Reg. No. 333-14065
811-4533
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE AMENDMENT NO.1 TO FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
(412) 288-1900
(AREA CODE AND TELEPHONE NUMBER)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
JOHN W. MCGONIGLE, ESQUIRE
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
Byron F. Bowman, Esquire Matthew G. Maloney, Esquire
Senior Corporate Counsel Dickstein Shapiro Morin & Oshinsky LLP
Federated Investors 2101 L Street, N.W.
Federated Investors Tower Washington, D.C. 20037
Pittsburgh, PA 15222
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
that it elects to register an indefinite amount of securities under the
Securities Act of 1933, as amended, and filed the Notice required by that Rule
for Registrant's fiscal year ended August 31, 1995 on October 16, 1995 and filed
the Notice required by Rule 24e-2 for its fiscal year ended August 31, 1996 on
October 15, 1996. Accordingly, no filing fee is submitted herewith.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
CROSS REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14
Item of Part A of Form N-14 and Caption or Location in
Caption Prospectus
1. Beginning of Registration
Statement and Outside Front Cross Reference Sheet;
Cover Page of Prospectus Cover Page
2. Beginning and Outside Back
Cover Page of Prospectus Table of Contents
3. Fee Table, Synopsis Information Summary of Expenses; Summary;
and Risk Factors Risk Factors
4. Information About the Information About the
Transaction Reorganization
5. Information About the Information About the Federated
Registrant Fund and the State Bond Fund
6. Information About the Information About the Federated Fund
Company Being Acquired and the State Bond Fund
7. Voting Information Voting Information
8. Interest of Certain Persons
and Experts Not Applicable
9. Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
STATE BOND MINNESOTA TAX-FREE INCOME 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 Minnesota Tax-Free Income
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 (although the
Federated Fund does not seek income exempt from Minnesota personal income tax).
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 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, unlike the State Bond Fund, invests in
municipal bonds which are generally not exempt from the Minnesota personal
income tax, the tax-equivalent yield produced by the Federated Fund historically
has exceeded the tax-equivalent yield produced by the State Bond Fund.
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 INTEREST 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 MINNESOTA TAX-FREE INCOME 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 MINNESOTA TAX-FREE INCOME FUND:
A Special Meeting of Shareholders of State Bond Minnesota Tax-Free Income Fund,
a portfolio of State Bond Tax-Free Income Funds, Inc. (the `State Bond Fund'')
will be held at 4:30 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 the 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: November 1, 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
NOVEMBER 1, 1996
ACQUISITION OF THE ASSETS OF
STATE BOND MINNESOTA TAX-FREE INCOME FUND,
A PORTFOLIO OF
STATE BOND TAX-FREE INCOME 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 Minnesota Tax-Free Income Fund, a portfolio of State
Bond Tax-Free Income 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 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 both
federal income tax and Minnesota personal income tax to the extent consistent
with preservation of capital, by investing primarily in Minnesota 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 November 1, 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
Summary
About the Proposed Reorganization
Investment Objectives, Policies and Limitations
Advisory and Other Fees
Distribution Arrangements
Purchase, Exchange and Redemption Procedures
Dividends
Tax Consequences
Risk Factors
Information About the Reorganization
Background and Reasons for the Proposed Reorganization
Agreement Among ARM, ARM Capital and Federated
Description of the Plan of Reorganization
Description of Federated Fund Shares
Federal Income Tax Consequences
Comparative Information on Shareholder Rights and Obligations
Capitalization
Information About the Federated Fund and the State Bond Fund
Federated Municipal Opportunities Fund, Inc.
State Bond Minnesota Tax-Free Income Fund
Voting Information
Outstanding Shares and Voting Requirements
Dissenter's Right of Appraisal
Other Matters and Discretion of Persons Named in the Proxy
Agreement and Plan of Reorganization -- Exhibit A
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)
Management Fee................... 0.60% 0.43%(4 0.60%
)
12b-1 Fee........................ 0.00%(5) 0.25% 0.00%(5)
Total Other Expenses............. 0.49%(6) 0.32% 0.46%(6)
Total Operating 1.09% 1.00% 1.06%
Expenses(7)......................
