Federated Municipal Opportunities Fund, Inc.
(formerly, Fortress Municipal Income Fund, Inc.)
10TH ANNUAL REPORT
AUGUST 31, 1996
ESTABLISHED 1987
TAX-FREE INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
I am pleased to present the 10th Annual Report of Federated Municipal
Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.).
This Report covers the 12-month period from September 1, 1995, through
August 31, 1996. It begins with a discussion with Mary Jo Ochson, Senior
Vice President, Federated Advisers, about the municipal market, the fund's
performance, and investment strategy. Following her discussion are four
additional items of shareholder interest. First are the results of a recent
shareholder meeting. Second is a series of graphs that display the fund's
performance with income dividends reinvested and the investment results of
making additional investment in the fund shares with dividends reinvested.
Third is a complete listing of the fund's municipal bond holdings. Fourth
are the fund's financial statements.
Federated Municipal Opportunities Fund, Inc. has provided tax-free income
from a broadly diversified list of long-term municipal issues since 1987.*
The fund's 30-day SEC yield on August 31, 1996, was 5.79% based on offering
price -- free of federal regular income tax. This is the equivalent of a
taxable yield of 8.39% for investors in the 31% federal income tax bracket.
During the 12-month period, the fund paid a healthy dividend stream totaling
$0.65 per share.
The fund's total return was 2.47% based on net asset value.** This return
was affected by a decline in share price due to interest rate increases in
1996 that caused bond prices to decline, as well as certain holdings that
did not perform as well as expected. At the end of the period, the fund's
total net assets stood at $383 million.
The fund's portfolio included 98 tax-free securities issued by
municipalities across our country. The fund's average maturity was 24 years.
The top five issuers consisted of:
<TABLE>
<C> <S>
1. $18.4 million Texas -- Houston Water and Sewer System
2. $18.0 million Indiana -- Indianapolis Airport Authority
3. $17.2 million Utah -- Intermountain Power Agency
4. $15.9 million Texas -- Dallas-Fort Worth International Airport
5. $12.5 million Pennsylvania -- Pennsylvania State Higher Education
Facilities Authority
</TABLE>
* State, local, and federal alternative minimum taxes may apply.
** Performance is for Class F Shares. Performance quoted represents past
performance. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for the period based on offering price was
0.44%.
Additionally, on August 5, 1996, three additional classes of shares -- A, B,
and C were added to the fund.
Thank you for selecting the Federated Municipal Opportunities Fund, Inc. as
a convenient way to invest in a broad list of municipal securities. You can
receive income from the fund or increase your wealth by reinvesting your
dividends and compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
October 15, 1996
INVESTMENT REVIEW
[Graphic]
Mary Jo Ochson
Senior Vice President
Federated Advisers
[Graphic]
MARY JO, COULD YOU PLEASE COMMENT ON DEVELOPMENTS IN THE MUNICIPAL MARKETS
OVER THE FUND'S FISCAL YEAR, WHICH ENDED AUGUST 31, 1996.
Early in the period, economic statistics indicated that the economy was
slowing to a greater extent than was acceptable. As a result, the Federal
Reserve Board (the "Fed") cut the Federal Funds Rate twice over the 12-month
period -- in December 1995 and January 1996 -- to provide the economy with
enough stimulus to avoid a recession. However, perceptions of slow growth by
market participants constrained government spending, and a benign
inflationary environment resulted in yields on 30-year Treasury bonds
dropping steadily from 6.68% on August 1, 1995, to 6.00% by February 1996.
Then, as the 12-month reporting period progressed, economic growth
accelerated as evidenced by real GDP growth of 2.0% in the first quarter of
1996 and 4.2% for the second quarter. Strong economic data, such as large
increases in hourly wages and a 7-year low in the unemployment rate, fueled
concerns in the market that inflation, although still low, could increase.
This prompted a dramatic rise in rates for the 30-year Treasury bond, which
ended the period at 7.03%.
Yields on long-term municipal bonds traced a similar pattern as Treasurys.
On September 1, 1995, the Municipal Bond Index yield was 6.07%; it fell to
5.51% by early February 1996; and climbed to 6.02% by August 1996.
[Graphic]
HOW HAS THE MUNICIPAL BOND MARKET FARED VERSUS OTHER FIXED-INCOME SECTORS
OVER THE PAST 12 MONTHS?
The municipal bond market experienced strong performance relative to the
Treasury issue market over the reporting period. From September 1995 to
February 1996, the 30-year A-rated municipal yield was in a range of 90%-92%
of comparable Treasury issues. Since that time, with the resurgence of
Senator Dole as the Republican presidential candidate and the flat tax
passage appearing less probable, municipal bond values increased versus
those of Treasury issues. By March 1996, long-term municipal yields
descended to 87.3% of long-term Treasury yields.
Municipals continued to outperform Treasurys throughout the spring and
summer months due to strong retail demand coupled with the limited amount of
new municipal bond issuance. The valuation of municipals versus Treasurys
ended the reporting period at a period low of 83.8%.
[Graphic]
IN THIS ENVIRONMENT, HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND PERFORM
WITH RESPECT TO INVESTMENT RETURN?
For the 12-month period ended August 31, 1996, shareholders experienced a
total return of 2.47% based on net asset value.* In comparison, the Lipper
General Municipal Debt Fund Average total return was 4.68%. The biggest
factor for the fund's below-average performance was its holdings in paper
de-inking issues involving plants that convert office waste paper to
recycled, marketable pulp. Weakness in pulp prices drove down the value of
the bonds over the past 12 months. Over recent months, we have been in
discussions with the management of these projects to improve operations at
the facilities.
