Heights, MO
owned approximately 1,538,197 Shares (14.49%).
CLASS C SHARES: Pershing LLC, Jersey City, NJ owned approximately 461,160
Shares (8.75%); Citigroup Global Markets Inc., New York, NY, owned approximately
468,672 Shares (8.89%); Edward Jones and Co., Maryland Height, MO owned
approximately 517,064 Shares (9.81%); MLPF&S, Jacksonville, FL owned
approximately 755,812 Shares (14.33%).
CLASS F SHARES: MLPF&S, Jacksonville, FL owned approximately 3,068,874 Shares
(16.47%); Edward Jones and Co., Maryland Heights, MO owned approximately
3,459,544 Shares (18.57%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Edward Jones & Co. is organized in the state of Missouri and is a subsidiary of
Jones Financial Companies LLLP; organized in the state of Missouri.
LEGAL PROCEEDINGS
Since October 2003, Federated and related entities (collectively, "Federated"),
and various Federated funds ("Funds"), have been named as defendants in several
class action lawsuits now pending in the United States District Court for the
District of Maryland. The lawsuits were purportedly filed on behalf of people
who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds
during specified periods beginning November 1, 1998. The suits are generally
similar in alleging that Federated engaged in illegal and improper trading
practices including market timing and late trading in concert with certain
institutional traders, which allegedly caused financial injury to the mutual
fund shareholders. These lawsuits began to be filed shortly after Federated's
first public announcement that it had received requests for information on
shareholder trading activities in the Funds from the SEC, the Office of the New
York State Attorney General ("NYAG"), and other authorities. In that regard, on
November 28, 2005, Federated announced that it had reached final settlements
with the SEC and the NYAG with respect to those matters. Specifically, the SEC
and NYAG settled proceedings against three Federated subsidiaries involving
undisclosed market timing arrangements and late trading. The SEC made findings:
that Federated Investment Management Company ("FIMC"), an SEC-registered
investment adviser to various Funds, and Federated Securities Corp., an SEC-
registered broker-dealer and distributor for the Funds, violated provisions of
the Investment Advisers Act and Investment Company Act by approving, but not
disclosing, three market timing arrangements, or the associated conflict of
interest between FIMC and the funds involved in the arrangements, either to
other fund shareholders or to the funds' board; and that Federated Shareholder
Services Company, formerly an SEC-registered transfer agent, failed to prevent a
customer and a Federated employee from late trading in violation of provisions
of the Investment Company Act. The NYAG found that such conduct violated
provisions of New York State law. Federated entered into the settlements without
admitting or denying the regulators' findings. As Federated previously reported
in 2004, it has already paid approximately $8.0 million to certain funds as
determined by an independent consultant. As part of these settlements, Federated
agreed to pay disgorgement and a civil money penalty in the aggregate amount of
an additional $72 million and, among other things, agreed that it would not
serve as investment adviser to any registered investment company unless (i) at
least 75% of the fund's directors are independent of Federated, (ii) the
chairman of each such fund is independent of Federated, (iii) no action may be
taken by the fund's board or any committee thereof unless approved by a majority
of the independent trustees of the fund or committee, respectively, and (iv) the
fund appoints a "senior officer" who reports to the independent trustees and is
responsible for monitoring compliance by the fund with applicable laws and
fiduciary duties and for managing the process by which management fees charged
to a fund are approved. The settlements are described in Federated's
announcement which, along with previous press releases and related
communications on those matters, is available in the "About Us" section of
Federated's website at FederatedInvestors.com.
Federated and various Funds have also been named as defendants in several
additional lawsuits, the majority of which are now pending in the United States
District Court for the Western District of Pennsylvania, alleging, among other
things, excessive advisory and Rule 12b-1 fees.