(1) This sales charge would not be applicable to 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 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 management fee of the State Bond Fund is net of expense reimbursements.
Without such reimbursements, the management fee would have been 0.60%.
(5) 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.''
(6) Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.25%.
(7) The total operating expenses for Class A Shares of the Federated Fund are
based on expenses incurred during the fiscal year ending 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
total operating expenses for the State Bond Fund were 1.00% for the fiscal year
ended June 30, 1996 and would have been 1.17% absent the reimbursement of a
portion of the management fee.
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.
EXAMPLE
The Example below is intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Example
assumes payment of operating expenses at the levels set forth in the table
above. The Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Shares
received as a result of the proposed reorganization. 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 $11 $34 $60 $132
State Bond Fund $10 $32 $55 $122
Pro Forma Combined $11 $34 $58 $129
THE ABOVE EXAMPLE 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 both federal income tax and Minnesota personal income
tax to the extent consistent with preservation of capital, by investing
primarily in Minnesota 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 `AMT'')).
Unlike most of the dividend income generated by the State Bond Fund, the
dividend income generated by the Federated Fund will generally be subject to
Minnesota personal income tax for shareholders who are Minnesota residents;
however, the tax-equivalent yield produced by the Federated Fund historically
has exceeded the tax-equivalent yield produced by the State Bond Fund. 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
debt obligations issued by or on behalf of the State of Minnesota and its
political subdivisions, the income on which is exempt from federal income tax
and Minnesota personal income tax (`Minnesota Tax Exempt Securities''). Up to
20% of the assets of the State Bond Fund may generate interest which may be
included in calculating the federal AMT and the Minnesota AMT. The State Bond
Fund intends to invest its assets such that at least 95% of its tax-exempt
interest income is derived from Minnesota Tax Exempt Securities. The Minnesota
Tax Exempt Securities in which the State Bond Fund invests primarily consist of
bonds rated Aaa, Aa, A, Baa, Ba and B by Moody's or rated AAA, AA, A, BBB, BB
and B by S&P, notes rated MIG-1, MIG-2 and MIG-3 by Moody's or SP-1 and SP-2 by
S&P, and commercial paper rated Prime-1 and Prime-2 by Moody's or A-1 and A-2 by
S&P. The State Bond Fund may invest in Minnesota Tax Exempt Securities which
are not rated if, in the judgment of ARM Capital (as hereinafter defined), the
financial condition of the issuer of such securities at the time of purchase is
comparable to, and the securities are otherwise similar in quality to, those
rated securities in which the State Bond Fund may invest. As a matter of
fundamental policy, the State Bond Fund may not invest more than 25% of its
assets in unrated Minnesota Tax Exempt Securities. Additionally, as a matter of
fundamental policy, the State Bond Fund may not purchase Minnesota Tax Exempt
Securities that are not rated within the three highest grades by either Moody's
or S&P, or that are unrated, unless such securities are insured as to the
payment of all installments of principal and interest. The State Bond Fund does
not currently invest in, and has no current intention to invest in, bonds rated
below A or unrated bonds that are comparable to and otherwise similar in quality
to securities rated below A. The State Bond Fund may purchase floating rate,
variable rate, and inverse or reverse floating rate Minnesota Tax Exempt
Securities; enter into repurchase agreements; and purchase new issues of
Minnesota Tax Exempt Securities on a when-issued basis. If necessary for
temporary defensive purposes, the State Bond Fund may invest its assets in
taxable obligations or may hold its assets in cash. Unless otherwise
designated, the investment policies of the State Bond Fund may be changed by the
Board of Directors without shareholder approval.
The State Bond Fund is a `non-diversified'' management investment
company and as such is not required to meet any diversification requirements
under the 1940 Act. The State Bond Fund is required to meet certain standards
to qualify as a regulated investment company (`RIC'') under the Code. At the
end of each fiscal quarter with respect to at least 50% of its total assets:
(1) the State Bond Fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. Government obligations) and (2) the
State Bond Fund may not own more than 10% of the outstanding voting securities
of any one issuer. By comparison, the Federated Fund, as a `diversified''
investment company, must at all times satisfy those two conditions with respect
to 75% of the value of its total assets. As for the other 50% of the State Bond
Fund's total assets not subject to the limitations described above, the sole
limitation on concentration of these assets is that at the end of each fiscal
quarter not more than 25% of such assets may be invested in the securities of
any one issuer.
