STATE BOND TAX EXEMPT FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
Dear Shareholder:
The Board of Directors and management of State Bond Tax Exempt Fund (the `State
Bond Fund') are pleased to submit for your vote a proposal to transfer all of
the net assets of the State Bond Fund to Federated Municipal Opportunities Fund,
Inc. (the "Federated Fund"), a mutual fund advised by Federated Advisers. The
Federated Fund has an investment objective similar to that of the State Bond
Fund in that it 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. As part of the transaction, holders
of shares in the State Bond Fund would receive Class A Shares of the Federated
Fund equal in value to their shares in the State Bond Fund and the State Bond
Fund would be liquidated. Shareholders receiving Class A Shares of the
Federated Fund as a result of the proposed reorganization would not have to pay
a sales load upon receiving such Shares, nor would they be subject to any
contingent deferred sales charges in connection with the exercise of exchange
rights or redemptions of such Shares.
The Board of Directors of the State Bond Fund, as well as ARM Capital Advisors,
Inc., the State Bond Fund's manager, and SBM Financial Services, Inc., the State
Bond Fund's distributor, believe the proposed agreement and plan of
reorganization is in the best interests of State Bond Fund shareholders for the
following reasons:
- -- The reorganization of the State Bond Fund into the Federated Fund may
ultimately provide operating efficiencies as a result of the size of the
Federated Fund which were not available to State Bond Fund shareholders due to
the smaller size of the State Bond Fund.
- -- The Federated Fund has an investment objective similar to that of the State
Bond Fund and offers an investment portfolio which invests in municipal bonds to
achieve a high level of current income exempt from the federal regular income
tax, although the Federated Fund may invest in securities, the interest on which
may be included in calculating the federal alternative minimum tax.
The Federated Fund is managed by Federated Advisers, a subsidiary of Federated
Investors. Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania. Federated Advisers and other subsidiaries of
Federated Investors serve as investment advisers to a number of investment
companies and private accounts. With over $90 billion invested across more than
250 funds under management and/or administration by its subsidiaries, Federated
Investors is one of the largest mutual fund investment managers in the United
States. With more than 2,000 employees, Federated continues to be led by the
management who founded the company in 1955. Federated funds are presently at
work in and through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Federated Investors also has an excellent reputation for customer servicing,
having received a #1 rating for five years in a row by Dalbar, Inc. The
shareholder services for the Federated funds include advanced technological
systems that result in quick shareholder access to a broad spectrum of
information.
We believe the transfer of the State Bond Fund's assets in this transaction
presents an exciting investment opportunity for our shareholders. Your vote on
the transaction is critical to its success. The transfer will be effected only
if approved by a majority of all of the State Bond Fund's outstanding shares on
the record date voted in person or represented by proxy. We hope you share our
enthusiasm and will participate by casting your vote in person, or by proxy if
you are unable to attend the meeting. Please read the enclosed prospectus/proxy
statement carefully before you vote.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST INTERESTS OF
THE STATE BOND FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
Dale C. Bauman
President
STATE BOND TAX EXEMPT FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF STATE BOND TAX EXEMPT FUND:
A Special Meeting of Shareholders of State Bond Tax Exempt Fund, a portfolio of
State Bond Municipal Funds, Inc. (the `State Bond Fund'') will be held at
3:40 p.m. on December 9, 1996 at: 100 North Minnesota Street, New Ulm,
Minnesota 56073-0069, for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between State Bond Fund and Federated Municipal Opportunities Fund, Inc. (the
"Federated Fund"), whereby the Federated Fund would acquire all of the net
assets of the State Bond Fund in exchange for the Federated Fund's Class A
Shares to be distributed pro rata by the State Bond Fund to the holders of its
shares in complete liquidation of the State Bond Fund; and
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
By Order of the Board of Directors,
Dated: October 31, 1996 Kevin L. Howard
Secretary
Shareholders of record at the close of business on October 11, 1996, are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU
ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
OCTOBER 31, 1996
ACQUISITION OF THE ASSETS OF
STATE BOND TAX EXEMPT FUND,
A PORTFOLIO OF STATE BOND MUNICIPAL FUNDS, INC.
100 NORTH MINNESOTA STREET, P.O. BOX 69
NEW ULM, MINNESOTA 56073-0069
TELEPHONE NUMBER: 1-800-328-4735
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051, OPTION ONE
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Federated Municipal Opportunities Fund,
Inc., a Maryland corporation (the "Federated Fund"), would acquire all of the
net assets of State Bond Tax Exempt Fund, a portfolio of State Bond Municipal
Funds, Inc., a Maryland corporation (the `State Bond Fund''), in exchange for
the Federated Fund's Class A Shares to be distributed pro rata by the State Bond
Fund to the holders of its shares, in complete liquidation of the State Bond
Fund. As a result of the Plan, each shareholder of the State Bond Fund will
become the owner of the Federated Fund's Class A Shares having a total net asset
value equal to the total net asset value of his or her holdings in the State
Bond Fund.
THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL OF
THE PLAN.
The Shares of each of the Federated Fund and the State Bond Fund represent
interests of separate open-end, diversified management investment companies.
The Federated Fund's investment objective is to provide a high level of current
income which is generally exempt from the federal regular income tax, which it
pursues by investing primarily in a diversified portfolio of municipal bonds.
The State Bond Fund's investment objective is to maximize current income exempt
from federal income taxes to the extent consistent with preservation of capital,
with consideration given to the opportunity for capital gain, by investing
primarily in tax exempt securities. For a comparison of the investment policies
of the Federated Fund and the State Bond Fund, see "Summary - Investment
Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated October 31, 1996,
which is incorporated herein by reference. Statements of Additional Information
for the Federated Fund dated October 31, 1996 (relating to the Federated Fund's
Prospectus of the same date) and October 31, 1996 (relating to this
Prospectus/Proxy Statement) and the Annual Report to Shareholders dated August
31, 1996, all containing additional information, have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
Copies of the Statements of Additional Information and the Annual Report may be
obtained without charge by writing or calling the Federated Fund at the address
and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE NO.
SUMMARY OF EXPENSES 6
SUMMARY 8
ABOUT THE PROPOSED REORGANIZATION 8
INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS 8
ADVISORY AND OTHER FEES 10
DISTRIBUTION ARRANGEMENTS 10
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES 11
DIVIDENDS 13
TAX CONSEQUENCES 13
RISK FACTORS 13
INFORMATION ABOUT THE REORGANIZATION 13
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION 13
AGREEMENT AMONG ARM, ARM CAPITAL AND FEDERATED 16
AGREEMENT WITH STATE BOND MINNESOTA TAX-FREE INCOME FUND 16
DESCRIPTION OF THE PLAN OF REORGANIZATION 16
DESCRIPTION OF FEDERATED FUND SHARES 17
FEDERAL INCOME TAX CONSEQUENCES 17
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS 18
CAPITALIZATION 20
INFORMATION ABOUT THE FEDERATED FUND AND THE STATE BOND FUND 20
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. 20
STATE BOND TAX EXEMPT FUND 21
VOTING INFORMATION 21
OUTSTANDING SHARES AND VOTING REQUIREMENTS 21
DISSENTER'S RIGHT OF APPRAISAL 23
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY 23
AGREEMENT AND PLAN OF REORGANIZATION -- EXHIBIT A 24
SUMMARY OF EXPENSES
FEDERATED STATE PRO
FUND BOND FORMA
(CLASS A FUND COMBINE
SHARES) D
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases 4.50%(1) 4.50% 4.50%(1)
(as a percentage of offering
price)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of NONE NONE NONE
offering price)
Contingent Deferred Sales Charge
(as a percentage of original
purchase NONE(2) NONE NONE(2)
price or redemption proceeds, as
applicable)
Redemption Fee (as a percentage of
amount redeemed, if NONE NONE NONE
applicable)(3)
Exchange Fee NONE NONE NONE
Annual Operating Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
(AFTER EXPENSE REIMBURSEMENTS OR WAIVERS)
Management Fee 0.60% 0.50% 0.60%
12b-1 Fee 0.00%(4) 0.25% 0.00%(4)
Total Other Expenses 0.49%(5) 0.15% 0.46%(5)
Total Operating 1.09% 0.90% 1.06%
Expenses(6)
(1) This sales charge would not be applicable to Class A Shares of the
Federated Fund acquired under the proposed reorganization.
(2) Class A Shares purchased 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 full year of
purchase. For a more complete description, see `Summary - Distribution
Arrangements.'' This contingent deferred sales charge would not be applicable
to Class A Shares of the Federated Fund acquired under the proposed
reorganization.
(3) Wire-transferred redemptions of Class A Shares of the Federated Fund of
less than $5,000 may be subject to additional fees. A $10.00 fee will be
charged for certain redemptions of State Bond Fund shares by wire transfer.
(4) The Federated Fund has no present intention of paying or accruing the 12b-1
fee. If the Federated Fund were paying or accruing the 12b-1 fee, it would be
able to pay up to 0.25% of its average daily net assets for the 12b-1 fee. For
a more complete description, see `Summary - Distribution Arrangements.''
(5) Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.25%.
(6) The total operating expenses for Class A Shares of the Federated Fund are
based on expenses incurred during its fiscal year ended August 31, 1996. The
total operating expenses for the State Bond Fund are based upon expenses
incurred by the State Bond Fund during its fiscal year ended June 30, 1996.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of shares of each of the Federated Fund,
the State Bond Fund and the Pro Forma Combined Fund will bear, either directly
or indirectly. For more complete descriptions of the various costs and
expenses, see "Summary - Advisory and Other Fees" and "Summary - Distribution
Arrangements."
Long-term shareholders of the State Bond Fund 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.
EXAMPLES
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class A
Shares received as a result of the proposed reorganization.
An investor 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. Expenses
would be the same if there were no
redemption at the end of each
time period. 1 year 3 years 5 years 10 years
Federated Fund $11 $35 $60 $133
State Bond Fund $ 9 $29 $50 $111
Pro Forma Combined $11 $34 $58 $129
(2) This Example includes sales charges since any Class A Shares purchased
subsequent to the reorganization may be subject to sales charges. For a
complete description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of the
Federated Fund dated October 31, 1996, and the Prospectus of the State Bond Fund
dated November 1, 1995, each of which is incorporated herein by reference
thereto.
An investor 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.
Expenses would be the same if there were
no redemption at the end of
each time period. 1 year 3 years 5 years 10 years
Federated Fund $56 $78 $102 $172
State Bond Fund $54 $72 $ 93 $151
Pro Forma Combined $55 $77 $101 $169
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Federated Fund dated October 31, 1996, the Statement of
Additional Information of the Federated Fund dated October 31, 1996, the
Prospectus of the State Bond Fund dated November 1, 1995, the Statement of
Additional Information of the State Bond Fund dated November 1, 1995, and the
Plan, a copy of which is attached to this Prospectus/Proxy Statement as Exhibit
A.
About the Proposed Reorganization
The Board of Directors of the State Bond Fund has voted to recommend to holders
of the shares of the State Bond Fund the approval of the Plan whereby the
Federated Fund would acquire all of the net assets of the State Bond Fund in
exchange for the Federated Fund's Class A Shares to be distributed pro rata by
the State Bond Fund to its shareholders in complete liquidation and dissolution
of the State Bond Fund (the "Reorganization"). As a result of the
Reorganization, each shareholder of the State Bond Fund will become the owner of
the Federated Fund's Class A Shares having a total net asset value equal to the
total net asset value of his or her holdings in the State Bond Fund on the date
of the Reorganization, i.e., the Closing Date (as hereinafter defined).
As a condition to the Reorganization transactions, the Federated Fund and the
State Bond Fund will receive an opinion of counsel that the Reorganization will
be considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code of 1986, as amended (the `Code''), so that no gain or
loss will be recognized by either the Federated Fund or the State Bond Fund or
the shareholders of the State Bond Fund. The tax basis of the Federated Fund's
Class A Shares received by State Bond Fund shareholders will be the same as the
tax basis of their shares in the State Bond Fund. After the acquisition is
completed, the State Bond Fund will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to provide a high level of
current income which is generally exempt from the federal regular income tax by
investing primarily in a diversified portfolio of municipal bonds. This
investment objective may not be changed without the affirmative vote of a
majority of the outstanding voting securities of the Federated Fund, as defined
in the Investment Company Act of 1940, as amended (the `1940 Act'').
The investment objective of the State Bond Fund is to seek to maximize current
income exempt from federal income taxes to the extent consistent with
preservation of capital, with consideration given to the opportunity for capital
gain, by investing primarily in tax exempt securities. This investment
objective may not be changed without the affirmative vote of a majority of the
outstanding voting securities of the State Bond Fund, as defined in the 1940
Act.
The Federated Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax (the `federal
AMT')). The Federated 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. The Federated Fund may invest in
municipal bonds, the interest on which may be included in calculating the
federal AMT. The municipal bonds which the Federated Fund buys are rated Ba or
better by Moody's Investors Service, Inc. (`Moody's'') or BB or better by
Standard & Poor's Ratings Group (`S&P'') or, if not rated, are determined by
Federated Advisers (as hereinafter defined) to be of comparable quality. The
Federated 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 Federated Fund may purchase securities on a when-issued or delayed delivery
basis, 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, or hedge all or a portion of its investments by entering into
future contracts or options on them. If necessary for temporary defensive
purposes, the Federated Fund may invest in short-term tax exempt or taxable
temporary investments. Unless otherwise designated, the investment policies of
the Federated Fund may be changed by the Board of Directors without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
The State Bond Fund invests at least 80% of the value of its assets in
securities of states, territories and possessions of the United States and the
District of Columbia, and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from federal income taxes
(`Tax Exempt Securities''). The Tax Exempt Securities in which the State Bond
Fund invests primarily consist of a diversified portfolio of bonds rated Aaa,
Aa, A or Baa by Moody's or rated AAA, AA, A or BBB by S&P, notes rated MIG-1,
MIG-2, MIG-3 or MIG-4 by Moody's or SP-1, SP-2 or SP-3 by S&P, and commercial
paper rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P. The State Bond
Fund may invest in Tax Exempt Securities which are not rated if, in the judgment
of ARM Capital (as hereinafter defined), such securities are of comparable
quality to rated securities in which the State Bond Fund may invest. The State
Bond Fund may purchase floating rate, variable rate, and inverse or reverse
floating rate Tax Exempt Securities; enter into repurchase agreements; and
purchase new issues of Tax Exempt Securities on a when-issued basis. Unless
otherwise designated, the investment policies of the State Bond Fund may be
changed by the Board of Directors without shareholder approval.
Both the Federated Fund and the State Bond Fund are subject to certain
investment limitations. For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money directly or through
reverse repurchase agreements or pledging securities except, under certain
circumstances, the Federated Fund may borrow up to one-third of the value of its
total assets and pledge 10% of the value of those assets to secure such
borrowings; (2) investing more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933, as amended (the
`1933 Act''), except for certain restricted securities which meet the criteria
for liquidity as established by the Directors; (3) investing more than 5% of
its total assets in securities of one issuer (except cash and cash items and
U.S. government obligations); or (4) investing 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. The first two investment limitations listed
above cannot be changed without shareholder approval; the last two limitations
may be changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes effective.
The State Bond Fund has investment limitations which prohibit it from: (1)
borrowing money, except for temporary purposes in an amount not in excess of 10%
of the value of the total assets of the State Bond Fund; provided that
borrowings in excess of 5% of such value are permitted from banks only; (2)
mortgaging or pledging assets, except that up to 10% of the value of the State
Bond Fund's total assets can be used to secure borrowings; or (3) purchasing
securities of any issuer if immediately thereafter more than 5% of the State
Bond Fund's total assets would be invested in the securities of any one issuer,
except that this limitation does not apply to obligations issued or guaranteed
as to principal and interest either by the U.S. government or its agencies or
instrumentalities. The above investment limitations of the State Bond Fund
cannot be changed without shareholder approval.
In addition to the policies and limitations set forth above, both the Federated
Fund and the State Bond Fund are subject to certain additional investment
policies and limitations, described in the Federated Fund's Statement of
Additional Information dated October 31, 1996, and the State Bond Fund's
Statement of Additional Information dated November 1, 1995. Reference is hereby
made to the Federated Fund's Prospectus and Statement of Additional Information,
each dated October 31, 1996, and to the State Bond Fund's Prospectus and
Statement of Additional Information, each dated November 1, 1995, which set
forth in full the investment objective, policies and investment limitations of
each of the Federated Fund and the State Bond Fund, all of which are
incorporated herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.60 of 1% of the
Federated Fund's average daily net assets. The investment adviser to the
Federated Fund, Federated Advisers ("Federated Advisers"), a subsidiary of
Federated Investors, may voluntarily choose to waive a portion of its advisory
fee or reimburse the Federated Fund for certain operating expenses. This
voluntary waiver of the advisory fee may be terminated by Federated Advisers at
any time in its sole discretion. Federated Advisers has also undertaken to
reimburse the Federated Fund for operating expenses in excess of limitations
established by certain states. The maximum annual management fee for the State
Bond Fund is 0.50 of 1% of average daily net assets of the State Bond Fund. The
State Bond Fund's investment manager, ARM Capital Advisors, Inc. (`ARM
Capital'), a wholly-owned subsidiary of ARM Financial Group, Inc. (``ARM''),
has voluntarily agreed to reimburse the State Bond Fund for any expenses
incurred by it in excess of 1% of average daily net assets of the State Bond
Fund. This voluntary arrangement may be terminated by ARM Capital at any time
in its sole discretion. ARM Capital has also undertaken to reimburse the State
Bond Fund for operating expenses in excess of limitations established by certain
states.
