1933 Act File No. 33-11410
1940 Act File No. 811-4533
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. .._____
Post-Effective Amendment No. 22 .__X__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 __X__
Amendment No. 21 .__X__
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b).
X on NOVEMBER 30, 1998, pursuant to paragraph (b).
60 days after filing pursuant to paragraph (a)(i).
on _________________, pursuant to paragraph (a)(i).
75 days after filing pursuant to paragraph (a)(ii).
on _________________, pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to: Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC., which is comprised of four classes of shares, (1)
Class A Shares; (2) Class B Shares; (3) Class C Shares; and (4) Class F Shares,
is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(RULE 404(C) CROSS REFERENCE)
Item 1. Cover Page....................(1-4) Cover Page.
Item 2. Synopsis......................(1-4) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..................(1-4) Financial Highlights;
(1-4) Performance Information.
Item 4. General Description of
Registrant...................(1-4) General Information; (1-4) Year
2000 Statement; (1-4) Investment
Information; (1-4) Investment
Objective; (1-4) Investment Policies;
(1-4) Investment Risks; (1-4) High
Yield Securities; (1-4) Reducing Risks
of Lower Rated Securities;(1-4)
Investment Limitations.
Item 5. Management of the Fund (1-4) Fund
Information; (1-4) Management of the
Fund; (1-3) Distribution of Shares;
(4) Distribution of Class F Shares;
(1-4) Distribution Plan and
Shareholder Services; (1-4)
Supplemental Payments to Financial
Institutions; (1-4) Administration of
the Fund; (1-4) Administrative
Services.
Item 6. Capital Stock and Other
Securities...................(1-4) General Information;
(1-4) Calling the Fund;
(1-4) Account and Share Information;
(1-4) Dividends and Distributions;
(1-4) Shareholder Information;
(1-4) Tax Information; (1-4) Federal
Income Tax; (1-4) State and Local
Taxes.
Item 7. Purchase of Securities Being
Offered......................(1-4) Net Asset Value; (1-4) Investing
in the Fund; (1-4) Purchasing Shares;
(1-4) Purchasing Shares Through a
Financial Intermediary; (1-4)
Purchasing Shares by Wire; (1-4)
Purchasing Shares by Check; (1-4)
Systematic Investment Program; (4)
Eliminating the Sales Charge; (1)
Class A Shares; (2) Class B Shares;
(3) Class C Shares; (1-4) Account and
Share Information; (1-4) Confirmations
and Account Statements.
<PAGE>
Item 8. Redemption or Repurchase (1-4)
Redeeming and Exchanging Shares; (1-4)
Redeeming or Exchanging Shares Through
a Financial Intermediary; (1-4)
Redeeming or Exchanging Shares by
Telephone; (1-4) Redeeming or
Exchanging Shares by Mail; (1-4)
Requirements for Redemption; (1-4)
Requirements for Exchange; (1-4)
Systematic Withdrawal Program; (1-3)
Systematic Withdrawal Program ("SWP")
on Class B Shares; (1-4) Contingent
Deferred Sales Charge; (1-4) Account
and Share Information;(1-4) Accounts
With Low Balances.
Item 9. Pending Legal Proceedings.....None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-4) Cover Page.
Item 11. Table of Contents.............(1-4) Table of Contents.
Item 12. General Information and
History......................(1-4) General Information About the
Fund; (1-4) About Federated
Investors, Inc.
Item 13. Investment Objectives and
Policies.....................(1-4) Investment Objective and
Policies; (1-4) Investment
Limitations.
Item 14. Management of the Fund (1-4) Federated Municipal
Opportunities Fund, Inc. Management;
(1-4) Directors' Compensation.
Item 15. Control Persons and Principal
Holders of Securities (1-4) Fund Ownership.
Item 16. Investment Advisory and
Other Services...............(1-4) Investment Advisory Services;
(1-4) Other Services.
Item 17. Brokerage Allocation..........(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered................(1-4) Purchasing Shares;
(1-4) Determining Net Asset Value;
(1-4) Redeeming Shares.
Item 20. Tax Status....................(1-4) Tax Status.
Item 21. Underwriters..................(1-4) Distribution Plan and
Shareholder Services.
Item 22. Calculation of Performance
Data.........................(1-4) Total Return; (1-4) Yield;
(1-4) Tax-Equivalent (1-4) Yield;
(1-4) Performance Comparisons.
Item 23. Financial Statements..........(1-4) Financial Statements (Financial
Statements are incorporated by
reference to the Annual Report
of the Registrant, dated August 31,
1998)(File Nos. 33-11410 and
811-4533).
Federated Municipal Opportunities Fund, Inc.
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
The shares of Federated Municipal Opportunities Fund, Inc. (the "Fund")
represent interests in a diversified, open-end, management investment
company (a mutual fund) that seeks a high level of current income exempt from
the federal regular income tax by investing primarily in a professionally
managed, diversified portfolio of municipal bonds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund.
Keep this prospectus for future reference.
THE FUND MAY INVEST PRIMARILY IN LOWER RATED MUNICIPAL BONDS, COMMONLY REFERRED
TO AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF
LOSS OF PRINCIPAL AND INTEREST THAN INVESTMENTS IN HIGHER RATED MUNICIPAL
SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THIS FUND.
The Fund's investment adviser will endeavor to limit these risks through
diversifying the portfolio and through careful credit analysis of individual
issuers.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares dated November 30,
1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling 1-800-341-
7400. To obtain other information or to make inquiries about the Fund, contact
your financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 30, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights--Class A Shares 2
Financial Highlights--Class B Shares 3
Financial Highlights--Class C Shares 4
General Information 5
Calling the Fund 5
Year 2000 Statement 5
Investment Information 5
Investment Objective 5
Investment Policies 5
Investment Risks 7
High Yield Securities 8
Reducing Risks of Lower Rated Securities 8
Investment Limitations 9
Net Asset Value 9
Investing in the Fund 9
Purchasing Shares 10
Purchasing Shares Through a Financial Intermediary 10
Purchasing Shares by Wire 10
Purchasing Shares by Check 10
Systematic Investment Program 11
Class A Shares 11
Class B Shares 12
Class C Shares 12
Redeeming and Exchanging Shares 12
Redeeming or Exchanging Shares Through a
Financial Intermediary 12
Redeeming or Exchanging Shares by Telephone 12
Redeeming or Exchanging Shares by Mail 12
Requirements for Redemption 13
Requirements for Exchange 13
Systematic Withdrawal Program 13
Systematic Withdrawal Program on
Class B Shares 13
Contingent Deferred Sales Charge 13
Account and Share Information 14
Confirmations and Account Statements 14
Dividends and Distributions 14
Accounts with Low Balances 14
Fund Information 14
Management of the Fund 14
Distribution of Shares 15
Distribution Plan and Shareholder Services 15
Supplemental Payments to Financial Institutions 16
Administration of the Fund 16
Administrative Services 16
Shareholder Information 16
Tax Information 16
Federal Income Tax 16
State and Local Taxes 17
Performance Information 17
Other Classes of Shares 17
Appendix 18
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Load Imposed On Purchases (as a percentage
of offering price) 4.50% None None
Maximum Sales Load Imposed On Reinvested Dividends (as a
percentage of offering price) None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) 0.00%(1) 5.50%(3) 1.00%(5)
Redemption Fees (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C> <C> <C> <C> <C>
Management Fee (after waiver, if applicable) 0.60% 0.60% 0.60%
12b-1 Fees(2) 0.00% 0.75% 0.75%
Other Expenses (after waivers, if applicable) 0.48% 0.48% 0.48%
Shareholder Servicing Agent Fee 0.25% 0.25% 0.25%
Total Fund Operating Expenses (after waivers, if applicable) 1.08% 1.83%(4) 1.83%
</TABLE>
(1) Shareholders who purchased $1 million or more of Class A Shares through a
financial intermediary on or after August 3, 1998, may be charged a
contingent deferred sales charge of 0.75% for redemptions made within 24
months of purchase if the financial intermediary received an advance
commission.
(2) The Class A Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending August 31, 1999. If the Fund was
paying or accruing the 12b-1 fee, the Fund would be able to pay up to 0.25%
of its average daily net assets for the 12b-1 fee. See "Fund Information."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
(3) The contingent deferred sales charge is 5.50% in the first year declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Investing in the
Fund" and "Contingent Deferred Sales Charge.")
(4) Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. (See "Conversion of
Class B Shares.")
(5) The contingent deferred sales charge assessed is 1.00% of the lesser of
the original purchase price or the net asset value of shares redeemed within
one year of their purchase date.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Fund Information." Wire-
transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
CLASS A CLASS B (ASSUMING NO CLASS C (ASSUMING NO
EXAMPLE SHARES SHARES REDEMPTION) SHARES REDEMPTION)
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual
return; (2) redemption at the end of each time
period; and (3) payment of the maximum sales load.
<S> <C> <C> <C> <C> <C>
1 Year $56 $75 $19 $29 $19
3 Years $78 $101 $58 $58 $58
5 Years $102 $122 $99 $99 $99
10 Years $171 $194 $194 $215 $215
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 9, 1998, on the Fund's
financial statements for the year ended August 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report
dated August 31, 1998, which is incorporated by reference. This table should
be read in conjuction with the Fund's financial statements and notes thereto,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.67 $10.33 $10.42
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.58 0.08
Net realized and unrealized gain (loss) on investments 0.39 0.33 (0.12)
Total from investment operations 0.93 0.91 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.56) (0.57) (0.05)
NET ASSET VALUE, END OF PERIOD $11.04 $10.67 $10.33
TOTAL RETURN(B) 8.91% 9.07% (0.36%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08% 1.09% 0.84%*
Net investment income 4.98% 5.29% 6.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $112,179 $94,941 $296
Portfolio turnover 41% 20% 22%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public investment) to August 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED AUGUST 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 9, 1998, on the Fund's
financial statements for the year ended August 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report
dated August 31, 1998, which is incorporated by reference. This table should
be read in conjuction with the Fund's financial statements and notes thereto,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.66 $10.33 $10.42
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.44 0.51 0.08
Net realized and unrealized gain (loss) on investments 0.40 0.31 (0.12)
Total from investment operations 0.84 0.82 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.49) (0.05)
NET ASSET VALUE, END OF PERIOD $11.03 $10.66 $10.33
TOTAL RETURN(B) 8.08% 8.17% (0.36%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83% 1.84% 0.84%*
Net investment income 4.25% 4.55% 6.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $47,028 $14,997 $296
Portfolio turnover 41% 20% 22%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public investment) to August 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED AUGUST 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 9, 1998, on the Fund's
financial statements for the year ended August 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report
dated August 31, 1998, which is incorporated by reference. This table should
be read in conjuction with the Fund's financial statements and notes thereto,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.66 $10.33 $10.42
Income from investment operations
Net investment income 0.45 0.50 0.08
Net realized and unrealized gain (loss) on investments 0.40 0.32 (0.12)
Total from investment operations 0.85 0.82 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.48) (0.49) (0.05)
NET ASSET VALUE, END OF PERIOD $11.03 $10.66 $10.33
TOTAL RETURN(B) 8.11% 8.17% (0.36%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83% 1.86% 0.84%*
Net investment income 4.24% 4.51% 6.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,269 $1,950 $296
Portfolio turnover 41% 20% 22%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public investment) to August 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED AUGUST 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
November 26, 1986. Shares of the Fund are offered in four classes of shares
known as Class A Shares, Class B Shares, Class C Shares, and Class F Shares
which represent interests in a single portfolio of securities. The Fund is
designed for individuals as a convenient means of accumulating an interest in
a professionally managed, diversified portfolio of high income municipal
bonds. This prospectus relates to Class A Shares, Class B Shares, and Class C
Shares ("Shares") of the Fund.