[Graphic]
AS AN INCOME-ORIENTED FUND, HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND
PERFORM IN TERMS OF INCOME AND DISTRIBUTION YIELD?
Very well. The fund provided a distribution yield on August 31, 1996, of
6.16%, compared to the 5.05%** distribution yield of the Lipper General
Municipal Debt Fund Average. The fund's taxable equivalent yields for
investors in the 39.6%, 36%, and 31% tax brackets were 10.20%, 9.63%, and
8.93%, respectively. The 30-day SEC was 5.79% for the same period. The
above-average income performance was primarily the result of a high
concentration in higher yielding sectors of the municipal market, such as
hospital and housing bonds.
Perhaps one of the most important considerations for shareholders over the
long term is the fund's record of balancing gains and losses for securities
sold so as not to distribute any net realized capital gains, which are
taxable. The fund has also avoided market discount bonds that could produce
taxable ordinary income for shareholders.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total return quoted is
for Class F Shares. Total return for the period for Class F Shares based on
offering price was 0.44%.
Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into this category. This figure does not reflect a sales charge.
** Distribution rate reflects actual distribution made to shareholders. It
is calculated by dividing the monthly annualized dividend plus short-term
capital gains, if any, by the average 30-day offering price.
SHAREHOLDER MEETING RESULTS
A Special Meeting of the Shareholders of Federated Municipal Opportunities
Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) was held on July
17, 1996. On March 19, 1996, the record date for shareholders voting at the
meeting, there were 38,858,427 total outstanding shares. The following items
were considered by shareholders and the results of their voting were as
follows:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
AGENDA ITEM FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C> <C>
1. To approve or disapprove an amendment to and restatement of the Fund's Articles of
Incorporation to permit the Fund to establish and designate separate portfolios
and classes of shares.
19,876,457 1,629,541 1,699,343 0
2. To approve or disapprove an amendment to the Fund's Articles of Incorporation to
permit the Fund's Board of Directors to redeem all outstanding shares of any
portfolio or class of the Fund.*
18,609,165 2,538,499 2,057,675 0
* The votes cast for this proposal were not sufficient to approve it, and
the Fund's management decided to postpone consideration of this item
until a later time.
3. To approve or disapprove revisions to the Fund's fundamental investment
limitations to permit the unrestricted acquisition of certain securities eligible
for resale under Rule 144A of the Securities Act of 1933, as amended.
19,241,075 1,870,687 2,093,577 0
4. To elect four Directors.**
Thomas G. Bigley 22,275,517 0 0 929,823
Peter E. Madden 22,286,719 0 0 918,621
John T. Conroy, Jr. 22,270,123 0 0 935,217
John E. Murray, Jr. 22,249,307 0 0 956,033
** The following Directors of the Fund continued their terms as Directors of
the Fund: John F. Donahue, William J. Copeland, James E. Dowd, Lawrence D.
Ellis, M.D., Richard B. Fisher, Edward L. Flaherty, Jr., Gregor F. Meyer,
Wesley W. Posvar, and Marjorie P. Smuts.
</TABLE>
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
INITIAL INVESTMENT:
IF YOU MADE AN INITIAL INVESTMENT OF $10,000 IN FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC. ON APRIL 10, 1987, REINVESTED YOUR DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$18,916 ON AUGUST 31, 1996. YOU WOULD HAVE EARNED A 7.02% AVERAGE ANNUAL
TOTAL RETURN FOR THE NINE-YEAR INVESTMENT LIFE SPAN.*
One key to investing wisely is to reinvest all tax-free distributions in
fund shares. This increases the number of shares on which you can earn
future tax-free dividends, and you gain the benefit of compounding tax free.
As of September 30, 1996, the Class A Shares' cumulative since inception
(8/5/96) total return was 0.50%. Class B Shares' cumulative since inception
(8/5/96) total return was 0.50%. Class C Shares' cumulative since inception
(8/5/96) total return was 0.50%. Class F Shares' average annual one-year,
five-year, and since inception (4/10/87) total returns were 1.41%, 5.87% and
7.11%, respectively.
[Graphic] omitted - see appendix A
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1%
sales charge and the 1% contingent deferred sales charge for Class F Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR NINE YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $13,824.
With this approach, the key is consistency.
If you had started investing $1,000 annually in Federated Municipal
Opportunities Fund, Inc. on April 10, 1987, reinvested your dividends and
capital gains, and didn't redeem any shares, you would have invested only
$10,000, but your account would have reached a total value of $13,824* by
August 31, 1996. You would have earned an average annual total return of
6.48%.
A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all tax-free earnings. An investment plan works
for you even if you invest only $1,000 annually. You can take it one step at
a time. Put time, money, and compounding to work! [Graphic]
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
INVESTING FOR TAX-FREE MONTHLY INCOME
[Graphic] omitted - see Appendix B
Fred and Margie Potter both work, and have no children. At the peak of their
careers, this tax-sensitive couple was seeking a way to keep more of what
they earn. On April 10, 1987, they invested $5,000 in Federated Municipal
Opportunities Fund, Inc., and continue to invest $500 in the fund on the
first of every month.
As this chart shows, since that time, their investment has grown -- on a
tax-free basis -- to $85,020 by August 31, 1996.* This represents a 6.43%
average annual total return. For the Potters, the decision to invest
tax-free has made the future worth waiting for.