The board of the Funds has retained the law firm of Dickstein Shapiro LLP to
represent the Funds in these lawsuits. Federated and the Funds, and their
respective counsel, are reviewing the allegations and intend to defend this
litigation. Additional lawsuits based upon similar allegations may be filed in
the future. The potential impact of these lawsuits, all of which seek
unquantified damages, attorneys' fees, and expenses, and future potential
similar suits is uncertain. Although we do not believe that these lawsuits will
have a material adverse effect on the Funds, there can be no assurance that
these suits, ongoing adverse publicity and/or other developments resulting from
the regulatory investigations will not result in increased Fund redemptions,
reduced sales of Fund shares, or other adverse consequences for the Funds.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Fund is not required, and does not intend, to hold regular meetings of
shareholders. Shareholders wishing to submit proposals for consideration for
inclusion in a proxy statement for the next meeting of shareholders should send
their written proposals to Federated Municipal High Yield Advantage Fund, Inc.,
Federated Investors Funds, 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-
7000, so that they are received within a reasonable time before any such
meeting. Any proposal submitted after this date will be deemed untimely and not
considered.
No business other than the matters described above is expected to come
before the Special Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment or postponement
of the Special Meeting, the persons named on the enclosed proxy card will vote
on such matters according to their best judgment in the interests of the Fund.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES.
By Order of the Board of Directors,
John W. McGonigle
Secretary
September 13, 2006
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, dated as of October__, 2006
(the "Agreement") is made between Federated Municipal High Yield Advantage Fund,
Inc. a Maryland corporation (the "Fund"), with its principal place of business
at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237, and Federated Municipal
Securities Income Trust, (the "Federated Trust"), with its principal place of
business located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237, on
behalf of its portfolio, Federated Municipal High Yield Advantage Fund (the
"Successor Fund").
RECITALS
WHEREAS, the Board of Trustees of the Federated Trust and the Board of
Directors of the Fund have determined that it is in the best interests of the
Federated Trust and the Fund, respectively, that the assets of the Fund be
acquired by the Successor Fund pursuant to this Agreement; and
WHEREAS, the parties desire to enter into a plan of exchange which would
constitute a "reorganization" within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Plan of Exchange.
(a) Subject to the terms and conditions set forth herein, the Fund
shall assign, transfer and convey its assets, including all securities and cash
held by the Fund (subject to the stated liabilities of the Fund which shall be
assumed by the Successor Fund) to the Successor Fund, and the Successor Fund
shall acquire all of the assets of the Fund (subject as aforesaid to the stated
liabilities of the Fund) in exchange for full and fractional shares of
beneficial interest of the Successor Fund (the "Successor Fund Shares"), to be
issued by the Federated Trust, in an aggregate number equal to the number of
shares of the Fund then outstanding, and having an aggregate net asset value
equal to the net assets of the Fund. The value of the assets of the Fund and
the net asset value per share of the Successor Fund Shares shall be computed as
of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on
the Exchange Date (as hereinafter defined) (such time and date being hereinafter
called the "Valuation Time") in accordance with the procedures for determining
the value of the Successor Fund's assets set forth in the Successor Fund's
organizational documents and the then-current prospectus and statement of
additional information for the Successor Fund that forms a part of the Successor
Fund's Registration Statement on Form N-1A (the "Registration Statement").
Successor Fund will not issue certificates representing Successor Fund Shares in
connection with the Reorganization. In lieu of delivering certificates for the
Successor Fund Shares, the Federated Trust shall credit the Successor Fund
Shares to the Fund's account on the share record books of the Federated Trust
and shall deliver a confirmation thereof to the Fund. The Fund shall then
deliver written instructions to the Federated Trust's transfer agent to
establish accounts for the shareholders on the share record books relating to
the Successor Fund.
(b) When the Successor Fund Shares are distributed pursuant to
paragraph 1(a), all outstanding shares of the Fund, including any represented by
certificates, shall be canceled on the Fund's share transfer books. No
redemption or repurchase of Successor Fund Shares credited to a shareholder's
account in respect of shares of the Fund represented by unsurrendered share
certificates shall be permitted until such certificates have been surrendered to
the Federated Trust for cancellation or, if such certificates are lost or
misplaced, lost certificate affidavits and/or such other documentation that is
satisfactory to the Federated Trust or its transfer agent have been executed and
delivered thereto.