Federated Services Company, an affiliate of Federated Advisers, provides certain
administrative personnel and services necessary to operate the Federated Fund at
an annual rate based upon the average aggregate daily net assets of all funds
advised by Federated Advisers and its affiliates. The rate charged is 0.15 of
1% on the first $250 million of all such funds' average aggregate daily net
assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250
million and 0.075 of 1% of all such funds' average aggregate daily net assets in
excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of shares of any such portfolio. Federated
Services Company may choose voluntarily to waive a portion of its fee. The
administrative fee expense for the Federated Fund's fiscal year ended August 31,
1996 was $311,976. Administrative personnel and services necessary to operate
the State Bond Fund are currently provided by ARM Capital and are included in
the annual management fee for the State Bond Fund, as discussed above.
The Federated Fund has entered into a Shareholder Services Agreement under which
it may make payments of up to 0.25 of 1% of the average daily net asset value of
the Class A Shares to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Shareholder Services Agreement
provides that Federated Shareholder Services ("FSS"), an affiliate of Federated
Advisers, either will perform shareholder services directly or will select
financial institutions to perform such services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The
schedule of such fees and the basis upon which such fees will be paid is
determined from time to time by the Federated Fund and FSS. Other than in
connection with payments under a Rule 12b-1 plan as described below, the State
Bond Fund does not make payments to obtain similar shareholder services.
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers, is the
principal distributor for shares of the Federated Fund. The Federated Fund has
adopted a Rule 12b-1 Distribution Plan (the `Distribution Plan'') pursuant to
which the Federated Fund will pay a fee to the distributor in an amount computed
at an annual rate of 0.25 of 1% of the average daily net assets of the Class A
Shares to finance any activity which is principally intended to result in the
sale of Class A Shares subject to the Distribution Plan. The Federated Fund is
not currently making payments for Class A Shares under the Distribution Plan,
nor does it anticipate doing so in the immediate future. In addition, FSC, from
its own assets, may pay financial institutions supplemental fees as financial
assistance for providing substantial sales services, distribution-related
support services or shareholder services with respect to the Federated Fund.
Such assistance will be predicated upon the amount of Class A 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 FSC may be reimbursed by Federated Advisers or its affiliates. If a
financial institution elects to waive receipt of this payment, the Federated
Fund will waive any applicable contingent deferred sales charge (such contingent
deferred sales charges are discussed below).
SBM Financial Services, Inc. (`SBMFS''), an affiliate of ARM Capital, is the
principal distributor for shares of the State Bond Fund. The State Bond Fund
has also adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant
to which the State Bond Fund pays SBMFS an amount equal to an annual rate of
0.25 of 1% of the average daily net assets of the State Bond Fund. The fee may
be used by SBMFS to (i) provide initial and ongoing sales compensation to its
investment executives and to other broker/dealers in connection with the sale of
State Bond Fund shares and to pay for other advertising and promotional expenses
in connection with the sale of State Bond Fund shares, and (ii) provide
compensation to entities in connection with the provision of certain personal
and account maintenance services to State Bond Fund shareholders including, but
not limited to, responding to shareholder inquiries and providing information on
their investments. The Federated Fund will not assume any liabilities or make
any voluntary reimbursements on account of the State Bond Fund's Rule 12b-1
Plan.
Certain costs exist with respect to the purchase and sale of Federated Fund and
State Bond Fund shares. Class A Shares of the Federated Fund and shares of the
State Bond Fund are sold at their net asset value next determined after an order
is received, plus a maximum sales charge of 4.50%. No sales charge will be
imposed in connection with the issuance of Federated Fund Class A Shares to
State Bond Fund shareholders as a result of the Reorganization. Class A Shares
of the Federated Fund purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by FSC may be charged a contingent deferred sales charge of 0.50
of 1% for redemptions made within one full year of purchase. Any such charge
will be imposed on the lesser of the net asset value of the redeemed shares at
the time of purchase or redemption. The contingent deferred sales charges are
not imposed in connection with the exercise of exchange rights, nor will they be
imposed on redemptions of Federated Fund Class A Shares received by shareholders
of the State Bond Fund as a result of the Reorganization. For a complete
description of sales charges, contingent deferred sales charges and exemptions
from such charges, reference is hereby made to the Prospectus of the Federated
Fund dated October 31, 1996, and the Prospectus of the State Bond Fund dated
November 1, 1995, each of which is incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund is
Federated Shareholder Services Company (formerly called Federated Services
Company). The transfer agent and dividend disbursing agent for the State Bond
Fund is ARM Transfer Agency, Inc. Procedures for the purchase, exchange and
redemption of the Federated Fund's Class A Shares differ slightly from
procedures applicable to the purchase, exchange and redemption of the State Bond
Fund's shares. Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the Federated
Fund's Class A Shares or the State Bond Fund's shares may be obtained from FSC,
principal distributor for the Federated Fund, at 1-800-245-5051, option one, or
from SBMFS, principal distributor for the State Bond Fund, at 1-800-328-4735.
Reference is made to the Prospectus of the Federated Fund dated October 31,
1996, and the Prospectus of the State Bond Fund dated November 1, 1995, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and State
Bond Fund shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange and redemption procedures applicable to the Federated Fund's
Class A Shares and the State Bond Fund's shares.
Purchases of Class A Shares of the Federated Fund may be made through a
financial institution that has an agreement with FSC or, once an account has
been established, by wire or check. Purchases of shares of the State Bond Fund
may be made through SBMFS and through certain broker/dealers under contract with
SBMFS or directly by wire or check once an account has been established. The
minimum initial investment in the Federated Fund is $500. Subsequent
investments must be in amounts of at least $100. The minimum initial investment
in the State Bond Fund is $500. Subsequent investments must be in amounts of at
least $50. The Federated Fund and the State Bond Fund each reserves the right
to reject any purchase request. In connection with the sale of Class A Shares
of the Federated Fund, FSC may from time to time offer certain items of nominal
value to any shareholder.
The purchase price of the Federated Fund's Class A Shares and the State Bond
Fund's shares is based on net asset value plus a sales charge. The net asset
value per share for each of the Federated Fund and the State Bond Fund is
calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, Inc. (the `NYSE'') on each day on which the Federated
Fund and the State Bond Fund compute their net asset value. Purchase and
redemption orders for the Federated Fund received from broker/dealers before
5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m.
(Eastern time) may be entered at that day's price. Purchase orders for shares
of the State Bond Fund received from authorized broker/dealers will be executed
at the offering price next determined after the receipt of the order by the
broker/dealer, provided that the broker/dealer promptly transmits the order to
SBMFS the same day. Redemption orders for shares of the State Bond Fund
received by the State Bond Fund's transfer agent from authorized dealers or
representatives of SBMFS prior to the close of the NYSE will be entered at that
day's price; such redemption orders received after the close of the NYSE will be
entered at the net asset value determined at the close of the NYSE on the next
trading day. Federated Fund purchase orders by wire are considered received
upon receipt of payment by wire. Federated Fund purchase orders received by
check are considered received after the check is converted into federal funds,
which normally occurs the business day after receipt.
Holders of Class A Shares of the Federated Fund have exchange privileges with
respect to Class A Shares in certain of the funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different investment
objectives and policies. Class A Shares of the Federated Fund may be exchanged
for Class A Shares of certain Federated Funds at net asset value without a
contingent deferred sales charge. To the extent a shareholder exchanges Class A
Shares of the Federated Fund for Class A Shares of other 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. Class A Shares to be exchanged must have a net asset
value which meets the minimum investment requirement for the fund into which the
exchange is being made. Holders of shares of the State Bond Fund have exchange
privileges with respect to shares in certain of the other funds for which ARM
Capital serves as investment manager (collectively, the `State Bond Group''),
each of which has different investment objectives and policies. Any exchange
for shares of other funds in the State Bond Group will generally be at the
respective net asset values next determined after receipt of the request for
exchange. Exercise of the exchange privilege is treated as a sale for federal
income tax purposes and, accordingly, may have tax consequences for the
shareholder. Information on share exchanges may be obtained from the Federated
Fund or the State Bond Fund, as appropriate.
Redemptions of Federated Fund Class A Shares may be made through a financial
institution, by telephone, by mailing a written request or through the Federated
Fund's Systematic Withdrawal Program. Redemptions of State Bond Fund shares may
be made through an authorized dealer or representative of SBMFS, by mailing a
written request to the State Bond Fund's transfer agent or through the State
Bond Fund's quick redemption service or check redemption service. Class A
Shares of the Federated Fund are redeemed at their net asset value, less any
applicable contingent deferred sales charge, next determined after the
redemption request is received. Shares of the State Bond Fund are redeemed at
their net asset value, determined at the close of the NYSE on the date the
redemption request is received. Proceeds will ordinarily be distributed by
check within seven days after receipt of a redemption request.
Dividends
Each of the Federated Fund's and the State Bond Fund's current policy is to pay
dividends monthly from net investment income and to make annual distributions of
net realized capital gains, if any. With respect to both the Federated Fund and
the State Bond Fund, unless a shareholder otherwise instructs, dividends and
capital gain distributions will be reinvested automatically in additional shares
at net asset value, subject to no sales charge.
Tax Consequences
As a condition to the Reorganization transactions, the Federated Fund and the
State Bond Fund will receive an opinion of counsel that the Reorganization will
be considered a tax-free "reorganization" under applicable provisions of the
Code so that no gain or loss will be recognized by either the Federated Fund or
the State Bond Fund or the shareholders of the State Bond Fund. The tax basis
of the Federated Fund shares received by State Bond Fund shareholders will be
the same as the tax basis of their shares in the State Bond Fund.
RISK FACTORS
As with other mutual funds that invest in municipal bonds, the Federated Fund is
subject to market risks and credit risks. The value of the Class A Shares will
fluctuate. The amount of this fluctuation is dependent upon the quality and
maturity of the municipal bonds in the Federated Fund's portfolio as well as on
market conditions. Generally speaking, the lower quality, long-term bonds
(including junk bonds) in which the Federated 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. Prices of bonds also fluctuate with
changes in the perceived quality of the credit of their issuers. Since the
State Bond Fund invests primarily in Tax Exempt Securities, these risk factors
are generally also present in an investment in the State Bond Fund. A full
discussion of the risks inherent in investment in the Federated Fund and the
State Bond Fund is set forth in the Federated Fund's Prospectus and Statement of
Additional Information, each dated October 31, 1996, and the State Bond Fund's
Prospectus and Statement of Additional Information, each dated November 1, 1995,
each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
On June 14, 1995, SBM Company, which was then the investment adviser to the
State Bond Fund, completed the sale of substantially all of its business
operations to ARM (the `1995 Transaction''). In connection with the 1995
Transaction, ARM Capital became the investment manager of the State Bond Fund.
In addition, ARM acquired all of the outstanding stock of SBMFS, the current
distributor of shares of the State Bond Fund.
Considerations of the Board of Directors of the State Bond Fund. On June 6,
1996, ARM management advised the Board of Directors of the State Bond Fund that
ARM was considering redirecting its corporate strategy away from the management
and distribution of retail mutual funds in order to concentrate more fully on
its core businesses. Moreover, ARM management stated that due to the relatively
small net assets in the State Bond Fund and the other mutual funds in the State
Bond Group, ARM and its affiliates were not in a position to provide the value-
added shareholder services, technological advancements, comprehensive
distribution networks and diversified product choices that many larger mutual
fund complexes offer. As a result, management stated that ARM was engaged in
the identification and analysis of various potential alternatives for the State
Bond Fund and the other funds in the State Bond Group.
After conducting a screening process, ARM determined that in its judgment, the
proposed Reorganization was the most desirable alternative involving the State
Bond Fund that was reasonably available and that it should be presented to the
State Bond Fund's Board of Directors for its consideration.
A meeting of the entire Board of Directors was held on August 16, 1996, at which
Federated (as defined below) presented to the Board information relating to the
overall reputation, financial strength and stability of Federated Investors, the
parent company of Federated Advisers (together with its affiliates,
`Federated''). Federated, founded in 1955, is among the seven largest mutual
fund sponsors, with over $90 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, and over 2,000 employees.
Federated's management also discussed the growth of assets under management
and/or administration by Federated from approximately $35 billion in 1989 to
over $90 billion as of August 1996. Federated's management explained to the
Board that the majority of this growth came from within Federated through its
multiple distribution channels. The Board was also informed of the variety of
investment products available through Federated, including international funds
and an array of domestic funds broader than currently offered in the State Bond
Group, the exchange privileges that would be available to former State Bond Fund
shareholders if the Reorganization is consummated, and the multiple sales charge
(or `load'') structures available to prospective shareholders. The Board took
into account that if the Reorganization takes place, shareholders of the State
Bond Fund would exchange their shares for shares of the Federated Fund without
the imposition of any sales charge.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for five years in a row by
Dalbar, Inc. Federated's management stated that its shareholder services
include advanced technological systems that result in quick shareholder access
to a broad spectrum of information, including: telephonic automated yield and
performance information; consolidated monthly shareholder statements; no-fee
IRAs; quarterly newsletters; year-end tax reporting information; direct deposit;
and telephonic redemption and exchange.
Federated's management also discussed comparative sales loads with the Board.
In particular, it was noted that the maximum front-end sales load of the
Federated Fund is the same as that of the State Bond Fund. Federated's
management described rights of accumulation and other programs that can reduce
sales charges with respect to the Federated Fund.
Federated's management also reviewed with the Board relative asset size and
expense ratios, including relative advisory fees. The Board discussed the fact
that the Federated Fund is larger in asset size than the State Bond Fund and
considered potential economies of scale that might be experienced by former
State Bond Fund shareholders if they were to become shareholders of a larger
fund. The Board noted that the expense ratio of the Federated Fund presently is
higher than that of the State Bond Fund. Federated's management advised the
Board, however, that the expense ratio is lower than the average for municipal
bond funds distributed through brokers (as reported by Strategic Insight), and
is competitive. Federated's management discussed with the Board expense waiver
and reimbursement arrangements with respect to both the Federated Fund in
particular and to the complex generally.
The Chief Investment Officer, Fixed-Income, of Federated discussed with the
Board the investment philosophy of Federated Advisers for its funds, including
the Federated Fund. He also described the background and significant investment
experience of Federated portfolio managers and other related personnel issues.
The Board was presented with materials comparing the investment objectives and
policies of the State Bond Fund with those of the Federated Fund, and determined
that they were similar. The Board also considered the differences between the
two funds, including the Federated Fund's policies with respect to junk bonds
and the ability of the Federated Fund to invest in municipal bonds, the interest
on which may be included in calculating the federal AMT. The Board was also
presented with and discussed materials comparing the performance, Morningstar
ratings and relative risks of the State Bond Fund and the Federated Fund.
Federated's management also presented biographical information about each of the
Directors of the Federated Fund and reviewed with the Board the structure of its
compliance and internal audit departments and the scope of its training
programs.
The Board also considered the potential benefits to ARM if the Reorganization is
consummated. The Board discussed the fact that ARM and ARM Capital would be
compensated for selling the books, records and goodwill relating to the
management of the State Bond Group, agreeing to certain non-competition
arrangements and cooperating in assisting in the transfer of the net assets of
the State Bond Group to the Federated Funds. They also took into account the
proposed payment to SBMFS of 0.25% of the average daily net assets of the
Federated Fund attributable to shareholder accounts serviced by SBMFS, as well
as the possible compensation of SBMFS for distribution of additional Federated
financial products in the future.
The Board noted that the State Bond Fund would not bear any of the costs
involved in the Reorganization, which would be borne entirely by ARM and/or
Federated. In addition, the Board discussed the anticipated tax-free nature of
the Reorganization to the State Bond Fund and its shareholders.
In connection with their consideration of the Reorganization, the Board also
reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of the 1940 Act, which provides
that an investment manager to an investment company, and the affiliates of such
manager (such as ARM), may receive any amount or benefit in connection with a
sale of any interest in such investment manager which results in an assignment
of an investment management contract if (1) for a period of three years after
such assignment, at least 75% of the board of directors of the investment
company are not `interested persons'' (as defined in the 1940 Act) of the new
investment manager or its predecessor; and (2) no `unfair burden'' (as defined
in the 1940 Act) is imposed on the investment company as a result of the
assignment or any express or implied terms, conditions or understandings
applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Directors
presently consists of thirteen (13) Directors, only three (3) of whom are
`interested persons.'' With respect to the second condition of Section 15(f),
while there is no specific definition of `unfair burden,'' it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes any payments from the fund for other
than bona fide investment advisory or other services. The Board considered the
fact that representations were made by Federated and ARM that the agreement
among Federated, ARM and ARM Capital would contain representations and covenants
that the Reorganization would not impose an unfair burden on the State Bond
Group.
After reviewing and considering all of the information provided by Federated and
ARM, including the terms of the Reorganization, the Board, including all of the
Directors who are not interested persons of the State Bond Fund or ARM Capital,
voted unanimously at a special telephonic meeting held on August 26, 1996, to
approve the Reorganization and to recommend it to the shareholders of the State
Bond Fund for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
Considerations of the Board of Directors of the Federated Fund. The Board of
Directors of the Federated Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the best
interests of the Federated Fund and the shareholders of the Federated Fund and
that the interests of Federated Fund shareholders would not be diluted as a
result of effecting the Reorganization and have unanimously voted to approve the
Plan.
Agreement Among ARM, ARM Capital and Federated
The Reorganization is being proposed as part of an agreement by and among
Federated, ARM and ARM Capital, pursuant to which ARM and ARM Capital would be
compensated for selling to Federated the books, records and goodwill relating to
the management of the State Bond Group and cooperating in facilitating the
transaction contemplated by the agreement. As part of that agreement, ARM
Capital and its affiliates have agreed not to compete with Federated by
providing investment advisory services to certain investment companies.
Following the Reorganization, ARM or its affiliates have agreed to provide
certain services to shareholders for which ARM or its affiliates may receive
fees paid by Federated and/or mutual funds in which the shareholders are
invested.
