FEDERATED MUNICIPAL OPPORTUNITIES FUND INC, 497, 1996-11-01

FEDERATED MUNICIPAL OPPORTUNITIES FUND INC
497, 1996-11-01

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FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
CLASS F SHARES
PROSPECTUS

The Class F Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) that seeks a high level of current income exempt from the federal
regular income tax by investing primarily in a professionally managed,
diversified portfolio of municipal bonds.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class F Shares of the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares dated October 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated October 31, 1996

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TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights...........................................................2

General Information............................................................3

Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Portfolio Turnover...........................................................5
Municipal Bonds..............................................................5
Investment Risks.............................................................5
Investment Limitations.......................................................7

Net Asset Value................................................................7

Investing in Class F Shares....................................................8
Share Purchases..............................................................8
Minimum Investment Required..................................................8
What Shares Cost.............................................................8
Eliminating the Sales Charge.................................................9
Systematic Investment Program...............................................10
Exchange Privilege..........................................................11
Certificates and Confirmations..............................................11
Dividends and Distributions.................................................11

Redeeming Class F Shares......................................................12
Through a Financial Institution.............................................12
Directly by Mail............................................................13
Contingent Deferred Sales Charge............................................13
Systematic Withdrawal Program...............................................14
Accounts with Low Balances..................................................14

Fund Information..............................................................15
Management of the Fund......................................................15
Distribution of Class F Shares..............................................16
Administration of the Fund..................................................18

Shareholder Information.......................................................18
Voting Rights...............................................................18

Tax Information...............................................................19
Federal Income Tax..........................................................19
State and Local Taxes.......................................................19

Performance Information.......................................................20

Other Classes of Shares.......................................................21

Appendix......................................................................21
Addresses.....................................................................23
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SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<S> <C> <C>
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)...................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................ 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................ 0.60%
12b-1 Fee (2)................................................................................................. 0.00%
Total Other Expenses.......................................................................................... 0.48%
Shareholder Services Fee (after waiver) (3).................................................... 0.24%
Total Operating Expenses (4)......................................................................... 1.08%
</TABLE>

(1) The contingent deferred sales charge is 1.00% of the lesser of the original
purchase price or the net asset value of shares redeemed within four years
of their purchase date. For a more complete description see "Contingent
Deferred Sales Charge."

(2) The Class did not pay or accrue 12b-1 fees during the fiscal year ended
August 31, 1996. The Class has no present intention of paying or accruing
the 12b-1 fee during the fiscal year ending August 31, 1997. If the Fund
were paying or accruing the 12b-1 fee, the Fund would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund
Information."

(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
services provider can terminate the voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.09% absent the voluntary
waiver of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the
end of each time period...................................................... $31 $55 $69 $140
You would pay the following expenses on the same investment,
assuming no redemption....................................................... $21 $44 $69 $140
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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FINANCIAL HIGHLIGHTS--CLASS F SHARES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 11, 1996 on the Fund's
financial statements for the year ended August 31, 1996, and on the following
table for each of the periods presented, is included in the Annual Report dated
August 31, 1996, which is incorporated by reference. This table should be read
in conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.71 $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23 $ 9.76
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.69 0.63 0.61 0.62 0.66 0.70 0.72 0.74
- -------------------------------------
Net realized and unrealized gain
(loss) on investments (0.42) 0.15 (0.73) 0.51 0.39 0.40 (0.23) 0.49
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.27 0.78 (0.12) 1.13 1.05 1.10 0.49 1.23
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------
Distributions from net investment
income (0.65) (0.63) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76)
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.33 $ 10.71 $ 10.56 $ 11.28 $ 10.78 $ 10.39 $ 10.00 $ 10.23
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (b) 2.47% 7.73% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.08% 1.08% 1.09% 1.09% 1.05% 1.02% 1.01% 0.90%
- -------------------------------------
Net investment income 5.91% 6.18% 5.56% 5.65% 6.18% 6.86% 7.07% 7.27%
- -------------------------------------
Expense waiver/reimbursement (c) 0.01% 0.00% 0.00% 0.00% 0.14% 0.33% 0.39% 0.83%
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period
(000 omitted)
$383,028 $426,010 $472,232 $458,331 $248,768 $135,628 $89,907 $62,501
- -------------------------------------
Portfolio turnover 22% 13% 27% 7% 14% 18% 24% 24%
- -------------------------------------

<CAPTION>
<S> <C> <C>
1988 1987(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 10.00
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.78 0.26
- -------------------------------------
Net realized and unrealized gain
(loss) on investments (0.36) 0.07
- ------------------------------------- --------- ---------
Total from investment operations 0.42 0.33
- ------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------
Distributions from net investment
income (0.73) (0.26)
- ------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 10.07
- ------------------------------------- --------- ---------
TOTAL RETURN (b) 4.43% 3.48%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.02% 0.86%*
- -------------------------------------
Net investment income 8.03% 7.14%*
- -------------------------------------
Expense waiver/reimbursement (c) 0.70% 0.29%*
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period
(000 omitted) $25,151 $22,829
- -------------------------------------
Portfolio turnover 34% 0%
- -------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 10, 1987, (date of initial
public investment) to August 31, 1987. For the period from the start of
business, April 1, 1987 to April 9, 1987, net investment aggregating $0.01
per share was distributed to the Fund's investment adviser. Such
distribution represented the net investment income of the Fund prior to the
initial public offering of the Fund shares which commenced on April 10,
1987.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated August 31, 1996, which can be obtained free of charge.

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GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on November
26, 1986.

The Articles of Incorporation permit the Fund to offer separate classes of
shares. As of March 31, 1995, the Corporation changed its name from Fortress
Municipal Income Fund, Inc. to Federated Municipal Opportunities Fund, Inc. With
respect to this Fund, as of the date of this prospectus, the Board of Directors
("Directors") has established four classes of shares known as Class A Shares,
Class B Shares, Class C Shares, and Class F Shares. This prospectus relates only
to the Class F Shares ("Shares") of the Fund.

The Fund is designed primarily for individuals seeking high current income
through a professionally managed, diversified portfolio of municipal bonds. A
minimum initial investment of $1,500 is required. Class F Shares are sold at net
asset value plus an applicable sales charge and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares, other
than Shares purchased through reinvestment of dividends, which are redeemed
within one to four years of their purchase dates.

- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide a high level of current
income which is generally exempt from the federal regular income tax (federal
regular income tax does not include the federal alternative minimum tax). The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

The Fund pursues its investment objective by investing primarily in a
diversified portfolio of municipal bonds. The Fund invests its assets so that at
least 80% of its annual interest income is exempt from federal regular income
tax. The Fund may invest up to but less than 35% of its net assets in lower
quality municipal bonds. These bonds will usually offer higher yields than
higher-rated bonds but involve greater investment risk at the time of issue.
(See "Investment Risks.")

INVESTMENT POLICIES

Unless otherwise designated, the investment policies described below may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS

The Fund invests primarily in municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states, territories and possessions of the
United States, including the District of Columbia, and their political
subdivisions, agencies and instrumentalities, the interest from which is exempt
from the federal regular income tax. It is likely, however, that shareholders
will be required to include interest from a portion of the municipal bonds
owned by the Fund in calculating the federal individual alternative minimum
tax or the federal alternative minimum tax for corporations.

CHARACTERISTICS

The municipal bonds which the Fund buys are rated Ba or higher by Moody's
Investors Service, Inc. ("Moody's") or rated BB or higher by Standard & Poor's
Ratings Group ("S&P"). The Fund will limit its purchases of municipal bonds
rated Ba and BB (commonly known as "junk bonds") to up to but less than 35% of
its net assets. The Fund may buy bonds which are unrated but which the adviser
judges to be similar in quality to those rated bonds which it purchases. A
description of the ratings categories is contained in the Appendix to this
prospectus.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

TEMPORARY INVESTMENTS

The Fund invests its assets so that at least 80% of its annual interest income
is exempt from the federal regular income tax, except when investing for
"defensive" purposes as described below. This policy cannot be changed without
approval of shareholders. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: fixed or variable
rate notes issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the Fund a
bond or temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality.