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 emergency situations and
in an aggregate amount not in excess of 20% 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 assets can be used to secure
borrowings; (3) purchasing securities of any issuer if immediately thereafter,
with respect to 50% of the State Bond Fund's total assets, more than 5% of such
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;
or (4) purchasing private activity bonds if immediately thereafter more than 25%
of the State Bond Fund's assets would be invested in private activity bonds
which are based, directly or indirectly, on the credit of private entities in
any one industry or in securities of private issuers in any one industry. 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 0.60 of 1% of the first $100 million of the average daily net
assets of the State Bond Fund and 0.55 of 1% of the average daily net assets of
the State Bond Fund in excess of $100 million. 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 ending
August 31, 1996 was $311,976. Administrative personnel and other 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, will either 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) to
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 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 shares received by
shareholders of the State Bond Fund as a result of the consummation 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 who 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 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 an amount of at least $50.
The Federated Fund and the State Bond Fund each reserve 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 in 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 in 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 Minnesota Tax Exempt Securities and because
it seeks to maximize income derived from Minnesota Tax Exempt Securities, it is
susceptible to factors adversely affecting the State of Minnesota and issuers of
Minnesota Tax Exempt Securities in addition to generally being subject to the
risk factors summarized above.
Investment in a non-diversified investment company such as the State
Bond Fund may entail greater risks than investment in a `diversified'' fund.
Because of the relatively small number of issuers of investment grade Minnesota
Tax Exempt Securities, the State Bond Fund's non-diversified status permits it
from time to time to concentrate its assets in the securities of a few issuers
which ARM Capital deems to be attractive investments, rather than invest in
securities of a large number of issuers merely to satisfy the 1940 Act's
diversification requirements. Although ARM Capital believes that the ability to
concentrate the investments of the State Bond Fund in particular issuers is
advantageous when investing in Minnesota Tax Exempt Securities, such
concentration involves an increased risk of loss to the State Bond Fund should
any particular issuer be unable to make interest or principal payments or should
the market value of particular securities decline. 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.
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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, but only after taking into account
current expense reimbursement arrangements by ARM Capital. The Board noted that
ARM Capital could terminate its voluntary expense reimbursement arrangements
with respect to the State Bond Fund at any time in its sole discretion.
Federated's management advised the Board that the expense ratio of the Federated
Fund 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 in many respects. The Board also
considered the differences between the two funds, including the emphasis of the
State Bond Fund on income exempt from Minnesota personal income tax and the
Federated Fund's policies with respect to junk bonds. The Board noted that
although the Federated Fund, unlike the State Bond Fund, invests in municipal
bonds which are generally not exempt from the Minnesota personal income tax, the
tax-equivalent yield produced by the Federated Fund historically has exceeded
the tax-equivalent yield produced by the State Bond Fund. 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 a majority of 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.
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's 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.
Comparative Information on Shareholder Rights and Obligations
General. Both the Federated Fund and the State Bond Fund are open-end
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 Tax-Free Income 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
Tax-Free Income 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
issued and outstanding and 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 and until his or her
successor is duly elected and qualifies. 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 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 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 series 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* $18,673,205* $21,650,096
Net Asset Value Per Share $10.40 $10.62 $10.40
Shares Outstanding....... 286,137 1,758,375 2,080,994
*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 by reference herein. 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 November 1, 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 Minnesota Tax-Free Income Fund
Information about the State Bond Fund and State Bond Tax-Free Income
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, its
Statement of Additional Information dated November 1, 1995 and the Statement of
Additional Information dated November 1, 1996 (relating to this Prospectus/Proxy
Statement), each of which is incorporated herein by reference. Copies of such
Prospectus, Annual Report, and Statement(s) 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 Tax-Free
Income 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
4:30 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
adjournment thereof. As of the record date, there were 1,758,375 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 outstanding. 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.