Agreement with State Bond Minnesota Tax-Free Income Fund
In connection with this Reorganization, the Federated Fund is also a party to an
agreement and plan of reorganization whereby the Federated Fund would acquire
all of the net assets of State Bond Minnesota Tax-Free Income Fund (the `State
Bond Minnesota Fund'), a portfolio of State Bond Tax-Free Income Funds, Inc.,
in exchange for the Federated Fund's Class A Shares to be distributed pro rata
by the State Bond Minnesota Fund to the holders of its shares, in complete
liquidation of the State Bond Minnesota Fund. This Reorganization is not
contingent upon the completion of the reorganization between the Federated Fund
and the State Bond Minnesota Fund. As of October 11, 1996, the State Bond
Minnesota Fund had net assets of $18,673,205 and had 1,758,375 shares
outstanding. Information concerning the pro forma effect of this transaction,
as well as the Reorganization, is included in the Statement of Additional
Information dated October 31, 1996 (relating to this Prospectus/Proxy
Statement).
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the net assets of
the State Bond Fund in exchange for the Federated Fund's Class A Shares to be
distributed pro rata by the State Bond Fund to its shareholders in complete
liquidation of the State Bond Fund on or about December 13, 1996 (the "Closing
Date"). Shareholders of the State Bond Fund will become shareholders of the
Federated Fund as of the close of business on the Closing Date, and will be
entitled to the Federated Fund's next dividend distribution.
As of or prior to the Closing Date, the State Bond Fund will declare and pay a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all taxable income for the
period ending on the Closing Date. In addition, the State Bond Fund's dividend
will include its net capital gains realized in the period ending on the Closing
Date.
Consummation of the Reorganization is subject to the conditions set forth in the
Plan, including receipt of an opinion in form and substance satisfactory to the
State Bond Fund and the Federated Fund, as described under the caption "Federal
Income Tax Consequences" below. The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by
shareholders of the State Bond Fund prior to the Closing Date by either party if
it believes that consummation of the Reorganization would not be in the best
interests of its shareholders.
Federated Advisers is responsible for the payment of substantially all of the
expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the State Bond Fund shareholders and the costs of
holding the Special Meeting (as hereinafter defined). ARM is responsible for
the payment of the legal fees of the State Bond Fund. The accountants' fees of
the State Bond Fund will be borne equally by Federated Advisers and ARM.
The foregoing description of the Plan entered into between the Federated Fund
and the State Bond Fund is qualified in its entirety by the terms and provisions
of the Plan, a copy of which is attached hereto as Exhibit A and incorporated
herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares of the Federated Fund will be issued without
the imposition of a sales charge or other fee to the shareholders of the State
Bond Fund in accordance with the procedures described above. Class A Shares of
the Federated Fund to be issued to shareholders of the State Bond Fund under the
Plan will be fully paid and nonassessable when issued and transferable without
restriction and will have no preemptive or conversion rights. Reference is
hereby made to the Prospectus of the Federated Fund dated October 31, 1996,
provided herewith for additional information about Class A Shares of the
Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Federated Fund and the State Bond Fund
will receive an opinion from Dickstein Shapiro Morin & Oshinsky LLP, counsel to
the Federated Fund, to the effect that, on the basis of the existing provisions
of the Code, current administrative rules and court decisions, for federal
income tax purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under Section 368(a)(1)(C) of the Code;
(2) no gain or loss will be recognized by the Federated Fund upon its receipt of
the State Bond Fund's assets solely in exchange for Federated Fund Class A
Shares; (3) no gain or loss will be recognized by the State Bond Fund upon the
transfer of its assets to the Federated Fund in exchange for Federated Fund
Class A Shares or upon the distribution (whether actual or constructive) of the
Federated Fund Class A Shares to the State Bond Fund shareholders in exchange
for their shares of the State Bond Fund; (4) no gain or loss will be recognized
by shareholders of the State Bond Fund upon the exchange of their State Bond
Fund shares for Federated Fund Class A Shares; (5) the tax basis of the State
Bond Fund's assets acquired by the Federated Fund will be the same as the tax
basis of such assets to the State Bond Fund immediately prior to the
Reorganization; (6) the tax basis of Federated Fund Class A Shares received by
each shareholder of the State Bond Fund pursuant to the Plan will be the same as
the tax basis of State Bond Fund shares held by such shareholder immediately
prior to the Reorganization; (7) the holding period of the assets of the State
Bond Fund in the hands of the Federated Fund will include the period during
which those assets were held by the State Bond Fund; and (8) the holding period
of Federated Fund Class A Shares received by each shareholder of the State Bond
Fund will include the period during which the State Bond Fund shares exchanged
therefor were held by such shareholder, provided the State Bond Fund shares were
held as capital assets on the date of the Reorganization.
Shareholders should recognize that an opinion of counsel is not binding on the
Internal Revenue Service (`IRS'') or any court. The State Bond Fund does not
expect to obtain a ruling from the IRS regarding the consequences of the
Reorganization. Accordingly, if the IRS sought to challenge the tax treatment
of the Reorganization and was successful, neither of which is anticipated, the
Reorganization would be treated as a taxable sale of assets of the State Bond
Fund, followed by the taxable liquidation of the State Bond Fund.
The Federated Fund does not anticipate that taxable sales involving significant
amounts of securities of the combined portfolio will have to be made after the
Reorganization to effect a realignment with the policies and investment
practices of the Federated Fund.
Comparative Information on Shareholder Rights and Obligations
General. Both the Federated Fund and the State Bond Fund are open-end,
diversified management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Federated Fund is organized as a corporation under the laws of the State of
Maryland and is governed by its Articles of Incorporation, Bylaws and Board of
Directors, in addition to applicable state and federal law. The State Bond Fund
is organized as a separate series of State Bond Municipal Funds, Inc. under the
laws of the State of Maryland and is governed by its Articles of Incorporation,
Bylaws and Board of Directors, in addition to applicable state and federal law.
Set forth below is a brief summary of the significant rights of shareholders of
the Federated Fund and the State Bond Fund.
Shares of the Federated Fund and the State Bond Fund. The Federated Fund is
authorized to issue 2,000,000,000 shares of common stock, par value $0.001 per
share. The Board of Directors has established four classes of shares of the
Federated Fund, known as Class A Shares, Class B Shares, Class C Shares and
Class F Shares. The State Bond Fund has an authorized capital of 10,000,000,000
shares of common stock with a par value of $.00001 per share. The State Bond
Fund is currently the sole investment portfolio of State Bond Municipal Funds,
Inc. and has only one class of shares. Issued and outstanding shares of both
the Federated Fund and State Bond Fund are fully paid and nonassessable, and
freely transferable.
Voting Rights. Neither the Federated Fund nor the State Bond Fund is required
to hold annual meetings of shareholders, except as required under the 1940 Act.
Shareholder approval is necessary only for certain changes in operations or the
election of directors under certain circumstances. The Federated Fund requires
that a special meeting of shareholders be called for any permissible purpose
upon the written request of the holders of at least 10% of the shares of the
series of the Federated Fund entitled to vote. A special meeting of the
shareholders of the State Bond Fund is required to be called upon the written
request of shareholders representing not less than 25% of the shares entitled to
vote. Each share of the Federated Fund gives the shareholder one vote in
director elections and other matters submitted to shareholders for vote. All
shares of each series or class in the Federated Fund have equal voting rights
except that in matters affecting only a particular series or class, only shares
of that series or class are entitled to vote. All shares of the State Bond Fund
have equal voting rights.
Directors. The Bylaws of the Federated Fund provide that the term of office of
each Director shall be until his or her resignation or removal and until the
election and qualification of his or her successor. A Director of the Federated
Fund may be removed by a vote of a majority of all shares entitled to vote at
any special meeting of shareholders. A vacancy on the Board may be filled by a
majority of the Directors remaining in office. The Bylaws of the State Bond
Fund provide that each Director holds office from the time of his or her
election until the next annual meeting of shareholders or special meeting at
which Directors are elected and until his or her successor is duly elected and
qualifies. No Director of the State Bond Fund shall be qualified for election
by the shareholders if he or she has attained the age of 70. The Board of
Directors of the State Bond Fund shall call a meeting of shareholders for the
purpose of voting upon the question of removal of any Director or Directors when
requested in writing to do so by the record holders of not less than 10% of the
outstanding shares. A Director of the State Bond Fund may be removed, with or
without cause, by the affirmative vote of a majority of the votes entitled to be
cast for the election of Directors, and such shareholders may elect a qualified
person as Director to replace the Director so removed. In case of any vacancy
on the Board of Directors, a majority of the remaining Directors may elect a
successor to hold office until the next annual meeting of the shareholders or
special meeting at which Directors are elected and until his or her successor is
duly elected and qualifies. With respect to both the Federated Fund and the
State Bond Fund, a meeting of shareholders will be required for the purpose of
electing additional Directors whenever fewer than a majority of the Directors
then in office were elected by shareholders.
Liability of Directors and Officers. The Amended and Restated Articles of
Incorporation of the Federated Fund and the Articles of Amendment and
Restatement of the State Bond Fund both contain provisions eliminating liability
of their respective directors and officers to the corporation or its
shareholders to the fullest extent permitted by Maryland law. Therefore,
directors and officers will not be liable for monetary damages to the
corporation or its shareholders for breach of the duty of care. However, such
elimination of liability regarding a director's duty of care does not permit the
elimination or limitation of liability (1) to the extent that it is proved that
the person actually received an improper benefit or profit in money, property or
services; (2) to the extent that a judgment or other final adjudication adverse
to the person is entered in a proceeding based on a finding in the proceeding
that the person's action, or failure to act, was committed in bad faith or was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding; or (3) for any action or failure to act
occurring prior to February 18, 1988. In addition, due to the provisions of the
1940 Act, shareholders would still have the right to pursue monetary claims
against directors or officers for acts involving willful malfeasance, bad faith,
gross negligence or reckless disregard of their duties as directors or officers.
Under the agreement by and among Federated, ARM and ARM Capital, Federated has
agreed for a period of three (3) years following the Closing Date to provide
coverage under a directors and officers liability insurance policy for the
current Directors of the State Bond Fund.
Termination or Liquidation. In the event of the termination or liquidation of
the Federated Fund or any fund or class of the Federated Fund or of the
termination or liquidation of the State Bond Fund, the shareholders of the
respective fund or class are entitled to receive, when and as declared by its
Directors, the excess of the assets belonging to the respective fund or class
over the liabilities belonging to the respective fund or class. In either case,
the assets belonging to the fund or class will be distributed among the
shareholders in proportion to the number of shares of the respective fund or
class held by them.
Capitalization
The following table sets forth the unaudited capitalization of the Class A
Shares of the Federated Fund and the shares of the State Bond Fund as of
October 11, 1996, and on a pro forma combined basis as of that date:
Federated Fund State Bond Pro Forma
(Class A Shares) Fund Combined*
Net Assets $2,976,891** $80,461,189 $83,438,080
Net Asset Value Per Share $10.40 $10.85 $10.40
Shares Outstanding 286,137 7,413,841 8,020,019
* Assuming the Federated Fund also acquires the net assets of the State Bond
Minnesota Fund, as described previously, the pro forma combined fund would have
net assets of $102,111,285, a net asset value per share of $10.40 and 9,814,876
shares outstanding.
**Class A Shares of the Federated Fund were established by the Board of
Directors, commencing August 5, 1996. The net assets of all classes of shares
of the Federated Fund as of October 11, 1996 were $386,333,704.
INFORMATION ABOUT THE FEDERATED FUND
AND THE STATE BOND FUND
Federated Municipal Opportunities Fund, Inc.
Information about the Federated Fund is contained in the Federated Fund's
current Prospectus dated October 31, 1996, a copy of which is included herewith
and incorporated herein by reference. Additional information about the
Federated Fund is included in the Federated Fund's Annual Report to Shareholders
dated August 31, 1996, the Statement of Additional Information dated October 31,
1996, and the Statement of Additional Information dated October 31, 1996
(relating to this Prospectus/Proxy Statement), each of which is incorporated
herein by reference. Copies of the Annual Report and Statements of Additional
Information, which have been filed with the Securities and Exchange Commission
(the "SEC"), may be obtained upon request and without charge by contacting the
Federated Fund at 1-800-245-5051, option one, or by writing the Federated Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Federated Fund is
subject to the informational requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and in
accordance therewith files reports and other information with the SEC. Reports,
proxy and information statements, charter documents and other information filed
by the Federated Fund can be obtained by calling or writing the Federated Fund
and can also be inspected and copied by the public at the public reference
facilities maintained by the SEC in Washington, D.C. located at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional
offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY
10048. Copies of such material can be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Fund with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference
is hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Federated Fund and the shares offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
State Bond Tax Exempt Fund
Information about the State Bond Fund and State Bond Municipal Funds, Inc. is
contained in the State Bond Fund's current Prospectus dated November 1, 1995,
the Annual Report to Shareholders dated June 30, 1996, the Statement of
Additional Information dated November 1, 1995, and the Statement of Additional
Information dated October 31, 1996 (relating to this Prospectus/Proxy
Statement), each of which is incorporated herein by reference. Copies of such
Prospectus, Annual Report, and Statements of Additional Information, which have
been filed with the SEC, may be obtained upon request and without charge from
the State Bond Fund by calling 1-800-328-4735 or by writing to the State Bond
Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069.
The State Bond Fund is subject to the informational requirements of the 1933
Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and
other information with the SEC. Reports, proxy and information statements,
charter documents and other information filed by State Bond Municipal Funds,
Inc. or its portfolio, the State Bond Fund, can be obtained by calling or
writing the State Bond Fund and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of the State Bond Fund of proxies for use at the
Special Meeting of Shareholders (the "Special Meeting") to be held at 3:40 p.m.
on December 9, 1996 at: 100 North Minnesota Street, New Ulm, Minnesota 56073-
0069, and at any adjournments thereof. The proxy confers discretionary
authority on the persons designated therein to vote on other business not
currently contemplated which may properly come before the Special Meeting. A
proxy, if properly executed, duly returned and not revoked, will be voted in
accordance with the specifications thereon; if no instructions are given, such
proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at
any time prior to use by filing with the Secretary of the State Bond Fund an
instrument revoking the proxy, by submitting a proxy bearing a later date or by
attending and voting at the Special Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Advisers. In addition to solicitations
through the mails, proxies may be solicited by officers, employees and agents of
the State Bond Fund, Federated Advisers and their respective affiliates at no
additional cost to the State Bond Fund. Such solicitations may be by telephone,
telegraph or personal contact. Federated Advisers will reimburse custodians,
nominees and fiduciaries for the reasonable costs incurred by them in connection
with forwarding solicitation materials to the beneficial owners of shares held
of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Directors of the State Bond Fund has fixed the close of business on
October 11, 1996, as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting and any adjournments
thereof. As of the record date, there were 7,413,841 shares of the State Bond
Fund outstanding. Each of the State Bond Fund's shares is entitled to one vote
and fractional shares have proportionate voting rights. On the record date, the
Directors and officers of the State Bond Fund as a group owned less than 1% of
the outstanding shares of the State Bond Fund. To the best knowledge of ARM
Capital, as of the record date, no person owned beneficially or of record 5% or
more of the State Bond Fund's outstanding shares.
As of the record date, there were 286,137 Class A, 182,792 Class B, 1,860
Class C and 36,663,760 Class F Shares of the Federated Fund outstanding. On the
record date, the Directors and officers of the Federated Fund as a group owned
less than 1% of the outstanding Class A, Class B, Class C and Class F Shares of
the Federated Fund. To the best knowledge of Federated Advisers, as of the
record date, no person, except as set forth in the table below, owned
beneficially or of record 5% or more of the Federated Fund's outstanding Class
A, Class B, Class C or Class F Shares.
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING
CLASS A SHARES
SHARES
Merrill Lynch Pierce
Fenner & Smith 276,261.000 96.54%
Jacksonville, Florida
Merrill Lynch Pierce 276,261 96.54%
Fenner & Smith
Jacksonville, Florida
Jacksonville, Florida
PERCENT OF
CLASS B SHARES OWNED OUTSTANDING
SHARES NAME AND ADDRESS SHARES
William P. Betchman and
Shirley P. Betchman,
joint tenants in commo
mn
Charleston, South 23,832.221 13.02%
Carolina
BHC Securities, Inc.
Philadelphia, 21,127.782 11.54%
Pennsylvania
LEWCO Securities Corp.
Jersey City, New Jersey 16,755.387 9.15%
Merrill Lynch Pierce
Fenner & Smith
Jacksonville, Florida 14,560.000 7.95%
Jacksonville, Florida
Ann Smith and Christine
E. Datz, joint with
right of survivorship
New York, New York 11,015.326 6.02%
Harry Bass
Briarwood, New York 9,637.414 5.26%
PERCENT OF
CLASS C SHARES OWNED OUTSTANDING
SHARES NAME AND ADDRESS SHARES
Key Clearing Corp.
Brooklyn, Ohio 1,6865.832 90.63%
PERCENT OF
CLASS F SHARES OWNED OUTSTANDING
SHARES NAME AND ADDRESS SHARES
Merrill Lynch Pierce
Fenne 9,858,844.843 26.82%
sr & Smith
Jacksonville, Florida
Approval of the Plan requires the affirmative vote of a majority of the
outstanding shares of the State Bond Fund. The votes of shareholders of the
Federated Fund are not being solicited since their approval is not required in
order to effect the Reorganization.
One-third of the issued and outstanding shares of the State Bond Fund,
represented in person or by proxy, will be required to constitute a quorum at
the Special Meeting for the purpose of voting on the proposed Reorganization.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present, but not as votes
cast, at the Special Meeting. Because approval of the Reorganization requires
the approval of a majority of the outstanding shares of the State Bond Fund,
abstentions and "broker non-votes" will have the same effect as if they were
votes against the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the State Bond Fund objecting to the Reorganization have no
appraisal rights under the State Bond Fund's Articles of Incorporation or
Maryland law. Under the Plan, if approved by State Bond Fund shareholders, each
shareholder will become the owner of Class A Shares of the Federated Fund having
a total net asset value equal to the total net asset value of his or her
holdings in the State Bond Fund at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the State Bond Fund knows of no other matters that may properly
be, or which are likely to be, brought before the Special Meeting. However, if
any other business shall properly come before the Special Meeting, the persons
named in the proxy intend to vote thereon in accordance with their best
judgment.