OTHER INVESTMENT TECHNIQUES

The Fund may purchase a right to sell a security held by it back to the issuer
or to another party at an agreed upon price at any time during a stated period
or on a certain date. These rights may be referred to as "liquidity puts" or
"standby commitments."

The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on futures contracts
and options thereon are taxable. The

Fund will notify shareholders before it engages in these futures transactions.

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held.

MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. Municipal bonds are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities. Certain types of
"private activity" municipal bonds are issued to obtain funding for privately
operated facilities.

There are two categories of municipal bonds: general obligation and revenue.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Payment of principal and interest on such bonds is dependent solely on the
revenue generated by the facility financed by the bond or other specified
sources of revenue or collateral. Private activity bonds are typically one type
of "revenue" bonds.

In most cases, lower quality bonds are private activity bonds or other revenue
bonds which are not payable from general tax revenues. The Fund may invest more
than 25% of the value of its assets in private activity bonds which may result
in more than 25% of the Fund's assets being invested in one industry. It is also
possible that the Fund may from time to time invest more than 25% of its assets
in health care facilities revenue obligations, housing agency revenue
obligations or electric utility obligations. Economic, business, political and
other developments generally affecting the revenues of issuers in such a market
segment (for example, proposed legislation or pending court decisions affecting
the financing of projects and market factors affecting the demand for their
services or products) may have a general adverse impact on all municipal bonds
in the segment.

The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory
or possession of the United States.

INVESTMENT RISKS

The value of Shares will fluctuate. The amount of this fluctuation is dependent
upon the quality and maturity of the municipal bonds in the Fund's portfolio as
well as on market conditions. Generally speaking, the lower quality, long-term
bonds in which the Fund invests have greater fluctuation in value than high
quality, shorter-term bonds.

Municipal bond prices are interest rate sensitive, which means that their value
varies inversely with market interest rates. Thus, if market interest rates have
increased from the time a bond was purchased, the bond, if sold, might be sold
at a price less than its cost. Similarly, if market interest rates have declined
from the time a bond was purchased, the bond, if sold, might be sold at a price
greater than its cost. (In either instance, if the bond was held to maturity, no
loss or gain normally would be realized as a result of interim market
fluctuations.)

Prices of lower grade bonds also fluctuate with changes in the perceived quality
of the credit of their issuers. Consequently, shares may not be

suitable for persons who cannot assume the somewhat greater risks of capital
depreciation associated with higher tax-exempt income yields. In addition, bonds
rated "BBB" by S&P or "Baa" by Moody's have speculative characteristics. Changes
in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds.

A large portion of the Fund's portfolio may be invested in bonds whose interest
payments are from revenues of similar projects (such as housing or hospitals) or
where issuers share the same geographic location. As a result, the Fund may be
more susceptible to similar economic, political or regulatory developments than
would a portfolio of bonds with a greater geographic and project variety. This
susceptibility may result in greater fluctuations in share price.

Many issuers of municipal bonds which have characteristics of rated bonds choose
to not have their obligations rated. Unrated bonds may carry a greater risk and
a higher yield than rated securities. Although unrated bonds are not necessarily
of lower quality, the market for them may not be as broad as that for rated
bonds since many investors rely solely on the major rating agencies for credit
appraisal.

Further, the lower rated or unrated municipal bonds which the Fund may purchase
are frequently traded only in markets where the number of potential purchasers
and sellers is limited. This consideration may have the effect of limiting the
availability of such bonds for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell such bonds at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets. The Fund will not invest more than 10% of its total
assets in securities which are not readily marketable.

REDUCING RISKS OF
LOWER-RATED SECURITIES

The Fund's investment adviser believes that the risks of investing in lower
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:

.Credit Research. When purchasing bonds, rated or unrated, the Fund's investment
adviser performs its own credit analysis in addition to using recognized rating
agencies. This credit analysis considers the economic feasibility of revenue
bond project financing and general purpose borrowings, the financial condition
of the issuer or guarantor with respect to liquidity, cash flow and ability to
meet anticipated debt service requirements, and political developments that may
affect credit quality.

.Diversification. The Fund invests in securities of many different issuers to
reduce portfolio risks.

.Economic Analysis. The Fund's adviser also considers trends in the overall
economy, in geographic areas, in various industries, and in the financial
markets.

INVESTMENT LIMITATIONS

The Fund will not:

.borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an arrangement to buy it back on a set date) or pledge securities except,
under certain circumstances, the Fund may, exclusive of custodian intra-day
cash advances and the collateralization of such advances, borrow up to
one-third of the value of its total assets and pledge up to 10% of the value of
those assets to secure such borrowings; or

.invest more than 10% of its net assets in securities subject to restrictions on
resale under the Securities Act of 1933, except for certain restricted
securities which meet the criteria for liquidity as established by the
directors.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

The Fund will not:

.invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or

.invest more than 5% of its total assets in industrial development bonds of
issuers that have a record of less than three years of continuous operations.

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NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class F Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class F Shares in the liabilities of the Fund and those attributable to the
Class F Shares, and dividing the remainder by the total number of Class F Shares
outstanding. The net asset value for Class F Shares may differ from that of
Class A Shares, Class B Shares, and Class C Shares due to the variance in daily
net income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

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INVESTING IN CLASS F SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares of
the Fund may be purchased through an investment dealer who has a sales agreement
with the distributor, Federated Securities Corp., or directly from Federated
Securities Corp. either by mail or wire. The Fund reserves the right to reject
any purchase request.

THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 P.M.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
P.M. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 P.M. (Eastern
time) in order for Shares to be purchased at that day's price. Orders through a
financial institution are considered received when the Fund is notified of the
purchase order. It is the financial institution's responsibility to transmit
orders promptly.

The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Supplemental Payments to Financial Institutions").

DIRECTLY BY MAIL

To purchase Shares directly from Federated Securities Corp.:

complete and sign the application available from the Fund;

enclose a check made payable to Federated Municipal Opportunities Fund, Inc.;
and

send both to the Fund's transfer agent, Federated Shareholder Services Company,
P.O. Box 8600, Boston, MA 02266-8600.

Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank, into federal funds. This is
generally the next business day after State Street Bank receives the check.

DIRECTLY BY WIRE

To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when the transfer agent's bank receives
payment by wire. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Fund is $1,500. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is
1.01% of the net amount invested). There is no sales charge for purchases of $1
million or more. However, those unaffiliated institutions through whom Shares
are purchased may charge fees for services provided which may be related to the
ownership of Shares. This prospectus should, therefore, be read together with
any agreement between the customer and the institution with regard to services
provided, the fees charged for these services, and any restrictions and
limitations imposed. No sales charge is imposed for Shares purchased through
bank trust departments or investment advisers registered under the Investment
Advisers Act of 1940 purchasing on behalf of their clients.

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; or (iii) the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

Under certain circumstances described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION

For sales of Shares of the Fund, the distributor will normally receive up to
100% of the sales charge retained by it. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp. Federated Securities Corp. may pay fees to banks out of the sales charge
in exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of Shares.

ELIMINATING THE SALES CHARGE

The sales charge can be eliminated on the purchase of Shares through:

.quantity discounts and accumulated purchases;

.signing a 13-month letter of intent;

.using the reinvestment privilege; or

.concurrent purchases.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

There is no sales charge for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge. In addition, the
sales charge is eliminated for purchases of $1 million or more made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account.

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in Shares. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000, and he
purchases $100,000 or more at the current public offering price, there will be
no sales charge on the additional purchase.