Shares Percent of
Class A Shares Name and Address Owned Outstanding
Shares
Merrill Lynch Pierce 276,261 96.54%
Fenner & Smith
Jacksonville, Florida
Shares Percent of
Class B Shares Name and Address Owned Outstanding
Shares
William P. Betchman
and Shirley P. 23,832 13,02%
Betchman, joint
tenants in commom
Charleston, South
Carolina
BHC Securities, Inc. 21,128 11.54%
Philadelphia,
Pennsylvania
LEWCO Securities, 16,755 9.15%
Corp.
Jersey City, New
Jersey
Merrill Lynch Pierce 14,560 7.95%
Fenner & Smith
Jacksonville, Florida
Ann Smith and
Christine E. Datz, 11,015 6.02%
joint with right of
survivorship
New York, New York
Harry Bass 9,637 5.26%
Briarwood, New York
Shares Percent of
Class C Shares Name and Address Owned Outstanding
Shares
Key Clearing Corp. 1,686 90.63%
Brooklyn, Ohio
Shares Percent of
Class F Shares Name and Address Owned Outstanding
Shares
Merrill Lynch Pierce 9,858,845 26.82%
Fenner & 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 meeting. However, if
any other business shall properly come before the meeting, the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
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 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 TAX-FREE
INCOME FUNDS, INC., a Maryland corporation (hereinafter called the
"Corporation") on behalf of its portfolio STATE BOND MINNESOTA TAX-FREE INCOME
FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
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 Section 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Corporation 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 Date shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern
time) at the offices of the Acquiring Fund, Federated Investors Tower,
Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may
mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 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(m), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
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 Code section 103(a) over its deductions disallowed under Code
sections 265 and 171(a)(2) 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 the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors 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's 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 TAX-FREE INCOME FUNDS,
INC.,
on behalf of its portfolio,
Attest: STATE BOND MINNESOTA TAX-FREE
INCOME 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. Elliot Cohan By: /s/ J. Christopher Donahue
Name: S. Elliot Cohan Name: J. Christopher Donahue
Title: Assistant Secretary Title: Executive Vice President
STATEMENT OF ADDITIONAL INFORMATION
November 1 , 1996
ACQUISITION OF THE ASSETS OF
STATE BOND MINNESOTA TAX-FREE INCOME FUND,
A PORTFOLIO OF
STATE BOND TAX-FREE INCOME 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 November 1, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated November 1, 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 MINNESOTA TAX-
FREE INCOME FUND, A PORTFOLIO OF STATE BOND TAX-FREE INCOME 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 MINNESOTA TAX-FREE INCOME
FUND, A PORTFOLIO OF STATE BOND TAX-FREE INCOME 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: 1800-245-5051, option one.
The Statement of Additional Information of State Bond Minnesota Tax-Free
Income Fund (the "State Bond Fund"), a portfolio of State Bond Tax-Free Income
Funds, Inc. (the "Corporation"), dated November 1, 1995, is incorporated herein
by reference to Post-Effective Amendment No. 10 to the Corporation's
Registration Statement on Form N-1A (File Nos. 33-18934 and 811-5412) which was
2
filed with the Securities and Exchange Commission on or about August 28, 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 AND STATEMENT OF ASSETS AND LIABILITIES 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 ACCOMPANYING UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
REFLECTS THE ACCOUNTS OF THE FUNDS, FOR THE YEARS ENDED AUGUST 31, 1996, JUNE
30, 1996, AND JUNE 30, 1996, RESPECTIVELY, THE MOST RECENT FISCAL YEAR ENDS OF
THE FUNDS. 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
OPPORTUNITIES OPPORTUNITIES
FUND, INC. FUND, INC.