[Graphic] omitted - see Appendix C
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
SERVING A WIDE RANGE OF INVESTORS
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. APPEALS TO A BROAD RANGE OF
TAX-SENSITIVE INVESTORS SEEKING TAX-FREE CURRENT INCOME.*
The fund invests primarily in a diversified portfolio of quality municipal
bonds. Fund shares are not insured or guaranteed by the federal government,
and the value of your investment may fluctuate. Mutual funds involve risk,
including possible loss of principal.
SOME OF THE FUND'S MAJOR SHAREHOLDER GROUPS
<TABLE>
<S> <C>
INDIVIDUALS AND JOINT TENANTS $151,443,884
TRUSTS 29,677,391
CORPORATIONS 6,062,531
CUSTODIANS (UNDER UNIFORM GIFT TO MINORS ACTS) 1,879,308
</TABLE>
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PORTFOLIO UPDATE
[Graphic] omitted - see Appendix D
* Represents the credit quality of the fund's portfolio of investments. As a
percentage of total portfolio market value.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
GROWTH OF $10,000 INVESTED IN FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(CLASS F SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Municipal Opportunities Fund, Inc. (the "Fund") from April 10,
1987 (start of performance) to August 31, 1996 compared to the Lehman
Brothers Revenue Bond Index (LBRBI).
[Graphic] - omitted - See Appendix E
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
AUGUST 31, 1997, AND TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.
* Represents a hypothetical investment of $10,000 in the fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus $100
sales charge = $9,900). The fund's performance assumes the reinvestment of
all dividends and distributions. The LBRBI has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
The LBRBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the fund's performance. This index
is unmanaged.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-TERM MUNICIPALS -- 0.3%
$ 1,200,000 Kentucky Pollution Abatement & Water Resource
Finance Authority Daily VRDNs (Toyota Motor
Credit Corp.) AAA $ 1,200,000
TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 1,200,000
LONG-TERM MUNICIPALS -- 97.9%
ALABAMA -- 1.5%
6,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue
Bonds (Series A), 6.375% (Champion International
Corp.)/(Original Issue Yield: 6.52%), 3/1/2029 Baa1 5,869,680
ARKANSAS -- 2.2%
2,920,000 Conway, AR Hospital Authority, Revenue Bonds,
7.125% (Conway Regional Hospital), 2/1/2013 BBB 2,976,560
3,000,000 Conway, AR Hospital Authority, Revenue Refunding
Bonds, 8.125% (Conway Regional Hospital), 7/1/2005 BBB 3,205,800
1,000,000 Conway, AR Hospital Authority, Revenue Refunding
Bonds, 8.375% (Conway Regional Hospital), 7/1/2011 BBB 1,074,850
1,000,000 Little Rock, AR Health Facilities Board, Revenue
Refunding Bonds, 7.00% (Baptist Medical Center, AR),
10/1/2017 A+ 1,062,400
Total 8,319,610
COLORADO -- 1.0%
695,000 Colorado HFA, SFM Revenue Bonds (Series A-2), 7.70%
(FHA GTD), 2/1/2023 AA 729,250
2,775,000 Colorado HFA, SFM Revenue Bonds (Series C-2),
7.375% (FHA GTD), 8/1/2023 AA 2,891,162
295,000 El Paso County, CO HFA, SFM Revenue Bonds, 8.00%
(GNMA COL), 9/1/2022 AAA 310,573
Total 3,930,985
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
IDAHO -- 1.1%
$ 1,145,000 Idaho Housing Agency, SFM Revenue Bonds
(Series A), 7.50% (FHA GTD), 7/1/2024 AA $ 1,193,823
2,785,000 Idaho Housing Agency, SFM Revenue Bonds
(Series F-2), 7.80% (FHA GTD), 1/1/2023 AA 2,918,290
Total 4,112,113
ILLINOIS -- 4.6%
4,500,000 Granite City, IL Hospital Facilities Authority, Revenue
Refunding Bonds (Series A), 8.125% (St. Elizabeth
Medical Center)/(Original Issue Yield: 8.167%),
6/1/2008 Baa 4,637,520
3,000,000 Illinois Development Finance Authority, Housing
Revenue Bonds, 6.10% (Catholic Charities Housing
Development Corp), 1/1/2020 NR 2,667,210
10,000,000 Illinois Health Facilities Authority, Hospital Revenue
Bonds (Series A), 9.25% (Edgewater Hospital & Medical
Center, IL), 7/1/2024 NR 10,459,300
Total 17,764,030
INDIANA -- 9.3%
3,000,000 Indiana Port Commission, Port Facility Revenue
Refunding Bonds, 6.875% (Cargill, Inc.), 5/1/2012 Aa3 3,232,500
855,000 Indiana State HFA, SFM Revenue Bonds (Series A),
8.20% (GNMA COL), 7/1/2020 Aaa 902,410
2,785,000 Indiana State HFA, SFM Revenue Home Mortgage
Program (Series F-2), 7.75% (GNMA COL), 7/1/2022 Aaa 2,941,406
17,100,000 Indianapolis, IN Airport Authority, Special Facilities
Revenue Bonds, 7.10% (Federal Express Corp.)/