The Fund will also combine purchases for the purpose of reducing the contingent
deferred sales charge imposed on some Share redemptions. For example, if a
shareholder already owns Shares having a current value at public offering price
of $1 million and purchases an additional $1 million at the current public
offering price, the applicable contingent deferred sales charge would be reduced
to 0.50% of those additional Shares. For more information on the

levels of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."

To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by their financial institution at the time the purchase is made
that Shares are already owned or that purchases are being combined. The Fund
will eliminate the sales charge and/or reduce the contingent deferred sales
charge after it confirms the purchases.
LETTER OF INTENT

If a shareholder intends to purchase at least $1 million of Shares over the next
13 months, the sales charge may be eliminated by signing a letter of intent to
that effect. This letter of intent includes a provision for a sales charge
elimination depending on the amount actually purchased within the 13-month
period and a provision for the Fund's custodian to hold 1.00% of the total
amount intended to be purchased in escrow (in Shares of the Fund) until such
purchase is completed.

The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more of Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales charge.

This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge." This letter of intent will not
obligate the shareholder to purchase Shares. The letter may be dated as of a
prior date to include any purchases made within the past 90 days.

REINVESTMENT PRIVILEGE

If Shares in the Fund have been redeemed, the shareholder has a one-time right,
within 120 days, to reinvest the redemption proceeds at the next-determined net
asset value without any sales charge. Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution of the
reinvestment in order to receive this elimination of the sales charge. If the
shareholder redeems his Shares, there may be tax consequences.
CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of two or more funds offering Class
F Shares, the purchase price of which includes a sales charge. For example, if a
shareholder concurrently invested $400,000 in Class F Shares of certain of the
funds advised by subsidiaries of Federated Investors ("the Federated Funds") and
$600,000 in Shares, the sales charge would be eliminated.

To receive this sales charge elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales charge
after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account and invested in Shares at the
net asset value next determined after an order is received by State Street Bank,
plus the 1.00% sales charge for purchases under

$1 million. A shareholder may apply for participation in this program through
Federated Securities Corp.

EXCHANGE PRIVILEGE

The Fund has exchange privileges with the Class F Shares of the following
Federated Funds:

Federated American Leaders Fund, Inc.; Federated California Municipal Income
Fund; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated Bond Fund;
Federated Government Income Securities, Inc.; Federated Equity Income Fund,
Inc.; Federated Limited Term Fund; Federated Limited Term Municipal Fund;
Federated New York Municipal Income Fund; Federated Ohio Municipal Income Fund;
Federated Strategic Income Fund; Federated Utility Fund; and Federated World
Utility Fund.

Shares in Federated Municipal Opportunities Fund, Inc. or in the Federated Funds
may be exchanged at net asset value without a sales charge (if previously paid)
or a contingent deferred sales charge. The exchange privilege is available to
shareholders residing in any state in which the Shares being acquired may be
legally sold.

Shares of certain of the Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares at net asset
value (plus a sales charge, if applicable). With the exception of exchanges into
other Federated Funds, such exchanges may be subject to a contingent deferred
sales charge and possibly a sales charge.

Shareholders using the exchange privilege must exchange Shares having a net
asset value which at least meets the minimum investment for the fund into which
the exchange is being made. Shareholders who desire to automatically exchange
Shares of a pre-determined amount on a monthly, quarterly, annual or other
periodic basis may take advantage of a systematic exchange privilege. Further
information on these exchange privileges is available by calling Federated
Securities Corp. or the shareholder's financial institution.

Before a financial institution may request exchange by telephone on behalf of a
shareholder, an authorization form permitting the Fund to accept exchange by
telephone must first be completed. Exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

Exercise of the exchange privilege is treated as a sale for federal income tax
purposes. Depending on the circumstances, a short or long-term capital gain or
loss may be realized. Before making any exchange, a shareholder must receive a
prospectus of the fund for which the exchange is being made.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested on the application or by contacting the transfer agent.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on payment dates at the
ex-dividend date net asset value without a sales charge unless cash payments are
requested by shareholders on the application or by writing to Federated
Shareholder Services Company.

- --------------------------------------------------------------------------------

REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made through a financial
institution or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the

Fund to accept redemption requests by telephone must first be completed.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption, such as "Directly by
Mail," should be considered.

DIRECTLY BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.

The written request should state: the Fund name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

RECEIVING PAYMENT

A check for the proceeds is mailed within seven days after receipt of proper
written redemption instructions from a broker or from the shareholder.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Shares from their Fund accounts within certain time
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
AMOUNT OF DEFERRED
PURCHASE SHARES HELD SALES CHARGE
--------- ---------- ------------
<C> <S> <C>
Up to $1,999,999 4 years or less 1.00%
$2,000,000 to
$4,999,999 2 years or less 0.50%
$5,000,000 or more 1 year or less 0.25%
</TABLE>

In instances in which Shares have been acquired in exchange for Class F Shares
of other Federated Funds, (i) the purchase price is the price of the Shares when
originally purchased and (ii) the time period during which the Shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on Shares acquired through: (i) the reinvestment of
dividends or distributions of long-term capital gains; or (ii) the exchange of
Shares of Federated Government Income Securities, Inc. where those Shares were
purchased during that fund's Charter Offering Period. In computing the amount of
contingent deferred sales charge for accounts with Shares subject to a single
holding period, if any, redemptions are deemed to have occurred first of Shares
acquired through the reinvestment of dividends and long-term capital gains,
second of purchases of Shares occurring prior to the number of years necessary
to satisfy the applicable hold period, and finally of purchases of Shares
occurring within the current hold period. For accounts with Shares subject to
multiple holding periods, the redemption sequence will be determined first, with
reinvested dividends and long-term capital gains, and second, on a first-in,
first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account, after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan or a custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Contingent deferred sales charges are not charged in connection with exchanges
of Shares for shares of certain of the Federated Funds or in connection with
redemptions by the Fund of accounts with low balances. Shares originally
purchased through a bank trust department or investment adviser registered under
the Investment Advisers Act of 1940, to the extent that no advanced payments are
made for purchases made through such entities. In addition, Shares held in the
Fund by a financial institution for its own account which were originally
purchased by the financial institution directly from the Fund's distributor
without a sales charge may be redeemed without a contingent deferred sales
charge. For more information, see "Supplemental Payments to Financial
Institutions."

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Shares, and the fluctuation of the net asset value
of Shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge, it is
not advisable for shareholders to purchase Shares while participating in this
program.

Contingent deferred sales charges are charged for Shares redeemed through this
program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,500. This requirement
does not apply, however, if the balance falls below $1,500 because of changes in
the Share's net asset value.

Before Shares are redeemed to close an account, the shareholder is notified in
writing and

allowed 30 days to purchase additional Shares to meet the minimum requirement.

- --------------------------------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

DIRECTORS

The Fund is managed by the Directors. The Directors are responsible for managing
the Fund's business affairs and for exercising all the Fund's powers except
those reserved for the shareholders. An Executive Committee of the Directors
handles the Director's responsibilities between meetings of the Directors.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily choose to waive a
portion of its fee or reimburse the fund for certain operating expenses. The
Adviser can terminate this voluntary waiver of its advisory fee at any time at
its sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the Trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. The Federated Funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected the Federated Funds for
their clients.

Mary Jo Ochson has been the Fund's portfolio manager since May 1996. Ms. Ochson
joined Federated Investors in 1982 and has been a Senior Vice President of the
Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson
served as a Vice President of the Fund's investment adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.

J. Scott Albrecht has been the Fund's portfolio manager since May 1996. Mr.
Albrecht joined Federated Investors in 1989 and has been a Vice President of the
Fund's investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as
an Assistant Vice President of the Fund's investment adviser. In 1991, Mr.
Albrecht acted as an investment analyst. Mr. Albrecht is a Chartered Financial
Analyst and received his M.S. in Public Management from Carnegie Mellon
University.