(FORMERLY, STATE (FORMERLY,
FORTRESS BOND STATE FORTRESS STATE BOND STATE BOND
MUNICIPAL MINNESOTA BOND MUNICIPAL MINNESOTA TAX
INCOME TAX-FREE TAX PRO FORMA INCOME TAX-FREE EXEMPT PRO FORMA
FUND, INC.) INCOME EXEMPT COMBINED FUND, INC.) INCOME FUND FUND COMBINED
FUND FUND
MOODY'S/
PRINCIPAL PRINCIPAL PRINCIPAL S&P
AMOUNT AMOUNT PRINCIPAL AMOUNT RATING* VALUE VALUE VALUE VALUE
AMOUNT
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 --- 16,090,672 33,854,702
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
5,000,000 --- --- 5,000,000 Lake Charles,
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+/Baa 5,956,660 5,956,660
Bonds, 7.50% 2
(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+/Baa 3,758,770 --- --- 3,758,770
Disposal Revenue 2
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- 3,040,710 --- --- 3,040,710
Bonds ( Series /Baa3
A), 8.00%
(United
Illuminating
Co.), 12/1/2014
1,500,000 --- --- 1,500,000 New Hampshire
State IDA, PCR BBB- 1,617,465 --- --- 1,617,465
Bonds (Series /Baa3
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- 530,100 --- --- 530,100
Authority, PCR /Baa3
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 --- F--- 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- 11,009,800 --- --- 11,009,800
Treatment /Baa1
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
1,000,000 --- --- 1,000,000 Guadalupe-Blanco
River Authority NR 1,051,630 1,051,630
TX, Industrial
Development Corp
PCR Bonds, 8.60%
(A.P. Green
Industries),
4/1/2009
2,500,000 --- --- 2,500,000 Guadalupe-Blanco
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
Facilities NR/Baa 1,696,124 --- --- 1,696,124
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
Power Agency Aa/AA- --- --- 985,100 985,100
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+/Baa 3,837,957 --- --- 3,837,957
WA, Special 1
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 --- --- 565,000 Wisconsin
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 77,342,923 471,764,836
BONDS
(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 $474,684,69
INVESTMENTS 8
(IDENTIFIED COST
$474,358,271)(A)
</TABLE>
* Please refer to the Appendix of the Federated Municipal
Opportunities Fund, Inc. 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 percentange 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)
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 ADJUSTMENT Combined
FUND
ASSETS:
Investments in securities, 376,220,136 19,021,777 79,442,785 --- 474,684,698
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 sold 273,742 --- --- --- 273,742
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 --- --- --- 37,075,241.00
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 identified 379,738,281 18,548,504 76,071,486 --- 474,358,271
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 ``OW 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>
FEDERATED STATE BOND STATE
MUNICIPAL MINNESOTA BOND
OPPORTUNITIES TAX-FREE TAX EXEMPT Pro Forma Pro Forma
FUND, INC. INCOMEFUND(*) FUND(*) Adjustment Combined
INVESTMENT INCOME:
Interest 28,818,178 1,135,500 5,041,950 --- 34,995,628
EXPENSES:
Investment advisory fee 2,475,132 113,090 407,880 81,718 3,077,820
a)
Administrative personnel 311,976 --- --- 75,829 387,805
and services fee b)
Transfer agent and 235,048 7,625 31,461 (3,616) 270,518
dividend disbursing agent c)
fees and expenses
Accounting and custodian 175,732 18,684 30,415 (20,978) 203,853
fees d)
Professional Fees 21,106 16,868 20,498 (37,366) 21,106
e)
Distribution services --- 47,121 204,057 (251,178) ---
fee- Class A Shares f)
Shareholder services fee- 1,031,305 --- --- 251,178 1,282,483
Class F Shares f)
Printing and postage 75,552 8,069 18,150 (16,771) 85,000
g)
Other expenses 155,218 9,666 23,952 (24,815) 164,021
h)
Total expenses 4,481,069 221,123 736,413 54,001 5,492,606
Waivers-
Waiver of investment --- (32,639) --- 32,639 ---
advisory fee i)
Waiver of shareholder (41,252) --- --- --- (41,252)
services fee- Class F
Shares
Total waivers (41,252) (32,639) --- 32,639 (41,252)
Net expenses 4,439,817 188,484 736,413 86,640 5,451,354
Net investment 24,378,361 947,016 4,305,537 (86,640) 29,544,274
income
REALIZED AND UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on (116,813) 53,432 40,206 --- (23,175)
investments
Net change in unrealized (13,721,871) (128,527) 64,146 --- (13,786,25
appreciation 2)
(depreciation) of
investments
Net realized and (13,838,684) (75,095) 104,352 --- (13,809,42
unrealized gain (loss) on 7)
investments
Change in net 10,539,677 871,921 4,409,889 (86,640) 15,734,847
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 ``DVISER'') 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 (`F SERV'') 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) F SERV 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. F SERV 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 DONOT 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 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 ACCOMPANYING UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
REFLECTS THE ACCOUNTS OF THE FUNDS, FOR THE YEARS ENDED AUGUST 31, 1996, JUNE
30, 1996, AND JUNE 30, 1996, RESPECTIVELY, THE MOST RECENT FISCAL YEAR ENDS OF
THE FUNDS.