If at the time any session of the Special Meeting is called to order, a quorum
is not present in person or by proxy, the persons named as proxies may vote
those proxies which have been received to adjourn the Special Meeting to a later
date. In the event that a quorum is present but sufficient votes in favor of
one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to any such proposal. All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which they are
entitled to vote in favor of the proposal, in favor of such an adjournment, and
will vote those proxies required to be voted against the proposal, against any
such adjournment.
Whether or not shareholders expect to attend the Special Meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the "Agreement"),
between FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., a Maryland corporation
(hereinafter called the "Acquiring Fund"), and STATE BOND MUNICIPAL FUNDS, INC.,
a Maryland corporation (hereinafter called the "Corporation") on behalf of its
portfolio STATE BOND TAX EXEMPT FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the net assets of the
Acquired Fund in exchange solely for Class A Shares of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date (as
hereinafter defined), of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Corporation and the Acquiring Fund are registered open-end
management investment companies and the Acquired Fund owns securities in which
the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue
shares of common stock or shares of beneficial interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the directors who are
not "interested persons" (as defined under the Investment Company Act of 1940,
as amended (the "1940 Act")), of the Acquiring Fund has determined that the
exchange of all of the net assets of the Acquired Fund for Acquiring Fund Shares
is in the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the directors who are
not "interested persons" (as defined under the 1940 Act), of the Corporation has
determined that the exchange of all of the net assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired Fund
agrees to assign, transfer and convey to the Acquiring Fund all of the net
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring
Fund agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account, for the benefit of its shareholders, on the stock
record books of the Acquiring Fund and shall deliver a confirmation thereof to
the Acquired Fund.
1.2 The Acquired Fund will discharge or make provision for the discharge of all
of its liabilities and obligations prior to or on the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made
on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash
delivered shall be in the form of immediately available funds payable to the
order of the Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any
dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the Acquired
Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders
of record, determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain the
responsibility of the Corporation up to and including the Closing Date and such
later dates, with respect to dissolution and deregistration of the Corporation,
on which the Corporation is dissolved and deregistered.
1.9 The Corporation shall be deregistered as an investment company under the
1940 Act and dissolved as a Maryland corporation as promptly as practicable
following the Closing Date and the making of all distributions pursuant to
paragraph 1.5.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring
Fund hereunder shall be the value of such assets computed as of the close of the
New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date
(such time and date being herein called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current prospectus
or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund's net assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be December 13, 1996 or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern
time) at the offices of the Acquiring Fund, Federated Investors Tower,
Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may
mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired Fund, shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Acquired Fund Shareholders and
the number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, assumption agreements, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Corporation represents and warrants to the Acquiring Fund as follows:
(a) The Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has power to own all
of its properties and assets and to carry out this Agreement.
(b) The Corporation is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Corporation is not, and the execution, delivery and performance of this
Agreement will not result, in material violation of the Corporation's Articles
of Incorporation or Bylaws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquired Fund is a party or by which it
is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or before
any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund at June 30,
1995 and 1996, have been audited by Ernst & Young LLP, independent auditors, and
have been prepared in accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Acquired
Fund as of such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since June 30, 1996, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law to have been filed by such date shall have been
filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation, subject to applicable statute of
limitation periods, the Acquired Fund has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of the Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(m) The execution, delivery and performance of this Agreement will have been
duly authorized prior to the Closing Date by all necessary action on the part of
the Corporation and, subject to the approval of the Acquired Fund Shareholders,
this Agreement constitutes the valid and legally binding obligation of the
Acquired Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.5 (only insofar as it relates to the Acquired Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
4.2 The Acquiring Fund represents and warrants to the Corporation as follows:
(a) The Acquiring Fund is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has the power to carry
on its business as it is now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940 Act as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of the Acquiring Fund's
Articles of Incorporation or Bylaws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(d) No litigation or administrative proceeding or investigation of or before
any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31,
1995 and 1996, have been audited by Deloitte & Touche LLP, independent auditors,
and have been prepared in accordance with generally accepted accounting
principles, and such statements (copies of which have been furnished to the
Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as
of such dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) Since August 31, 1996, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund.
(h) At the Closing Date, all federal and other tax returns and reports of the
Acquiring Fund required by law to have been filed or an appropriate extension
obtained, by such date shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquiring
Fund's knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, subject to applicable statute of
limitation periods, the Acquiring Fund has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment company.
(j) All issued and outstanding Acquiring Fund Shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and non-
assessable. The Acquiring Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquiring Fund Shares,
nor is there outstanding any security convertible into any Acquiring Fund
Shares.
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes the valid and legally binding obligation of the Acquiring
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration Statement
(only insofar as it relates to the Acquiring Fund) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Corporation will call a meeting of the Acquired Fund Shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes which will be
carried over to the Acquiring Fund as a result of Section 381 of the Code and
which will be certified by the Corporation's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(n), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Section 103(a) of the Code over its deductions disallowed
under Sections 265 and 171(a)(2) of the Code for the taxable periods or years
ended on or before June 30, 1996 and for the period from said date to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in taxable
periods or years ended on or before June 30, 1996 and in the period from said
date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Corporation contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of
the Acquired Fund's assets, together with a list of the Acquired Fund's
portfolio securities showing the tax costs of such securities by lot and the
holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the
effect that the representations and warranties of the Corporation made in this
Agreement are true and correct in all material respects at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions provided
herein shall be subject, at its election, to the performance by the Acquiring
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquiring Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer, in form and substance satisfactory to the Acquired Fund, to the
effect that the representations and warranties of the Acquiring Fund made in
this Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the Closing
Date with respect to the Acquired Fund or the Acquiring Fund, either party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Corporation's Articles of
Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities) deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Corporation shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund net assets in exchange for the
Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the
Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No
gain or loss will be recognized by the Acquiring Fund upon the receipt of the
assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares;
(c) No gain or loss will be recognized by the Acquired Fund upon the transfer of
the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring
Fund Shares or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares
of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by
the Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the
Acquiring Fund Shares received by each of the Acquired Fund Shareholders
pursuant to the Reorganization will be the same as the tax basis of the Acquired
Fund shares held by such shareholder immediately prior to the Reorganization;
(g) The holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the date of
the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Corporation or the
Board of Directors of the Acquiring Fund at any time prior to the Closing Date
(and notwithstanding any vote of the Acquired Fund Shareholders) if
circumstances should develop that, in the opinion of either of the parties'
Board, make proceeding with this Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors or officers of the Corporation or the Acquiring Fund or
the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of
this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may be
waived by the Board of Directors of the Acquiring Fund or the Board of Directors
of the Corporation, if, in the judgment of either, such waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for herein
shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof of any rights or obligations hereunder shall be made by any party without
the written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
11.6 An agreement has been entered into under which Federated Advisers will
assume substantially all of the expenses of the reorganization including
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund Shareholders and the costs of
holding the special meeting of shareholders. ARM Financial Group, Inc. will
assume the legal fees of the Acquired Fund. The accountants' fees of the
Acquired Fund will be borne equally by Federated Advisers and ARM Financial
Group, Inc.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused
this Agreement and Plan of Reorganization to be executed and attested on its
behalf by its duly authorized representatives as of the date first above
written.
Acquired Fund:
STATE BOND MUNICIPAL FUNDS, INC.,
on behalf of its portfolio,
Attest: STATE BOND TAX EXEMPT FUND
/s/ Sheri Bean By: /s/ Kevin L. Howard
Name: Sheri Bean Name: Kevin L. Howard
Title: Assistant Secretary Title: Vice President and Secretary
Acquiring Fund:
Attest: FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
/s/ S. Elliott Cohan By: /s/ J. Christopher
Donahue
Name: S. Elliott Cohan Name: J. Christopher Donahue
Title: Assistant Secretary Title: Executive Vice President
G01866-01
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1996
ACQUISITION OF THE ASSETS OF
STATE BOND TAX EXEMPT FUND,
A PORTFOLIO OF
STATE BOND MUNICIPAL FUNDS, INC.
100 NORTH MINNESOTA STREET
P.O. BOX 69
NEW ULM, MINNESOTA 56073-0069
TELEPHONE NUMBER: 1-800-328-4735
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051, OPTION ONE
This Statement of Additional Information dated October 31, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated October 31, 1996 related to the
above-referenced matter may be obtained from Federated Municipal Opportunities
Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
This Statement of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. STATEMENT OF ADDITIONAL INFORMATION OF FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC., DATED OCTOBER 31, 1996.
2. STATEMENT OF ADDITIONAL INFORMATION OF STATE BOND TAX EXEMPT
FUND, A PORTFOLIO OF STATE BOND MUNICIPAL FUNDS, INC., DATED NOVEMBER 1, 1995.
3. FINANCIAL STATEMENTS OF FEDERATED MUNICIPAL OPPORTUNITIES FUND,
INC., DATED AUGUST 31, 1996.
4. FINANCIAL STATEMENTS OF STATE BOND TAX EXEMPT FUND, A PORTFOLIO
OF STATE BOND MUNICIPAL FUNDS, INC., DATED JUNE 30, 1996.
5. PRO FORMA FINANCIAL INFORMATION OF FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC., DATED AUGUST 31, 1996.
The Statement of Additional Information of Federated Municipal
Opportunities Fund, Inc. (the "Federated Fund"), dated October 31, 1996, is
incorporated herein by reference to Post-Effective Amendment No. 16 to the
Federated Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and
811-4533) which was filed with the Securities and Exchange Commission on or
about October 25, 1996. A copy may be obtained, upon request and without
charge, from the Federated Fund at Federated Investors Tower, Pittsburgh, PA
15222-3279; telephone number: 1-800-245-5051, option one.
The Statement of Additional Information of State Bond Tax Exempt Fund
(the "State Bond Fund"), a portfolio of State Bond Municipal Funds, Inc. (the
"Corporation"), dated November 1, 1995, is incorporated herein by reference to
Post-Effective Amendment No. 16 to the Corporation's Registration Statement on
Form N-1A (File Nos. 2-77156 and 811-3454) which was filed with the Securities
and Exchange Commission on or about August 29, 1995. A copy may be obtained,
upon request and without charge, from the State Bond Fund at 100 North Minnesota
Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-
328-4735.
The audited financial statements of the Federated Fund, dated August 31,
1996, are incorporated herein by reference to the Federated Fund's Annual Report
to Shareholders dated August 31, 1996 which was filed with the Securities and
Exchange Commission. A copy may be obtained, upon request and without charge,
from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279;
telephone number: 1-800-245-5051, option one.
The audited financial statements of the State Bond Fund, dated June 30,
1996, are incorporated herein by reference to the State Bond Fund's Annual
Report to Shareholders dated June 30, 1996, which was filed with the Securities
and Exchange Commission. A copy may be obtained, upon request and without
charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New
Ulm, Minnesota 56073-0069; telephone number 1-800-328-4735.
The pro forma financial information of the Federated Fund, dated
August 31, 1996 is included herein.
Federated Municipal Opportunities Fund, Inc. (formerly, Fortress
Municipal Income Fund, Inc.)
State Bond Minnesota Tax-Free Income Fund
State Bond Tax Exempt Fund
Introduction to Proposed Merger
August 31, 1996 (unaudited)
THE ACCOMPANYING UNAUDITED PRO FORMA COMBINING PORTFOLIO OF
INVESTMENTS, STATEMENT OF ASSETS AND LIABILITIES, AND STATEMENT OF OPERATIONS
REFLECT THE ACCOUNTS OF FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., STATE BOND
MINNESOTA TAX-FREE INCOME FUND, AND STATE BOND TAX EXEMPT FUND, COLLECTIVELY
(`THE FUNDS''), FOR THE YEAR ENDED AUGUST 31, 1996. THESE STATEMENTS HAVE BEEN
DERIVED FROM THE BOOKS AND RECORDS UTILIZED IN CALCULATING DAILY NET ASSET
VALUES AT AUGUST 31, 1996. THE ACCOUNTS REFLECTED ON THE STATE BOND MINNESOTA
TAX-FREE INCOME FUND AND STATE BOND TAX EXEMPT FUND HAVE BEEN BROUGHT UP TO
AUGUST 31, 1996. THIS UPDATING WAS ACCOMPLISHED BY ADDING THE RESULTS OF
OPERATIONS FROM JULY 1, 1996 THROUGH AUGUST 31, 1996 TO ITS JUNE 30, 1996 FISCAL
YEAR ENDS, AND BY DEDUCTING THE RESULTS OF OPERATIONS FROM JULY 1, 1995 THROUGH
AUGUST 31, 1995. THE PRO FORMA STATEMENTS GIVE EFFECT TO THE PROPOSED TRANSFER
OF ASSETS FROM STATE BOND MINNESOTA TAX-FREE INCOME FUND IN EXCHANGE FOR CLASS A
SHARES OF FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. AND THE PROPOSED TRANSFER
OF ASSETS FROM STATE BOND TAX EXEMPT FUND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. THESE TWO SEPARATE PROPOSED
TRANSFERS WILL OCCUR SIMULTANEOUSLY.
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
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FEDERATED FEDERATED
MUNICIPAL MUNICIPAL
OPPORTUN- OPPORTUNITIES
ITIES FUND, INC.
FUND, INC. STATE BOND (FORMERLY, STATE BOND
(FORMERLY, MINNESOTA STATE BOND FORTRESS MINNESOTA STATE
FORTRESS TAX-FREE TAX MUNICIPAL TAX-FREE BOND
MUNICIPAL INCOME FUND EXEMPT PRO FORMA INCOME INCOME FUND TAX PRO FORMA
INCOME FUND COMBINED FUND, INC.) EXEMPT COMBINED
FUND, FUND
INC.)
MOODY'S/
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL S&P
AMOUNT AMOUNT AMOUNT AMOUNT RATING* VALUE VALUE VALUE VALUE
MUNICIPAL BONDS (97.7%)
ALABAMA- 1.2%
6,000,000 --- --- 6,000,000 Courtland, AL,
IDB, Solid Waste
Disposal Revenue BBB/Baa1 5,869,680 --- --- 5,869,680
Bonds (Series
A), 6.375%
(Champion
International
Corp.)/(Original
Issue Yield:
6.52%), 3/1/2029
ALASKA-- 0.4%
- --- --- 690,000 690,000 Alaska Housing
Finance Corp.,
Collateralized,
Veterans
Mortgage
Program, Series
1991 B-1,
6.900%,
due 2032 Aaa/AAA --- --- 708,471 708,471
- --- --- 325,000 325,000 Alaska Housing Aaa/AAA
Finance Corp., --- --- 334,419 334,419
Collaterized
Home Mortgage
Bonds, 1988
Series A-1,
7.625%, due 2013
- --- --- 1,000,000 1,000,000 Alaska Valdez
Marine Terminal,
5.650%,
due 2028 Aa3/AA- --- --- 940,090 940,090
Total --- --- 1,982,980 1,982,980
ARIZONA-0.3%
- --- --- 1,500,000 1,500,000 Arizona A/A --- --- 1,478,205 1,478,205
Industrial
Development
Authority,
5.450%, due 2009
ARKANSAS--1.7%
2,920,000 --- --- 2,920,000 Conway, AR,
Hospital BBB/NR 2,976,560 --- --- 2,976,560
Authority,
Revenue Bonds,
7.125% (Conway
Regional
Hospital),
2/1/2013
3,000,000 --- --- 3,000,000 Conway, AR,
Hospital BBB/NR 3,205,800 --- --- 3,205,800
Authority,
Revenue
Refunding Bonds,
8.125% (Conway
Regional
Hospital),
7/1/2005
1,000,000 --- --- 1,000,000 Conway, AR,
Hospital BBB/NR 1,074,850 --- --- 1,074,850
Authority,
Revenue
Refunding Bonds,
8.375% (Conway
Regional
Hospital),
7/1/2011
1,000,000 --- --- 1,000,000 Little Rock, AR,
Health A+/NR 1,062,400 --- --- 1,062,400
Facilities
Board, Revenue
Refunding Bonds,
7.00% (Baptist
Medical Center,
AR), 10/1/2017
Total 8,319,610 --- --- 8,319,610
CALIFORNIA-0.5%
- --- --- 500,000 500,000 Berkeley, CA,
School District,
5.800%,
due 2020 Aaa/AAA --- --- 488,600 488,600
- --- --- 1,000,000 1,000,000 Central Coast
Water Authority
Revenue Bonds,
Series 1992, Aaa/AAA --- --- 1,075,550 1,075,550
6.350%, due 2007
- --- --- 1,000,000 1,000,000 Walnut Valley,
CA, Water
District,
Certificate of
Participation,
6.125%, due
2009 Aaa/AAA --- --- 1,032,820 1,032,820
Total --- --- 2,596,970 2,596,970
COLORADO--0.8%
695,000 --- --- 695,000 Colorado HFA,
SFM Revenue AA/NR 729,250 --- --- 729,250
Bonds (Series A-
2), 7.70% (FHA
GTD), 2/1/2023
2,775,000 --- --- 2,775,000 Colorado HFA,
SFM Revenue AA/NR 2,891,162 --- --- 2,891,162
Bonds (Series C-
2), 7.375% (FHA
GTD), 8/1/2023
295,000 --- --- 295,000 El Paso County,
CO, HFA, SFM AAA/NR 310,573 --- --- 310,573
Revenue Bonds,
8.00% (GNMA
COL), 9/1/2022
- --- --- 210,000 210,000 Housing Finance
Agency, Single Aa/NR --- --- 214,505 214,505
Family Housing
Revenue Bonds,
1986 Series A,
8.000%, due 2017
Total 3,930,985 --- 214,505 4,145,490
DISTRICT OF
COLUMBIA- 0.3%
- --- --- 1,250,000 1,250,000 District of NR/AAA --- --- 1,275,012 1,275,012
Columbia
University
Revenue Bonds,
6.300%, due 2013
IDAHO--0.9%
1,145,000 --- --- 1,145,000 Idaho Housing
Agency, SFM AA/NR 1,193,823 --- --- 1,193,823
Revenue Bonds
(Series A),
7.50% (FHA GTD),
7/1/2024
2,785,000 --- --- 2,785,000 Idaho Housing
Agency, SFM AA/Aa 2,918,290 --- --- 2,918,290
Revenue Bonds
(Series F-2),
7.80% (FHA GTD),
1/1/2023
Total 4,112,113 --- --- 4,112,113
ILLINOIS--7.0%
- --- --- 2,000,000 2,000,000 Chicago, IL,
Water Revenue
Bonds,
7.200% due 2016 A1/AA- --- --- 2,194,460 2,194,460
- --- --- 1,000,000 1,000,000 Chicago, IL,
Public District
Capital
Improvement Aaa/AAA --- --- 1,024,200 1,024,200
Bonds, 5.450%,
due 2004
- --- --- 1,480,000 1,480,000 City of Chicago,
IL, Gas Supply
Revenue
Bonds, 7.500%, Aa3/AA- --- --- 1,606,111 1,606,111
due 2015
- --- --- 1,100,000 1,100,000 City of Chicago, Aa3/AA --- --- 1,198,076 1,198,076
IL, Gas Supply
Revenue Bonds,
7.500%, due 2015
- -- --- 500,000 500,000 Cook County, IL, Aaa/AAA --- --- 499,945 499,945
6.000%, due 2017
- --- --- 1,000,000 1,000,000 Cook County, IL
Community Cons.