The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Fund's
service providers (among them, the adviser, distributor, administrator, and
transfer agent) must ensure that their computer systems are adjusted to
properly process and calculate date-related information from and after
January 1, 2000. Many software programs and, to a lesser extent, the computer
hardware in use today cannot distinguish the year 2000 from the year 1900.
Such a design flaw could have a negative impact in the handling of securities
trades, pricing and accounting services. The Fund and its service providers
are actively working on necessary changes to computer systems to deal with
the year 2000 issue and believe that systems will be year 2000 compliant when
required. Analysis continues regarding the financial impact of instituting a
year 2000 compliant program on the Fund's operations.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide a high level of current
income which is generally exempt from the federal regular income tax (federal
regular income tax does not include the federal alternative minimum tax). The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of municipal bonds. As a matter of fundamental policy,
the Fund invests its assets so that at least 80% of its annual interest
income is exempt from federal regular income tax. As a matter of non-
fundamental policy, under normal circumstances, the Fund will invest
primarily in lower quality municipal bonds. These bonds will usually offer
higher yields than higher rated bonds but involve greater investment risk at
the time of issue. (See "Investment Risks.")
INVESTMENT POLICIES
Unless otherwise designated, the investment policies described below may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
Municipal bonds are debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies and instrumentalities,
the interest from which is exempt from the federal regular income tax. It is
likely, however, that shareholders will be required to include interest from
a portion of the municipal bonds owned by the Fund in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
CHARACTERISTICS
The municipal bonds in which the Fund generally invests are rated Baa or
lower by Moody's Investors Service, Inc. ("Moody's") or rated BBB or lower by
Standard & Poor's ("S&P"). The Fund may buy bonds which are unrated but which
the adviser judges to be similar in quality to those rated bonds which it
purchases. (See "High Yield Securities.") A description of the ratings
categories is contained in the Appendix to this prospectus.
The Fund may invest any or all of its assets in higher quality tax-exempt
securities when the difference in returns between those securities and lower
quality securities is very narrow or when the adviser expects increased
volatility in interest rates. This may reduce the Fund's current income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Fund may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. The Fund may realize short-term profits or losses upon the sale
of such commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which represent
interests in municipal securities. The Fund intends to purchase inverse
floaters to assist in duration management and to seek current income. These
obligations pay interest rates that vary inversely with changes in the
interest rates of specified short-term municipal securities or an index of
short-term municipal securities. The interest rates on inverse floaters will
typically decline as short-term market interest rates increase and increase
as short-term market rates decline. Inverse floaters will generally respond
to changes in market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). As a result, the market values of
inverse floaters will generally be more volatile than the market values of
fixed-rate municipal securities. Typically, the portion of the portfolio
invested in inverse floaters will be subject to additional volatility.
FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial futures
contracts. These financial futures contracts may be used to hedge all or a
portion of its portfolio against changes in the market value of portfolio
securities and interest rates, provide additional liquidity, and accomplish
its current strategies in a more expeditious fashion. Financial futures
contracts call for the delivery of particular debt instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
As a matter of investment policy, which may be changed without shareholder
approval, the Fund may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures positions would exceed 5% of the market value of the Fund's total
assets. When the Fund purchases futures contracts, an amount of municipal
securities, cash or cash equivalents, equal to the underlying commodity value
of the futures contracts (less any related margin deposits), will be
deposited in a segregated account with the Fund's custodian (or the broker,
if legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio. This may cause the
futures contract to react differently than the portfolio securities to market
changes. In addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as interest
rate movements. In these events, the Fund may lose money on the futures
contract. It is not certain that a secondary market for positions in futures
contracts will exist at all times. Although the investment adviser will
consider liquidity before entering into futures transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract at any particular time. The Fund's
ability to establish and close out futures positions depends on this
secondary market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual interest income
is exempt from the federal regular income tax, except when investing for
"defensive" purposes as described below. This policy cannot be changed
without approval of shareholders. From time to time on a temporary basis, or
when the investment adviser determines that market conditions call for a
temporary defensive posture, the Fund may invest all of its assets in higher
quality tax-exempt or taxable temporary investments. These temporary
investments include: fixed or variable rate notes issued by or on behalf of
municipal or corporate issuers; obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase agreements
(arrangements in which the organization selling the Fund a bond or temporary
investment agrees at the time of sale to repurchase it at a mutually agreed
upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to those it
considers to be of good quality.
OTHER INVESTMENT TECHNIQUES
The Fund may purchase a right to sell a security held by it back to the issuer
or to another party at an agreed upon price at any time during a stated period
or on a certain date. These rights may be referred to as "liquidity puts" or
"standby commitments."
The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on futures contracts
and options thereon are taxable. The Fund will notify shareholders before it
engages in these futures transactions.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security may have been held.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. Municipal bonds are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities. Certain types of "private activity" municipal bonds are issued to
obtain funding for privately operated facilities.
There are two categories of municipal bonds: general obligation and revenue.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility. Payment of principal and interest on such bonds is dependent solely
on the revenue generated by the facility financed by the bond or other
specified sources of revenue or collateral. Private activity bonds are
typically one type of "revenue" bonds.
In most cases, lower quality bonds are private activity bonds or other
revenue bonds which are not payable from general tax revenues. The Fund may
invest more than 25% of the value of its assets in private activity bonds
which may result in more than 25% of the Fund's assets being invested in one
industry. It is also possible that the Fund may from time to time invest more
than 25% of its assets in health care facilities revenue obligations, housing
agency revenue obligations or electric utility obligations. Economic,
business, political and other developments generally affecting the revenues
of issuers in such a market segment (for example, proposed legislation or
pending court decisions affecting the financing of projects and market
factors affecting the demand for their services or products) may have a
general adverse impact on all municipal bonds in the segment.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state,
territory or possession of the United States.
INVESTMENT RISKS
The value of Shares will fluctuate. The amount of this fluctuation is
dependent upon the quality and maturity of the municipal bonds in the Fund's
portfolio as well as on market conditions. Generally speaking, the lower
quality, long-term bonds in which the Fund invests have greater fluctuation
in value than high quality, shorter-term bonds.
Municipal bond prices are interest rate sensitive, which means that their
value varies inversely with market interest rates. Thus, if market interest
rates have increased from the time a bond was purchased, the bond, if sold,
might be sold at a price less than its cost. Similarly, if market interest
rates have declined from the time a bond was purchased, the bond, if sold,
might be sold at a price greater than its cost. (In either instance, if the
bond was held to maturity, no loss or gain normally would be realized as a
result of interim market fluctuations.)
Prices of lower grade bonds also fluctuate with changes in the perceived
quality of the credit of their issuers. Consequently, shares may not be
suitable for persons who cannot assume the somewhat greater risks of capital
depreciation associated with higher tax-exempt income yields. In addition,
lower grade bonds have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated bonds.
A large portion of the Fund's portfolio may be invested in bonds whose
interest payments are from revenues of similar projects (such as housing or
hospitals) or where issuers share the same geographic location. As a result,
the Fund may be more susceptible to similar economic, political or regulatory
developments than would a portfolio of bonds with a greater geographic and
project variety. This susceptibility may result in greater fluctuations in
share price.
Many issuers of municipal bonds which have characteristics of rated bonds
choose to not have their obligations rated. Unrated bonds may carry a greater
risk and a higher yield than rated securities. Although unrated bonds are not
necessarily of lower quality, the market for them may not be as broad as that
for rated bonds since many investors rely solely on the major rating agencies
for credit appraisal.
HIGH YIELD SECURITIES
The Fund invests in municipal securities rated Ba or lower by Moody's or
rated BB or lower by S&P (commonly known as "junk bonds"). There is no
minimal acceptable rating for a security to be purchased or held in the
Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category or securities in default.
Lower rated securities will usually offer higher yields than higher rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Regarding lower rated debt securities: (i) an economic downturn may have a
more significant effect on the yield, price and potential for default as
compared to debt securities of higher quality; (ii) the secondary market for
such securities may at times be less liquid or respond more adversely to
negative publicity or investor perceptions, making it more difficult to value
or dispose of the securities; (iii) the likelihood that these securities will
help the Fund achieve its investment objective is more dependent on the
adviser's own credit analysis; and (iv) lower rated debt securities may be
less sensitive to interest rate changes.
The Fund may, from time to time, own zero coupon bonds. A zero coupon bond
makes no periodic interest payments and the entire obligation becomes due
only upon maturity. The prices of zero coupon bonds are generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Although these securities pay no interest to holders prior to maturity,
interest on these securities is reported as income to the Fund and
distributed to shareholders.
REDUCING RISKS OF LOWER RATED SECURITIES
The Fund's investment adviser believes that the risks of investing in lower
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:
CREDIT RESEARCH
When purchasing bonds, rated or unrated, the Fund's investment adviser
performs its own credit analysis in addition to using recognized rating
agencies. This credit analysis considers the economic feasibility of revenue
bond project financing and general purpose borrowings, the financial
condition of the issuer or guarantor with respect to liquidity, cash flow and
ability to meet anticipated debt service requirements, and political
developments that may affect credit quality.
DIVERSIFICATION
The Fund invests in securities of many different issuers to reduce portfolio
risks.
ECONOMIC ANALYSIS
The Fund's adviser also considers trends in the overall economy, in
geographic areas, in various industries, and in the financial markets.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may, exclusive of custodian
intra-day cash advances and the collateralization of such advances, borrow up
to one-third of the value of its total assets and pledge up to 10% of the
value of those assets to secure such borrowings; or
* invest more than 10% of its net assets in securities subject to restrictions
on resale under the Securities Act of 1933, except for certain restricted
securities which meet the criteria for liquidity as established by the
Directors.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in securities of
one issuer (except cash and cash items and U.S. government obligations).
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV
is determined as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) every day the New York Stock Exchange is
open.
INVESTING IN THE FUND
This prospectus offers three classes of Shares each with the characteristics
described below.
CLASS A CLASS B CLASS C
Minimum and
Subsequent
Investment
Amounts $1500/$100 $1500/$100 $1500/$100
Maximum Sales
Charge 4.50%* None None
Maximum
Contingent
Deferred Sales
Charge** None 5.50%+ 1.00%#
Conversion
Feature No Yes+ No
* Class A Shares are sold at NAV, plus a sales charge as follows:
DEALER
CONCESSION
SALES CHARGE AS AS A
A PERCENTAGE OF PERCENTAGE
PUBLIC NET OF PUBLIC
OFFERING AMOUNT OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class
B Shares:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within
one year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through
a financial intermediary (such as a bank or broker/dealer) or by sending a
wire or check directly to the Fund. Financial intermediaries may impose
different minimum investment requirements on their customers. An account
must be established with a financial intermediary or by completing, signing,
and returning the new account form available from the Fund before Shares can
be purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors, Inc. ("Federated Funds") may exchange
their Shares for Shares of the corresponding class of the Fund. The Fund
reserves the right to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to
time, offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when
the Fund is notified of the purchase order or when payment is converted into
federal funds. Purchase orders through a broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. Purchase orders through other financial
intermediaries must be received by the financial intermediary and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial intermediary's
responsibility to transmit orders promptly. Financial intermediaries may
charge fees for their services.
The financial intermediary which maintains investor accounts in Class B
Shares or Class C Shares with the Fund must do so on a fully disclosed basis
unless it accounts for share ownership periods used in calculating the
contingent deferred sales charge (see "Contingent Deferred Sales Charge").
In addition, advance payments made to financial intermediaries may be subject
to reclaim by the distributor for accounts transferred to financial
intermediaries which do not maintain investor accounts on a fully disclosed
basis and do not account for share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: Federated Shareholder Services Company, c/
o State Street Bank and Trust Company, Boston, MA 02266-8600; Attention:
EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number-this number
can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee
or Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of the
Fund (designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in the Fund.