(c) Delivery of the assets of the Fund to be transferred shall be
made on the Exchange Date (as hereinafter defined). Assets transferred shall be
delivered to State Street Bank and Trust Company, the Federated Trust's
custodian (the "Custodian"), for the account of the Federated Trust and the
Successor Fund with all securities not in bearer or book entry form duly
endorsed, or accompanied by duly executed separate assignments or stock powers,
in proper form for transfer, with signatures guaranteed, and with all necessary
stock transfer stamps, sufficient to transfer good and marketable title thereto
(including all accrued interest and dividends and rights pertaining thereto) to
the Custodian for the account of the Federated Trust and the Successor Fund free
and clear of all liens, encumbrances, rights, restrictions and claims. All cash
delivered shall be in the form of immediately available funds payable to the
order of the Custodian for the account of the Federated Trust and the Successor
Fund.
(d) The Fund will pay or cause to be paid to the Federated Trust
any interest received on or after the Exchange Date with respect to assets
transferred from the Fund to the Successor Fund hereunder and any distributions,
rights or other assets received by the Fund after the Exchange Date as
distributions on or with respect to the securities transferred from the Fund to
the Successor Fund hereunder. All such assets shall be deemed included in
assets transferred to the Successor Fund on the Exchange Date and shall not be
separately valued.
(e) The Exchange Date shall be October 20, 2006, or such earlier
or later date as may be mutually agreed upon by the parties.
(f) As soon as practicable after the Exchange Date, the Fund shall
distribute all of the Successor Fund Shares received by it to the shareholders
of the Fund in numbers equal to the number of shares that each such shareholder
holds in the Fund, and shall take all other steps necessary to effect its
dissolution and termination. After the Exchange Date, the Fund shall not
conduct any business except in connection with its dissolution and termination.
2. The Fund's Representations and Warranties. The Fund represents and
warrants to and agrees with the Federated Trust on behalf of the Successor Fund
as follows:
(a) The Fund is a Maryland 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, subject to the approval of
its shareholders as contemplated hereby, to carry out this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by and is valid and binding on the Fund, enforceable in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws of general applicability relating
to or affecting creditors' rights and to general principles of equity. The
execution and delivery of this Agreement does not and will not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Fund's Articles of Incorporation or By-Laws or any agreement or
arrangement to which it is a party or by which it is bound.
(c) The Fund is registered under the Investment Company Act of
1940, as amended (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.
(d) Except as shown on the audited financial statements of the
Fund for its most recently completed fiscal period and as incurred in the
ordinary course of the Fund's business since then, the Fund has no liabilities
of a material amount, contingent or otherwise, and there are no legal,
administrative or other proceedings pending or, to the Fund's knowledge,
threatened against the Fund.
(e) On the Exchange Date, the Fund will have full right, power and
authority to sell, assign, transfer and deliver the Fund's assets and stated
liabilities to be transferred by it hereunder.
(f) For each taxable year of its operation (including the taxable
year ending on the Exchange Date), the Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company.
(g) At the Exchange Date, all Federal and other tax returns and
reports of the Fund required by law then to be filed 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 Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
3. The Federated Trust's Representations and Warranties. The Federated
Trust, on behalf of the Successor Fund, represents and warrants to and agrees
with the Fund as follows:
(a) The Federated Trust is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts; the Successor Fund is a duly organized portfolio of the Federated
Trust; and the Federated Trust has the power to carry on its business as it is
now being conducted and to carry out this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by the Federated Trust and is valid and binding on the Federated
Trust, enforceable in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, and other similar laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity. The execution and delivery of this Agreement does not and
will not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Federated Trust's Declaration of Trust or By-
Laws or any agreement or arrangement to which it is a party or by which it is
bound.
(c) The Federated 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.