School District Aaa/AAA --- --- 1,023,880 1,023,880
#6, 5.875%, due
2008
4,500,000 --- --- 4,500,000 Granite City,
IL, Hospital
Facilities BB+/Baa 4,637,520 --- --- 4,637,520
Authority,
Revenue
Refunding Bonds
(Series A),
8.125% (St.
Elizabeth
Medical
Center)/(Origina
l Issue Yield:
8.167%),
6/1/2008
3,000,000 --- --- 3,000,000 Illinois
Development NR 2,667,210 --- --- 2,667,210
Finance
Authority,
Housing Revenue
Bonds, 6.10%
(Catholic
Charities
Housing
Development
Corp), 1/1/2020
10,000,000 --- --- 10,000,000 Illinois Health
Facilities NR 10,459,300 --- --- 10,459,300
Authority,
Hospital Revenue
Bonds (Series
A), 9.25%
(Edgewater
Hospital &
Medical Center,
IL), 7/1/2024
- --- --- 1,400,000 1,400,000 Illinois Health
Facility
Authorized
Revenue,
6.000%, due 2015 Aaa/AAA --- --- 1,378,468 1,378,468
- --- --- 1,000,000 1,000,000 Illinois State
Dedicated Tax,
6.000%, due
2015 Aaa/AAA --- --- 998,760 998,760
- --- --- 1,050,000 1,050,000 Illinois State
University
Auxiliary
Facility
System, Board of
Regents Revenue
Bonds,
Series 1989, Aaa/A --- --- 1,156,680 1,156,680
7.400%, due 2014
- --- --- 500,000 500,000 Illinois State
University
Auxiliary
Facility
System, Board of
Regents Revenue
Bonds,
Series 1989, Aaa/A --- --- 550,800 550,800
7.400%, due 2013
- --- --- 2.350,000 2.350,000 Metropolitan
Pier Exposition
Authority,
IL, Dedicated
State Tax Rev.
Bonds,
6.000%, due 2104 A/A+ --- --- 2,337,052 2,337,052
- --- --- 2,000,000 2,000,000 Rolling Meadows,
IL, Mortgage
Revenue
Bonds Woodfield
Garden, 7.750%
due 2004 NR/A- --- --- 2,122,240 2,122,240
Total 17,764,030 --- 16,090,67 33,854,702
2
INDIANA--9.2%
- --- --- 550,000 550,000 Beech Grove, IN,
IDR
8.750%, A1/A --- --- 556,424 556,424
(Westvaco Corp)
due 2010
- --- --- 1,000,000 1,000,000 Highland, IN,
School Building
Corp.,
6.750%, due 2012 NR/AAA --- --- 1,105,850 1,105,850
1,300,000 1,300,000 Indiana
Municipal Power
Agency, Series
1992 A, 6.000%, Aaa/AAA --- --- 1,363,245 1,363,245
due 2007
3,000,000 --- --- 3,000,000 Indiana Port
Commission, Port NR/Aa3 3,232,500 --- --- 3,232,500
Facility Revenue
Refunding Bonds,
6.875% (Cargill,
Inc.), 5/1/2012
855,000 --- --- 855,000 Indiana State
HFA, SFM Revenue NR/Aaa 902,410 --- --- 902,410
Bonds (Series
A), 8.20% (GNMA
COL), 7/1/2020
- --- --- 1,100,000 1,100,000 Indiana State
Toll Roads,
Revenue
Refunding Bond, A-/A --- --- 1,099,967 1,099,967
6.00%, due 2013
2,785,000 --- --- 2,785,000 Indiana State
HFA, SFM Revenue NR/Aaa 2,941,406 --- --- 2,941,406
Home Mortgage
Program (Series
F-2), 7.75%
(GNMA COL),
7/1/2022
- --- --- 1,150,000 1,150,000 Indiana
Transportation
Finance
Authority,
Series A, A/NR --- --- 1,160,108 1,160,108
6.250%, due 2016
17,100,000 --- --- 17,100,000 Indianapolis,
IN, Airport
Authority, BBB/Baa2 18,041,355 --- --- 18,041,355
Special
Facilities
Revenue Bonds,
7.10% (Federal
Express
Corp.)/(Original
Issue Yield:
7.178%),
1/15/2017
- --- --- 3,225,000 3,225,000 Indianapolis,
IN, Public
Improvement
Bonds, Bank Aaa/NR --- --- 3,558,014 3,558,014
Series C,
6.700%, due 2017
2,750,000 --- --- 2,750,000 LaPorte County,
IN, Hospital
Authority, BBB-/Aaa 2,870,780 --- --- 2,870,780
Hospital
Facilities
Revenue
Refunding Bond,
8.75% (LaPorte
Hospital, Inc.,
IN)/(United
States Treasury
PRF)/(Original
Issue Yield:
8.848%),
3/1/1997 (@102)
5,000,000 --- --- 5,000,000 LaPorte County,
IN, Hospital
Authority, BBB/Baa1 4,587,750 --- --- 4,587,750
Hospital
Facility Revenue
Refunding Bonds,
6.00% (LaPorte
Hospital, Inc.,
IN)/(Original
Issue Yield:
6.35%), 3/1/2023
3,000,000 --- --- 3,000,000 LaPorte County,
IN, Hospital
Authority, BBB/Baa 2,908,350 --- --- 2,908,350
Hospital
Facility Revenue
Refunding Bonds,
6.25% (LaPorte
Hospital, Inc.,
IN)/(Original
Issue Yield:
6.35%), 3/1/2012
Total 35,484,551 --- 8,843,608 44,328,159
IOWA--0.2%
1,000,000 --- --- 1,000,000 Davenport, IA,
PCA, PCR NR 1,057,090 --- --- 1,057,090
Refunding Bonds,
Nicols-
Homeshield
Project, 8.375%
(Quanex Corp.),
12/1/2005
KENTUCKY--1.0%
3,500,000 --- --- 3,500,000 Kenton County,
KY, Airport
Board, Special BB/Ba3 3,729,600 --- --- 3,729,600
Facilities
Revenue Bonds
(Series A),
7.50% (Delta Air
Lines,
Inc.)/(Original
Issue Yield:
7.60%), 2/1/2020
1,200,000 --- --- 1,200,000 Kentucky
Pollution NR 1,200,000 --- --- 1,200,000
Abatement &
Water Resource
Finance
Authority Daily
VRDNs (Toyota
Motor Credit
Corp.)
Total 4,929,600 --- --- 4,929,600
LOUISIANA-5.5%
3,000,000 --- --- 3,000,000 De Soto Parish,
LA, A-/A3 3,381,990 --- --- 3,381,990
Environmental
Improvement
Authority,
Revenue Bonds,
7.70%
(International
Paper Co.),
11/1/2018
Lake Charles,
5,000,000 --- --- 5,000,000 LA, Harbor &
Terminal NR/Baa3 5,598,550 --- --- 5,598,550
District, Port
Facilities
Revenue
Refunding Bond,
Trunkline Lining
Co Project,
7.75% (Panhandle
Eastern Corp.),
8/15/2022
- --- --- 750,000 750,000 Rapides Parish,
LA, Housing &
Mortgage
Finance
Authority,
Single Family
Mortgage, Aaa/AA- --- --- 847,770 847,770
7.250%, due 2010
5,645,000 --- --- 5,645,000 St. Charles
Parish, LA, PCR BBB+/Baa2 5,956,660 5,956,660
Bonds, 7.50%
(Louisiana Power
& Light
Co.)/(Original
Issue Yield:
7.542%),
6/1/2021
1,400,000 --- --- 1,400,000 St. Charles
Parish, LA, PCR NR/Baa3 1,523,914 --- --- 1,523,914
Bonds, 8.00%
(Louisiana Power
& Light Co.),
12/1/2014
2,100,000 --- --- 2,100,000 St. Charles
Parish, LA, PCR NR 2,289,462 --- 2,289,462
Bonds, 8.25%
(Louisiana Power
& Light
Co.)/(Original
Issue Yield:
8.273%),
6/1/2014
3,650,000 --- --- 3,650,000 St. Charles
Parish, LA,
Solid Waste BBB+/Baa2 3,758,770 --- --- 3,758,770
Disposal Revenue
Bonds (Series
A), 7.00%
(Louisiana Power
& Light
Co.)/(Original
Issue Yield:
7.04%),
12/1/2022
3,000,000 --- --- 3,000,000 St. James
Parish, LA, NR 3,049,200 --- --- 3,049,200
Solid Waste
Disposal Revenue
Bonds, 7.70%
(Freeport
McMoRan,
Inc.)/(Original
Issue Yield:
7.75%),
10/1/2022
Total 25,558,546 --- 847,770 26,406,316
MAINE--1.0%
- --- --- 400,000 400,000 Maine State
Housing
Authority,
Mortgage
Purchase Bonds,
1988 Series B,
8.000%,
due 2015 A1/AA- --- --- 420,596 420,596
4,200,000 --- --- 4,200,000 Maine State
Housing A+/A1 4,418,778 --- --- 4,418,778
Authority,
Revenue Bonds
(Series D-3),
8.20%,
11/15/2019
Total 4,418,778 --- 420,596 4,839,374
MARYLAND-0.2%
- --- --- 740,000 740,000 Maryland City
Housing Multi-
Family
Housing, FNMA,
Series A, 7.250%
due 2023 NR/AAA --- --- 767,927 767,927
MASSACHUSETTS--
2.8%
21,000,000 --- --- 21,000,000 Massachusetts
IFA, Solid Waste NR 11,350,500 --- --- 11,350,500
Disposal Sr.
Lien Revenue
Bonds (Series
A), 9.00%
(Massachusetts
Recycling
Association),
8/1/2016
- --- --- 1,000,000 1,000,000 Massachusetts
State Housing
Project
Financial A1/A+ --- --- 1,008,500 1,008,500
Agency, 6.300%,
due 2013
- --- --- 1,000,000 1,000,000 Massachusetts
State Housing
Project
Financial Aaa/AAA --- --- 1,005,550 1,005,550
Agency, 6.100%,
due 2016
Total 11,350,500 --- 2,014,050 13,364,550
MICHIGAN--0.7%
- --- --- 500,000 500,000 Clintondale, MI,
Community
Schools,
5.750%, due 2016 Aa/AA --- --- 488,450 488,450
- --- --- 145,000 145,000 Michigan State
Housing
Development
Authority,
Single Family,
Series A,
7.550%, due 2014 NR/AA+ --- --- 145,042
145,042
- --- --- 1,000,000 1,000,000 Michigan State
Housing
Development,
Series B, NR/AA+ --- --- 1,051,960 1,051,960
6.950%, due 2020
1,500,000 --- --- 1,500,000 Western
Townships, MI, BBB+/NR 1,639,890 --- --- 1,639,890
Utilities
Authority, LT GO
Sewer Disposal
System Bonds,
8.20%, 1/1/2018
Total 1,639,890 --- 1,685,452 3,325,342
MINNESOTA--10.0%
- --- 235,000 --- 235,000 Albany, MN,
Independent Aa1/NR --- 242,645 --- 242,645
School District
#745, GO Bonds,
6.000%, due 2009
200,000 200,000 Bloomington Port Aaa/AAA 202,052 202,052
Authority,
Series 1994 A,
5.250%, due 2003
- --- 100,000 800,000 900,000 Burnsville, MN,
Multi-Family NR/AAA --- 104,559 836,472 941,031
Housing Revenue
Refunded Bonds,
Coventry Court
Apartments
Project, Series
1989, 7.500%,
due 2027
- --- 250,000 --- 250,000 Centennial
Minnesota Aaa/AAA --- 270,255 --- 270,255
Independent
School District
#12, GO Bonds,
Series 1991 A,
7.150%, due 2011
- --- --- 800,000 800,000 City of
Minnetonka, MN,
Multi-Family
Rental Housing
Rev. Bonds,
7.250%,
due 2002 NR/AAA --- --- 830,192 830,192
- --- 150,000 --- 150,000 Coon Rapids, MN,
GO Tax Increment A/NR --- 151,877 --- 151,877
Bonds, Series
1986 B2, 7.750%,
due 2006
- --- 300,000 --- 300,000 Dakota County, Aaa/AAA --- 312,642 --- 312,642
MN, GO Refunded
Bonds, 6.450%,
due 2010
- --- 170,000 --- 170,000 Dakota County,
MN Housing and NR/AAA --- 175,850 --- 175,850
Revenue
Authority, SFM
Rev. Bonds,
7.200%, due 2009
- --- 285,000 --- 285,000 Duluth, MN, GO A/NR --- 295,870 --- 295,870
Water Rev.,
Series 1992 A,
6.250%, due 2007
- --- 60,000 --- 60,000 Duluth, MN, Aaa/AAA --- 64,926 --- 64,926
Economic
Development
Authority,
6.200%, due 2012
- --- 140,000 --- 140,000 Duluth, MN, Aaa/AAA --- 145,062 --- 145,062
Economic
Development
Authority,
6.200%, due 2012
- --- 100,000 --- 100,000 Eden Prairie,
MN, Multi-Family NR/AAA --- 104,199 --- 104,199
Housing Preserve
Place
Apartments,
7.875%, due 2017
- --- 300,000 --- 300,000 Eden Prairie,
MN, Housing & A/NR --- 312,033 --- 312,033
Redevelopment
Authority,
6.200%, due 2008
- --- 300,000 --- 300,000 Edina, MN, A1/NR --- 299,037 --- 299,037
Independent
School District
#273, 5.750%,
due 2013
- --- 100,000 --- 100,000 Foley, MN, Aaa/AAA --- 104,567 --- 104,567
Independent
School District
#51 MBIA,
7.500%, due 2008
- --- 165,000 --- 165,000 Hennepin County,
MN, Lease Aa/AA --- 176,971 --- 176,971
Revenue
Certificate of
Participation,
Series 1991,
6.800%, due 2017
- --- 225,000 --- 225,000 Kandiyohi
County, MN, GO A/NR --- 224,330 --- 224,330
Refunded Bonds,
Series 1993,
5.650%, due 2011
- --- 150,000 --- 150,000 Metropolitan Aaa/AAA --- 162,480 --- 162,480
Council, MN,
7.250%, due 2007
- --- 275,000 --- 275,000 Minneapolis, MN, Aaa/AAA --- 278,196 --- 278,196
5.750%, due 2010
- --- 250,000 --- 250,000 Minneapolis, MN, Aaa/AAA --- 261,645 --- 261,645
6.250%, due 2012
- --- 200,000 --- 200,000 Minneapolis, MN, NR/AAA --- 211,190 --- 211,190
Multi-Family
Housing Revenue,
7.125%, due 2010
- --- 300,000 --- 300,000 Minneapolis, MN, NR/AAA --- 311,466 --- 311,466
Multi-Family
Housing Revenue,
7.050%, due 2022
- --- 400,000 2,000,000 2,400,000 Minneapolis, MN, Aaa/AAA --- 407,148 2,035,740 2,442,888
Special School
District #001,
5.900%, due 2011
Minnesota
Housing Finance
Agency, Single
- --- --- 1,300,000 1,300,000 Family Mortgage, Aa/AA+ --- --- 1,319,240 1,319,240
6.250%, due 2015
- --- --- 1,460,000 1,460,000 Minnesota
Housing Finance
Authority,
Series 1993E, NR/AA+ --- --- 1,459,913 1,459,913
6.000%, due 2014
- --- --- 500,000 500,000 Minnesota Aa/AA+ --- --- 527,775 527,775
Housing Finance
Authority
Agency, Single
Family Mortgage
Revenue Bonds
1989 D Series,
7.350%, due 2016
- --- 300,000 --- 300,000 Minnesota State A/NR --- 303,645 --- 303,645
University Board
Revenue, 6.000%,
due 2013
- --- 300,000 --- 300,000 Minnesota Public
Access Aa1/AAA 329,412 329,412
Authority, Water
Pollution
Control, Revenue
Bonds, Series
1990 A, 7.100%,
due 2012
- --- 250,000 --- 250,000 Minnesota Public
Facilities Aa1/AAA --- 276,925 --- 276,925
Authority, Water
Pollution
Control, Revenue
Bonds, Series
1991 A, 6.950%,
due 2013
- --- 250,000 --- 250,000 Minnesota Public
Facilities Aa1/AAA --- 266,548 --- 266,548
Authority, Water
Pollution
Control, Revenue
Bonds, Series
1992 A, 6.500%,
due 2014
- --- 150,000 --- 150,000 Minnesota State, Aaa/AAA --- 162,714 --- 162,714
7.000%, due 2007
1,640,000 --- --- 1,640,000 Minnesota State
HFA, SFM Revenue AA/Aa 1,730,167 --- --- 1,730,167
Bonds (Series
A), 7.95% (FHA
GTD), 7/1/2022
585,000 --- --- 585,000 Minnesota State
HFA, SFM Revenue AA+/Aa 601,930 --- --- 601,930
Bonds (Series
D), 8.05% (FHA
GTD), 8/1/2018
3,000,000 --- --- 3,000,000 Minnesota State
HFA, SFM Revenue AA/Aa 3,094,860 --- --- 3,094,860
Bonds (Series
E), 6.85%,
1/1/2024