(Original Issue Yield: 7.178%), 1/15/2017 Baa2 18,041,355
2,750,000 LaPorte County, IN Hospital Authority, Hospital
Facilities Revenue Refunding Bond, 8.75% (LaPorte
Hospital, Inc., IN)/(United States Treasury PRF)/
(Original Issue Yield: 8.848%), 3/1/1997 (@102) Aaa 2,870,780
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
INDIANA -- CONTINUED
$ 5,000,000 LaPorte County, IN Hospital Authority, Hospital Facility
Revenue Refunding Bonds, 6.00% (LaPorte Hospital,
Inc., IN)/(Original Issue Yield: 6.35%), 3/1/2023 Baa1 $ 4,587,750
3,000,000 LaPorte County, IN Hospital Authority, Hospital
Facility Revenue Refunding Bonds, 6.25% (LaPorte
Hospital, Inc., IN)/(Original Issue Yield: 6.35%),
3/1/2012 Baa1 2,908,350
Total 35,484,551
IOWA -- 0.3%
1,000,000 Davenport, IA PCA, PCR Refunding Bonds, Nicols-
Homeshield Project, 8.375% (Quanex Corp.), 12/1/2005 NR 1,057,090
KENTUCKY -- 1.3%
3,500,000 Kenton County, KY Airport Board, Special Facilities
Revenue Bonds (Series A), 7.50% (Delta Air Lines, Inc.)/
(Original Issue Yield: 7.60%), 2/1/2020 Ba3 3,729,600
LOUISIANA -- 6.7%
3,000,000 De Soto Parish, LA Environmental Improvement
Authority, Revenue Bonds, 7.70% (International Paper
Co.), 11/1/2018 A3 3,381,990
5,000,000 Lake Charles, LA Harbor & Terminal District, Port
Facilities Revenue Refunding Bond, Trunkline Lining Co
Project, 7.75% (Panhandle Eastern Corp.), 8/15/2022 Baa3 5,598,550
5,645,000 St. Charles Parish, LA, PCR Bonds, 7.50% (Louisiana
Power & Light Co.)/(Original Issue Yield: 7.542%),
6/1/2021 Baa2 5,956,660
1,400,000 St. Charles Parish, LA, PCR Bonds, 8.00% (Louisiana
Power & Light Co.), 12/1/2014 Baa2 1,523,914
2,100,000 St. Charles Parish, LA, PCR Bonds, 8.25% (Louisiana
Power & Light Co.)/(Original Issue Yield: 8.273%),
6/1/2014 Baa2 2,289,462
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
LOUISIANA -- CONTINUED
$ 3,650,000 St. Charles Parish, LA, Solid Waste Disposal Revenue
Bonds (Series A), 7.00% (Louisiana Power & Light Co.)/
(Original Issue Yield: 7.04%), 12/1/2022 Baa2 $ 3,758,770
3,000,000 St. James Parish, LA, Solid Waste Disposal Revenue
Bonds, 7.70% (Freeport McMoRan, Inc.)/(Original Issue
Yield: 7.75%), 10/1/2022 NR 3,049,200
Total 25,558,546
MAINE -- 1.2%
4,200,000 Maine State Housing Authority, Revenue Bonds
(Series D-3), 8.20%, 11/15/2019 A+ 4,418,778
MASSACHUSETTS -- 3.0%
21,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien
Revenue Bonds (Series A), 9.00% (Massachusetts
Recycling Association), 8/1/2016 NR 11,350,500
MICHIGAN -- 0.4%
1,500,000 Western Townships MI, Utilities Authority, LT GO
Sewer Disposal System Bonds, 8.20%, 1/1/2018 BBB+ 1,639,890
MINNESOTA -- 6.0%
1,640,000 Minnesota State HFA, SFM Revenue Bonds (Series A),
7.95% (FHA GTD), 7/1/2022 AA 1,730,167
585,000 Minnesota State HFA, SFM Revenue Bonds (Series D),
8.05% (FHA GTD), 8/1/2018 AA 601,930
3,000,000 Minnesota State HFA, SFM Revenue Bonds (Series E),
6.85%, 1/1/2024 AA 3,094,860
10,000,000 Southern Minnesota Municipal Power Agency, Supply
System Revenue Bonds (Series A), 4.75% (MBIA INS)/
(Original Issue Yield: 5.52%), 1/1/2016 AAA 8,751,300
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 9,000,000 St. Paul, MN Housing & Redevelopment Authority ,
Hospital Revenue Refunding Bonds (Series A), 6.625%
(Healtheast, MN)/(Original Issue Yield: 6.687%),
11/1/2017 Baa $ 8,952,300
Total 23,130,557
MONTANA -- 0.3%
1,130,000 Montana State Board of Housing, SFM Revenue Bonds
(Series B-2), 7.50% (FHA GTD), 4/1/2023 Aa 1,174,918
NEW HAMPSHIRE -- 5.5%
9,000,000 New Hampshire Higher Educational & Health Facilities
Authority, Hospital Revenue Bonds, 6.00% (Nashua
Memorial Hospital, NH)/(Original Issue Yield: 6.40%),
10/1/2023 A- 8,456,670
1,265,000 New Hampshire State HFA, SFM Revenue Bonds
(Series B), 7.75%, 7/1/2023 A+ 1,328,958
6,520,000 New Hampshire State HFA, SFM Revenue Bonds
(Series D), 7.25%, 7/1/2015 A+ 6,759,871
2,865,000 New Hampshire State IDA, PCR Bonds ( Series A),
8.00% (United Illuminating Co.), 12/1/2014 Baa3 3,040,710
1,500,000 New Hampshire State IDA, PCR Bonds (Series B),
10.75% (United Illuminating Co.), 10/1/2012 Baa3 1,617,465
Total 21,203,674
NEW YORK -- 1.9%
2,500,000 New York State Energy Research & Development
Authority, Electric Facilities Revenue Bonds (Series A),
7.50% (Consolidated Edison Co.)/(Original Issue Yield:
7.65%), 1/1/2026 AA- 2,688,875
5,000,000 New York State Environmental Facilities Corp., Solid
Waste Disposal Revenue Bonds, 6.10% (Occidental
Petroleum Corp.)/(Original Issue Yield: 6.214%),