Shareholders should contact their financial intermediary or the Fund to
participate in this program.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge dealer
concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee for
services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing Class A Shares in quantity;
* combining concurrent purchases of Class A Shares
* by you, your spouse, and your children under age 21, or;
* of two or more Federated Funds (other than money market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase of Class A Shares, you may count the current value of previous
Class A Share purchases still invested in the Fund);
* signing a letter of intent to purchase a specific dollar amount of Class A
Shares within 13 months; or
* using the reinvestment privilege within 120 days of redeeming Class A Shares
of an equal or lesser amount.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales
charge reductions, Federated Securities Corp. must be notified by the
shareholder in writing or by a financial intermediary at the time of
purchase.
DEALER CONCESSION
For sales of Class A Shares, the distributor will normally offer to pay a
dealer up to 90% of the applicable sales charge. Any portion of the sales
charge which is not paid to a dealer will be retained by the distributor.
However, the distributor may offer to pay dealers up to 100% of the sales
charge retained by it. Such payments may take the form of cash or promotional
incentives, such as reimbursement of certain expenses of qualified employees
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Class A Shares. Financial
intermediaries purchasing Class A Shares for their customers in amounts of
$1 million or more are eligible to receive an advance commission from the
distributor based on the following breakpoints:
ADVANCE
COMMISSION AS
A PERCENTAGE
OF PUBLIC
TRANSACTION AMOUNT OFFERING PRICE
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer commission resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or
by combining concurrent purchases. The above commission will be paid only on
those purchases that were not previously subject to a front-end sales charge
and dealer commission. Certain retirement accounts may not be eligible for
this program. Financial intermediaries must notify the Fund once an account
reaches $1 million in order to qualify for advance commissions.
A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase if a financial
intermediary received an advance commission on the transaction. Federated
Securities Corp. may pay fees to banks out of the sales charge in exchange
for sales and/or administrative services performed on behalf of the bank's
customers in connection with the establishment of customer accounts and
purchases of Class A Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders
for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after eight
full years from the purchase date. Such conversion will be on the basis of
the relative NAVs per Share, without the imposition of any charges. Class B
Shares acquired by exchange from Class B Shares of another Federated Fund
will convert into Class A Shares based on the time of the initial purchase.
CLASS C SHARES
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00%
will be charged on assets redeemed within the first full 12 months following
purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of the
same class of other Federated Funds on days on which the Fund computes its
NAV. Shares are redeemed at NAV less any applicable contingent deferred sales
charge. Exchanges are made at NAV. Shareholders who desire to automatically
exchange Shares, of a like class, in a pre-determined amount on a monthly,
quarterly, or annual basis, may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or your
financial intermediary. Depending upon the circumstances, a capital gain or
loss may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions
to be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m.
(Eastern time), while broker/dealers must transmit the request to the Fund
before 5:00 p.m. (Eastern time). The financial intermediary is responsible
for promptly submitting transaction requests and providing proper written
instructions. Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for these
transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for
these transactions must be on file with the Fund. Shares held in certificate
form must first be returned to the Fund as described in the instructions
under "Redeeming or Exchanging Shares by Mail." Redemption proceeds will
either be mailed in the form of a check to the shareholder's address of
record or wire-transferred to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. The minimum
amount for a wire transfer is $1,000. Proceeds from redeemed Shares purchased
by check or through an ACH member will not be wired until that method of
payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone.
If this occurs, "Redeeming or Exchanging Shares by Mail" should be
considered. The telephone transaction privilege may be modified or
terminated at any time. Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written
request to: Federated Shareholder Services Company, Fund Name, Share Class,
P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued,
they must accompany the written request. It is recommended that certificates
be sent unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number
of Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to
be made. All owners of the account must sign the request exactly as the
Shares are registered. A check for redemption proceeds is normally mailed
within one business day, but in no event more than seven days, after receipt
of a proper written redemption request. Dividends are paid up to and
including the day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record, must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum
investment requirements of the fund into which the exchange is being made.
Contact your financial intermediary directly or the Fund for free information
on and prospectuses for the Federated Funds into which your Shares may be
exchanged. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and proceeds invested in the same
class of shares of the other fund. Signature guarantees will be required to
exchange between fund accounts not having identical shareholder
registrations. The exchange privilege may be modified or terminated at any
time. Shareholders will be notified of the modification or termination of the
exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To
be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation
in this program through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not
be considered as yield or income. It is not advisable for shareholders to
continue to purchase Class A Shares subject to a sales charge while
participating in this program. A contingent deferred sales charge may be
imposed on Class B and Class C Shares.
SYSTEMATIC WITHDRAWAL PROGRAM ON CLASS B SHARES
A contingent deferred sales charge will not be charged on systematic
withdrawal program redemptions of Class B Shares if:
* shares redeemed are 12% or less of the account value in a single year;
* the account is at least one year old;
* all dividends and capital gains distributions are reinvested; and
* the account has at least a $10,000 balance when the Systematic Withdrawal
Program is established (multiple Class B Share accounts cannot be
aggregated to meet this minimum balance).
A contingent deferred sales charge will be charged on redemption amounts that
exceed the 12% annual limit. In measuring the redemption percentage, the
account is valued when the Systematic Withdrawal Program is established and
then annually at calendar year-end. Redemptions can be made only at a rate of
1% monthly, 3% quarterly, or 6% semi-annually.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. The contingent deferred sales charge will not be imposed with
respect to Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains. In determining the applicability
of the contingent deferred sales charge, the required holding period for your
new Shares received through an exchange will include the period for which
your original Shares were held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiaries;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70 1/2;
* which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
* which are reinvested in the Fund under the reinvestment privilege;
* of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, employees of any
financial intermediary that sells Shares of the Fund pursuant to a sales
agreement with the distributor, and their immediate family members to the
extent that no payments were advanced for purchases made by these persons;
and
* of Shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940 or retirement
plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial intermediary, to the extent that no payments were advanced for
purchases made through such entities.
For more information regarding the elimination of the contingent deferred
sales charge through a Systematic Withdrawal Program, or any of the above
provisions, contact your financial intermediary or the Fund. The Fund
reserves the right to discontinue or modify these provisions. Shareholders
will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends
paid. The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund
on payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting
the transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum
investment amount. Accounts where the balance falls below the minimum due to
NAV changes will not be closed in this manner. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
FUND INFORMATION
MANAGEMENT OF THE FUND
DIRECTORS
The Fund is managed by the Board of Directors. The Directors are responsible
for managing the Fund's business affairs and for exercising all the Fund's
powers except those reserved for the shareholders. An Executive Committee of
the Directors handles the Director's responsibilities between meetings of the
Directors.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily choose to waive
a portion of its fee or reimburse the fund for certain operating expenses.
The Adviser can terminate this voluntary waiver of its advisory fee at any
time at its sole discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors, Inc. All of the Class A
(voting) shares of Federated Investors, Inc. are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Director of Federated
Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Director of Federated Investors, Inc.
Federated Advisers and other subsidiaries of Federated Investors, Inc. serve
as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, Federated Investors, Inc. 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. The Federated Funds are presently at work in and through approximately
4,000 financial institutions nationwide.
Mary Jo Ochson has been the Fund's portfolio manager since May 1996.
Ms. Ochson joined Federated Investors, Inc. or its predecessor in 1982 and
has been a Senior Vice President of the Fund's investment adviser since
January 1996. From 1988 through 1995, Ms. Ochson served as a Vice President
of the Fund's investment adviser. Ms. Ochson is a Chartered Financial Analyst
and received her M.B.A. in Finance from the University of Pittsburgh.
J. Scott Albrecht has been the Fund's portfolio manager since May 1996.
Mr. Albrecht joined Federated Investors, Inc. or its predecessor in 1989 and
has been a Vice President of the Fund's investment adviser since 1994. From
1992 to 1994, Mr. Albrecht served as an Assistant Vice President of the
Fund's investment adviser. Mr. Albrecht is a Chartered Financial Analyst and
received his M.S. in Public Management from Carnegie Mellon University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead of
the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are subject
to review by the Directors, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors, Inc.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), Class A Shares, Class B Shares, and
Class C Shares will pay a fee to the distributor in an amount computed at an
annual rate of 0.25%, 0.75%, and 0.75%, respectively, of the average daily
net assets of each class of Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers. With respect to Class B Shares, because distribution fees to be
paid by the Fund to the distributor may not exceed an annual rate of 0.75%
of each class of Shares' average daily net assets, it will take the
distributor a number of years to recoup the expenses it has incurred for its
sales services and distribution-related support services pursuant to the
Plan. The Fund is not currently making payments for Class A Shares under the
Distribution Plan, nor does it anticipate doing so in the immediate future.
The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor, except as described above. Therefore, the Fund
does not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Fund, interest, carrying or other financing charges in connection with excess
amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from
future made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, Inc.,
under which the Fund may make payments up to 0.25% of the average daily net
asset value of Class A Shares, Class B Shares, and Class C Shares to obtain
certain personal services for shareholders and for the maintenance of
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or
will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon Shares owned by their
clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Fund and
Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, the distributor and Federated Shareholder
Services may pay a supplemental fee from their own assets to financial
institutions as financial assistance for providing substantial sales
services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars
at recreational-type facilities for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor and Federated Shareholder
Services may be reimbursed by the Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all of the Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
portfolio or class in the Fund have equal voting rights, except that in
matters affecting only a particular portfolio or class, only Shares of that
portfolio or class are entitled to vote.
Directors may be removed by the Directors or shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.
As of November 5, 1998, the following shareholder of record owned 25% or more
of the outstanding Shares of the Fund: Merrill Lynch Pierce, Fenner & Smith
(as record owner holding Class F Shares for its clients), Jacksonville, FL,
owned approximately 7,368,354 Class F Shares (25.97%) and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies. Shareholders are not required to pay the federal regular income
tax on any dividends received from the Fund that represent net interest on
tax-exempt municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal bonds may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the regular
tax for the taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity"
bonds issued after August 7, 1986, as a tax preference item for both
individuals and corporations. Unlike traditional governmental purpose
municipal bonds, which finance roads, schools, libraries, prisons, and other
public facilities, private activity bonds provide benefits to private
parties. The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternate minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
Because interest received by the Fund may not be exempt from all state and
local income taxes, shareholders may be required to pay state and local taxes
on dividends received from the Fund. Shareholders are urged to consult their
own tax advisers regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and tax-
equivalent yield for each class of Shares including Class F Shares as
described under "Other Classes of Shares."
Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all income
and capital gain distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the SEC) earned by each class of
Shares over a thirty-day period by the maximum offering price per share of
each class on the last day of the period. This number is then annualized
using semi-annual compounding. The tax-equivalent yield of each class of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that each class would have had to earn to equal its actual
yield, assuming a specific tax rate. The yield and the tax-equivalent yield
do not necessarily reflect income actually earned by each class of Shares
and, therefore, may not correlate to the dividends or other distributions
paid to shareholders. The performance information reflects the effect of the
maximum sales charge and other similar non-recurring charges, such as the
contingent deferred sales charge, which, if excluded, would increase the
total return, yield, and tax-equivalent yield.
Total return, yield, and tax-equivalent yield will be calculated separately
for Class A Shares, Class B Shares, Class C Shares, and Class F Shares.
From time to time, advertisements for Class A Shares, Class B Shares, and
Class C Shares may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A
Shares, Class B Shares, and Class C Shares to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to
a front-end sales charge, a contingent deferred sales charge and a minimum
initial investment of $1,500.
Shares and Class F Shares are subject to certain of the same expenses.
Expense differences, however, between Shares and Class F Shares may affect
the performance of each class.