- --- 240,000 --- 240,000 Minnesota State Aa/AA+ --- 253,087 --- 253,087
Housing Finance
Agency, 7.300%,
due 2017
- --- 175,000 --- 175,000 Minnesota State
Housing Finance NR/AA+ --- 175,844 --- 175,844
Agency, Rental
Housing, Series
C Refunded
Bonds, 6.150%,
due 2014
- --- 90,000 --- 90,000 Minnesota State Aa/AA+ --- 94,802 --- 94,802
Housing
Insurance
Agency, 7.650%,
due 2008
- --- 160,000 --- 160,000 Minnesota State NR/AA+ --- 159,990 --- 159,990
Housing Finance
Agency, 6.000%,
due 2014
- --- 195,000 --- 195,000 Minnesota State Aa/AA+ --- 204,994 --- 204,994
Housing Finance
Agency, 7.100%,
due 2011
- --- 335,000 --- 335,000 Minnesota State
Housing Finance Aa/AA+ --- 334,310 --- 334,310
Agency, Single
Family Mortgage,
5.850%, due 2011
- --- 300,000 --- 300,000 Minnesota State Aa/AA- --- 311,982 --- 311,982
Higher Education
Facilities,
6.300%, due 2014
- --- 200,000 --- 200,000 Minnesota State A1/NR --- 198,710 --- 198,710
Higher Education
Facilities,
5.450%, due 2007
- --- 315,000 --- 315,000 Minnesota State A1/NR --- 303,591 --- 303,591
Higher Education
Facilities,
5.600%, due 2014
- --- 40,000 --- 40,000 Minnesota State Aa/AA+ --- 40,895 --- 40,895
Housing
Development
Single Family
Mortgage, Series
B, 7.250%, due
2016
- --- 100,000 --- 100,000 Minnetonka, MN, NR/AA --- 102,595 --- 102,595
Multi-Family
Housing Revenue
Bonds (Cedar
Hills East
Project),
7.500%, due 2017
- --- 300,000 --- 300,000 Moorhead, MN, Aaa/AAA --- 315,060 --- 315,060
Public Utility
Revenue Bonds,
Series 1992,
6.050%, due 2006
- --- 285,000 --- 285,000 Northern
Mu;nicipal Power Aaa/AAA --- 308,302 --- 308,302
Agency, MN,
Electric Revenue
Refunded Bonds,
Series A,
7.250%, due 2017
- --- 530,000 --- 530,000 Northern
Municipal Power A/A --- 524,048 --- 524,048
Agency, MN,
Electric Revenue
Refunded Bonds,
6.000%, due 2020
- --- 300,000 --- 300,000 Owatonna, MN,
Public Utility A1/NR --- 326,346 --- 326,346
Refunded Bonds,
Series 1990,
7.400%, due 2007
- --- 100,000 --- 100,000 Ramsey &
Washington A1/AA- --- 104,928 --- 104,928
Counties
Resource
Recovery Revenue
Bonds, NSP
Project, 6.750%,
due 2006
- --- 150,000 --- 150,000 Red Wing
Independent A1/NR --- 155,328 --- 155,328
School District
#256, GO School
Building, Series
1998 A, 7.300%,
due 2004
- --- 100,000 --- 100,000 Robbinsdale
Hospital Aaa/AAA --- 107,973 --- 107,973
Refunded Revenue
NMMCP, 1989,
7.200%, due 2005
- --- 300,000 --- 300,000 Robbinsdale
Hospital Aaa/AAA --- 289,641 --- 289,641
Refunded Revenue
NMMCP, Series A,
5.450%, due 2013
- --- 370,000 --- 370,000 Robbinsdale Aaa/AAA --- 357,224 --- 357,224
Hospital
Revenue, 5.450%,
due 2013
- --- 500,000 --- 500,000 Rochester, MN,
Health Care NR/AA+ --- 512,180 --- 512,180
Facility Revenue
Bonds, Mayo
Medical Center,
6.250%, due 2021
- --- 500,000 --- 500,000 Rosemount, MN, Aa1/AA --- 502,880 --- 502,880
Independent
School District,
5.875%, due 2014
- --- 300,000 --- 300,000 Roseville, MN, Aaa/AAA --- 286,944 --- 286,944
Independent
School District,
5.250%, due 2013
- --- 300,000 --- 300,000 St. Anthony-New Aa1/NR --- 301,377 --- 301,377
Brighton
Independent
School District
#282, GO Bonds,
5.700%, due 2012
- --- 250,000 --- 250,000 St. Cloud, MN,
Hydro Electric NR/A- --- 256,580 --- 256,580
Generator
Facility Gross
Revenue Bonds,
7.375%, due 2018
- --- 480,000 --- 480,000 St. Louis Park, Aaa/AAA --- 444,149 --- 444,149
MN, Health Care
Facility,
5.200%, due 2016
- --- 100,000 --- 100,000 St. Paul, MN, GO
Street Aa/AA+ --- 100,009 --- 100,009
Improvement,
Special
Assessment
Bonds, Series
1988 D, 7.200%,
due 2008
- --- 300,000 --- 300,000 St. Paul, MN,
Housing & NR/A- --- 323,805 --- 323,805
Redevelopment
Authority,
Package R,
6.450%, due 2007
- --- 300,000 --- 300,000 St. Paul, MN,
Housing and Aaa/AAA --- 298,794 --- 298,794
Redevelpment
Authority
Revenue Bonds,
5.400%, due 2008
- --- 300,0000 --- 300,0000 St. Paul, MN,
Independent Aa/AA --- 297,531 --- 297,531
School District
#625, Series C,
5.550%, due 2012
- --- 400,000 --- 400,000 St. Paul, MN,
Independent Aa/AA --- 409,564 --- 409,564
School District
#625, Series
1994 C, 6.050%,
due 2012
- --- 150,000 --- 150,000 St. Paul, MN,
Independent Aa/AA --- 159,455 --- 159,455
School District
#625, School
Building Bonds,
Series 1990 D,
7.250%, due 2009
- --- 300,000 --- 300,000 St. Paul, MN, Aa/AA --- 282,756 --- 282,756
Independent
School District
#625, 5.250%,
due 2015
- --- 300,000 --- 300,000 St. Paul, MN, Aa1/AA --- 289,140 --- 289,140
Independent
School District,
5.200%, due 2011
9,000,000 --- --- 9,000,000 St. Paul, MN,
Housing &
Redevelopment BBB-/Baa 8,952,300 --- --- 8,952,300
Authority ,
Hospital Revenue
Refunding Bonds
( Series A),
6.625%
(Healtheast,
MN)/(Original
Issue Yield:
6.687%),
11/1/2017
- --- 300,000 --- 300,000 Southern, MN,
Municipal Power Aaa/AAA --- 321,102 --- 321,102
Agency, Power
Supply, 8.125%,
due 2018
10,000,000 --- --- 10,000,000 Southern
Minnesota
Municipal Power AAA/Aaa 8,751,300 --- --- 8,751,300
Agency, Supply
System Revenue
Bonds (Series
A), 4.75% (MBIA
INS)/(Original
Issue Yield:
5.52%), 1/1/2016
- --- 325,000 --- 325,000 Stearns County, A/NR --- 337,028 --- 337,028
MN, GO Refunded
Bonds, Series B,
6.000%, due 2007
- --- 300,000 --- 300,000 Stearns County, Aa1/NR --- 279,954 --- 279,954
MN, Independent
#2753, 5.000%,
due 2012
- --- 200,000 --- 200,000 Wayzata, MN, Tax Aa/NR --- 216,496 --- 216,496
Increment Bonds,
7.000%, due 2010
- --- 250,000 --- 250,000 Wayzata, MN,
Independent Aa1/NR --- 254,750 --- 254,750
School District
#284, GO Bonds,
Series 1994 B,
5.800%, due 2009
- --- 300,000 --- 300,000 Western
Minnesota A1/A --- 308,934 --- 308,934
Municipal Power
Agency, Power
Supply Revenue
Refunded Bonds,
6.875%, due 2007
- --- 250,000 --- 250,000 Western A1/A --- 249,990 --- 249,990
Minnesota
Municipal Power,
Series A,
6.125%, due 2016
- --- 200,000 --- 200,000 Western
Minnesota Aaa/AAA --- 215,808 --- 215,808
Municipal Power
Agency,
Transmission
Project Revenue
Refunded Bonds,
Series 1991,
6.750%, due 2016
- --- 250,000 --- 250,000 Whitewater Bear Aa1/NR --- 254,928 --- 254,928
Lake School,
6.000%, due 2012
- --- 100,000 --- 100,000 Worthington, MN,
GO Water Revenue A/NR --- 106,597 --- 106,597
Bonds, Series
1990 A, 7.000%,
due 2010
- --- 350,000 --- 350,000 Wright County,
MN, GO Jail A/NR --- 363,132 --- 363,132
Refunded Bonds,
Series 1992 B,
6.000%, due 2007
Total 23,130,557 18,201,777 7,009,332 48,341,666
MONTANA--0.2%
1,130,000 --- --- 1,130,000 Montana State
Board of NR/Aa 1,174,918 --- --- 1,174,918
Housing, SFM
Revenue Bonds
(Series B-2),
7.50% (FHA GTD),
4/1/2023
NEVADA-0.8%
- --- --- 350,000 350,000 Clark County,
NV, Improvement
District, 5.850% Aaa/AAA --- --- 347,277 347,277
due 2015
- --- --- 1,000,000 1,000,000 Clark County,
NV, School
District,
General
Obligation
Bonds, 5.300%,
due 2004 Aaa/AAA --- --- 1,012,490 1,012,490
- --- --- 1,000,000 1,000,000 Humbolt County,
NV,Pollution
Control
Revenue Bonds,
Idaho Power
Company,
8.300%, due 2014 NR/A+ --- --- 1,159,620 1,159,620
- --- --- 800,000 800,000 Lyon County, NV,
School District,
6.750%. due 2011 Aaa/AAA --- --- 891,328 891,328
- --- --- 585,000 585,000 Washoe County,
NV, General
Obligation Aaa/AAA --- --- 606,446 606,446
Bonds, 6.000%,
due 2009
Total --- --- 4,017,161 4,017,161
NEW HAMPSHIRE--
4.8%
9,000,000 --- --- --- New Hampshire
Higher
Educational & A-/NR 8,456,670 --- --- 8,456,670
Health
Facilities
Authority,
Hospital Revenue
Bonds, 6.00%
(Nashua Memorial
Hospital,
NH)/(Original
Issue Yield:
6.40%),
10/1/2023
- --- --- 1,080,000 1,080,000 New Hampshire
Municipal Bond
Bank,
Series 91 J.
Non-State
Guaranteed,
6.900%, due 2012 NR/A+ --- --- 1,187,460 1,187,460
1,265,000 --- --- 1,265,000 New Hampshire
State HFA, SFM A+/Aa 1,328,958 --- --- 1,328,958
Revenue Bonds
(Series B),
7.75%, 7/1/2023
6,520,000 --- --- 6,520,000 New Hampshire
State HFA, SFM A+/Aa 6,759,871 --- --- 6,759,871
Revenue Bonds
(Series D),
7.25%, 7/1/2015
2,865,000 --- --- 2,865,000 New Hampshire
State IDA, PCR BBB-/Baa3 3,040,710 --- --- 3,040,710
Bonds ( Series
A), 8.00%
(United
Illuminating
Co.), 12/1/2014
1,500,000 --- --- 1,500,000 New Hampshire
State IDA, PCR BBB-/Baa3 1,617,465 --- --- 1,617,465
Bonds (Series
B), 10.75%
(United
Illuminating
Co.), 10/1/2012
- --- --- 900,000 900,000 State of New
Hampshire
Turnpike System
Revenue Bonds, Aaa/A --- --- 961,497 961,497
8.375% due 2017
Total 21,203,674 --- 2,148,957 23,352,631
NEW YORK--2.6%
- --- --- 1,000,000 1,000,000 New York Metro
Transit
Authority,
5.100%,
due 2004 Aaa/AAA --- --- 1,008,280 1,008,280
2,500,000 --- --- 2,500,000 New York State
Energy Research
& Development AA-/Aa2 2,688,875 --- --- 2,688,875
Authority,
Electric
Facilities
Revenue Bonds
(Series A),
7.50%
(Consolidated
Edison
Co.)/(Original
Issue Yield:
7.65%), 1/1/2026
5,000,000 --- --- 5,000,000 New York State
Environmental
Facilities BBB/Baa3 4,763,750 --- --- 4,763,750
Corp., Solid
Waste Disposal
Revenue Bonds,
6.10%
(Occidental
Petroleum
Corp.)/(Original
Issue Yield:
6.214%),
11/1/2030
- --- --- 2,900,000 2,900,000 New York State
Environment
Pollution
Control Revenue Aa/A --- --- 3,221,755 3,221,755
Bonds, 7.250%,
due 2010
- --- --- 1,000,000 1,000,000 New York State
Local Government
Assistance A/A --- --- 994,240 994,240
Corp., 6.000%,
due 2016
Total 7,452,625 --- 5,224,275 12,676,900
NORTH CAROLINA--
1.7%
1,500,000 --- --- 1,500,000 Haywood County,
NC, Industrial
Facilties & BBB/Baa1 1,372,530 --- --- 1,372,530
Pollution
Control
Financing
Authority,
(Series A)
Revenue Bonds,
5.75% (Champion
International
Corp.)/(Original
Issue Yield:
5.975%),
12/1/2025
6,000,000 --- --- 6,000,000 Martin County,
NC, IFA, (Series A/A2 5,886,000 --- --- 5,886,000
1995) Solid
Waste Disposal
Revenue Bonds,
6.00%
(Weyerhaeuser
Co.), 11/1/2025
- --- --- 1,000,000 1,000,000 Wake County, NC,
Ind. Facilities
Pollution
Control,
Carolina Power
and Light,
6.900%, due 2009 A2/A1 --- --- 1,070,020 1,070,020
Total 7,258,530 --- 1,070,020 8,328,550
NORTH DAKOTA--
0.9%
- --- --- 1,560,000 1,560,000 North Dakota
Housing, Single
Family
Mortgage, 1992
Series A,
6.750%,
due 2012 Aa/A+ --- --- 1,620,949 1,620,949
2,635,000 --- --- 2,635,000 North Dakota
State HFA, SFM A+/Aa 2,726,171 --- --- 2,726,171
Revenue Bonds
(Series C),
7.30%, 7/1/2024
Total 2,726,171 --- 1,620,949 4,347,120
OHIO--0.4%
500,000 --- --- --- Ohio State Water
Development BBB-/Baa3 530,100 --- --- 530,100
Authority, PCR
Bonds (Series
A), 8.10% (Ohio
Edison
Co.)/(Original
Issue Yield:
8.142%),
10/1/2023
1,250,000 --- --- 1,250,000 Ohio State Water
Development BB/Ba2 1,293,500 --- --- 1,293,500
Authority, PCR
Bonds (Series A-
1), 9.75%
(Cleveland
Electric
Illuminating
Co.), 11/1/2022
Total 1,823,600 --- --- 1,823,600
OKLAHOMA--2.6%
4,585,000 --- --- 4,585,000 Jackson County,
OK, Hospital
Authority, BBB-/NR 4,415,768 --- --- 4,415,768
Hospital Revenue
Refunding Bonds,
7.30% (Jackson
County Memorial
Hospital,
OK)/(Original
Issue Yield:
7.40%), 8/1/2015
1,250,000 --- --- 1,250,000 Tulsa, OK,
Municipal BB+/Baa2 1,316,875 --- --- 1,316,875
Airport, Revenue
Bonds, 7.375%
(American
Airlines),
12/1/2020
6,200,000 --- --- 6,200,000 Tulsa, OK,
Municipal BB+/Baa2 6,611,990 --- --- 6,611,990
Airport, Revenue
Bonds, 7.60%
(American
Airlines)/(Origi
nal Issue Yield:
7.931%),
12/1/2030
Total 12,344,633 --- --- 12,344,633
OREGON-0.1%
- --- --- 500,000 500,000 Portland Oregon
Sewer System,
6.050%,
due 2009 A1/A+ --- --- 522,655 522,655
PENNSYLVANIA--
11.3%
3,000,000 --- --- 3,000,000 Allegheny
County, PA, HDA,
Health & BBB/NR 3,061,110 --- --- 3,061,110
Education
Revenue Bonds,
7.00%
(Rehabilitation
Institute of
Pittsburgh)/(Ori
ginal Issue
Yield: 7.049%),
6/1/2010
2,500,000 --- --- 2,500,000 Allegheny
County, PA, HDA,
Health & BBB/NR 2,533,875 --- --- 2,533,875
Education
Revenue Bonds,
7.00%
(Rehabilitation
Institute of
Pittsburgh)/(Ori
ginal Issue
Yield: 7.132%),
6/1/2022
5,370,000 --- --- 5,370,000 Allegheny
County, PA, NR 5,516,655 --- --- 5,516,655
Higher
Education,
Building
Authority
Revenue Bonds,
7.375% (La Roche
College),