11/1/2030 Baa3 4,763,750
Total 7,452,625
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
NORTH CAROLINA -- 1.9%
$ 1,500,000 Haywood County, NC Industrial Facilities & Pollution
Control Financing Authority, (Series A) Revenue Bonds,
5.75% (Champion International Corp.)/(Original Issue
Yield: 5.975%), 12/1/2025 Baa1 $ 1,372,530
6,000,000 Martin County, NC IFA, (Series 1995) Solid Waste
Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.),
11/1/2025 A2 5,886,000
Total 7,258,530
NORTH DAKOTA -- 0.7%
2,635,000 North Dakota State HFA, SFM Revenue Bonds
(Series C), 7.30%, 7/1/2024 Aa 2,726,171
OHIO -- 0.4%
500,000 Ohio State Water Development Authority, PCR Bonds
(Series A), 8.10% (Ohio Edison Co.)/(Original Issue
Yield: 8.142%), 10/1/2023 Baa3 530,100
1,250,000 Ohio State Water Development Authority, PCR Bonds
(Series A-1), 9.75% (Cleveland Electric Illuminating
Co.), 11/1/2022 Ba2 1,293,500
Total 1,823,600
OKLAHOMA -- 3.2%
4,585,000 Jackson County, OK Hospital Authority, Hospital
Revenue Refunding Bonds, 7.30% (Jackson County
Memorial Hospital, OK)/(Original Issue Yield: 7.40%),
8/1/2015 BBB- 4,415,768
1,250,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.375%
(American Airlines), 12/1/2020 Baa2 1,316,875
6,200,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60%
(American Airlines)/(Original Issue Yield: 7.931%),
12/1/2030 Baa2 6,611,990
Total 12,344,633
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- 13.9%
$ 3,000,000 Allegheny County, PA HDA, Health & Education
Revenue Bonds, 7.00% (Rehabilitation Institute of
Pittsburgh)/(Original Issue Yield: 7.049%), 6/1/2010 BBB $ 3,061,110
2,500,000 Allegheny County, PA HDA, Health & Education
Revenue Bonds, 7.00% (Rehabilitation Institute of
Pittsburgh)/(Original Issue Yield: 7.132%), 6/1/2022 BBB 2,533,875
5,370,000 Allegheny County, PA Higher Education, Building
Authority Revenue Bonds, 7.375% (La Roche College),
7/15/2012 NR 5,516,655
1,690,000 Allegheny County, PA IDA, Revenue Bonds, 8.75%
(United Parcel Service), 2/15/2009 NR 1,780,162
665,000 Allegheny County, PA Residential Finance Agency,
Mortgage Revenue Bonds (Series G), 9.50% (GNMA
COL), 12/1/2018 Aaa 697,332
3,000,000 Delaware County Authority, PA, College Revenue
Bonds, 7.25% (Eastern College)/(United States Treasury
PRF)/(Original Issue Yield: 7.875%), 3/1/2012 NR 3,377,070
2,055,000 Erie County, PA Hospital Authority, Revenue Bonds,
7.50% (Erie Infants & Youth Home, Inc.), 10/1/2011 NR 2,112,951
1,730,000 Northeastern, PA Hospital & Education Authority,
College Revenue Refunding Bonds (Series B), 6.00%
(Kings College, PA)/(Original Issue Yield: 6.174%),
7/15/2018 BBB 1,598,364
10,000,000 Pennsylvania EDFA, Wastewater Treatment Revenue
Bonds (Series A), 7.60% (Sun Co., Inc.)/(Original Issue
Yield: 7.653%), 12/1/2024 Baa1 11,009,800
6,000,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 34-B), 7.00% (FHA VA GTD),
4/1/2024 Aa 6,242,460
2,660,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 28), 7.65% (FHA GTD), 10/1/2023 Aa 2,797,495
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 1,740,000 Pennsylvania State Higher Education Facilities
Authority, College & University Revenue Bonds, 6.75%
(Thiel College ), 9/1/2017 NR $ 1,801,022
3,250,000 Pennsylvania State Higher Education Facilities
Authority, College & University Revenue Refunding
Bonds (Series A), 6.10% (Allegheny College, Meadville,
PA)/(Original Issue Yield: 6.23%), 11/1/2008 BBB+ 3,202,030
1,200,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds (Series 1996), 7.15% (Thiel
College ), 5/15/2015 NR 1,205,952
3,875,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds (Series A), 7.375% (Medical
College of Pennsylvania)/(United States Treasury PRF)/
(Original Issue Yield: 7.45%), 3/1/2021 AAA 4,335,854
1,750,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds (Series A), 8.375% (Medical
College of Pennsylvania)/(United States Treasury PRF)/
(Original Issue Yield: 8.448%), 3/1/2011 Baa1 1,940,803
Total 53,212,935
SOUTH CAROLINA -- 0.2%
810,000 South Carolina State Housing Finance & Development
Authority, Homeownership Mortgage Revenue Bonds
(Series A), 7.40% (FHA GTD), 7/1/2023 Aa 840,586
TENNESSEE -- 4.4%
2,475,000 Memphis-Shelby County, TN, Airport Refunding
Revenue Bonds, 6.75% (Federal Express Corp.),
9/1/2012 Baa2 2,572,020
3,100,000 Springfield, TN, Health & Educational Facilities Board,
Hospital Revenue Bonds, 8.25% (Jesse Holman Jones
Hospital Corp, TN)/(Original Issue Yield: 8.50%),
4/1/2012 NR 3,266,036