To obtain more information and a prospectus for Class F Shares, investors may
call 1-800-341-7400 or contact their financial institution.
APPENDIX
MUNICIPAL BOND RATING DEFINITIONS
STANDARD AND POOR'S
AAA-Debt rated "AAA" has the highest rating assigned by Standard & Poor's
("S&P"). Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB-Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB" rating.
B-Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC-Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "B" or "B-" rating.
CC-The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C-The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
D-Debt rated "D" is in payment default. The "D" rating category is used when
debt service payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if debt
service payments are jeopardized.
PLUS (+) OR MINUS (-)-The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A-Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa-Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2, OR 3-The ratings from "Aa" to "Caa" may be modified by the addition of
the numbers 1, 2, or 3, to show relative standing in each rating
classification. The modifier 1 indicates that the issue ranks in the higher
end of its rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
rating category.
Federated Municipal Opportunities Fund, Inc.
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
NOVEMBER 30, 1998
An Open-End, Diversified Management Investment Company
[Graphic]Federated Investors
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 313910200
Cusip 313910309
Cusip 313910408
G00570-03 (11/98)
[Graphic]
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses
of Federated Municipal Opportunities Fund, Inc. (the "Fund"), dated
November 30, 1998. This Statement is not a prospectus. You may request a copy
of a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated November 30, 1998
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101
8092709B (11/98)
[Graphic]
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Futures Transactions 1
Temporary Investments 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2
Buying on Margin 2
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Investing in Real Estate 3
Investing in Commodities 3
Underwriting 3
Lending Cash or Securities 3
Selling Short 3
Restricted Securities 3
Investing in Securities of Other
Investment Companies 3
Diversification of Investments 4
Criteria for Liquidity of Restricted Securities 4
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
MANAGEMENT 5
Fund Ownership 8
Directors Compensation 9
Director Liability 9
INVESTMENT ADVISORY SERVICES 9
Adviser to the Fund 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Auditors 10
PURCHASING SHARES 11
Quantity Discounts and Accumulated Purchases 11
Concurrent Purchases 11
Letter of Intent 11
Reinvestment Privilege 11
Conversion of Class B Shares 12
Distribution Plan and Shareholder Services 12
Conversion to Federal Funds 12
Purchases by Sales Representatives,
Fund Directors, and Employees 13
DETERMINING NET ASSET VALUE 13
Valuing Municipal Bonds 13
Use of Amortized Cost 13
REDEEMING SHARES 13
Redemption in Kind 13
Contingent Deferred Sales Charge 14
TAX STATUS 14
The Fund's Tax Status 14
Shareholders' Tax Status 14
TOTAL RETURN 15
YIELD 15
TAX-EQUIVALENT YIELD 15
Tax-Equivalency Table 16
PERFORMANCE COMPARISONS 17
Economic and Market Information 17
ABOUT FEDERATED INVESTORS, INC. 17
Mutual Fund Market 18
Institutional Clients 18
Bank Marketing 18
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 18
FINANCIAL STATEMENTS 18
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on
November 26, 1986. It is qualified to do business as a foreign corporation in
Pennsylvania. On March 31, 1996, the Fund changed its name from Fortress
Municipal Income Fund, Inc. to Federated Municipal Opportunities Fund, Inc.
Shares of the Fund are offered in four classes, known as Class A Shares, Class
B Shares, Class C Shares, and Class F Shares (individually and collectively
referred to as "Shares" as the context may require). This Statement of
Additional Information relates to all four of the above-mentioned classes of
Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level of current income
which is generally exempt from federal regular income tax. The objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
CHARACTERISTICS
The municipal bonds in which the Fund invests have the characteristics set
forth in the prospectus.
If a bond loses its rating after the Fund has purchased it, the Fund is not
required to drop the bond from the portfolio, but may consider doing so. If
ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's ("S&P") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's prospectus.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
FUTURES TRANSACTIONS
A futures contract is a firm commitment by two parties: the seller who agrees
to make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. In the fixed income
securities market, price moves inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in
market interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself
against the possibility that the prices of its fixed income securities may
decline during the Fund's anticipated holding period. The Fund would agree to
purchase securities in the future at a predetermined price (i.e., "go long")
to hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in municipal securities,
cash or cash equivalents with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract
initial margin does not involve the borrowing of funds by the Fund to finance
the transactions. Initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the Fund
but is instead settlement between the Fund and the broker of the amount one
would owe the other if the futures contract expired. In computing its daily
net asset value, the Fund will mark-to-market its open futures positions.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes. The Fund does not presently intend to invest in temporary
investments other than repurchase agreements.
The Fund might invest in temporary investments:
* as a reaction to market conditions;
* while waiting to invest proceeds of sales of shares or portfolio securities,
although generally proceeds from sales of shares will be invested in
municipal bonds as quickly as possible; or
* in anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of
the U.S. government, its agencies or instrumentalities) if, as a result of
the purchase, 25% or more of the value of its total assets would be invested
in any one industry. However, the Fund may, for temporary defensive purposes,
invest 25% or more of the value of its assets in cash or cash items,
U.S. Treasury bills or securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, or instruments secured
by these money market instruments, such as repurchase agreements.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. The Fund or its custodian will take possession of
the securities subject to repurchase agreements, and these securities will be
marked-to-market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of
such securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody of
the Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund may only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are found by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Board of Directors. From time to
time, such as when suitable municipal bonds are not available, the Fund may
retain a portion of its assets in cash. Any portion of the Fund's assets
maintained in cash will reduce the amount of assets in municipal bonds and
thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction
is similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in
the future the Fund will repurchase the portfolio instrument by remitting
the original consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are
marked to market daily and are maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objective. For the fiscal years ended
August 31, 1998, and August 31, 1997, the portfolio turnover rates were 41%,
and 20%, respectively.
INVESTMENT LIMITATIONS
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-third
of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase
agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 10%
of the value of total assets at the time of the borrowing. Neither the
deposit of underlying securities and other assets in escrow in connection
with the writing of put or call options on municipal bonds nor margin
deposits for the purchase and sale of financial futures contracts and related
options are deemed to be a pledge.
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to
its custodian to collateralize such intra-day cash advances, in order to
enable the Fund to settle securities purchases or to redeem Shares of the
Fund.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the
purchase or holding of municipal bonds, repurchase agreements, or other
transactions which are permitted by the Fund's investment objective and
policies.
SELLING SHORT
The Fund will not sell securities short.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933, except
for certain restricted securities which meet the criteria for liquidity as
established by the Directors.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies except
as part of a merger, consolidation, or other acquisition.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets in the securities
of any one issuer (except cash and cash instruments, securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities or
instruments secured by money market instruments such as repurchase
agreements).
Under this limitation, each governmental subdivision, including states and
the District of Columbia, territories, possessions of the United States or
their political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets and
revenues are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues. Industrial
development bonds backed only by the assets and revenues of a non-
governmental user are considered to be issued solely by that user.
Private activity bonds backed only by the assets and revenues of a non-
governmental user are considered to be issued solely by that user. If, in the
case of a private activity bond or government-issued security, a governmental
or other entity guarantees the security, such guarantee would be considered a
separate security issued by the guarantor as well as the other issuer,
subject to limited exclusions allowed by the Investment Company Act of 1940.
CRITERIA FOR LIQUIDITY OF RESTRICTED SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under the Rule. The Fund
believes that the Staff of the SEC has left the question of determining the
liquidity of all restricted securities to the Directors. The Directors may
consider the following criteria in determining the liquidity of certain
restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
* dealer undertakings to make a market in the security; and
* the nature of the security and the nature of the marketplace trades.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
During the past fiscal year, the Fund did not (1) purchase or sell options on
securities, as permitted by the investment limitations, without first
notifying shareholders; (2) purchase "liquidity puts" or "standby
commitments" as described in the prospectus, engage in reverse repurchase
agreements, or borrow money in excess of 5% of the value of its total assets;
or (3) lend portfolio securities. The Fund does not expect to engage in any
of the above activities during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Municipal Opportunities Fund, Inc., and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chief Executive Officer and Director or Trustee of the
Funds; Chairman and Director, Federated Investors, Inc.;
Chairman and Trustee, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research
Corp.; Chairman, Passport Research, Ltd.; Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President
of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director or Trustee of the Funds; Director, Member of Executive Committee,
Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.; Director, Member of Executive Committee,
University of Pittsburgh.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
Director or Trustee of the Funds; President, Investment
Properties Corporation; Senior Vice President, John R. Wood
and Associates, Inc., Realtors; Partner or Trustee in
private real estate ventures in Southwest Florida; formerly,
President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director or Trustee of the Funds; Director and Member of the Executive
Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund;
Chairman, Pittsburgh Civic Light Opera.
James E. Dowd, Esq.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Director or Trustee of the Funds; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston
Stock Exchange, Inc.; Regional Administrator, United States
Securities and Exchange Commission.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center--Downtown;
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
formerly, Member, National Board of Trustees, Leukemia Society of America.
Edward L. Flaherty, Jr., Esq. @
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Director or Trustee of the Funds; Attorney of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Director or Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company and
State Street Corporation; Director, VISA USA and VISA International; Chairman
and Director, Massachusetts Banker Association; Director, Depository Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
Director or Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Director or Trustee of the Funds; President, World Society for Ekistics, Athens;
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; formerly, Professor, United States
Military Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Director or Trustee of the Funds; Public Relations/ Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; Business
Owner.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Funds;
President and Director, Federated Investors, Inc.; President
and Trustee, Federated Advisers, Federated Management, and
Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; Director or
Trustee of some of the Funds. Mr. Donahue is the son of John
F. Donahue, Chairman and Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
Vice President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer Executive Vice President
and Secretary of the Funds; Treasurer of some of the Funds; Executive Vice
President, Secretary, and Director, Federated Investors, Inc.; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated aster Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated
U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust,
Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions Funds; Riggs
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Virtus Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; WesMark Funds; WCT Funds; and World
Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of November 5, 1998, there were no Class A shareholders owning 5% or more
of the Fund.
As of November 5, 1998, the following hareholder of record owned 5% or more
of the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 261,112 Shares (5.39%).
As of November 5, 1998, the following shareholders of record owned 5% or more
of the outstanding Class C Shares of the Fund: BHC Securities, Inc.,
Philadelphia, Pennsylvania, owned approximately 144,040 Shares (19.62%),
James C. Gilman, Butte, Montana, owned approximately 136,300 Shares (18.57%),
U.S. Bancorp Investments, Inc., Minneapolis, Minnesota, owned approximately
90,991 Shares (12.40%), and Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 69,785 Shares (9.51%).
As of November 5, 1998, the following shareholder f record owned 5% or more
of the outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 7,368,354 Shares (25.97%).
DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $1,460.66 $122,362 for the Corporation and
Director 56 other investment companies in the Fund Complex
William J. Copeland $1,460.66 $122,362 for the Corporation and
Director 56 other investment companies in the Fund Complex
James E. Dowd, Esq. $1,460.66 $122,362 for the Corporation and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director 6 other investment companies in the Fund Complex
Edward L. Flaherty,
Jr., Esq. $1,460.66 $122,362 for the Corporation and
Director 56 other investment companies in the Fund Complex
Peter E. Madden $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
John E. Murray,
Jr., J.D., S.J.D. $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,327.69 $111,222 for the Corporation and
Director 56 other investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended August 31, 1998.
#The aggregate compensation is provided for the Corporation which is
comprised of one portfolio.