7/15/2012
1,690,000 --- --- 1,690,000 Allegheny
County, PA, IDA, NR 1,780,162 --- --- 1,780,162
Revenue Bonds,
8.75% (United
Parcel Service),
2/15/2009
665,000 --- --- 665,000 Allegheny
County, PA, NR/Aaa 697,332 --- --- 697,332
Residential
Finance Agency,
Mortgage Revenue
Bonds (Series
G), 9.50% (GNMA
COL), 12/1/2018
3,000,000 --- --- 3,000,000 Delaware County
Authority, PA,
College Revenue NR 3,377,070 --- --- 3,377,070
Bonds, 7.25%
(Eastern
College)/(United
States Treasury
PRF)/(Original
Issue Yield:
7.875%),
3/1/2012
2,055,000 --- --- 2,055,000 Erie County, PA,
Hospital NR 2,112,951 --- --- 2,112,951
Authority,
Revenue Bonds,
7.50% (Erie
Infants & Youth
Home , Inc.),
10/1/2011
- --- --- 400,000 400,000 Erie County, PA,
Industrial
Development
Auth., Pollution
Control Revenue
Refunded Bonds,
Series 1991, A3/A- --- --- 423,124 423,124
7.150%, due 2013
1,730,000 --- --- 1,730,000 Northeastern,
PA, Hospital &
Education BBB/NR 1,598,364 --- --- 1,598,364
Authority,
College Revenue
Refunding Bonds
(Series B),
6.00% (Kings
College,
PA)/(Original
Issue Yield:
6.174%),
7/15/2018
10,000,000 --- --- 10,000,000 Pennsylvania
EDFA, Wastewater BBB-/Baa1 11,009,800 --- --- 11,009,800
Treatment
Revenue Bonds
(Series A),
7.60% (Sun Co.,
Inc.)/(Original
Issue Yield:
7.653%),
12/1/2024
6,000,000 --- --- 6,000,000 Pennsylvania
Housing Finance AA/AA 6,242,460 --- --- 6,242,460
Authority, SFM
Revenue Bonds
(Series 34-B),
7.00% (FHA and
FHA GTDs),
4/1/2024
2,660,000 --- --- 2,660,000 Pennsylvania
Housing Finance AA/Aa 2,797,495 --- --- 2,797,495
Authority, SFM
Revenue Bonds
(Series28),
7.65% (FHA GTD),
10/1/2023
1,740,000 --- --- 1,740,000 Pennsylvania
State Higher NR 1,801,022 --- --- 1,801,022
Education
Facilities
Authority,
College &
University
Revenue Bonds,
6.75% (Thiel
College ),
9/1/2017
3,250,000 --- --- 3,250,000 Pennsylvania
State Higher
Education BBB+/NR 3,202,030 --- --- 3,202,030
Facilities
Authority,
College &
University
Revenue
Refunding Bonds
(Series A),
6.10% (Allegheny
College,
Meadville,
PA)/(Original
Issue Yield:
6.23%),
11/1/2008
1,200,000 --- --- 1,200,000 Pennsylvania
State Higher NR 1,205,952 --- --- 1,205,952
Education
Facilities
Authority,
Revenue Bonds
(Series 1996),
7.15% (Thiel
College ),
5/15/2015
3,875,000 --- --- 3,875,000 Pennsylvania
State Higher
Education AAA/NR 4,335,854 --- --- 4,335,854
Facilities
Authority,
Revenue Bonds
(Series A),
7.375% (Medical
College of
Pennsylvania)/(U
nited States
Treasury
PRF)/(Original
Issue Yield:
7.45%), 3/1/2021
1,750,000 --- --- 1,750,000 Pennsylvania
State Higher
Education BBB/Baa1 1,940,803 --- --- 1,940,803
Facilities
Authority,
Revenue Bonds
(Series A),
8.375% (Medical
College of
Pennsylvania)/(U
nited States
Treasury
PRF)/(Original
Issue Yield:
8.448%),
3/1/2011
Total 53,212,935 --- 423,124 53,636,059
RHODE ISLAND-
0.4%
- --- --- 1,675,000 1,675,000 Rhode Island
Depositors,
Economic
Protection Corp. Aaa/AAA --- --- 1,851,076 1,851,076
Bonds, 6.625%,
due 2019
SOUTH CAROLINA--
0.2%
810,000 --- --- 810,000 South Carolina
State Housing
Finance & AA/Aa 840,586 --- --- 840,586
Development
Authority,
Homeownership
Mortgage Revenue
Bonds (Series
A), 7.40% (FHA
GTD), 7/1/2023
SOUTH DAKOTA-
0.5%
- --- --- 1,400,000 1,400,000 South Dakota
Housing
Development,
Multi-
Famkily Housing
Revenue Bonds,
6.700%,
due 2020 A1/A+ --- --- 1,424,430 1,424,430
- --- --- 950,000 950,000 South Dakota
State Building
Authority
Co-op, Series A, A1/A+ --- --- 977,332 977,332
7.500%, due 2016
Total --- --- 2,401,762 2,401,762
TENNESSEE--3.5%
2,475,000 --- --- 2,475,000 Memphis-Shelby
County, TN, BBB/Baa2 2,572,020 --- --- 2,572,020
Airport
Refunding
Revenue Bonds,
6.75% (Federal
Express Corp.),
9/1/2012
3,100,000 --- --- 3,100,000 Springfield, TN,
Health &
Educational NR 3,266,036 --- --- 3,266,036
Facilities
Board, Hospital
Revenue Bonds,
8.25% (Jesse
Holman Jones
Hospital Corp,
TN)/(Original
Issue Yield:
8.50%), 4/1/2012
7,800,000 --- --- 7,800,000 Springfield, TN,
Health &
Educational NR 8,212,464 --- --- 8,212,464
Facilities
Board, Hospital
Revenue Bonds,
8.50% (Jesse
Holman Jones
Hospital Corp,
TN)/(Original
Issue Yield:
8.875%),
4/1/2024
2,825,000 --- --- 2,825,000 Tennessee
Housing NR/Aa 2,936,362 --- --- 2,936,362
Development
Agency,
Homeownership
Program, Issue V
Revenue Bonds,
7.65%, 7/1/2022
Total 16,986,882 --- --- 16,986,882
TEXAS--12.6%
2,500,000 --- --- 2,500,000 Brazos River
Authority, TX, BBB/Baa2 2,743,225 --- --- 2,743,225
PCR Revenue
Bonds (Series
A), 7.875%
(Texas Utilities
Electric Co.),
3/1/2021
1,800,000 --- --- 1,800,000 Brazos River
Authority, TX, BBB/Baa2 1,966,104 --- --- 1,966,104
PCR Revenue
Bonds (Series
A), 8.125%
(Texas Utilities
Electric Co.),
2/1/2020
- --- --- 1,000,000 1,000,000 Brownsville, TX,
Utility System
Revenue,
6.875%, due 2020 Aaa/AAA --- --- 1,098,600 1,098,600
7,320,000 --- --- 7,320,000 Dallas-Fort
Worth, TX, BB/Ba3 7,564,781 --- --- 7,564,781
International
Airport
Facilities,
Revenue Bonds,
7.125% (Delta
Air Lines,
Inc.)/(Original
Issue Yield:
7.55%),
11/1/2026
3,000,000 --- --- 3,000,000 Dallas-Fort
Worth, TX, BB+/Baa2 3,165,180 --- --- 3,165,180
International
Airport
Facilities,
Revenue Bonds,
7.25% (American
Airlines)/(Origi
nal Issue Yield:
7.428%),
11/1/2030
2,370,000 --- --- 2,370,000 Dallas-Fort
Worth, TX, BB+/Baa2 2,507,105 --- --- 2,507,105
International
Airport
Facilities,
Revenue Bonds,
7.50% (American
Airlines)/(Origi
nal Issue Yield:
8.20%),
11/1/2025
2,500,000 --- --- 2,500,000 Dallas-Fort
Worth, TX, BB/Ba3 2,673,000 --- --- 2,673,000
International
Airport
Facilities,
Revenue Bonds,
7.625% (Delta
Air Lines,
Inc.)/(Original
Issue Yield:
7.65%),
11/1/2021
Guadalupe-Blanco
1,000,000 --- --- 1,000,000 River Authority NR 1,051,630 --- --- 1,051,630
TX, Industrial
Development Corp
PCR Bonds, 8.60%
(A.P. Green
Industries),
4/1/2009
Guadalupe-Blanco
2,500,000 --- --- 2,500,000 River Authority NR 2,683,200 --- --- 2,683,200
TX, Industrial
Development
Corp., PCR
Bonds, 8.60%
(A.P. Green
Industries),
4/1/2009
5,000,000 --- --- 5,000,000 Gulf Coast, TX,
Waste Disposal
Authority, BBB/Baa1 5,132,350 --- --- 5,132,350
Revenue Bonds
(Series A),
6.875% (Champion
International
Corp.)/(Original
Issue Yield:
7.15%),
12/1/2028
20,000,000 --- --- 20,000,000 Houston, TX,
Water & Sewer
System, Junior AAA/Aaa 18,365,800 --- --- 18,365,800
Lien Refunding
Revenue Bonds
(Series A),
5.25% (FGIC
INS)/(Original
Issue Yield:
5.60%),
12/1/2025
- --- --- 1,545,000 1,545,000 Houston, TX,
Water & Sewer
Revenue Refunded
Bonds, 6.400%, A/A --- --- 1,625,618 1,625,618
due 2009
7,630,000 --- --- 7,630,000 Richardson, TX,
Hospital
Authority, BBB-/Baa 7,613,824 --- --- 7,613,824
Hospital
Refunding &
Improvement
Bonds, 6.75%
(Richardson
Medical Center,
TX)/(Original
Issue Yield:
6.82%),
12/1/2023
- --- --- 1,000,000 1,000,000 Texas Water
Development
Board Revenue,
State
Revolving Fund Aa1/AAA --- --- 1,071,120 1,071,120
Bonds, 6.400%,
due 2007
1,700,000 --- --- 1,700,000 Tyler, TX,
Health NR/Baa 1,696,124 --- --- 1,696,124
Facilities
Development
Corp., Revenue
Bonds, 6.75%
(East Texas
Medical
Center)/(Origina
l Issue Yield:
7.00%),
11/1/2025
Total 57,162,323 --- 3,795,338 60,957,661
UTAH--5.0%
- --- --- 1,000,000 1,000,000 Intermountain Aa/AA- --- --- 985,100 985,100
Power Agency
Utah Power
Supply, 6.000%,
due 2016
20,000,000 --- --- 20,000,000 Intermountain
Power Agency, AA-/Aa 17,240,200 --- --- 17,240,200
UT, Refunding
Revenue Bonds
(Series A),
5.00% (Original
Issue Yield:
5.687%),
7/1/2023
980,000 --- --- 980,000 Utah State HFA, AA/NR 1,013,722 --- --- 1,013,722
SFM Revenue
Bonds (Series B-
3), 7.10%,
7/1/2024
1,445,000 --- --- 1,445,000 Utah State HFA,
SFM Revenue AA/NR 1,498,942 --- --- 1,498,942
Bonds (Series E-
2), 7.15% (FHA
GTD)/(Original
Issue Yield:
7.169%),
7/1/2024
1,860,000 --- --- 1,860,000 Utah State HFA,
Single Family AA/NR 1,950,619 --- --- 1,950,619
Mortgage Revenue
Bonds, 7.55%
(FHA GTD),
7/1/2023
455,000 --- --- 455,000 Utah State HFA,
Single Family AA/NR 477,532 --- --- 477,532
Mortgage Revenue
Bonds, 7.75%
(FHA GTD),
1/1/2023
- --- --- 1,000,000 1,000,000 Utah State
Municipal
Finance Co-op,
Government
Revenue Bonds,
6.400%,
due 2009 A/A --- --- 1,018,130 1,018,130
Total 22,181,015 --- 2,003,230 24,184,245
VIRGINIA-0.1%
- --- --- 135,000 135,000 Virginia Housing
Authority,
Residential
Mortgage Revenue
Bonds, Series B,
7.550%,
due 2012 Aa/AAA --- --- 136,096 136,096
- --- --- 500,000 500,000 Virginia Housing
Development
Authority,
Series C 1992, Aa1/AA+ --- --- 522,140 522,140
6.500%, due 2007
Total --- --- 658,236 658,236
WASHINGTON--4.9%
4,250,000 --- --- 4,250,000 Pierce County,
WA, Economic
Development BBB/Baa2 3,803,070 --- --- 3,803,070
Corp., Solid
Waste Revenue
Bond, 5.80%
(Occidental
Petroleum
Corp.)/(Original
Issue Yield:
5.90%), 9/1/2029
4,075,000 --- --- 4,075,000 Pilchuck
Development
Public Corp., BBB+/Baa1 3,837,957 --- --- 3,837,957
WA, Special
Facilities
Airport Revenue
Bonds ( Series
1993) , Tramco,
Inc. Project,
6.00% (Goodrich
(B.F.) Co.),
8/1/2023
4,300,000 --- --- 4,300,000 Port of Camas-
Washougal, WA,
PCR Refunding BBB+/NR 4,323,306 --- --- 4,323,306
Bonds (Series
1993), 6.70%
(James River
Project,
WA)/(Original
Issue Yield:
6.75%), 4/1/2023
- --- --- 1,000,000 1,000,000 Skagit County,
WA, Cons. School
District, Aaa/AAA --- --- 1,118,290 1,118,290
6.700%, due 2007
- --- --- 1,500,000 1,500,000 Washington State
Municipal
Finance Co-op,
Government Aa/AA --- --- 1,465,380 1,465,380
Revenue Bonds,
5.600%,
due 2007
10,000,000 --- --- 10,000,000 Washington
State, UT, GO AAA/Aa 9,313,100 --- --- 9,313,100
(Series A),
5.375% (Original
Issue Yield:
6.00%), 7/1/2021
Total 21,277,433 --- 2,583,670 23,861,103
WEST VIRGINIA--
0.5%
5,000,000 --- --- 5,000,000 Marion County,
WV, County
Commission, NR 2,429,200 --- --- 2,429,200
Solid Waste
Facility Revenue
Bonds (Series
1993), 7.75%
(American Power
Paper
Recycling),
12/1/2011
WISCONSIN--0.4%
- --- --- 985,000 985,000 Wisconsin
Housing and
Economic
Development
Authority,
Series A,
7.100%, due 2023 Aa/AA --- --- 1,030,526 1,030,526
- --- --- 550,000 550,000 Wisconsin
Housing and
Economic
Development
Authority,
6.000%,
due 2015 Aa/AA --- --- 542,647 542,647
--- --- 565,000 Wisconsin
565,000 Housing &
Economic A+/Aa 579,681 --- --- 579,681
Development
Authority,
Homeownership
Revenue Bonds
(Series E),
8.00% (FHA
GTD)/(Original
Issue Yield:
8.044%),
3/1/2021
Total 579,681 --- 1,573,173 2,152,854
WYOMING-0.5%
- --- --- 2,150,000 2,150,000 Sweetwater
County, WY, PCR
for Idaho
Power, 7.625%, A3/A --- --- 2,222,218 2,222,218
due 2013
TOTAL MUNICIPAL $376,220,136 18,201,777 77,342,92 471,764,83
BONDS 3 6
(IDENTIFIED COST
$471,438,409)
SHORT-TERM SECURITIES ( 0.6%)
- --- --- 1,150,000 1,150,000 American Express
Credit Corp.,
5.280%,
due 09/03/1996 --- --- 1,150,000 1,150,000
- --- --- 950,000 950,000 Ford Motor
Credit Corp.,
5.230%,
due 09/04/1996 --- --- 949,862 949,862
- --- 820,000 --- 820,000 Ford Motor --- 820,000 --- 820,000
Credit Corp.,
5.160%, due
09/03/1996
TOTAL SHORT-TERM --- 820,000 2,099,862 2,919,862
SECURITIES, AT
AMORTIZED COST
TOTAL $376,220,136 $19,021,777 $79,442,785 $474,684,698
INVESTMENTS
(IDENTIFIED COST
$474,358,271)(A)
*
Please refer to the Appendix of the Federated Municipal Opportunities Fund,
Inc.'s Prospectus as of October 31, 1996 for an explanation of the credit
ratings.
(a)
The cost of investments for federal tax purposes amounts to $474,358,271. The
net unrealized appreciation of investments on a federal tax basis amounts to
$326,427 which is comprised of $16,464,732 appreciation and $16,138,305
depreciation at August 31, 1996.
Note:
The categories of investments are shown as a percentage of net assets ($
482,861,041) at August 31, 1996.
The following acronym(s) 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 --Guaranteed
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 to Pro Forma Financial Statements)
</TABLE>
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL
INCOME FUND, INC.)