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
TENNESSEE -- CONTINUED
$ 7,800,000 Springfield, TN, Health & Educational Facilities Board,
Hospital Revenue Bonds, 8.50% (Jesse Holman Jones
Hospital Corp, TN)/(Original Issue Yield: 8.875%),
4/1/2024 NR $ 8,212,464
2,825,000 Tennessee Housing Development Agency, Homeowner-
ship Program, Issue V Revenue Bonds, 7.65%, 7/1/2022 Aa 2,936,362
Total 16,986,882
TEXAS -- 14.9%
2,500,000 Brazos River Authority, TX, PCR Revenue Bonds
(Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 Baa2 2,743,225
1,800,000 Brazos River Authority, TX, PCR Revenue Bonds (Series
A), 8.125% (Texas Utilities Electric Co.), 2/1/2020 Baa2 1,966,104
7,320,000 Dallas-Fort Worth, TX, International Airport Facilities,
Revenue Bonds, 7.125% (Delta Air Lines, Inc.)/(Original
Issue Yield: 7.55%), 11/1/2026 Ba3 7,564,781
3,000,000 Dallas-Fort Worth, TX, International Airport Facilities,
Revenue Bonds, 7.25% (American Airlines)/(Original
Issue Yield: 7.428%), 11/1/2030 Baa2 3,165,180
2,370,000 Dallas-Fort Worth, TX, International Airport Facilities,
Revenue Bonds, 7.50% (American Airlines)/(Original
Issue Yield: 8.20%), 11/1/2025 Baa2 2,507,105
2,500,000 Dallas-Fort Worth, TX, International Airport Facilities,
Revenue Bonds, 7.625% (Delta Air Lines, Inc.)/(Original
Issue Yield: 7.65%), 11/1/2021 Ba3 2,673,000
1,000,000 Guadalupe-Blanco River Authority TX, Industrial
Development Corp PCR Bonds, 8.60% (A.P. Green
Industries), 4/1/2009 NR 1,051,630
2,500,000 Guadalupe-Blanco River Authority TX, Industrial
Development Corp., PCR Bonds, 8.60% (A.P. Green
Industries), 4/1/2009 NR 2,683,200
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
TEXAS -- CONTINUED
$ 5,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue
Bonds (Series A), 6.875% (Champion International
Corp.)/(Original Issue Yield: 7.15%), 12/1/2028 Baa1 $ 5,132,350
20,000,000 Houston, TX Water & Sewer System, Junior Lien
Refunding Revenue Bonds (Series A), 5.25% (FGIC
INS)/(Original Issue Yield: 5.60%), 12/1/2025 Aaa 18,365,800
7,630,000 Richardson, TX Hospital Authority, Hospital Refunding
& Improvement Bonds, 6.75% (Richardson Medical
Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 Baa 7,613,824
1,700,000 Tyler, TX Health Facilities Development Corp., Revenue
Bonds, 6.75% (East Texas Medical Center)/(Original
Issue Yield: 7.00%), 11/1/2025 Baa 1,696,124
Total 57,162,323
UTAH -- 5.8%
20,000,000 Intermountain Power Agency, UT, Refunding Revenue
Bonds (Series A), 5.00% (Original Issue Yield: 5.687%),
7/1/2023 Aa 17,240,200
980,000 Utah State HFA, SFM Revenue Bonds (Series B-3),
7.10%, 7/1/2024 AA 1,013,722
1,445,000 Utah State HFA, SFM Revenue Bonds (Series E-2),
7.15% (FHA GTD)/(Original Issue Yield: 7.169%),
7/1/2024 AA 1,498,942
1,860,000 Utah State HFA, SFM Revenue Bonds, 7.55%
(FHA GTD), 7/1/2023 AA 1,950,619
455,000 Utah State HFA, SFM Revenue Bonds, 7.75%
(FHA GTD), 1/1/2023 AA 477,532
Total 22,181,015
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
WASHINGTON -- 5.5%
$ 4,250,000 Pierce County, WA Economic Development Corp., Solid
Waste Revenue Bond, 5.80% (Occidental Petroleum
Corp.)/(Original Issue Yield: 5.90%), 9/1/2029 Baa2 $ 3,803,070
4,075,000 Pilchuck Development Public Corp., WA, Special
Facilities Airport Revenue Bonds (Series 1993),Tramco,
Inc. Project, 6.00% (Goodrich (B.F.) Co.), 8/1/2023 Baa1 3,837,957
4,300,000 Port of Camas-Washougal, WA, PCR Refunding
Bonds (Series 1993), 6.70% (James River Project, WA)/
(Original Issue Yield: 6.75%), 4/1/2023 BBB+ 4,323,306
10,000,000 Washington State, UT GO (Series A), 5.375% (Original
Issue Yield: 6.00%), 7/1/2021 Aa 9,313,100
Total 21,277,433
WEST VIRGINIA -- 0.6%
5,000,000 Marion County, WV County Commission, Solid Waste
Facility Revenue Bonds (Series 1993), 7.75% (American
Power Paper Recycling), 12/1/2011 NR 2,429,198
WISCONSIN -- 0.2%
565,000 Wisconsin Housing & Economic Development
Authority, Homeownership Revenue Bonds (Series E),
8.00% (FHA GTD)/(Original Issue Yield: 8.044%),
3/1/2021 Aa 579,683
TOTAL LONG-TERM MUNICIPALS
(AT IDENTIFIED COST $378,538,281) 375,020,136
TOTAL INVESTMENTS (IDENTIFIED COST $379,738,281)(A) $376,220,136
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$379,738,281. The net unrealized depreciation of investments on a federal
tax basis amounts to $3,518,145 which is comprised of $12,297,397
appreciation and $15,815,542 depreciation at August 31, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($383,029,178) at August 31, 1996.