Jonathan C. Conley has been the Fund's portfolio manager since July 1987. Mr.
Conley joined Federated Investors in 1979 and has been a Senior Vice President
of the Fund's Adviser since 1995. Mr. Conley was a Vice President of the Fund's
Adviser from 1982 to 1995. Mr. Conley is a Chartered Financial Analyst and
received his M.B.A. in Finance from the University of Virginia.

DISTRIBUTION OF CLASS F SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Plan"), the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers and
brokers/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. The Fund is not currently
making payments for Class F Shares under the Distribution Plan, nor does it
anticipate doing so in the immediate future.

The distributor will pay financial institutions a fee based upon Shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the Board of Directors of the Fund provided that for any period the
total amount of these fees shall not exceed an annual rate of 0.25% of the
average net asset value of shares subject to the Plan held during the period by
clients or customers of financial institutions. The current annual rate of such
fees is 0.25%. Any fees paid by the distributor under the Plan, will be
reimbursed from the assets of the Fund.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
the Fund to obtain certain personal services for shareholders and to provide the
maintenance of shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

The distributor will pay brokers and financial institutions, for distribution
and/or administrative services, an amount equal to 1% of the offering price of
the shares acquired by their clients or customers on purchases up to $1,999,999,
0.50% of the offering price on purchases of $2,000,000 to $4,999,999, and 0.25%
of the offering price on purchases of $5,000,000 or more. (This fee is in
addition to the 1% sales charge on purchases of less than $1 million.) Any fees
paid by the distributor pursuant to these administrative arrangements will be
reimbursed by the Adviser. The administrator may elect to receive amounts less
than those stated, which would reduce the stated contingent deferred sales
charge and/or the holding period used to calculate the fee.

Furthermore, in addition to payments made pursuant to the Plan and Shareholder
Services Agreement, the distributor may pay a supplemental fee from its own
assets to financial institutions as financial assistance for providing
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars at recreational-type facilities for their employees, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all of the Federated Funds as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET
ADMINISTRATIVE ASSETS OF THE
FEE FEDERATED FUNDS
-------------- -------------------------
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund is entitled to one vote at all meetings of shareholders.
As of October 8, 1996, Merrill Lynch Pierce Fenner & Smith (as owner of record
holding shares for its clients), Jacksonville, Florida, owned 26.83% of the
voting securities of Class F Shares of the Fund, and 96.55% of the voting
securities of Class A Shares of the Fund, and Key Clearing Corp., Brooklyn,
Ohio, owned 90.66% of the voting securities of Class C Shares of the Fund, and,
therefore, may, for certain purposes, be deemed to control
the Fund and be able to affect the outcome of certain matters presented for a
vote of shareholders.

- --------------------------------------------------------------------------------

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. Shareholders are
not required to pay the federal regular income tax on any dividends received
from the Fund that represent net interest on tax-exempt municipal bonds.
However, under the Tax Reform Act of 1986, dividends representing net interest
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.

The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternate minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

STATE AND LOCAL TAXES

Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield for Class F Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The tax-equivalent yield of Shares is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that Shares would have had
to earn to equal its actual yield, assuming a specific tax rate. The yield and
the tax-equivalent yield do not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return, yield, and tax-
equivalent yield.

Total return, yield and tax-equivalent yield will be calculated separately for
Class A Shares, Class B Shares, Class C Shares and Class F Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

- --------------------------------------------------------------------------------
OTHER CLASSES OF SHARES

The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of financial
institutions subject to certain differences.

Class A Shares are sold at net asset value subject to a front-end sales charge,
and a shareholder services fee, and are distributed pursuant to a Rule 12b-1
Plan. Investments in Class A Shares are subject to a minimum initial investment
of $500.

Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a shareholder services fee, and are distributed pursuant to a Rule
12b-1 Plan. Investments in Class B Shares are subject to a minimum initial
investment of $1,500.

Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a shareholder services fee, and are distributed pursuant to a Rule
12b-1 Plan. Investments in Class C Shares are subject to a minimum investment of
$1,500.

Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to
certain of the same expenses. Expense differences, however, between Class A
Shares, Class B Shares, Class C Shares and Class F Shares may affect the
performance of each class.

To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call
1-800-341-7400 or contact their financial
institution.

- --------------------------------------------------------------------------------
APPENDIX

MUNICIPAL BOND
RATING DEFINITIONS

STANDARD & POOR'S RATINGS GROUP

AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group ("S&P"). Capacity to pay interest and repay principal is extremely
strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB" rating.

MOODY'S INVESTORS SERVICE, INC.

Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba--Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Municipal Opportunities Fund, Inc.
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
- ---------------------------------------------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL
INCOME FUND, INC.)
CLASS F SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

October 31, 1996

[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

[logo]

Cusip 313910101

G00570-02-F (10/96)

FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS

The shares of Federated Municipal Opportunities Fund, Inc. (the "Fund")
respresent interests in an open-end, diversified management investment company
(a mutual fund) that seeks a high level of current income exempt from the
federal regular income tax by investing primarily in a professionally managed,
diversified portfolio of municipal bonds.

This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund. Keep
this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated October 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated October 31, 1996

- -------------------------------------------------------------------------------

TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights--Class A Shares...........................................4

Financial Highlights--Class B Shares...........................................5

Financial Highlights--Class C Shares...........................................6

General Information............................................................7

Investment Information.........................................................8
Investment Objective.........................................................8
Investment Policies..........................................................8
Portfolio Turnover...........................................................9
Municipal Bonds..............................................................9
Investment Risks............................................................10
Investment Limitations......................................................11

Net Asset Value...............................................................12

Investing in the Fund.........................................................12

How to Purchase Shares........................................................13
Investing in Class A Shares.................................................13
Reducing or Eliminating
the Sales Charge.........................................................14
Investing in Class B Shares.................................................16
Investing in Class C Shares.................................................16
Special Purchase Features...................................................17
Exchange Privilege..........................................................17

How to Redeem Shares..........................................................19
Special Redemption Features.................................................20
Contingent Deferred Sales Charge............................................21
Account and Share Information...............................................23

Fund Information..............................................................24
Management of the Fund......................................................24
Distribution of Fund Shares.................................................25
Administration of the Fund..................................................26
Brokerage Transactions......................................................26
Expenses of the Fund and Shares.............................................27

Shareholder Information.......................................................28
Voting Rights...............................................................28

Tax Information...............................................................28
Federal Income Tax..........................................................28
State and Local Taxes.......................................................29

Performance Information.......................................................29

Other Classes of Shares.......................................................30

Appendix......................................................................31

Addresses.....................................................................32

- -------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).....................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)........................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee............................................................................................... 0.60%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.49%
Shareholder Services Fee..................................................................... 0.25%
Total Operating Expenses........................................................................... 1.09%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions
made within one year of purchase. See "Contingent Deferred Sales Charge".

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each
time period, and (3) payment of the maximum sales charge.......................................... $56 $78
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS A SHARES' FISCAL YEAR ENDING AUGUST
31, 1996.

- -------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................. 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None

ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee................................................................................................. 0.60%
12b-1 Fee...................................................................................................... 0.75%
Total Other Expenses........................................................................................... 0.49%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (2).......................................................................... 1.84%

</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").

(2) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each
time period, and (3) payment of the maximum sales charge........................................... $75 $102
You would pay the following expenses on the same investment,
assuming no redemption............................................................................. $19 $ 58
</TABLE>

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee................................................................................................. 0.60%
12b-1 Fee...................................................................................................... 0.75%
Total Other Expenses........................................................................................... 0.49%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses.............................................................................. 1.84%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
one year of their purchase date. For a more complete description, see
"Redeeming Class C Shares."