STATE BOND MINNESOTA TAX-FREE INCOME FUND
STATE BOND TAX EXEMPT FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FEDERATED STATE BOND STATE
MUNICIPAL MINNESOTA BOND
OPPORTUNITIES TAX-FREE TAX EXEMPT PRO FORMA Pro Forma
FUND, INC. INCOME FUND* FUND* ADJUSTMENT Combined
ASSETS:
Investments in 376,220,136 19,021,777 79,442,785 --- 474,684,698
securities, at value
Cash 32,391 24,959 15,433 --- 72,783
Income receivable 6,897,754 261,034 1,299,429 --- 8,458,217
Receivable due from --- 6,206 1,827 8,033
affiliates
Receivable for shares 273,742 --- --- --- 273,742
sold
Total assets 383,424,023 19,313,976 80,759,474 --- 483,497,473
LIABILITIES:
Income distributions 942 87,407 69,481 --- 157,830
payable
Payable for shares 270,076 --- --- --- 270,076
redeemed
Accrued expenses 123,827 17,663 67,036 --- 208,526
Total liabilities 394,845 105,070 136,517 --- 636,432
TOTAL NET ASSETS 383,029,178 19,208,906 80,622,957 --- 482,861,041
NET ASSETS CONSISTS OF:
Paid in capital 396,775,582 18,694,128 77,104,625 --- 492,574,335
Net unrealized (3,518,145) 468,398 3,360,390 --- 310,643
appreciation
(depreciation) of
investments
Accumulated net realized (11,001,821) 46,380 157,942 --- (10,797,499)
gain (loss) on
investments
Undistributed net 773,562 --- --- --- 773,562
investment income
TOTAL NET ASSETS 383,029,178 19,208,906 80,622,957 --- 482,861,041
Class A Shares 296 19,208,906 80,622,957 --- 99,832,159
Class B Shares 296 --- --- --- 296
Class C Shares 296 --- --- --- 296
Class F Shares 383,028,290 --- --- --- 383,028,290
SHARES OUTSTANDING:
Class A Shares 28.662 1,820,401 7,474,279 371,820.649 9,666,529.311
(a)
Class B Shares 28.662 --- --- --- 28.662
Class C Shares 28.662 --- --- --- 28.662
Class F Shares 37,075,241.000 --- --- --- 37,075,241.000
TOTAL SHARES OUTSTANDING 37,075,326.986 1,820,401 7,474,279 371,820.649 46,741,827.635
NET ASSET VALUE, OFFERING
PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share 10.33 10.55 10.79 --- 10.33
Offering Price Per Share 10.82* 11.05** 11.30** --- 10.82*
Redemption Proceeds Per 10.33 10.55 10.79 --- 10.33
Share
CLASS B SHARES:
Net Asset Value Per Share 10.33 --- --- --- 10.33
Offering Price Per Share 10.33 --- --- --- 10.33
Redemption Proceeds Per 9.76 --- --- --- 9.76
Share ***
CLASS C SHARES:
Net Asset Value Per Share 10.33 --- --- --- 10.33
Offering Price Per Share 10.33 --- --- --- 10.33
Redemption Proceeds Per 10.23 --- --- --- 10.23
Share ***
CLASS F SHARES:
Net Asset Value Per Share 10.33 --- --- --- 10.33
Offering Price Per Share 10.43 --- --- --- 10.43
*
Redemption Proceeds Per 10.23 --- --- --- 10.23
Share ***
Investments, at 379,738,281 18,548,504 76,071,486 --- 474,358,271
identified cost
</TABLE>
(A) ADJUSTMENT TO REFLECT SHARE BALANCE AS A RESULT OF THE
COMBINATION, BASED ON THE EXCHANGE RATIOS OF 1.02172889271 FOR STATE BOND
MINNESOTA TAX-FREE INCOME FUND AND 1.04445450212 FOR STATE BOND TAX EXEMPT
FUND.
* SEE ``HAT SHARES COST'' IN THE FEDERATED MUNICIPAL OPPORTUNITIES
FUND, INC. PROSPECTUS AS OF OCTOBER 31, 1996.
** SEE `HOW ARE THE FUND'S SALES CHARGES DETERMINED'' IN THE STATE
BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX-EXEMPT FUND PROSPECTUSES
EACH DATED AS OF NOVEMBER 1, 1995.
*** SEE ``CONTINGENT DEFERRED SALES CHARGE'' IN THE FEDERATED
MUNICIPAL OPPORTUNITIES FUND, INC. PROSPECTUS AS OF OCTOBER 31, 1996.
(SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS)
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL
INCOME FUND, INC.)
STATE BOND MINNESOTA TAX-FREE INCOME FUND
STATE BOND TAX EXEMPT FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FEDERATED STATE BOND STATE
MUNICIPAL MINNESOTA BOND
OPPORTUNITIES TAX-FREE TAX EXEMPT Pro Forma Pro Forma
FUND, INC. INCOME FUND(*) Adjustment Combined
FUND(*)
INVESTMENT INCOME:
Interest 28,818,178 1,151,468 5,078,590 --- $ 35,048,236
EXPENSES:
Investment advisory fee 2,475,132 107,880 377,733 117,075 (a) 3,077,820
Administrative personnel 311,976 --- --- 75,829 (b) 387,805
and services fee
Transfer agent and 235,048 7,662 31,778 (3,970) (c) 270,518
dividend disbursing agent
fees and expenses
Accounting and custodian 175,732 21,549 32,204 (25,632) (d) 203,853
fees
Professional Fees 21,106 17,026 20,692 (37,718) (e) 21,106
Distribution services fee- --- 55,531 239,546 (295,077) (f) ---
Class A Shares
Shareholder services fee- 1,031,305 --- --- 251,178 (f) 1,282,483
Class F Shares
Printing and postage 75,552 8,485 18,333 (17,370) (g) 85,000
Other expenses 155,218 9,476 23,270 (23,943) (h) 164,021
Total expenses 4,481,069 227,609 743,556 40,372 5,492,606
Waivers-
Waiver of investment --- (36,102) --- 36,102 (i) ---
advisory fee
Waiver of shareholder (41,252) --- --- --- (41,252)
services fee- Class F
Shares
Total waivers (41,252) (36,102) --- 36,102 (41,252)
Net expenses 4,439,817 191,507 743,556 76,474 5,451,354
Net investment income 24,378,361 959,961 4,335,034 (76,474) 29,596,882
REALIZED AND UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on (116,813) 51,976 61,750 --- (3,087)
investments
Net change in unrealized (13,721,871) (256,497) (460,176) --- (14,438,544)
appreciation
(depreciation) of
investments
Net realized and (13,838,684) (204,521) (398,426) --- (14,441,631)
unrealized gain (loss) on
investments
Change in net 10,539,677 755,440 3,936,608 (76,474) $ 15,155,251
assets resulting from
operations
</TABLE>
(*) REPRESENTS THE PERIOD FOR THE YEAR ENDED JUNE 30, 1996.
(SEE NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS)
(SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS)
Federated Municipal Opportunities Fund, Inc.
(formerly, Fortress Municipal Income Fund, Inc.)
State Bond Minnesota Tax-Free Income Fund
State Bond Tax Exempt Fund
Notes to Pro Forma Combining Statement of Operations
Year Ended August 31, 1996 (unaudited)
(A) FEDERATED ADVISERS (THE `ADVISER'') RECEIVES FOR ITS SERVICES AN ANNUAL
INVESTMENT ADVISORY FEE EQUAL TO 0.60% OF THE FEDERATED MUNICIPAL
OPPORTUNITIES FUND INC.'S (THE `FEDERATED FUND'') AVERAGE DAILY NET ASSETS.
THE ADVISER MAY VOLUNTARILY CHOOSE TO WAIVE A PORTION OF ITS FEE. ARM CAPITAL
ADVISORS, INC. CHARGED 0.60% AND 0.50%, RESPECTIVELY, OF STATE BOND MINNESOTA
TAX-FREE INCOME FUND'S AND STATE BOND TAX-EXEMPT FUND'S AVERAGE DAILY NET
ASSETS FOR ITS ADVISORY FEE.
(B) FEDERATED SERVICES COMPANY (`FSERV'') PROVIDES THE FEDERATED FUND WITH
CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES. THE FEE IS BASED ON THE LEVEL
OF AVERAGE AGGREGATE NET ASSETS OF THE FUND FOR THE PERIOD.
(C) FSERV SERVES AS TRANSFER AND DIVIDEND DISBURSING AGENT FOR THE
FEDERATED FUND. THE FEE IS BASED ON THE SIZE, TYPE, AND NUMBER OF ACCOUNTS
AND TRANSACTIONS MADE BY SHAREHOLDERS.
(D) FEES REFLECT CUSTODIAN COSTS FOR THE FEDERATED FUND PAID TO STATE
STREET BANK AND TRUST COMPANY. THE CUSTODIAN FEE IS BASED ON A PERCENTAGE
OF ASSETS, PLUS OUT-OF-POCKET EXPENSES. FSERV MAINTAINS THE FEDERATED
FUND'S ACCOUNTING RECORDS. THE FEE IS BASED ON THE LEVEL OF THE FEDERATED
FUND'S AVERAGE NET ASSETS FOR THE PERIOD, PLUS OUT-OF-POCKET EXPENSES.
(E) ADJUSTMENT TO REFLECT THE AUDIT FEE AND LEGAL FEE REDUCTIONS DUE TO
THE COMBINING OF TWO PORTFOLIOS INTO ONE.
(F) UNDER THE TERMS OF A SHAREHOLDER SERVICES AGREEMENT WITH FEDERATED
SHAREHOLDER SERVICES (`FSS'') THE FEDERATED FUND WILL PAY FSS UP TO 0.25%
OF AVERAGE DAILY NET ASSETS OF THE FEDERATED FUND FOR THE PERIOD. THE FEE
PAID TO FSS IS USED TO FINANCE CERTAIN SERVICES FOR SHAREHOLDERS AND TO
MAINTAIN SHAREHOLDER ACCOUNTS. FSS MAY VOLUNTARILY CHOOSE TO WAIVE A
PORTION OF ITS FEE. FSS CAN MODIFY OR TERMINATE THIS VOLUNTARY WAIVER AT
ANY TIME AT ITS SOLE DISCRETION. SBM FINANCIAL SERVICES, INC. RECEIVED
0.25% OF THE AVERAGE DAILY NET ASSETS OF STATE BOND MINNESOTA TAX-FREE
INCOME FUND AND STATE BOND TAX-EXEMPT FUND, RESPECTIVELY, UNDER THE TERMS
OF A DISTRIBUTION PLAN PURSUANT TO RULE 12B-1 OF THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED, TO FINANCE ACTIVITIES INTENDED TO RESULT IN THE
SALE OF STATE BOND MINNESOTA TAX-FREE INCOME FUND'S AND STATE BOND TAX-
EXEMPT FUND'S SHARES AND TO PROVIDE CERTAIN SERVICES FOR SHAREHOLDERS AND
TO MAINTAIN SHAREHOLDER ACCOUNTS. CLASS A SHARES OF THE FEDERATED FUND DO
NOT HAVE A DISTRIBUTION PLAN.
(G) ADJUSTMENT TO REFLECT PRINTING AND POSTAGE EXPENSES ARE ADJUSTED TO
REFLECT ESTIMATED SAVINGS TO BE REALIZED BY COMBINING THREE PORTFOLIOS
INTO A SINGLE PORTFOLIO.
(H) ADJUSTMENT REFLECTS THE ELIMINATION OF THE DIRECTORS/TRUSTEES FEES FOR
STATE BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX-EXEMPT FUND,
THE STATE REGISTRATION COSTS FOR THE FEDERATED FUND ONLY, AND THE DECREASE
IN INSURANCE FEES DUE TO THE REDUCTION IN COVERAGE REQUIREMENT OF ONE
PORTFOLIO ONLY.
(I) THE EXPENSES ACCRUED ON THE FEDERATED FUND ARE SUFFICIENT TO COVER ALL
EXPENSES. THEREFORE, NO REIMBURSEMENT IS NECESSARY.
Federated Municipal Opportunities Fund, Inc. (formerly, Fortress
Municipal Income Fund, Inc.)
State Bond Minnesota Tax-Free Income Fund
State Bond Tax Exempt Fund
Notes to Pro Forma Financial Statements (unaudited)
1. BASIS OF COMBINATION
THE ACCOMPANYING UNAUDITED PRO FORMA COMBINING PORTFOLIO OF
INVESTMENTS, STATEMENT OF ASSETS AND LIABILITIES, AND STATEMENT OF OPERATIONS
REFLECT THE ACCOUNTS OF FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. , STATE
BOND MINNESOTA TAX-FREE INCOME FUND, AND STATE BOND TAX EXEMPT FUND,
COLLECTIVELY (`THE FUNDS''), FOR THE YEAR ENDED AUGUST 31, 1996. THESE
STATEMENTS HAVE BEEN DERIVED FROM THE BOOKS AND RECORDS UTILIZED IN CALCULATING
DAILY NET ASSET VALUES AT AUGUST 31, 1996. THE ACCOUNTS REFLECTED ON THE STATE
BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX EXEMPT FUND HAVE BEEN
BROUGHT UP TO AUGUST 31, 1996. THIS UPDATING WAS ACCOMPLISHED BY ADDING THE
RESULTS OF OPERATIONS FROM JULY 1, 1996 THROUGH AUGUST 31, 1996 TO ITS JUNE 30,
1996 FISCAL YEAR ENDS, AND BY DEDUCTING THE RESULTS OF OPERATIONS FROM JULY 1,
1995 THROUGH AUGUST 31, 1995.
THE PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS, STATEMENT OF ASSETS
AND LIABILITIES, AND STATEMENT OF OPERATIONS (`PRO FORMA FINANCIAL
STATEMENTS') SHOULD BE READ IN CONJUNCTION WITH THE HISTORICAL FINANCIAL
STATEMENTS OF THE FUNDS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THE
STATEMENT OF ADDITIONAL INFORMATION. THE FUNDS FOLLOW GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES APPLICABLE TO MANAGEMENT INVESTMENT COMPANIES WHICH ARE
DISCLOSED IN THE HISTORICAL FINANCIAL STATEMENTS OF EACH FUND.
THE PRO FORMA FINANCIAL STATEMENTS GIVE EFFECT TO THE PROPOSED
TRANSFER OF THE ASSETS OF STATE BOND MINNESOTA TAX-FREE INCOME FUND, AND STATE
BOND TAX EXEMPT FUND IN EXCHANGE FOR CLASS A SHARES OF FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC. UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. WILL BE THE SURVIVING ENTITY FOR
ACCOUNTING PURPOSES WITH ITS HISTORICAL COST OF INVESTMENT SECURITIES AND
RESULTS OF OPERATIONS BEING CARRIED FORWARD.
THE PRO FORMA FINANCIAL STATEMENTS HAVE BEEN ADJUSTED TO REFLECT THE
ANTICIPATED ADVISORY AND ADMINISTRATION FEE ARRANGEMENTS FOR THE SURVIVING
ENTITY. CERTAIN OTHER OPERATING COSTS HAVE ALSO BEEN ADJUSTED TO REFLECT
ANTICIPATED EXPENSES OF THE COMBINED ENTITY. OTHER COSTS WHICH MAY CHANGE AS A
RESULT OF THE REORGANIZATION ARE CURRENTLY UNDETERMINABLE.
FOR THE FISCAL YEARS ENDED AUGUST 31, 1996, JUNE 30, 1996, AND JUNE
30, 1996, RESPECTIVELY, THE FUNDS PAID INVESTMENT ADVISORY FEES COMPUTED AT THE
ANNUAL RATE OF EACH FUND'S AVERAGE NET ASSETS AS FOLLOWS:
FUND PERCENT OF EACH FUND'S
AVERAGE NET ASSETS
FEDERATED MUNICIPAL 0.60%
OPPORTUNITIES FUND, INC
STATE BOND MINNESOTA TAX- 0.43%*
FREE INCOME FUND
STATE BOND TAX EXEMPT FUND 0.50%
THE ADVISOR MAY VOLUNTARILY CHOOSE TO WAIVE A PORTION OF THEIR FEES
AND REIMBURSE CERTAIN OPERATING EXPENSES OF THE FUNDS.
*THE ADVISORY FEE OF THE STATE BOND MINNESOTA TAX-FREE INCOME
FUND IS NET EXPENSE
REIMBURSEMENTS, WITHOUT SUCH REIMBURSEMENTS, THE ADVISORY
FEE WOULD HAVE BEEN 0.60%.
2. SHARES OF BENEFICIAL INTEREST
THE PRO FORMA NET ASSET VALUE PER SHARE ASSUMES THE ISSUANCE OF
9,666,500.649 SHARES OF THE FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.'S
CLASS A SHARES IN EXCHANGE FOR 1,820,401 AND 7,474,279 SHARES FROM STATE BOND
MINNESOTA TAX-FREE INCOME FUND, AND STATE BOND TAX EXEMPT FUND, RESPECTIVELY,
WHICH WOULD HAVE BEEN ISSUED AT AUGUST 31, 1996, IN CONNECTION WITH THE PROPOSED
REORGANIZATION.
3. Total Returns
The accompanying Pro-Forma total returns (`returns''), based upon offering
price, and the Pro-Forma ratios of expenses to average net assets
(`expenses'') are for the twelve month periods ending August 31, 1996,
1995, and 1994.
The following returns and expenses give effect to the proposed
reorganization of State Bond Minnesota Tax-Free Income Fund and State Bond
Tax Exempt Fund in exchange for Class A Shares of Federated Municipal
Opportunities Fund, Inc.
1996 1995 1994
Returns (1.63%) 2.79% (5.17%)
Expenses 1.06% 1.06% 1.07%
The following returns and expenses give effect to the proposed
reorganization of State Bond Tax Exempt Fund in exchange for Class A Shares
of Federated Municipal Opportunities Fund, Inc.
1996 1995 1994
Returns (1.67%) 2.81% (5.21%)
Expenses 1.06% 1.06% 1.07%
G01866-07
SBM Financial Services
Proxy Statement
P.O. Box 9156
Farmingdale, NY 11735
STATE BOND TAX EXEMPT FUND,
a Portfolio of
STATE BOND MUNICIPAL FUNDS, INC.,
SPECIAL MEETING OF SHAREHOLDERS
December 9, 1996
STATE BOND TAX EXEMPT FUND,
a Portfolio of
STATE BOND MUNICIPAL FUNDS, INC.
The undersigned shareholder(s) of State Bond Tax Exempt Fund, a
portfolio of State Bond Municipal Funds, Inc. (the `State Bond Fund''), hereby
appoint(s) Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of them
true and lawful proxies, with power of substitution of each, to vote all shares
of the State Bond Fund which the undersigned is entitled to vote, at the Special
Meeting of Shareholders to be held on December 9, 1996, at 100 North Minnesota
Street, New Ulm, Minnesota 56073-0069, at 3:40 p.m. (local time) and at any
adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as
may properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
proxies named will vote the shares represented by this proxy in accordance with
the choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board of Directors unanimously recommends a vote FOR the proposal
below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
STATE BOND TAX EXEMPT FUND,
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE
STATE BOND FUND AND FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
FOR AGAINST ABSTAIN
-----------------------------------
Signature
Signature (Joint Owners)
Date:
---------------------------------