The following acronyms are used throughout this portfolio:
COL -- Collateralized
EDFA -- Economic Development Financing Authority
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HDA -- Hospital Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IFA -- Industrial Finance Authority
INS -- Insured
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $379,738,281) $ 376,220,136
Cash 32,391
Income receivable 6,897,754
Receivable for shares sold 273,742
Total assets 383,424,023
LIABILITIES:
Payable for shares redeemed $ 270,076
Income distribution payable 942
Accrued expenses 123,827
Total liabilities 394,845
NET ASSETS for 37,075,326.989 shares outstanding $ 383,029,178
NET ASSETS CONSIST OF:
Paid in capital $ 396,114,211
Net unrealized depreciation of investments (3,518,145)
Accumulated net realized loss on investments (10,340,450)
Undistributed net investment income 773,562
Total Net Assets $ 383,029,178
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33
Offering Price Per Share (100/95.50 of $10.33)* $10.82
Redemption Proceeds Per Share $10.33
CLASS B SHARES:
Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33
Offering Price Per Share* $10.33
Redemption Proceeds Per Share (94.50/100 of $10.33)** $9.76
CLASS C SHARES:
Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33
Offering Price Per Share* $10.33
Redemption Proceeds Per Share (99.00/100 of $10.33)** $10.23
CLASS F SHARES:
Net Asset Value Per Share ($383,028,290 O 37,075,241 shares outstanding) $10.33
Offering Price Per Share (100/99.00 of $10.33)* $10.43
Redemption Proceeds Per Share (99.00/100 of $10.33)** $10.23
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 28,818,178
EXPENSES:
Investment advisory fee $ 2,475,132
Administrative personnel and services fee 311,976
Custodian fees 72,027
Transfer and dividend disbursing agent fees and expenses 235,048
Directors'/Trustees' fees 14,008
Auditing fees 15,800
Legal fees 5,306
Portfolio accounting fees 103,705
Shareholder services fee -- Class F Shares 1,031,305
Share registration costs 58,932
Printing and postage 75,552
Insurance premiums 8,526
Taxes 60,672
Miscellaneous 13,080
Total expenses 4,481,069
Waivers --
Waiver of shareholder services fee -- Class F Shares (41,252)
Net expenses 4,439,817
Net investment income 24,378,361
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (116,813)
Net change in unrealized depreciation of investments (13,721,871)
Net realized and unrealized loss on investments (13,838,684)
Change in net assets resulting from operations $ 10,539,677
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 24,378,361 $ 26,526,286
Net realized gain (loss) on investments
($3,794,684 and $5,647,830, net losses respectively, as computed for
federal tax purposes) (116,813) (5,755,376)
Net change in unrealized appreciation (depreciation) (13,721,871) 9,394,163
Change in net assets resulting from operations 10,539,677 30,165,073
NET EQUALIZATION CREDITS (DEBITS) -- (42,870) (83,189)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class F Shares (24,971,054) (25,975,624)
SHARE TRANSACTIONS --
Proceeds from sale of shares 20,142,447 37,161,759
Net asset value of shares issued to shareholders in payment of
distributions declared 14,912,188 11,961,548
Cost of shares redeemed (63,560,851) (99,451,503)
Change in net assets resulting from share transactions (28,506,216) (50,328,196)
Change in net assets (42,980,463) (46,221,936)
NET ASSETS:
Beginning of period 426,009,641 472,231,577
End of period (including undistributed net investment income
of $773,562 and $1,409,125, respectively) $ 383,029,178 $ 426,009,641
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 37.
<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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 37.
<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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 37.
<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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 37.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23 $9.76 $10.07 $10.00
OF PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.69 0.63 0.61 0.62 0.66 0.70 0.72 0.74 0.78 0.26
Net realized and
unrealized gain
(loss) on (0.42) 0.15 (0.73) 0.51 0.39 0.40 (0.23) 0.49 (0.36) 0.07
investments
Total from
invest-
ment operations 0.27 0.78 (0.12) 1.13 1.05 1.10 0.49 1.23 0.42 0.33
LESS DISTRIBUTIONS
Distributions
from net
investment (0.65) (0.63) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76) (0.73) (0.26)
income
NET ASSET VALUE,
END OF PERIOD $10.33 $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23 $9.76 $10.07
TOTAL RETURN(B) 2.47% 7.73% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09% 4.43% 3.48%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.08% 1.08% 1.09% 1.09% 1.05% 1.02% 1.01% 0.90% 1.02% 0.86%*
Net investment
income 5.91% 6.18% 5.56% 5.65% 6.18% 6.86% 7.07% 7.27% 8.03% 7.14%*
Expense waiver/
reimbursement(c) 0.01% 0.00% 0.00% 0.00% 0.14% 0.33% 0.39% 0.83% 0.70% 0.29%*
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 $25,151 $22,829
Portfolio 22% 13% 27% 7% 14% 18% 24% 24% 34% 0%
turnover
</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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
1. ORGANIZATION
Federated Municipal Opportunities Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The investment
objective is to provide a high level of current income which is generally
exempt from federal regular income tax.
The Fund offers four classes of shares: Class A Shares, Class B Shares,
Class C Shares, and Class F Shares.