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each
time period, and (3) payment of the maximum sales charge........................................... $29 $58
You would pay the following expenses on the same investment,
assuming no redemption............................................................................. $19 $58
</TABLE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 11, 1996, on the Fund's
financial statements for the year ended August 31, 1996, and on the following
table for the period presented, is included in the Annual Report dated August
31, 1996, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST 31,
1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.42
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------
Net investment income 0.08
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.12)
- -------------------------------------------------------------------------------------------------------- -------------
Total from investment operations (0.04)
- -------------------------------------------------------------------------------------------------------- -------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.05)
- -------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, END OF PERIOD $ 10.33
- -------------------------------------------------------------------------------------------------------- -------------
TOTAL RETURN (B) (0.36%)
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------
Expenses 0.84%*
- --------------------------------------------------------------------------------------------------------
Net investment income 6.15%*
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets, end of period $296
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 22%
- --------------------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to
August 31, 1996.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated August 31, 1996, which can be obtained free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

* Computed on an annualized basis.

(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to
August 31, 1996.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated August 31, 1996, which can be obtained free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

* Computed on an annualized basis.

(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to
August 31, 1996.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated August 31, 1996, which can be obtained free of charge.

- -------------------------------------------------------------------------------

GENERAL INFORMATION

The Corporation was established under the laws of the State of Maryland on
November 26, 1986. The Corporation's address is Liberty Center, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of
Incorporation permit the Corporation to offer separate classes of shares. As of
March 31, 1996, the Corporation changed its name from Fortress Municipal Income
Fund, Inc. to Federated Municipal Opportunities Fund, Inc. With respect to this
Fund, as of the date of this prospectus, the Directors have established four
classes of shares, known as Class A Shares, Class B Shares, Class C Shares, and
Class F Shares. This prospectus relates only to the Class A Shares, Class B
Shares, and Class C Shares of the Fund (individually and collectively as the
context requires, "Shares").

Shares of the Fund are designed for individuals seeking high current income
through a professionally managed, diversified portfolio of municipal bonds.

For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1,500. Subsequent investments in any class must be in amounts of at
least $100.

Class A Shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."

Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."

Class C Shares are sold at net asset value. However, a contingent deferred sales
charge of 1.00% is imposed on certain shares which are redeemed within the first
12 months following purchase. See "How to Redeem Shares."

- --------------------------------------------------------------------------------

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide a high level of current
income which is generally exempt from the federal regular income tax (federal
regular income tax does not include the federal alternative minimum tax). The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests primarily in municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states, territories and possessions of the
United States, including the District of Columbia, and their political
subdivisions, agencies and instrumentalities, the interest from which is exempt
from the federal regular income tax. It is likely, however, that shareholders
will be required to include interest from a portion of the municipal bonds owned
by the Fund in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
CHARACTERISTICS

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The

Fund may realize short-term profits or losses upon the sale of such commitments.

TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual interest income
is exempt from the federal regular income tax, except when investing for
"defensive" purposes as described below. This policy cannot be changed without
approval of shareholders. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: fixed or variable
rate notes issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the Fund a
bond or temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality.

OTHER INVESTMENT TECHNIQUES

The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on futures contracts
and options thereon are taxable. The Fund will notify shareholders before it
engages in these futures transactions.

PORTFOLIO TURNOVER

MUNICIPAL BONDS

Municipal bonds are generally issued to finance public works such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. Municipal bonds are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities. Certain types of
"private activity" municipal bonds are issued to obtain funding for privately
operated facilities.

than 25% of its assets in health care facilities revenue obligations, housing
agency revenue obligations or electric utility obligations. Economic, business,
political and other developments generally affecting the revenues of issuers in
such a market segment (for example, proposed legislation or pending court
decisions affecting the financing of projects and market factors affecting the
demand for their services or products) may have a general adverse impact on all
municipal bonds in the segment.

INVESTMENT RISKS

Prices of lower grade bonds also fluctuate with changes in the perceived quality
of the credit of their issuers. Consequently, shares may not be suitable for
persons who cannot assume the somewhat greater risks of capital depreciation
associated with higher tax-exempt income yields. In addition, bonds rated "BBB"
by S& P or "Baa" by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated bonds.

REDUCING RISKS OF LOWER-RATED SECURITIES

Credit Research. When purchasing bonds, rated or unrated, the Fund's investment
adviser performs its own credit analysis in addition to using recognized rating
agencies. This credit analysis considers the economic feasibility of revenue
bond project financing and general purpose borrowings, the financial condition
of the issuer or guarantor with respect to liquidity, cash flow and ability to
meet anticipated debt service requirements, and political developments that may
affect credit quality.

Diversification. The Fund invests in securities of many different issuers to
reduce portfolio risks.

Economic Analysis. The Fund's adviser also considers trends in the overall
economy, in geographic areas, in various industries, and in the financial
markets.

INVESTMENT LIMITATIONS

The Fund will not:

borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an arrangement to buy it back on a set date) or pledge securities except,
under certain circumstances, the Fund may, exclusive of custodian intra-day
cash advances and the collateralization of such advances, borrow up to
one-third of the value of its total assets and pledge up to 10% of the value of
those assets to secure such borrowings; or

invest more than 10% of its net assets in securities subject to restrictions on
resale under the Securities Act of 1933, except for certain restricted
securities which meet the criteria for liquidity as established by the
directors.

The Fund will not:

invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or

invest more than 5% of its total assets in industrial development bonds of
issuers that have a record of less than three years of continuous operations.

- -------------------------------------------------------------------------------

NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined as of the
close of trading, (normally 4:00 p.m., Eastern time), on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

- --------------------------------------------------------------------------------

INVESTING IN THE FUND

This prospectus offers investors three classes of Shares that carry sales
charges and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing the
Sales Charge--Class A Shares." Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within
the first 12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower dividends
than Class A Shares due to the higher 12b-1 fee. Class C Shares have no
conversion feature.

- --------------------------------------------------------------------------------

HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. (Financial institutions may impose different minimum investment
requirements on their customers.)

In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<S> <C> <C> <C>
DEALER
SALES CHARGE SALES CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession."

No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of the sales charge. However,
investors who purchase Shares through a trust department, investment adviser, or
other financial intermediary may be charged a service fee or other fee by the
financial intermediary. Additionally, no sales charge is imposed for Class A
Shares purchased through "wrap accounts" or similar programs, under which
clients pay a fee for services, or for shareholders designated as Liberty Life
Members.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING OR ELIMINATING THE
SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales charge paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more of
certain of the funds advised by subsidiaries of Federated Investors (the
"Federated Funds"), the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of
certain of the other Federated Funds with a sales charge, and $70,000 in Class A
Shares of this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $100,000 of Class A Shares of
certain of the Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 4.50% of the total amount intended to
be purchased in escrow (in shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of certain of
the Federated Funds, excluding money market accounts, will be aggregated to
provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has a right,
within 120 days, to reinvest the redemption proceeds at the next-determined net
asset value without any sales charge. Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his Class A Shares in the Fund, there may be tax consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or redeemed with a sales charge or
commission and were not distributed by Federated Securities Corp. The purchase
must be made within 60 days of the redemption, and Federated Securities Corp.
must be notified by the investor in writing, or by his financial institution, at
the time the purchase is made. From

time to time, the Fund may offer dealers a payment of 0.50 of 1.00% for Shares
purchased under this program. If Shares are purchased in this manner, Fund
purchases will be subject to a contingent deferred sales charge for one year
from the date of purchase.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales charge, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of certain
of the Federated Funds will convert into Class A Shares based on the time of the
initial purchase. For purposes of conversion to Class A Shares, Shares purchased
through the reinvestment of dividends and distributions paid on Class B Shares
will be considered to be held in a separate sub-account. Each time any Class B
Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received when the transfer agent's bank receives payment by wire.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attn; EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade
Date and Order Number; Group Number or Dealer Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.

PURCHASING SHARES BY CHECK

Shares may be purchased by sending a check to: Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to the name of the Fund (designate class of Shares and account number). Orders
by mail are considered received when payment by check is converted into federal
funds (normally the business day after the check is received), and Shares begin
earning dividends the next day.

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.

EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of certain of the Federated Funds at net asset value. Neither the Fund nor any
of the Federated Funds imposes any additional fees on qualifying exchanges.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of certain of the Federated Funds. (Not all of the Federated Funds currently
offer Class B Shares. Contact your financial institution regarding the
availability of other Class B Shares in the Federated Funds). Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. To the extent that a shareholder exchanges Shares for
Class B Shares in other of the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which

exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."
CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
of certain of the Federated Funds at net asset value without a contingent
deferred sales charge. (Not all funds in the Federated Funds currently offer
Class C Shares. Contact your financial institution regarding the availability of
other Class C Shares in the Federated Funds.) To the extent that a shareholder
exchanges Shares for Class C Shares in other of the Federated Funds, the time
for which the exchanged-for Shares are to be held will be added to the time for
which exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for information on and prospectuses for Federated Funds into
which your Shares may be exchanged free of charge.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Federated
Funds are available by contacting the Fund.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Federated Funds may be given in writing or by
telephone. Written instructions may require a signature guarantee. Shareholders
of the Fund may have difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to Federated Shareholder Services Company, 500 Victory
Road-2nd Floor, North Quincy, Massachusetts 02171.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before being
exchanged. Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern
time) and must be received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a Fund will begin receiving
dividends the following business day. This privilege may be modified or
terminated at any time.

- --------------------------------------------------------------------------------

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund, provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp.

Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. Proceeds
from redemption requests received on holidays when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through his financial
institution. Due to the fact that Class A Shares are sold with a sales charge,
it is not advisable for shareholders to continue to purchase Class A Shares
while participating in this program. A contingent deferred sales charge may be
imposed on Class B and C Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Federated Securities Corp.
may be charged a contingent deferred sales charge of 0.50% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and
thereafter 0.00%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption

which will not be subject to a contingent deferred sales charge. In computing
the amount of the applicable contingent deferred sales charge, redemptions are
deemed to have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares and applicable Class A Shares on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an exchange
of Fund Shares for Shares of certain of the Federated Funds in the same class
(see "Exchange Privilege"). Any contingent deferred sales charge imposed at the
time the exchanged for Shares are redeemed is calculated as if the shareholder
had held the Shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement plan to
a shareholder who has attained the age of 70-1/2; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the Contingent
Deferred Sales Charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of
Contingent Deferred Sales Charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. No contingent deferred sales charge
will be imposed on redemptions of Shares held by Directors, employees and sales
representatives of the Fund, the distributor, or affiliates of the Fund or
distributor; employees of any financial institution that sells Shares of the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or any other financial
institution, to the extent that no payments were advanced for purchases made
through such entities. The Directors reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the termination of
such waiver would have the contingent deferred sales charge eliminated as
provided in the Fund's prospectus at the time of the purchase of the Shares. If
a shareholder making a redemption qualifies for an elimination of the contingent
deferred sales charge, the shareholder must notify Federated Securities Corp. or

the transfer agent in writing that he is entitled to such elimination.

ACCOUNT AND SHARE INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested in writing to Federated Shareholder Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on the
new account form or by contacting the transfer agent. All shareholders on the
record date are entitled to the dividend. If Shares are redeemed or exchanged
prior to the record date or purchased after the record date, those Shares are
not entitled to that month's dividend.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, and pay the proceeds to the shareholder if the
account balance falls below the Class A Share required minimum value of $500 or
the required minimum value of $1,500 for Class B Shares and Class C Shares. This
requirement does not apply, however, if the balance falls below the required
minimum value because of changes in the net asset value of the respective Share
Class. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to meet
the minimum requirement.

- --------------------------------------------------------------------------------

FUND INFORMATION

MANAGEMENT OF THE FUND

DIRECTORS

INVESTMENT ADVISER

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .60% of the
Fund's average daily net assets. The Adviser may voluntarily choose to waive a
portion of its fee or reimburse the fund for certain operating expenses. The
Adviser can terminate this voluntary waiver of its advisory fee at any time at
its sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the Trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

J. Scott Albrecht has been the Fund's portfolio manager since May 1996 Mr.
Albrecht joined Federated Investors in 1989 and has been a Vice President of the
Fund's investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as
an Assistant Vice President of the Fund's investment adviser. In 1991, Mr.
Albrecht acted as an investment analyst. Mr. Albrecht is a Chartered Financial
Analyst and received his M.S. in Public Management from Carnegie Mellon
University.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class A Shares, Class B Shares and Class C
Shares will pay a fee to the distributor in an amount computed at an annual rate
of .25%, .75% and .75%, respectively, of the average daily net assets of each
class of Shares to finance any activity which is principally intended to result
in the sale of Shares subject to the Distribution Plan. For Class C Shares, the
distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers. With respect to Class B Shares, because distribution fees
to be paid by the Fund to the distributor may not exceed an annual rate of .75%
of each class of Shares' average daily net assets, it will take the distributor
a number of years to recoup the expenses it has incurred for its sales services
and distribution-related support services pursuant to the Plan. The Fund is not
currently making payments for Class A Shares under the Distribution Plan, nor
does it anticipate doing so in the immediate future.

The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor, except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated

Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, the distributor may pay a supplemental fee from its own
assets to financial institutions as financial assistance for providing
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars at recreational-type facilities for their employees, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all of the Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET
FEE ASSETS OF THE FEDERATED FUNDS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

BROKERAGE TRANSACTIONS

of the Fund and other funds distributed by Federated Securities Corp. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Directors.

EXPENSES OF THE FUND AND SHARES

Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Fund and portfolio expenses.

The Fund expenses for which holders of Class A Shares, Class B Shares, and Class
C Shares pay their allocable portion include, but are not limited to: the cost
of organizing the Fund and continuing its existence; registering the Fund with
federal and state securities authorities; Directors' fees; auditors' fees; the
cost of meetings of Directors; legal fees of the Fund; association membership
dues; and such non-recurring and extraordinary items as may arise from time to
time.

The portfolio expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to:
registering the portfolio and Shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums; auditors'
fees; and such non-recurring and extraordinary items as may arise from time to
time.

At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Fund's Distribution Plan and fees for Shareholder Services. However, the
Directors reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares, and Class C Shares as it deems appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, and Class C Shares;
fees for Shareholder Services; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Class A Shares, Class B Shares, and Class C
Shares; legal fees relating solely to Class A Shares, Class B Shares, and Class
C Shares and Directors' fees incurred as a result of issues relating solely to
Class A Shares, Class B Shares, and Class C Shares.

- -------------------------------------------------------------------------------

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund is entitled to one vote at all meetings of shareholders.
As of October 8, 1996, Merrill Lynch Pierce Fenner & Smith (as owner of record
holding shares for its clients), Jacksonville, Florida, owned 27.05% of the
voting securities of Class F Shares of the Fund, and 96.55% of the voting
securities of Class A Shares of the Fund, and Key Clearing Corp., Brooklyn,
Ohio, owned 90.66% of the voting securities of Class C Shares of the Fund, and,
therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.

- --------------------------------------------------------------------------------

TAX INFORMATION

FEDERAL INCOME TAX

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent

interest on municipal bonds may be subject to the 20% corporate alternative
minimum tax because the dividends are included in a corporation's "adjusted
current earnings." The corporate alternate minimum tax treats 75% of the excess
of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the portion of
the Fund's dividend attributable to municipal bonds which are not private
activity bonds, the difference will be included in the calculation of the
corporation's alternative minimum tax.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE AND LOCAL TAXES

- --------------------------------------------------------------------------------

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield for each class of Shares including Class F Shares as
described under "Other Classes of Shares."

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The tax-equivalent yield of each class
of Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that each class would have had to earn to equal its actual yield,
assuming a specific tax rate. The yield and the tax-equivalent yield do not
necessarily reflect income actually earned by each class of Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return, yield, and tax-
equivalent yield.