THE PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS, STATEMENT OF ASSETS
AND LIABILITIES, AND STATEMENT OF OPERATIONS (``RO 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
22
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 0.60%
MUNICIPAL OPPORTUNITIES
FUND, INC
STATE BOND 0.43%*
MINNESOTA TAX-FREE INCOME
FUND
STATE BOND TAX 0.50%
EXEMPT FUND
23
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.
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to directors and officers of the Registrant
pursuant to the Registrant's Articles of Incorporation, except where such
indemnification is not permitted by law. However, the Articles of Incorporation
do not protect the directors or officers from liability based on willful
24
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.
Directors and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933 (the
"Act").
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers, or controlling
persons of the Registrant in connection with the successful defense of any act,
suit, or proceeding) is asserted by such directors, officers, or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for directors, officers, or
controlling persons of the Registrant by the Registrant pursuant to the Articles
of Incorporation or otherwise, the Registrant is aware of the position of the
Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330. Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Articles of Incorporation or
otherwise, in the absence of a final decision on the merits by a court or other
25
body before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority vote of
a quorum of non-party directors who are not interested persons of the Registrant
or (ii) by independent legal counsel in a written opinion that the indemnitee
was not liable for an act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer, director, or controlling
person of the Registrant will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of disinterested non-party
directors or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.
Item 16. Exhibits
1.1 Conformed Copy of Amended and Restated Articles of Incorporation of the
Registrant (9)
1.2 Conformed Copy of Certificate of Correction of the Registrant (9)
2.1 Amended and Restated Bylaws of the Registrant (9)
3 Not Applicable
26
4 Agreement and Plan of Reorganization dated September 23, 1996, between
State Bond Tax-Free Income Funds, Inc., a Maryland corporation, on behalf of its
portfolio, State Bond Minnesota Tax-Free Income Fund, and Federated Municipal
Opportunities Fund, Inc., a Maryland corporation (8)
5.1 Copy of Specimen Certificate for Shares of Capital Stock of Class A Shares
of the Registrant(9)
5.2 Copy of Specimen Certificate for Shares of Capital Stock of Class B Shares
of the Registrant(9)
5.3 Copy of Specimen Certificate for Shares of Capital Stock of Class C Shares
of the Registrant(9)
5.4 Copy of Specimen Certificate for Shares of Capital Stock of Class F Shares
of the Registrant(9)
6.1 Conformed Copy of Investment Advisory Contract of the Registrant(2)
7.1 Conformed Copy of Distributor's Contract of the Registrant(9)
7.2 Conformed Copy of Exhibits A through C to the Distributor's Contract of the
Registrant(9)
7.3 The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and
Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust
27
Series II Registration Statement on Form N-1A, filed with the Commission on July
24, 1995. (File Nos. 33-38550 and 811-6269)
8 Not Applicable
9 Conformed Copy of Custodian Agreement of the Registrant(4)
10.1 Conformed Copy of Distribution Plan of the Registrant, as amended(9)
10.2 The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141)
10.3 The responses described in Item 16 (7.3) are hereby incorporated by
reference
11 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors
regarding legality of shares being issued (8)
12 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax
consequences of Reorganization(6)
13.1 Conformed Copy of Agreement for Fund Accounting Services, Administrative
Services, Shareholder Recordkeeping Services and Custody Services Procurement(3)
13.2 Conformed Copy of Shareholder Services Agreement(7)