(d) The Successor Fund does not have any liabilities of a material
amount, contingent or otherwise, and there are no legal, administrative or other
proceedings pending or, to the Federated Trust's knowledge, threatened against
the Successor Fund. Other than organizational activities, the Successor Fund
has not engaged in any business activities.
(e) At the Exchange Date, the Successor Fund Shares to be issued
to the Fund will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be fully
paid and non-assessable by the Federated Trust. No Federated Trust or Successor
Fund shareholder will have any preemptive right of subscription or purchase in
respect thereof.
4. The Federated Trust's Conditions Precedent. The obligations of the
Federated Trust hereunder shall be subject to the following conditions:
(a) The Fund shall have furnished to the Federated Trust a
statement of the Fund's assets, including a list of securities owned by the Fund
with their respective tax costs and values determined as provided in Section 1
hereof, all as of the Exchange Date.
(b) As of the Exchange Date, all representations and warranties of
the Fund made in this Agreement shall be true and correct as if made at and as
of such date, and the Fund shall have complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such date.
(c) A meeting of the shareholders of the Fund to approve this
Agreement and the transactions and exchange contemplated hereby shall have been
duly called and held on this Agreement and the transactions contemplated hereby
shall have been approved by the vote required by applicable law.
5. The Fund's Conditions Precedent. The obligations of the Fund
hereunder shall be subject to the condition that as of the Exchange Date all
representations and warranties of the Federated Trust and the Successor Fund
made in this Agreement shall be true and correct as if made at and as of such
date, and that the Federated Trust and the Successor Fund shall have complied
with all of the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such date.
6. The Federated Trust's and Fund's Conditions Precedent. The
obligations of both the Federated Trust and the Fund hereunder shall be subject
to the following conditions:
(a) The Federated Trust's initial Registration Statement, filed on
Form N-1A, relating to the Successor Fund under the Securities Act of 1933, as
amended, and the 1940 Act shall have become effective, and any additional post-
effective amendments to such Registration Statement as are determined by the
Trustees of the Federated Trust to be necessary and appropriate shall have been
filed with the Securities and Exchange Commission and shall have become
effective.
(b) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency which seeks to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
(c) Each party shall have received an opinion of Reed Smith LLP to
the effect that the reorganization contemplated by this Agreement qualifies as a
"reorganization" under Section 368(a)(1)(F) of the Code.
(D) THE FUND AND SUCCESSOR FUND SHALL RECEIVE AN OPINION OF REED
SMITH LLP, COUNSEL TO THE SUCCESSOR FUND AND THE FUND, IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE FUND AND SUCCESSOR FUND, COVERING SUCH MATTERS AS
MAY BE REASONABLY REQUESTED (UNLESS THE OFFICERS OF THE FUND AND SUCCESSOR FUND
DETERMINE THAT SUCH OPINION IS NOT REQUIRED).
Provided, however, that at any time prior to the Exchange Date, any
of the foregoing conditions in this Section 6 may be waived by the parties if,
in the judgment of the parties, such waiver will not have a material adverse
effect on the benefits intended under this Agreement to the shareholders of the
Fund.
7. Expenses.
The Successor Fund, the Fund, and the Federated Trust will bear the
expenses associated with the transactions contemplated by this Agreement,
including that the Successor Fund may incur registration fees, on an as incurred
basis, as the parties mutually agree.
8. Termination of Agreement. This Agreement and the transactions
contemplated hereby may be terminated and abandoned by the mutual agreement of
the Federated Trust and the Fund. In addition, either the Federated Trust or
the Fund may at its option terminate this Agreement at or before the Exchange
Date due to:
(a) a material breach by the other of any material representation,
warranty, or agreement contained herein to be performed at or before the
Exchange Date, if not cured within 30 days;
(b) a condition herein expressed to be a precedent to the
obligations of the terminating party that has not been met and it reasonably
appears that it will not or cannot be met;
(c) a resolution of the Board of Trustees of the Federated Trust
or the Board of Directors of the Fund at any time prior to the Exchange Date
(and notwithstanding any vote of the shareholders of the Fund) if circumstances
should develop that, in the opinion of either the Board of Trustees of the
Federated Trust or the Board of Directors of the Fund, proceeding with this
Agreement is no longer in the best interests of the Fund or the Successor Fund,
respectively.