+The information is provided for the last calendar year.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors, Inc. All of the voting
securities of Federated Investors, Inc. are owned by a trust, the trustees of
which are John F. Donahue, his wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or
for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
August 31, 1998, 1997, and 1996, the Fund's Adviser earned $2,736,122,
$2,610,540, and $2,475,132, respectively.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Directors. The Adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Fund or to the Adviser and may
include: advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or its
affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. For the fiscal years ended
August 31, 1998, 1997, and 1996, the Fund paid no brokerage commissions on
brokerage transactions.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated
Investors, Inc. provides administrative personnel and services to the Fund
for a fee as described in the prospectus. From March 1, 1994, to March 1,
1996, Federated Administrative Services served as the Fund's Administrator.
Prior to March 1, 1994, Federated Administrative Services, Inc. served as the
Fund's Administrator. Both former Administrators are subsidiaries of
Federated Investors, Inc. For purposes of this Statement of Additional
Information, Federated Services Company and Federated Administrative
Services may hereinafter collectively be referred to as the
"Administrators." For the fiscal years ended August 31, 1998, 1997, and 1996,
the Administrators earned $343,950, $328,575, and $311,976.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments. The fee paid for this service is based upon the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Except under certain circumstances described in the respective prospectuses,
Shares are sold at their net asset value (plus a sales charge, if applicable)
on days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the respective prospectuses under
"Investing in the Fund" and "Purchasing Shares."
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectuses, larger purchases of the same Share class
reduce or eliminate the sales charge paid. For example, the Fund will combine
all Class A Share purchases made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it
calculates the sales charge. This combined purchase option is available
within Class F Shares as well. In addition, the sales charge, if applicable,
is reduced for purchases made at one time by a trustee or fiduciary for a
single trust estate or a single fiduciary account.
If an additional purchase into the same Share class is made, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the public
offering price of $90,000 and he purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase according to the
schedule now in effect would be 3.75%, not 4.50%.
In addition, the Fund will also combine purchases for the purpose of reducing
the contingent deferred sales charge imposed on Class F Share redemptions.
For example, if a shareholder already owns Class F Shares having current
value at the public offering price of $1 million and purchases an additional
$1 million at the current public offering price, the applicable contingent
deferred sales charge would be reduced to 0.50% of those additional Class F
Shares.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at
the time the purchase is made that Class A Shares or Class F Shares are
already owned or that purchases are being combined. The Fund will reduce or
eliminate the sales charge after it confirms the purchases.
CONCURRENT PURCHASES
Shareholders have the privilege of combining concurrent purchases of the same
Share class of two or more funds in the Federated Complex in calculating the
applicable sales charge.
To receive a sales charge reduction or elimination, Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
intermediary at the time the concurrent purchases are made. The Fund will
reduce or eliminate the sales charge after it confirms the purchases.
LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13-month period in order to combine
such purchases in calculating the applicable sales charge. The Fund's
custodian will hold Shares in escrow equal to the maximum applicable sales
charge. If the shareholder completes the commitment, the escrowed Shares will
be released to their account. If the commitment is not completed within 13
months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
The letter of intent for Class F Shares also includes a provision for
reductions in the contingent deferred sales charge and holding period
depending on the amount actually purchased within the 13-month period.
While this letter of intent will not obligate the shareholder to purchase
Class A Shares or Class F Shares, each purchase during the period will be at
the sales charge applicable to the total amount intended to be purchased. At
the time a letter of intent is established, current balances in accounts in
any Class A Shares or Class F Shares of any Federated Funds, excluding money
market accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. The letter may be dated as of a prior
date to include any purchase made within the past 90 days. Prior trade prices
will not be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share class.
Class A and Class F shareholders who redeem from the Fund
may reinvest the redemption proceeds back into the same Share class at the
next determined net asset value without any sales charge. The original Shares
must have been subject to a sales charge and the reinvestment must be within
120 days.
Similarly, Class C and Class F shareholders who redeem may reinvest their
redemption proceeds in the same Share class within 120 days. Class B Shares
also may be reinvested within 120 days of redemption, although such
reinvestment will be made into Class A Shares. Shareholders would not be
entitled to a reimbursement of the contingent deferred sales charge if paid
at the time of redemption on any Share class. However, reinvested Shares
would not be subject to a contingent deferred sales charge, if otherwise
applicable, upon later redemption.
In addition, if Shares were reinvested through a financial intermediary, the
financial intermediary would not be entitled to an advanced payment from
Federated Securities Corp. on the reinvested Shares, if otherwise
applicable. Federated Securities Corp. must be notified by the shareholder in
writing or by his financial intermediary of the reinvestment in order to
eliminate a sales charge or a contingent deferred sales charge. If the
shareholder redeems Shares in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around
the 15th of the month eight full years from the purchase date and will no
longer be subject to a fee under the distribution plan. For purposes of
conversion to Class A Shares, Shares purchased through the reinvestment of
dividends and distributions paid on Class B Shares will be considered to be
held in a separate sub-account. Each time any Class B Shares in the
shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to
Class A Shares is subject to the continuing availability of a ruling from
the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion
of Class B Shares to Class A Shares will not occur if such a ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and
to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal period ending August 31, 1998, the Fund paid distribution fees
on behalf of Class B and Class C Shares in the amounts of $220,744 and
$25,747, respectively. In addition, for this period, the Fund paid
shareholder services fees on behalf of Class A Shares, Class B Shares, Class
C Shares, and Class F Shares in the amounts of $252,181, $73,581, $8,582, and
$805,707, respectively.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders begin
to earn dividends. Federated Shareholders Services acts as the shareholder's
agent in depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
The following individuals and their immediate family members may buy Class A
Shares and Class F Shares at net asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. and its affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement with
Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals.
These sales are made with the purchaser's written assurance that the purchase
is for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
The Fund's net asset value per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The net asset value for
each class of Shares may differ due to the variance in daily net income
realized by each class.
Net asset value is not determined on (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
VALUING MUNICIPAL BONDS
The Directors use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issuer, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities and
does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Directors have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Directors.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
respective prospectuses under "Redeeming and Exchanging Shares." Although
the transfer agent does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less
than $5,000.
REDEMPTION IN KIND
The Fund is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within
a 90-day period. Any redemption beyond this amount will also be in cash
unless the Directors determine that further payments should be in kind. In
such cases, the Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Directors deem fair and equitable. Redemption in kind is not
as liquid as a cash redemption. If redemption is made in kind, shareholders
who sell these securities could receive less than the redemption value and
could incur certain transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains;
(2) Shares held for more than six full years from the date of purchase with
respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for fewer than six years with
respect to Class B Shares and for less than one full year from the date of
purchase with respect to Class C Shares on a first-in, first-out basis.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
To qualify for elimination of the contingent deferred sales charge through a
Systematic Withdrawal Program, the redemptions of Class B Shares must be from
an account that is at least 12 months old, has all Fund distributions
reinvested in Fund Shares, and has an account value of at least $10,000 when
the Systematic Withdrawal Program is established. Qualifying redemptions may
not exceed 1% monthly of the account value as periodically determined by the
Fund. The amounts that a shareholder may withdraw under a Systematic
Withdrawal Program that qualify for elimination of the contingent deferred
sales charge may not exceed 12% annually with reference initially to the
value of the Class B Shares upon establishment of the Systematic Withdrawal
Program and then as calculated at the annual valuation date. Redemptions on a
qualifying Systematic Withdrawal Program can be made at a rate of 1% monthly,
3% quarterly, or 6% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12% annual limit for redemption, as
described, may be subject to the contingent deferred sales charge. To the
extent that a shareholder exchanges Shares for Class B Shares of other
Federated Funds, the time for which the exchanged-for Shares are to be held
will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the 12-month holding requirement. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B
Share accounts will be not be aggregated. Any Shares purchased prior to the
termination of this program would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase
of the Shares.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
* derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
* invest in securities within certain statutory limits; and
* distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio securities
and as a result of discounts from par value on securities held to maturity.
Sales would generally be made because of:
* the availability of higher relative yields;
* differentials in market values;
* new investment opportunities;
* changes in creditworthiness of an issuer; or
* an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested and regardless of the length of time the
shareholder has owned the Shares. Any loss by a shareholder on Shares held
for less than six months and sold after a capital gains distribution will be
treated as a long-term capital loss to the extent of the capital gains
distribution.
TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended August 31, 1998 were:
DATE OF INITIAL SINCE
SHARE CLASS PUBLIC INVESTMENT ONE-YEAR FIVE-YEARS TEN-YEARS INCEPTION
Class A 8/5/96 8.91% -- -- 8.17%
Class B 8/5/96 8.08% -- -- 7.34%
Class C 8/5/96 8.11% -- -- 7.36%
Class F 4/10/87 8.91% 5.34% 7.70% 7.46%
The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the offering price per Share at the end of
the period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with $1,000,
less any applicable sales charge, adjusted over the period by any additional
Shares, assuming a quarterly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted
from the ending value of the investments based on the lesser of the original
purchase price or the offering price of Shares redeemed.
YIELD
The Fund's yields for the thirty-day period ended August 31, 1998, were:
SHARE CLASS YIELD
Class A 4.33%
Class B 3.79%
Class C 3.79%
Class F 4.49%
The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class
of Shares over a thirty-day period by the maximum offering price per Share of
any class of Shares on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by any class of
Shares because of certain adjustments required by the SEC and, therefore, may
not correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yields for the thirty-day period ended August 31,
1998, were:
SHARE CLASS YIELD
Class A 6.01%
Class B 5.26%
Class C 5.26%
Class F 6.24%
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had to
earn to equal its actual yield, assuming a 28% tax and assuming that income is
100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and is
often free from state and local taxes as well. As the table below indicates,
a "tax-exempt" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable yields
TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951 over
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101 over
RETURN 25,350 61,400 128,100 278,450 $278,450
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund Shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio securities;
* changes in Fund expenses; and
* various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings and
offering price per Share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Fund uses in
advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the high
yield municipal bond funds category in advertising and sales literature.
LEHMAN BROTHERS REVENUE BOND INDEx is a total return performance benchmark
for the long-term, investment grade, revenue bond market. Returns and
attributes for the index are calculated semi-monthly.
LEHMAN BROTHERS MUNICIPAL BOND INDEX is a broad market performance benchmark
for the tax-exempt bond market.
MORNINGSTAR, INC., an independent rating service, is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS, INC.
Federated Investors, Inc. is dedicated to meeting investor needs which is
reflected in its investment decision making-- structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors. These traders handle trillions
of dollars in annual trading volume.
In the municipal sector, as of December 31, 1997, Federated Investors, Inc.
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The
Tax Foundation and the National Taxpayers Union regarding the tax obligations
of Americans.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated Investors, Inc. are: U.S. equity and
high yield--J. Thomas Madden; U.S. fixed income--William D. Dawson, III; and
global equities and fixed income-- Henry A. Frantzen. The Chief Investment
Officers are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $4.4 trillion to the more than 6,700 funds
available.*
Federated Investors, Inc., through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors, Inc. meets the needs of approximately 900 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Timothy C.
Pillion, Senior Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high rankings in several surveys
performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for
service quality measurement. The marketing effort to these firms is headed by
James F. Getz, President, Federated Securities Corp.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference to the Annual Report to Shareholders of the
Fund dated October 31, 1998 (File Nos. 33-11410 and 811-4533). A copy of this
report may be obtained without charge by contacting the Fund.
*Source: Investment Company Institute
Federated Municipal Opportunities Fund, Inc.
Class F Shares
PROSPECTUS
The Class F Shares of Federated Municipal Opportunities Fund, Inc. (the
"Fund") represent interests in a diversified, open-end, management
investment company (a mutual fund) that seeks a high level of current income
exempt from the federal regular income tax by investing primarily in a
professionally managed, diversified portfolio of municipal bonds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class F Shares of the Fund. Keep this prospectus for future
reference.