13.3 The responses described in Item 16 (7.3) and Item 16 (10.2) are hereby
incorporated by reference
28
14.1 Conformed Copy of Consent of Independent Auditors of Federated Municipal
Opportunities Fund, Inc., Deloitte & Touche LLP*
14.2 Conformed Copy of Consent of Independent Auditors of State Bond Minnesota
Tax-Free Income Fund, Ernst & Young LLP*
15 Not Applicable
16 Conformed Copy of Power of Attorney (8)
17 Form of Proxy of State Bond Minnesota Tax-Free Income Fund (8)
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed on January 21, 1987. (File Nos. 33-11410 and 811-4533)
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed August 25, 1989. (File Nos. 33-11410 and
811-4533)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed on May 3, 1996. (File Nos. 33-11410 and
811-4533)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed October 25, 1995. (File Nos. 33-11410 and
811-4533)
29
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed October 25, 1989. (File Nos. 33-11410 and
811-4533)
(6) To be filed by Post-Effective Amendment pursuant to ``ear Registrant''
letter dated February 15, 1996.
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed October 26, 1994. (File Nos. 33-11410 and
811-4533)
(8) Response is incorporated by reference to Registrant's Registration
Statement on Form N-14 filed October 15, 1996. (File Nos. 333-14065 and
811-4533)
(9) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed October 25, 1996. (File Nos. 33-11410 and
811-4533)
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
30
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file by Post-Effective
Amendment the opinion of counsel regarding the tax consequences of the proposed
reorganization required by Item 16(12) of Form N-14 within a reasonable time
after receipt of such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Federated Municipal Opportunities Fund, Inc., has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on
October 25, 1996.
FEDERATED MUNICIPAL OPPORTUNITIES
FUND, INC.
31
(Registrant)
By: *
Richard B. Fisher
President
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on October 25, 1996:
* Chairman and Director
John F. Donahue
(Chief Executive Officer)
* President and Director
Richard B. Fisher
* Executive Vice President and Treasurer
John W. McGonigle
(Principal Financial and
Accounting Officer)
* Director
Thomas G. Bigley
32
* Director
John T. Conroy, Jr.
* Director
William J. Copeland
* Director
James E. Dowd
* Director
Lawrence D. Ellis, M.D.
* Director
Edward L. Flaherty, Jr.
* Director
Peter E. Madden
* Director
Gregor F. Meyer
33
* Director
John E. Murray, Jr., J.D., S.J.D.
* Director
Wesley W. Posvar
* Director
Marjorie P. Smuts
1* By: /s/ S. Elliott Cohan
Attorney in Fact
1* Such signature has been affixed pursuant to a Power of Attorney.
Exhibit 14.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions `Financial
Highlights''and ``Independent Auditors'' and the use of our report dated
August 9, 1996, on the financial statements of State Bond Minnesota Tax-
Free Income Fund (the Fund) in the Registration Statement (Form N-1A) of
the Fund which is incorporated by reference in, and reference to our firm
in Exhibit A of, the pre-effective amendment to the Registration
Statement (Form N-14) of Federated Municipal Opportunities Fund, Inc.
filed with the Securities and Exchange Commission.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Kansas City, Missouri
October 25, 1996
Exhibit 14.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders
of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.:
We consent to the incorporation by reference in Pre-Effective Amendment
No. 1 to Registration Statement on Form N-14 (File No. 333-14065)of Federated
Municipal Opportunities Fund, Inc.(formerly, Fortress Municipal Income Fund,
Inc.) of our report dated October 11, 1996, appearing in the Annual Report of
Federated Municipal Opportunities Fund, Inc. for the year ended August 31, 1996,
and to the incorporation by reference in the Prospectus and Statement of
Additional Information dated October 31, 1996, and to the reference to us within
this registration statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 25, 1996