Effective March 31, 1996, the Board of Directors (the "Directors") changed
the name of the Fund from Fortress Municipal Income Fund, Inc. to Federated
Municipal Opportunities Fund, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at the
prices provided by an independent pricing service.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
expiring capital loss carryforwards. The following reclassifications have
been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS
<C> <C>
$(661,371) $661,371
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1996, the Fund, for
federal tax purposes, had a capital loss carryforward of $10,340,451, which
will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Fund of any liability for federal tax. Pursuant
to the Code, such capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
1998 $ 168,972
1999 47,025
2000 68,565
2001 57,182
2002 556,193
2003 5,647,830
2004 3,794,684
</TABLE>
EQUALIZATION -- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares equivalent (on a per share basis) to the
amount of undistributed net investment income on the date of the transaction
is credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At August 31, 1996, par value shares ($ 0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996(A) 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28.662 $299.97 -- --
Shares issued to shareholders in payment
of distributions declared 0.049 0.51 -- --
Shares redeemed (0.048) (0.50) -- --
Net change resulting from Class A
Share transactions 28.663 $299.98 -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996(A) 1995
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28.662 $299.97 -- --
Shares issued to shareholders in payment
of distributions declared 0.049 0.51 -- --
Shares redeemed (0.048) (0.50) -- --
Net change resulting from Class B
Share transactions 28.663 $299.98 -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996(A) 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28.662 $299.97 -- --
Shares issued to shareholders in payment
of distributions declared 0.049 0.51 -- --
Shares redeemed (0.048) (0.50) -- --
Net change resulting from Class C
Share transactions 28.663 $299.98 -- --
</TABLE>
(a) For the period from August 5, 1996 to August 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,882,962 $ 20,141,547 3,617,186 37,161,759
Shares issued to shareholders in payment
of distributions declared 1,401,501 14,912,186 1,156,534 11,961,548
Shares redeemed (5,975,778) (63,560,849) (9,728,597) (99,451,503)
Net change resulting from Class F
Share transactions (2,691,315) $(28,507,116) (4,954,877) $(50,328,196)
Net change resulting from Fund
share transactions (2,691,229.011) $(28,506,216) (4,954,877) $(50,328,196)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.60% of the Fund's average daily net assets.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of daily average net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended August 31, 1996, the
Corporation engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $64,500,000 and $72,369,964 respectively.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term for the period
ended August 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 90,100,358
SALES $ 119,296,935
</TABLE>
6. INVESTMENT RISK
INVESTMENT RISK -- Although the Fund has a diversified portfolio, the Fund
has 21% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The risk
of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. The
Fund held no defaulted securities at August 31, 1996.
7. SUBSEQUENT EVENT
On April 2, 1996, the Fund filed a proxy statement with the Security
Exchange Commission which seeks shareholder approval to acquire the assets
of State Bond Minnesota Tax-Free Income Fund and State Bond Tax Exempt Fund.
As of August 31, 1996, these Funds had assets of approximately 19,208,906
and 80,622,957, respectively.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(formerly, FORTRESS MUNICIPAL INCOME FUND):
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Municipal Opportunities
Fund, Inc. as of August 31, 1996, the related statement of operations for
the year then ended, the statements of changes in net assets for the years
ended August 31, 1996 and 1995, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at August 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Municipal Opportunity Fund, Inc. as of August 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 11, 1996
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Douglas L. Hein
Assistant Treasurer
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[Graphic]
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.
Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101
G01091-01 (10/96)
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text beneath it, which shows that an initial investment of
$10,000 in Federated Municipal Opportunities Fund, Inc. in 1987 would have
grown to $18,916. The `x'' axis reflects the cost of investment, the ``y''
axis reflects computation periods from 1987 to 1996, and the right margin
reflects a total investment range from $0 to $22,000. The chart further
indicates the ending market value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested dividends.
B. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text beneath it, which shows that a yearly investment of
$1,000 in Federated Municipal Opportunities Fund, Inc. in 1987 would have
grown to $13,824. The `x'' axis reflects the cost of investment, the ``y''
axis reflects computation periods from 1987 to 1996, and the right margin
reflects a total investment range from $0 to $16,000. The chart further
indicates the ending market value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested dividends.
C. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text beneath it, which shows that an initial of $5,000 in
Federated Municipal Opportunities Fund, Inc. in 1987 would have grown to
$85,020. The `x'' axis reflects the cost of investment, the ``y'' axis
reflects computation periods from 1987 to 1996, and the right margin
reflects a total investment range from $0 to $90,000. The chart further
indicates the ending market value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested dividends.
D. The graphic presentation here displayed consists of a pie chart
indicating the Rating Distribution as of August 31, 1996. The pie is
divided into the following ratings and corresponding percentages.
BB 4.06%
A 8.32%
AAA 10.73%
Non-Rated 16.48%
AA 18.04%
BBB 42.37%
E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
F Shares of the fund are represented by a solid line, whereas the Lehman
Brothers Revenue Bond Index (LBRBI) is represented by a broken dotted line.
The line graph is a visual representation of a comparison of change in
value of a hypothetical investment in the Class F Shares of the fund and
Lehman Brothers Revenue Bond Index for the period from April 10, 1987 to
August 31, 1996. The `y'' axis reflects the cost of the investment. The
`x'' axis reflects computation periods from the ending value of the
hypothetical investment in the Class F Shares of the fund as compared to
LBRBI; the ending values are $18,917 and $20,959, respectively. Beneath the
list of the components that correspond to the line graph are the following
total return data for the Class F Shares of the fund: total return figures
for the 1 year, 5 year and start of performance. The corresponding total
figures are as follows: 0.44%; 5.78% and 7.02%, respectively. The
performance disclaimer and footnotes are listed directly under the graphic
under the graphic presentation.