THE FUND MAY INVEST PRIMARILY IN LOWER RATED MUNICIPAL BONDS, COMMONLY REFERRED
TO AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF
LOSS OF PRINCIPAL AND INTEREST THAN INVESTMENTS IN HIGHER RATED MUNICIPAL
SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THIS FUND.
The Fund's investment adviser will endeavor to limit these risks through
diversifying the portfolio and through careful credit analysis of individual
issuers.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares dated November 30,
1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling 1-800-341-
7400. To obtain other information or to make inquiries about the Fund, contact
your financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 30, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights-Class F Shares 2
General Information 3
Calling the Fund 3
Year 2000 Statement 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Risks 5
High Yield Securities 6
Reducing Risks of Lower Rated Securities 6
Investment Limitations 7
Net Asset Value 7
Investing in the Fund 7
Purchasing Shares 7
Purchasing Shares Through a Financial Intermediary 8
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Systematic Investment Program 8
Eliminating the Sales Charge 8
Redeeming and Exchanging Shares 9
Redeeming or Exchanging Shares
Through a Financial Intermediary 9
Redeeming or Exchanging Shares by Telephone 9
Redeeming or Exchanging Shares by Mail 9
Requirements for Redemption 10
Requirements for Exchange 10
Systematic Withdrawal Program 10
Contingent Deferred Sales Charge 10
Account and Share Information 11
Confirmations and Account Statements 11
Dividends and Distributions 11
Accounts with Low Balances 11
Fund Information 11
Management of the Fund 11
Distribution of Class F Shares 12
Distribution Plan and Shareholder Services 12
Supplemental Payments
to Financial Institutions 12
Administration of the Fund 13
Administrative Services 13
Shareholder Information 13
Tax Information 13
Federal Income Tax 13
State and Local Taxes 14
Performance Information 14
Other Classes of Shares 14
Appendix 15
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee 0.60%
12b-1 Fee(2) 0.00%
Total Other Expenses 0.48%
Shareholder Services Fee(3) 0.25%
Total Operating Expenses 1.08%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within four
years of their purchase date. For a more complete description see "Contingent
Deferred Sales Charge."
(2) The Fund has no present intention of paying or accruing the 12b-1 fee
during the fiscal year ended August 31, 1999. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.25% of its
average daily net assets for the 12b-1 fee. See "Fund Information." Long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
(3) The maximum shareholder services fee is 0.25%.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Class F Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return; (2) redemption at the end of each
time period; and (3) payment of the maximum sales charge.
<S> <C>
1 Year $ 31
3 Years $ 55
5 Years $ 81
10 Years $155
<CAPTION>
You would pay the following expenses on the same investment,
assuming no redemption.
<S> <C>
1 Year $ 21
3 Years $ 44
5 Years $ 69
10 Years $140
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated October 9, 1998, on the Fund's
financial statements for the year ended August 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report
dated August 31, 1998, which is incorporated by reference. This table should
be read in conjunction with the Fund's financial statements and notes
thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.67 $10.33 $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23 $ 9.76
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.55 0.54 0.69 0.63 0.61 0.62 0.66 0.70 0.72 0.74
Net realized and unrealized
gain (loss)
on investments 0.38 0.37 (0.42) 0.15 (0.73) 0.51 0.39 0.40 (0.23) 0.49
Total from investment
operations 0.93 0.91 0.27 0.78 (0.12) 1.13 1.05 1.10 0.49 1.23
LESS DISTRIBUTIONS
Distributions from net
investment income (0.56) (0.57) (0.65) (0.63) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76)
NET ASSET VALUE,
END OF PERIOD $11.04 $10.67 $10.33 $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23
TOTAL RETURN(A) 8.91% 9.07% 2.47% 7.73% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.08% 1.08% 1.08% 1.08% 1.09% 1.09% 1.05% 1.02% 1.01% 0.90%
Net investment income 4.98% 5.23% 5.91% 6.18% 5.56% 5.65% 6.18% 6.86% 7.07% 7.27%
Expense waiver/
reimbursement(b) 0.00% 0.01% 0.01% 0.00% 0.00% 0.00% 0.14% 0.33% 0.39% 0.83%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $317,178 $331,588 $383,028 $426,010 $472,232 $458,331 $248,768 $135,628 $89,907 $62,501
Portfolio turnover 41% 20% 22% 13% 27% 7% 14% 18% 24% 24%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHUR INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED AUGUST 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on November
26, 1986. Shares of the Fund are offered in four classes of shares known as
Class A Shares, Class B Shares, Class C Shares, and Class F Shares which
represent interests in a single portfolio of securities. The Fund is designed
for individuals as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of high income municipal bonds.
This prospectus relates to Class F Shares ("Shares") of the Fund.
The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Fund's
service providers (among them, the adviser, distributor, administrator and
transfer agent) must ensure that their computer systems are adjusted to
properly process and calculate date-related information from and after
January 1, 2000. Many software programs and, to a lesser extent, the computer
hardware in use today cannot distinguish the year 2000 from the year 1900.
Such a design flaw could have a negative impact in the handling of securities
trades, pricing and accounting services. The Fund and its service providers
are actively working on necessary changes to computer systems to deal with
the year 2000 issue and believe that systems will be year 2000 compliant when
required. Analysis continues regarding the financial impact of instituting a
year 2000 compliant program on the Fund's operations.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide a high level of current
income which is generally exempt from the federal regular income tax (federal
regular income tax does not include the federal alternative minimum tax). The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of municipal bonds. As a matter of fundamental
investment policy, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax. As a matter
of non-fundamental investment policy, under normal circumstances, the Fund
will invest primarily in lower quality municipal bonds. These bonds will
usually offer higher yields than higher rated bonds but involve greater
investment risk at the time of issue. (See "Investment Risks.")
INVESTMENT POLICIES
Unless otherwise designated, the investment policies described below may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
Municipal bonds are debt obligations issued by or on behalf of states,
territories and possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies and instrumentalities,
the interest from which is exempt from the federal regular income tax. It is
likely, however, that shareholders will be required to include interest from
a portion of the municipal bonds owned by the Fund in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
CHARACTERISTICS
The municipal bonds in which the Fund generally invests are rated Baa or
lower by Moody's Investors Service, Inc. ("Moody's") or rated BBB or lower by
Standard & Poor's ("S&P"). The Fund may buy bonds which are unrated but which
the adviser judges to be similar in quality to those rated bonds which it
purchases. (See "High Yield Securities.") A description of the ratings
categories is contained in the Appendix to this prospectus.
The Fund may invest any or all of its assets in higher quality tax-exempt
securities when the difference in returns between those securities and lower
quality securities is very narrow or when the adviser expects increased
volatility in interest rates. This may reduce the Fund's current income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure
to complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Fund may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. The Fund may realize short-term profits or losses upon the sale
of such commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which represent
interests in municipal securities. The Fund intends to purchase inverse
floaters to assist in duration management and to seek current income. These
obligations pay interest rates that vary inversely with changes in the
interest rates of specified short-term municipal securities or an index of
short-term municipal securities. The interest rates on inverse floaters will
typically decline as short-term market interest rates increase and increase
as short-term market rates decline. Inverse floaters will generally respond
to changes in market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). As a result, the market values of
inverse floaters will generally be more volatile than the market values of
fixed-rate municipal securities. Typically, the portion of the portfolio
invested in inverse floaters will be subject to additional volatility.
FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial futures
contracts. These financial futures contracts may be used to hedge all or a
portion of its portfolio against changes in the market value of portfolio
securities and interest rates, provide additional liquidity, and accomplish
its current strategies in a more expeditious fashion. Financial futures
contracts call for the delivery of particular debt instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
As a matter of investment policy, which may be changed without shareholder
approval, the Fund may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures positions would exceed 5% of the market value of the Fund's total
assets. When the Fund purchases futures contracts, an amount of municipal
securities, cash or cash equivalents, equal to the underlying commodity value
of the futures contracts (less any related margin deposits), will be
deposited in a segregated account with the Fund's custodian (or the broker,
if legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio. This may cause the
futures contract to react differently than the portfolio securities to market
changes. In addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as interest
rate movements.
In these events, the Fund may lose money on the futures contract. It is not
certain that a secondary market for positions in futures contracts will exist
at all times. Although the investment adviser will consider liquidity before
entering into futures transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any particular
futures contract at any particular time. The Fund's ability to establish and
close out futures positions depends on this secondary market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual interest
income is exempt from the federal regular income tax, except when investing
for "defensive" purposes as described below. This policy cannot be changed
without approval of shareholders. From time to time on a temporary basis, or
when the investment adviser determines that market conditions call for a
temporary defensive posture, the Fund may invest all of its assets in higher
quality tax-exempt or taxable temporary investments. These temporary
investments include: fixed or variable rate notes issued by or on behalf of
municipal or corporate issuers; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase
agreements (arrangements in which the organization selling the Fund a bond or
temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to those it
considers to be of good quality.
OTHER INVESTMENT TECHNIQUES
The Fund may purchase a right to sell a security held by it back to the issuer
or to another party at an agreed upon price at any time during a stated period
or on a certain date. These rights may be referred to as "liquidity puts" or
"standby commitments."
The Fund may also hedge all or a portion of its investments by entering into
futures contracts or options on them. Any gains realized on futures contracts
and options thereon are taxable. The Fund will notify shareholders before it
engages in these futures transactions.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security may have been held.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. Municipal bonds are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities. Certain types of "private activity" municipal bonds are issued to
obtain funding for privately operated facilities.
There are two categories of municipal bonds: general obligation and revenue.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility. Payment of principal and interest on such bonds is dependent solely
on the revenue generated by the facility financed by the bond or other
specified sources of revenue or collateral. Private activity bonds are
typically one type of "revenue" bonds.
In most cases, lower quality bonds are private activity bonds or other
revenue bonds which are not payable from general tax revenues. The Fund may
invest more than 25% of the value of its assets in private activity bonds
which may result in more than 25% of the Fund's assets being invested in one
industry. It is also possible that the Fund may from time to time invest more
than 25% of its assets in health care facilities revenue obligations, housing
agency revenue obligations or electric utility obligations. Economic,
business, political and other developments generally affecting the revenues
of issuers in such a market segment (for example, proposed legislation or
pending court decisions affecting the financing of projects and market
factors affecting the demand for their services or products) may have a
general adverse impact on all municipal bonds in the segment.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state,
territory or possession of the United States.
INVESTMENT RISKS
The value of Shares will fluctuate. The amount of this fluctuation is
dependent upon the quality and maturity of the municipal bonds in the Fund's
portfolio as well as on market conditions. Generally speaking, the lower
quality, long-term bonds in which the Fund invests have greater fluctuation
in value than high quality, shorter-term bonds.
Municipal bond prices are interest rate sensitive, which means that their
value varies inversely with market interest rates. Thus, if market interest
rates have increased from the time a bond was purchased, the bond, if sold,
might be sold at a price less than its cost. Similarly, if market interest
rates have declined from the time a bond was purchased, the bond, if sold,
might be sold at a price greater than its cost. (In either instance, if the
bond was held to maturity, no loss or gain normally would be realized as a
result of interim market fluctuations.)
Prices of lower grade bonds also fluctuate with changes in the perceived
quality of the credit of their issuers. Consequently, Shares may not be
suitable for persons who cannot assume the somewhat greater risks of capital
depreciation associated with higher tax-exempt income yields. In addition,
lower grade bonds have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated bonds.
A large portion of the Fund's portfolio may be invested in bonds whose
interest payments are from revenues of similar projects (such as housing or
hospitals) or where issuers share the same geographic location. As a result,
the Fund may be more susceptible to similar economic, political or regulatory
developments than would a portfolio of bonds with a greater geographic and
project variety. This susceptibility may result in greater fluctuations in
share price.