If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 8, 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 Fund or the Trustees,
officers or shareholders of the Federated Trust, in respect of this Agreement.
9. Waiver and Amendments. At any time prior to the Exchange Date, any
of the conditions set forth in Section 4 may be waived by the Board of Trustees
of the Federated Trust, and any of the conditions set forth in Section 5 may be
waived by the Board of Directors of the Fund, if, in the judgment of the waiving
party, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the Fund or the
shareholders of the Successor Fund, as the case may be. In addition, prior to
the Exchange Date, any provision of this Agreement may be amended or modified by
the Boards of the Fund and the Federated Trust if such amendment or modification
would not have a material adverse effect upon the benefits intended under this
Agreement and would be consistent with the best interests of the Fund and the
Successor Fund.
10. No Survival of Representations. None of the representations and
warranties included or provided for herein shall survive consummation of the
transactions contemplated hereby.
11. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to principles of conflict of laws.
12. Capacity of Trustees, Etc.
(a) The names "Federated Municipal High Yield Advantage Fund" and
"Board of Trustees of the Federated Municipal High Yield Advantage Fund" refer,
respectively, to the trust created and the trustees, as trustees but not
individually or personally, acting from time to time under the Federated Trust's
Declaration of Trust, which is hereby referred to and a copy of which is on file
at the office of the State Secretary of the Commonwealth of Massachusetts and at
the principal office of the Federated Trust. The obligations of the Federated
Trust entered into in the name or on behalf of the Successor Fund by any of the
trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the trustees, shareholders or
representatives of the Federated Trust personally, but bind only the Successor
Fund's trust property, and all persons dealing with any portfolio of shares of
the Federated Trust must look solely to the trust property belonging to such
portfolio for the enforcement of any claims against the Federated Trust.
(b) Both parties specifically acknowledge and agree that any
liability of the Federated Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Successor Fund and that no other portfolio of the Federated Trust shall be
liable with respect thereto.
13. Counterparts. This Agreement may be executed in counterparts, each
of which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, the Federated Trust and the Fund have caused this
Agreement and Plan of Reorganization to be executed as of the date above first
written.
Federated Municipal High Yield
Advantage Fund, Inc.,
By:_______________________________
Title:____________________________
Federated Municipal Securities Income
Trust,
on behalf of its portfolio, Federated
Municipal High Yield Advantage Fund
By:_______________________________
Title:____________________________
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund intends to
deliver a single copy of certain documents to each household in which more than
one shareholder of the Fund resides so-called "householding", as permitted by
applicable rules. The Fund's "householding" program covers their Prospectuses
and Statements of Additional Information, and supplements to each, as well as
Semi-Annual and Annual Shareholder Reports and any Proxies or information
statements. Shareholders must give their written consent to participate in the
"householding" program. The Fund is also permitted to treat a shareholder as
having given consent "implied consent" if (i) shareholders with the same last
name, or believed to be members of the same family, reside at the same street
address or receive mail at the same post office box, (ii) the Fund gives notice
of its intent to "household" at least sixty 60 days before they begin
"householding" and (iii) none of the shareholders in the household have notified
the Fund or its agent of the desire to "opt out" of "householding." Shareholders
who have granted written consent, or have been deemed to have granted implied
consent, can revoke that consent and opt out of "householding" at any time by
contacting the Fund by mail at: Federated Investors Funds., 5800 Corporate
Drive, Pittsburgh Pennsylvania 15237-7000: shareholders who purchased shares
through a financial intermediary should contact their representative; other
shareholders may call the Fund at 1-800-341-7400.
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.
INVESTMENT ADVISER
FEDERATED INVESTMENT MANAGEMENT COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
DISTRIBUTOR
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
ADMINISTRATOR
FEDERATED ADMINISTRATIVE SERVICES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101
35035 (08/06)