Total return, yield, and tax-equivalent yield will be calculated separately for
Class A Shares, Class B Shares, Class C Shares, and Class F Shares.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares may refer to ratings, rankings, and other information in certain
financial publications and/or compare the performance of Class A Shares, Class B
Shares, and Class C Shares to certain indices.

- --------------------------------------------------------------------------------

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to a
front-end sales charge, a contingent deferred sales charge and a minimum initial
investment of $1,500.

Shares and Class F Shares are subject to certain of the same expenses. Expense
differences, however, between Shares and Class F Shares may affect the
performance of each class.

To obtain more information and a prospectus for Class F Shares, investors may
call
1-800-341-7400 or contact their financial institution.

- --------------------------------------------------------------------------------

APPENDIX

MUNICIPAL BOND RATING DEFINITIONS

STANDARD AND POOR'S RATINGS GROUP

AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group ("S&P"). Capacity to pay interest and repay principal is extremely
strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

MOODY'S INVESTORS SERVICE, INC.

AAA--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.

A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Municipal Opportunities Fund, Inc.
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, Pennsylvania 15222-3779
Class C Shares
- ---------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL
INCOME FUND, INC.)
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES

PROSPECTUS
An Open-End, Diversified
Management Investment Company
October 31, 1996

Cusip 313910200

Cusip 313910309
Cusip 313910408
G00570-03 (10/96)

FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Federated Municipal Opportunities Fund, Inc. the
`Fund''), dated October 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated October 31, 1996.

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusips 313910200
313910309
313910408
313910101
8092709B (10/96)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Temporary Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2

FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. MANAGEMENT
5

Fund Ownership 9
Directors Compensation 9
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10

OTHER SERVICES 11

Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
PURCHASING SHARES 11

Distribution of Shares 11

Distribution Plan and Shareholder Services 11
Conversion to Federal Funds 12
Purchases by Sales Representatives, Fund Directors,
and Employees 12
DETERMINING NET ASSET VALUE 12

Valuing Municipal Bonds 12
Use of Amortized Cost 12
EXCHANGE PRIVILEGE (CLASS F SHARES ONLY) 12

Reduced Sales Charge 12
Requirements for Exchange 13
Tax Consequences 13
Making an Exchange 13
REDEEMING SHARES 13

Redemption in Kind 13
Elimination of the Contingent Deferred Sales
Charge 13
TAX STATUS 14

The Fund's Tax Status 14
Shareholders' Tax Status 14
TOTAL RETURN 14

YIELD 14

TAX-EQUIVALENT YIELD 15

Tax-Equivalency Table 15
PERFORMANCE COMPARISONS 17

Economic and Market Information 17
ABOUT FEDERATED INVESTORS 17

FINANCIAL STATEMENTS 18

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on
November 26, 1986. It is qualified to do business as a foreign corporation
in Pennsylvania. Effective March 31, 1996, the name of the Fund changed
from Fortress Municipal Income Fund, Inc. to Federated Municipal
Opportunities Fund, Inc.
Shares of the Fund are offered in four classes, known as Class A Shares,
Class B Shares, Class C Shares and Class F Shares (individually and
collectively referred to as `Shares'' as the context may require.) This
Statement of Additional Information relates to all four of the above-
mentioned classes of Shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide a high level of current
income which is generally exempt from federal regular income tax. The
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal bonds.
CHARACTERISTICS
The municipal bonds in which the Fund invests have the characteristics
set forth in the prospectus.
If a bond loses its rating or has its rating reduced after the Fund
has purchased it, the Fund is not required to drop the bond from the
portfolio, but may consider doing so. If ratings made by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as

standards in accordance with the investment policies described in the
Fund's prospectus.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes. The Fund does not presently intend to invest in
temporary investments other than repurchase agreements.
The Fund might invest in temporary investments:
oas a reaction to market conditions;
owhile waiting to invest proceeds of sales of shares or portfolio
securities, although generally proceeds from sales of shares will be
invested in municipal bonds as quickly as possible; or
oin anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of
the U.S. government, its agencies or instrumentalities) if, as a result of
the purchase, 25% or more of the value of its total assets would be
invested in any one industry. However, the Fund may, for temporary
defensive purposes, invest 25% or more of the value of its assets in cash
or cash items, U.S. Treasury bills or securities issued or guaranteed by

the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year
from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked-to-market daily. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund may only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are found by
the Fund's adviser to be creditworthy pursuant to guidelines established by
the Board of Directors ("Directors"). From time to time, such as when
suitable municipal bonds are not available, the Fund may retain a portion
of its assets in cash. Any portion of the Fund's assets maintained in cash
will reduce the amount of assets in municipal bonds and thereby reduce the
Fund's yield.

REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. For the fiscal years ended
August 31, 1996 and August 31, 1995, the portfolio turnover rates were 22%
and 13%, respectively.
INVESTMENT LIMITATIONS

BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain
such short-term credits as are necessary for clearance of

transactions. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings are outstanding. During the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Fund will
restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the
borrowing. Neither the deposit of underlying securities and other
assets in escrow in connection with the writing of put or call options

on municipal bonds nor margin deposits for the purchase and sale of
financial futures contracts and related options are deemed to be a
pledge.
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to
its custodian to collateralize such intra-day cash advances, in order to
enable the Fund to settle securities purchases or to redeem shares of the
Fund.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or
interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund
may purchase and sell financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies, and
limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the purchase or holding of municipal bonds, repurchase

agreements, or other transactions which are permitted by the Fund's
investment objective and policies.
SELLING SHORT
The Fund will not sell securities short.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for certain restricted securities which meet the criteria for
liquidity as established by the Directors.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer (except cash and cash instruments,
securities issued or guaranteed by the U.S. government, its agencies,
or instrumentalities or instruments secured by money market
instruments such as repurchase agreements).
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the

governmental body creating it and the security is backed only by its
own assets and revenues.
Private activity bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user.
If, in the case of a private activity bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of its total assets in
industrial development bonds where the payment of principal and
interest is the responsibility of companies with less than three years
of operating history.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs or leases.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the Officers and Directors of the Fund or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
CRITERIA FOR LIQUIDITY OF RESTRICTED SECURITIES
The ability of the Board of Directors (`Directors'') to determine the
liquidity of certain restricted securities is permitted under a
Securities and Exchange Commission (`SEC'') Staff position set forth
in the adopting release for Rule 144A under the Securities Act of 1933
(the `Rule''). The Rule is a non-exclusive safe-harbor for certain

secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The secondary
market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption
from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible
for resale under the Rule. The Fund believes that the Staff of the
SEC has left the question of determining the liquidity of all
restricted securities to the Directors. The Directors may consider
the following criteria in determining the liquidity of certain
restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
During the past fiscal year, the Fund did not (1) purchase or sell options
on securities, as permitted by the investment limitations, without first
notifying shareholders; (2) purchase "liquidity puts" or "standby
commitments" as described in the prospectus, engage in reverse repurchase
agreements, or borrow money in excess of 5% of the value of its total
assets; or (3) lend portfolio securities. The Fund does not expect to
engage in any of the above activities during the coming fiscal year.

For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."

FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Municipal Opportunities Fund, Inc., and principal
occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934

Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh,; Director or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.
and Director, Ryan Homes, Inc.; Director or Trustee of the Funds;

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds;.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, PL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller Ament, Henny, Kochuba
205 Ross Street

Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney, Member of Miller Ament, Henny, Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation

and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of

some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;

Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

*This Director is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;

Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
and World Investment Series, Inc.

FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of October 8, 1996, as record owner holding Class B Shares for its
clients, Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida owned
approximately 14,499 shares (11.51%), and the following shareholders of
record owned 5% or more of the outstanding Class B Shares of the Fund: Ann
Smith, New York, NY, owned approximately 11,015 shares (8.74%), Annetta
Pike Ttee, Phoenix AZ, owned approximately 9,007 shares (7.15%), BHC
Securities, Inc., Philadelphia, PA, owned approximately 16,350 shares

(12.98%), Lewco Securities Corp., Jersey City, NJ, owned approximately
16,685 shares (13.24%), Harry Bass, Briarwood, NY. owned approximately
9.596 shares (7.62%), and Smith Barney, Inc., New York, NY, owned
approximately 8,620 shares (6.84%).
DIRECTORS COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION*# FROM FUND COMPLEX +

John F. Donahue $ -0- $-0- for the Corporation and
Chairman and Director 54 other investment companies in
the Fund Complex
Thomas G. Bigley $1401.43 $86,331 for the Corporation and
Director 54 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1534.15 $115,760 for the Corporation and
Director 54 other investment companies in
the Fund Complex
William J. Copeland $1534.15 $115,760 for the Corporation and
Director 54 other investment companies in
the Fund Complex
James E. Dowd $1534.15 $115,760 for the Corporation and
Director 54 other investment companies in
the Fund Complex

Lawrence D. Ellis, M.D. $1401.43 $104,898 for the
Corporation and
Director 54 other investment companies in
the Fund Complex
Richard B. Fisher $-0- $-0- for the Corporation and
President and Director 6 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $1534.15 $115,760 for the
Corporation and
Director 54 other investment companies in
the Fund Complex
Peter E. Madden $1401.43 $104,898 for the Corporation and
Director 54 other investment companies in
the Fund Complex
Gregor F. Meyer $1401.43 $104,898 for the Corporation and
Director 54 other investment companies in
the Fund Complex
John E. Murray, Jr. $1401.43 $104,898 for the Corporation and
Director 54 other investment companies in
the Fund Complex
Wesley W. Posvar $1401.43 $104,898 for the Corporation and
Director 54 other investment companies in
the Fund Complex
Marjorie P. Smuts $1401.43 $104,898 for the Corporation and
Director 54 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended August 31, 1996.

#The aggregate compensation is provided for the Corporation which is
comprised of one portfolio.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It is
a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
August 31, 1996, 1995, and 1994, the Fund's Adviser earned $2,475,132,
$2,576,669, and $2,908,854, respectively.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,

and 1-1/2% per year of the remaining average net assets, the Adviser
will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Directors. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates

exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. For the fiscal years ended August 31, 1995, 1994 and
1993, the Fund paid no brokerage commissions on brokerage transactions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be

referred to as the `Administrators.'' For the fiscal years ended August
31, 1996, 1995 and 1994, the Administrators earned $311,976, $325,090 and
$458,072.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
PURCHASING SHARES

Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales charge
on Class A Shares and Class F Shares only) on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectuses under "How to Purchase Shares" and
"Investing in Class F Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal period ending August 31, 1996, no payments were made
pursuant to the Distribution Plan. In addition, for this period, the Fund
paid shareholder services fees on behalf of Class F Shares in the amount of

$1,031,305, of which $41,252 was waived. Class A Shares, Class B Shares,
and Class C Shares did not exist prior to May 3, 1996. The Fund is not
currently making payments for Class A Shares under the Distribution Plan,
nor does it anticipate doing so in the immediate future.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Shareholder Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp., and their spouses and children under 21, may buy Shares at net asset
value without a sales charge. Shares may also be sold without a sales
charge to trusts or pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Directors use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issuer, trading

characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities
and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Directors have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60 days
or less at the time of purchase shall be their amortized cost value, unless
the particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Directors.
EXCHANGE PRIVILEGE (CLASS F SHARES ONLY)

This section relates only to Class F Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares, Class B Shares, and
Class C Shares of the Fund, please see the prospectus for these classes of
Shares.
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
Class F Shares for shares in other Federated Funds (which are sold with a
sales charge different from that of the Fund or with no sales charge and
which are advised by subsidiaries or affiliates of Federated Investors)
without the assessment of a contingent deferred sales charge on the
exchanged Shares.

The order also allows certain other funds, including funds that are not
advised by subsidiaries or affiliates of Federated Investors, which do not
have a sales charge, to exchange their shares for Class F Shares on a basis
other than the current offering price. These exchanges may be made to
extent that such shares were acquired in a prior exchange at net asset
value, for shares of a Federated fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Class F Shares having a net
asset value equal to the minimum investment requirements of the fund into
which the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, Class F Shares submitted
for exchange are redeemed and the proceeds invested in Class F shares of
the other fund.
Further information on the exchange privilege and prospectuses for Class F
Shares or other Federated Funds available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a short-term or long-term
capital gain or loss may be realized.

MAKING AN EXCHANGE
Instructions for exchanges for certain Federated Funds may be given in
writing or by telephone. Written instructions may require a signature
guarantee.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to
a contingent deferred sales charge. Redemption procedures are explained in
the respective prospectuses under "How to Redeem Shares" or "Redeeming
Class F Shares." Although the transfer agent does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase, Class C Shares
redeemed within one year of purchase, and Class F Shares redeemed within
four years of purchase may be subject to a contingent deferred sales
charge. The amount of the contingent deferred sales charge is based upon
the amount of the administrative fee paid at the time of purchase by the
distributor to the financial institutions for services rendered, and the
length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount less than the
administrative fee that is stated in the prospectus for servicing a
particular shareholder, the contingent deferred sales charge and/or holding
period for that particular shareholder will be reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.

Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Directors determine to
be fair and equitable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Corporation is obligated to redeem
Shares for any shareholder in cash up to the lesser of $250,000 or 1% of
the Fund's net asset value during any 90-day period.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales
Charge may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal Program
and then as calculated at the annual valuation date. Redemptions on a
qualifying Systematic Withdrawal Program can be made at a rate of 1.00%
monthly, 3.00% quarterly, or 6.00% semi-annually with reference to the
applicable account valuation amount. Amounts that exceed the 12.00% annual
limit for redemption, as described, may be subject to the Contingent
Deferred Sales Charge.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;

oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on securities
held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested and regardless of the length of
time the shareholder has owned the shares. Any loss by a shareholder
on Shares held for less than six months and sold after a capital gains
distribution will be treated as a long-term capital loss to the extent
of the capital gains distribution.
TOTAL RETURN

The Class F Shares' average annual total returns for the one-year and five-
year periods ended August 31, 1996 and the period from April 10, 1987
(effective date of the Fund's registration statement) to August 31, 1996

were 0.44%, 5.78% and 7.02%, respectively. Class A Shares, Class B Shares
and Class C Shares did not exist prior to May 3, 1996.
The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the net asset value per
share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the monthly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investment based on the
lesser of the original purchase price or the net asset value of Shares
redeemed.
YIELD

The yield for Class F Shares for the thirty-day period ended August 31,
1996 was 5.79%. Class A Shares, Class B Shares and Class C Shares did not
exist prior to May 3, 1996.
The yield for each class of Shares is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of
the period. This value is annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually
earned by the Fund because of certain adjustments required by the

Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
class of Shares, performance will be reduced for those shareholders paying
those fees.
TAX-EQUIVALENT YIELD

The tax-equivalent yield for Class F Shares for the thirty-day period ended
August 31, 1996 was 8.04%.
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 28% tax rate (the maximum
effective federal rate for individuals) and assuming that income is 100%
tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and is
often free from state and local taxes as well. As the table below
indicates, a "tax-exempt" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:

15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute

offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Fund will quote its Lipper ranking in the high yield
municipal bond funds category in advertising and sales literature.
oLEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attributes for the index are calculated semi-monthly.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can

compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately
$2.0 billion in assets and 20 money market funds with approximately $7.8
billion in total assets. In 1976, Federated

introduced one of the first municipal bond mutual funds in the industry and
is now one of the largest institutional
buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation
and the National Taxpayers Union regarding the tax obligations of
Americans.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.

TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high rankings in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS

The financial statements for the Fund for the fiscal year ended August 31,
1996, are incorporated herein by reference to the Annual Report to
Shareholders of the Fund dated October 31, 1996.

* Source: Investment Company Institute