Many issuers of municipal bonds which have characteristics of rated bonds
choose to not have their obligations rated. Unrated bonds may carry a greater
risk and a higher yield than rated securities. Although unrated bonds are not
necessarily of lower quality, the market for them may not be as broad as that
for rated bonds since many investors rely solely on the major rating agencies
for credit appraisal.
HIGH YIELD SECURITIES
The Fund invests in municipal securities rated Ba or lower by Moody's or
rated BB or lower by S&P (commonly known as "junk bonds"). There is no
minimal acceptable rating for a security to be purchased or held in the
Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category or securities in default.
Lower rated securities will usually offer higher yields than higher rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Regarding lower rated debt securities: (i) an economic downturn may have a
more significant effect on the yield, price and potential for default as
compared to debt securities of higher quality; (ii) the secondary market for
such securities may at times be less liquid or respond more adversely to
negative publicity or investor perceptions, making it more difficult to value
or dispose of the securities; (iii) the likelihood that these securities will
help the Fund achieve its investment objective is more dependent on the
adviser's own credit analysis; and (iv) lower rated debt securities may be
less sensitive to interest rate changes.
The Fund may, from time to time, own zero coupon bonds. A zero coupon bond
makes no periodic interest payments and the entire obligation becomes due
only upon maturity. The prices of zero coupon bonds are generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Although these securities pay no interest to holders prior to maturity,
interest on these securities is reported as income to the Fund and
distributed to shareholders.
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REDUCING RISKS OF LOWER RATED SECURITIES
The Fund's investment adviser believes that the risks of investing in lower
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:
CREDIT RESEARCH
When purchasing bonds, rated or unrated, the Fund's investment adviser
performs its own credit analysis in addition to using recognized rating
agencies. This credit analysis considers the economic feasibility of revenue
bond project financing and general purpose borrowings, the financial
condition of the issuer or guarantor with respect to liquidity, cash flow and
ability to meet anticipated debt service requirements, and political
developments that may affect credit quality.
DIVERSIFICATION
The Fund invests in securities of many different issuers to reduce portfolio
risks.
ECONOMIC ANALYSIS
The Fund's adviser also considers trends in the overall economy, in
geographic areas, in various industries, and in the financial markets.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a percentage
of its cash value with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may, exclusive of
custodian intra-day cash advances and the collateralization of such
advances, borrow up to one-third of the value of its total assets and pledge
up to 10% of the value of those assets to secure such borrowings; or
* invest more than 10% of its net assets in securities subject to
restrictions on resale under the Securities Act of 1933, except for certain
restricted securities which meet the criteria for liquidity as established by
the Directors.
* The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
* The Fund will not invest more than 5% of its total assets in securities of
one issuer (except cash and cash items and U.S. government obligations).
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV
is determined as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) every day the New York Stock Exchange is
open.
INVESTING IN THE FUND
This prospectus offers Class F Shares with the characteristics described
below.
CLASS F
Minimum and Subsequent
Investment Amount $1500/$100
Maximum Sales Charge* 1.00%
Maximum Contingent Deferred
Sales Charge** 1.00%
* This is 1.01% of the net amount invested. There is no sales charge for
purchases of $1 million or more. In addition, no sales charge is imposed for
Shares purchased through certain entities or programs. Please see the section
entitled "Eliminating the Sales Charge."
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
The following contingent deferred sales charge schedule applies to Class F
Shares:
CONTINGENT
DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
Up to $1,999,999 Four Years or less 1.00%
$2,000,000 to $4,999,999 Two Years or less 0.50%
$5,000,000 or more One Year or less 0.25%
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through
a financial intermediary (such as a bank or broker/dealer) or by sending a
wire or check directly to the Fund. Financial intermediaries may impose
different minimum investment requirements on their customers. An account
must be established with a financial intermediary or by completing, signing,
and returning the new account form available from the Fund before Shares can
be purchased. Shareholders in Class F Shares of certain other funds advised
and distributed by affiliates of Federated Investors, Inc. ("Federated
Funds") may exchange their Shares for Class F Shares of the Fund. The Fund
reserves the right to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to
time, offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when
the Fund is notified of the purchase order or when payment is converted into
federal funds. Purchase orders through a broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. Purchase orders through other financial
intermediaries must be received by the financial intermediary and transmitted
to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. It is the financial intermediary's
responsibility to transmit orders promptly. Financial intermediaries may
charge fees for their services.
The financial intermediary which maintains investor accounts in Class F Shares
with the Fund must do so on a fully disclosed basis unless it accounts for
share ownership periods used in calculating the contingent deferred sales
charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: Federated Shareholder Services Company, c/
o State Street Bank and Trust Company, Boston, MA 02266-8600; Attention:
EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number-this number
can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee
or Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in the Fund.
Shareholders should contact their financial intermediary or the Fund to
participate in this program.
ELIMINATING THE SALES CHARGE
Class F Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES PURCHASED:
* through bank trust departments or investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients;
* by sales representatives, Directors, and employees of the Fund, Federated
Advisers, Federated Securities Corp. or their affiliates and their immediate
family members;
* by any investment dealer who has a sales agreement with Federated Securities
Corp. and their immediate family members, or by any trusts or pension or
profit-sharing plans for these persons or retirement plans where the third
party administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates.
IN ADDITION, THE SALES CHARGE CAN BE ELIMINATED BY:
* purchasing Class F Shares in quantity;
* combining concurrent purchases of Class F Shares
* by you, your spouse, and your children under age 21, or;
* of two or more Federated Funds (other than money market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase of Class A Shares, you may count the current value of previous Class
A Share purchases still invested in the Fund);
* signing a letter of intent to purchase a specific dollar amount of Class F
Shares within 13 months; or
* using the reinvestment privilege within 120 days of redeeming Class F Shares
of an equal or lesser amount.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales
charge reductions, Federated Securities Corp. must be notified by the
shareholder in writing or by a financial intermediary at the time of
purchase.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 100% of the
appicable sales charge. Any portion of the sales charge which is not paid to
a dealer will be retained by the distributor. However, the distributor may
offer to pay dealers up to 100% of the sales charge retained by it. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts
and purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Class F Shares
of other Federated Funds on days on which the Fund computes its NAV. Shares
are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like Share class, in a pre-determined amount on a monthly,
quarterly, or annual basis, may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or your
financial intermediary. Depending upon the circumstances, a capital gain or
loss may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions
to be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m.
(Eastern time), while broker/dealers must transmit the request to the Fund
before 5:00 p.m. (Eastern time). The financial intermediary is responsible for
promptly submitting transaction requests and providing proper written
instructions. Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for these
transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for
these transactions must be on file with the Fund. Shares held in certificate
form must first be returned to the Fund as described in the instructions
under "Redeeming or Exchanging Shares by Mail." Redemption proceeds will
either be mailed in the form of a check to the shareholder's address of
record or wire-transferred to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. The minimum
amount for a wire transfer is $1,000. Proceeds from redeemed Shares purchased
by check or through an ACH member will not be wired until that method of
payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone.
If this occurs, "Redeeming or Exchanging Shares by Mail" should be
considered. The telephone transaction privilege may be modified or terminated
at any time. Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written
request to: Federated Shareholder Services Company, Fund Name, Share Class,
P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been
issued, they must accompany the written request. It is recommended that
certificates be sent unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number
of Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to
be made. All owners of the account must sign the request exactly as the
Shares are registered. A check for redemption proceeds is normally mailed
within one business day, but in no event more than seven days, after receipt
of a proper written redemption request. Dividends are paid up to and
including the day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record, must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum
investment requirements of the fund into which the exchange is being made.
Contact your financial intermediary directly or the Fund for free information
on, and prospectuses for, the Federated Funds into which your Shares may be
exchanged. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class
of shares of the other fund. Signature guarantees will be required to
exchange between fund accounts not having identical shareholder
registrations. The exchange privilege may be modified or terminated at any
time. Shareholders will be notified of the modification or termination of the
exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To
be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation
in this program through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete, the
shareholder's investment in the Fund, payments under this program should not
be considered as yield or income. It is not advisable for shareholders to
continue to purchase Class F Shares subject to a sales charge while
participating in this program. A contingent deferred sales charge will be
imposed on Shares redeemed through this program within four years of their
purchase dates.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. The contingent deferred sales charge will not be imposed with
respect to Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains. In determining the applicability of
the contingent deferred sales charge, the required holding period for your
new Shares received through an exchange will include the period for which
your original Shares were held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiaries;
* representing a total or partial distribution from an Individual Retirement
Account, Keogh Plan, or a custodial account to a shareholder who has attained
the age of 70-1/2;
* representing a total or partial distribution from a qualified plan, other
than an individual Retirement Account, Keogh Plan, or a custodial account
following retirement;
* which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
* which are reinvested in the Fund under the reinvestment privilege;
* of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, employees of any
financial intermediary that sells Shares of the Fund pursuant to a sales
agreement with the distributor, and their immediate family members to the
extent that no payments were advanced for purchases made by these persons;
and
* of Shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940 or retirement
plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial intermediary, to the extent that no payments were advanced for
purchases made through such entities.
For more information regarding the contingent deferred sales charge or any of
the above provisions, contact your financial intermediary or the Fund. The
Fund reserves the right to discontinue or modify these provisions.
Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund
on payment dates at the ex-dividend date NAV without a sales charge, unless
shareholders request cash payments on the new account form or by contacting
the transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum
investment amount. Accounts where the balance falls below the minimum due to
NAV changes will not be closed in this manner. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
FUND INFORMATION
MANAGEMENT OF THE FUND
DIRECTORS
The Fund is managed by the Board of Directors. The Directors are responsible
for managing the Fund's business affairs and for exercising all the Fund's
powers except those reserved for the shareholders. An Executive Committee of
the Directors handles the Director's responsibilities between meetings of
the Directors.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily choose to waive
a portion of its fee or reimburse the Fund for certain operating expenses.
The Adviser can terminate this voluntary waiver of its advisory fee at any
time at its sole discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors, Inc. All of the Class A
(voting) shares of Federated Investors, Inc. are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Director of Federated
Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Director of Federated Investors, Inc.
Federated Advisers and other subsidiaries of Federated Investors, Inc.
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $120 billion
invested across more than 300 funds under management and/or administration
by its subsidiaries, as of December 31, 1997, Federated Investors, Inc. 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. The Federated Funds are
presently at work in and through approximately 4,000 financial
institutions nationwide.
Mary Jo Ochson has been the Fund's portfolio manager since May 1996. Ms.
Ochson joined Federated Investors, Inc. or its predecessor in 1982 and has
been a Senior Vice President of the Fund's investment adviser since January
1996. From 1988 through 1995, Ms. Ochson served as a Vice President of the
Fund's investment adviser. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of Pittsburgh.
J. Scott Albrecht has been the Fund's portfolio manager since May 1996. Mr.
Albrecht joined Federated Investors, Inc. or its predecessor in 1989 and has
been a Vice President of the Fund's investment adviser since 1994. From 1992
to 1994, Mr. Albrecht served as an Assistant Vice President of the Fund's
investment adviser. Mr. Albrecht is a Chartered Financial Analyst and
received his M.S. in Public Management from Carnegie Mellon University.
Both the Fund and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead of
the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are subject
to review by the Directors, and could result in severe penalties.
DISTRIBUTION OF CLASS F SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors, Inc.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Plan"), the distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment advisers
and brokers/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. The Fund is not currently
making payments for Class F Shares under the Distribution Plan, nor does it
anticipate doing so in the immediate future.
The distributor will pay financial institutions a fee based upon Shares
subject to the Plan and owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be determined
from time to time by the Directors of the Fund provided that for any period
the total amount of these fees shall not exceed an annual rate of 0.25% of
the average net asset value of shares subject to the Plan held during the
period by clients or customers of financial institutions. The current annual
rate of such fees is 0.25%. Any fees paid by the distributor under the Plan,
will be reimbursed from the assets of the Fund.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, Inc.,
under which the Fund may make payments up to 0.25% of the average daily net
asset value of the Fund to obtain certain personal services for shareholders
and to provide the maintenance of shareholder accounts. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
The distributor will pay brokers and financial institutions, for distribution
and/or administrative services, an amount equal to 1% of the offering price
of the shares acquired by their clients or customers on purchases up to
$1,999,999, 0.50% of the offering price on purchases of $2,000,000 to
$4,999,999, and 0.25% of the offering price on purchases of $5,000,000 or
more. (This fee is in addition to the 1% sales charge on purchases of less
than $1 million.) Any fees paid by the distributor pursuant to these
administrative arrangements will be reimbursed by the Adviser. The
administrator may elect to receive amounts less than those stated, which
would reduce the stated contingent deferred sales charge and/or the holding
period used to calculate the fee.
Furthermore, in addition to payments made pursuant to the Plan and
Shareholder Services Agreement, the distributor and Federated Shareholder
Services may pay a supplemental fee from their own assets to financial
institutions as financial assistance for providing substantial sales
services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars
at recreational-type facilities for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor and Federated Shareholder Services may
be reimbursed by the Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all of the Federated Funds as
specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
portfolio or class in the Fund have equal voting rights, except that in
matters affecting only a particular portfolio or class, only Shares of that
portfolio or class are entitled to vote.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
As of November 5, 1998, the following shareholder of record owned 25% or more
of the outstanding Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class F Shares for its clients), Jacksonville,
Florida, owned approximately 7,368,354 Class F Shares (25.97%) and,
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies. Shareholders are not required to pay the federal regular income
tax on any dividends received from the Fund that represent net interest on
tax-exempt municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal bonds may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the regular
tax for the taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity"
bonds issued after August 7, 1986, as a tax preference item for both
individuals and corporations. Unlike traditional governmental purpose
municipal bonds, which finance roads, schools, libraries, prisons and other
public facilities, private activity bonds provide benefits to private
parties. The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternate minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
Because interest received by the Fund may not be exempt from all state and
local income taxes, shareholders may be required to pay state and local taxes
on dividends received from the Fund. Shareholders are urged to consult their
own tax advisers regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and tax-
equivalent yield for Class F Shares including Class A Shares, Class B Shares,
and Class C Shares as described under "Other Classes of Shares."
Total return represents the change, over a specific period of time, in the
value of an investment in Shares after reinvesting all income and capital
gain distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by
the maximum offering price per share of Shares on the last day of the period.
This number is then annualized using semi-annual compounding. The tax-
equivalent yield of Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that Shares would have had to earn to
equal its actual yield, assuming a specific tax rate. The yield and the tax-
equivalent yield do not necessarily reflect income actually earned by Shares
and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The performance information reflects the effect of the maximum sales charge
and other similar non-recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield, and
tax-equivalent yield.
Total return, yield and tax-equivalent yield will be calculated separately
for Class A Shares, Class B Shares, Class C Shares, and Class F Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Class A Shares, Class B
Shares, and Class C Shares which are all sold primarily to customers of
financial institutions subject to certain differences.
Class A Shares are sold at net asset value subject to a front-end sales
charge, and a shareholder services fee, and are distributed pursuant to a
Rule 12b-1 Plan. Investments in Class A Shares are subject to a minimum
initial investment of $500.
Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a shareholder services fee, and are distributed pursuant to a
Rule 12b-1 Plan. Investments in Class B Shares are subject to a minimum
initial investment of $1,500.
Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a shareholder services fee, and are distributed pursuant to a
Rule 12b-1 Plan. Investments in Class C Shares are subject to a minimum
investment of $1,500.
Class A Shares, Class B Shares, Class C Shares, and Class F Shares are
subject to certain of the same expenses. Expense differences, however,
between Class A Shares, Class B Shares, Class C Shares, and Class F Shares
may affect the performance of each class.
To obtain more information and a combined prospectus for Class A Shares,
Class B Shares, and Class C Shares, investors may call 1-800-341-7400 or
contact their financial institution.
APPENDIX
MUNICIPAL BOND RATING DEFINITIONS
STANDARD & POOR'S
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's("S&P"). Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC--Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "B" or "B-" rating.
CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C--The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
D--Debt rated "D" is in payment default. The "D" rating category is used when
debt service payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if debt
service payments are jeopardized.
PLUS (+) OR MINUS (-)--The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2, OR 3--The ratings from "Aa" to "Caa" may be modified by the addition of
the numbers 1, 2, or 3, to show relative standing in each rating
classification. The modifier 1 indicates that the issue ranks in the higher
end of its rating category; the modifier 2 indicates a mid-range ranking ;
and the modifier 3 indicates that the issue ranks in the lower end of its
rating category.
[GRAPHIC]
Federated Investors
Federated Municipal
Opportunities Fund, Inc.
Class F Shares
PROSPECTUS
NOVEMBER 30, 1998
A Diversified, Open-End,Management Investment Company
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
CLASS F SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 313910101
G00570-02-F (11/98)
[GRAPHIC]
PART C. OTHER INFORMATION.
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements: Incorporated by reference to the
Annual Report of the Registrant, dated August 31,
1998 (File Nos.
33-11410 and 811-4533);
(b) Exhibits:
(1) (i) Conformed copy of Articles of Incorporation of the
Registrant; (1) (ii) Conformed copy of Amendment to
Articles of Incorporation; (6)
(iii) Conformed copy of Amended and Restated Articles
of Incorporation of Federated Municipal
Opportunities Fund, Inc.; (10)
(iv) Conformed copy of Federated Municipal
Opportunities Fund, Inc. Certificate of
Correction; (10)
(2) (i) Copy of Amended and Restated By-Laws of the
Registrant; (10)
(ii) Copy of Amendment #6 to the By-Laws of the
Registrant; (13) (iii) Copy of Amendment #7 to the
By-Laws of the Registrant; (13)
(iv) Copy of Amendment #8 to the By-Laws of the
Registrant; (13) (3) Not applicable; (4) (i) Copy of Specimen
Certificate for Class A Shares; (10)
(ii) Copy of Specimen Certificate for Class B Shares;
(10) (iii) Copy of Specimen Certificate for Class C
Shares; (10)
(iv) Copy of Specimen Certificate for Class F Shares;
(10) (5) Conformed copy of the Investment Advisory Contract
of the Registrant; (4) (6) (i) Conformed copy of
Distributor's Contract of the Registrant; (10)
(ii) Conformed copy of Exhibits A and C to the
Distributor's Contract; (10)
- ------------------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 filed August 25, 1989. (File Nos. 33-11410 and 811-4533)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 filed October 24, 1990. (File Nos. 33-11410 and 811-4533)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed October 25, 1996. (File Nos. 33-11410 and 811-4533)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed October 1, 1998. (File Nos. 33-11410 and 811-4533)
<PAGE>
(iii) Conformed copy of Exhibit D to the Distributor's
Contract; (13)
(iv) Conformed copy of Distributor's Contract for Class
B Shares of the Registrant, and Schedule A thereto;
(13) (v) 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 Series II Registration
Statement on Form N-1A, filed with the Commission
on July 24, 1995. (File Nos.
33-38550 and 811-6269);
(7) Not applicable;
(8) (i) Conformed copy of Custodian Agreement of the
Registrant; (8)
(ii) Conformed copy of Custodian Fee Schedule; (12)
(9) (i) Conformed copy of Amended and Restated Agreement
for Fund Accounting Services, Administrative
Services, Transfer
Agency Services, and Custody Services
Procurement; (13)
(ii) Conformed copy of Amended and Restated Shareholder
Services Agreement; (12) (iii) Conformed copy of
Principal Shareholder Servicer's Agreement; (13)
(iv) Conformed copy of Exhibit 1 to the Principal
Shareholder Servicer's Agreement and Schedule A
thereto; (13) (v) Conformed copy of Shareholder
Services Agreement for Class B Shares; (13)
(vi) Conformed copy of Exhibit 1 to the Shareholder
Services Agreement for Class B Shares, and
Schedule A thereto; (13)
(vii) The responses described in Item 24(b)(6)(v) are
hereby incorporated by reference;
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (8)
(11) Conformed copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (8)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan as
amended; (10)
- ------------------------
+ All exhibits have been filed electronically.
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed October 25, 1995. (File Nos. 33-11410 and 811-4533)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed October 25, 1996. (File Nos. 33-11410 and 811-4533)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 filed October 31, 1997. (File Nos. 33-11410 and 811-4533)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed October 1, 1998. (File Nos. 33-11410 and 811-4533)
<PAGE>
(ii)Conformed copy of Exhibit 1 (Amendment to the Distribution Plan)
and Schedule A
thereto; (13)
(iii)The responses described in Item
24(b)(6)(iii)are hereby incorporated by
reference;
(16) Copy of Schedule for Computation of Yield Calculation;
(8)
(17) Copy of Financial Data Schedules; +
(18) 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); and
(19) Conformed copy of Power of Attorney. +
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
None
Item 26. NUMBER OF HOLDERS OF SECURITIES:
Number of Record Holders
TITLE OF CLASS AS OF NOVEMBER 5, 1998
-------------- -----------------------
Shares of Capital Stock
($0.001 per Share par value)
Class A Shares 2,465
Class B Shares 1,241
Class C Shares 106
Class F Shares 7,546
Item 27. INDEMNIFICATION: (1)
- ------------------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed September 10, 1997. (File Nos. 33-11410 and
811-4533)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed October 1, 1998. (File Nos. 33-11410 and 811-4533)
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
(a) For a description of the other business of the investment adviser, see
the section entitled "Fund Information -- Management of the Fund" in
Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under "Federated Municipal
Opportunities Fund, Inc. Management." The remaining Trustee of the
investment adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson (Partner,
Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown, Delaware
19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B of
this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; Riggs Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief Director
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant.................... Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company............ Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Services............ Federated Investors Tower
Company Pittsburgh, PA 15222-3779
("Administrator")
Federated Advisers............ Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust... P.O. Box 8600
Company Boston, MA 02266-8600
("Custodian")
Item 31. MANAGEMENT SERVICES: Not applicable.
Item 32. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC., certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 25th day of November, 1998.
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
BY: /s/ Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
November 25, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Matthew S. Hardin Attorney In Fact November 25, 1998
Matthew S. Hardin For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
John W. McGonigle* Executive Vice President, Treasurer
and Secretary
Thomas G. Bigley* Director
Nicholas P. Constantakis* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd, Esq.* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr., Esq.* Director
Peter E. Madden* Director
John E. Murray, Jr., J.D.,S.J.D.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
Federated Municipal Opportunities Fund, Inc.:
We consent to the incorporation by reference in this Post-Effective
Amendment No. 22 to Registration Statement (No. 33-11410) of Federated Municipal
Opportunities Fund, Inc. of our report dated October 9, 1998 appearing in the
Annual Report, and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which is a part of such Registration Statement.
/S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
November 23, 1998
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints the
Secretary and Assistant Secretaries of FEDERATED MUNICIPAL OPPORTUNITIES FUND,
INC. and each of them, their true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for them and in their names, place
and stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, the Securities Exchange Act of 1934 and the Investment Company Act of
1940, by means of the Securities and Exchange Commission's electronic disclosure
system known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/S/JOHN F. DONAHUE Chairman and Director October 6, 1998
- ---------------------------------
John F. Donahue (Chief Executive Officer)
/S/RICHARD B. FISHER President and Director October 6, 1998
- ---------------------------------
/S/JOHN W. MCGONIGLE Treasurer, Executive October 6, 1998
- ---------------------------------
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)
/S/THOMAS G. BIGLEY Director October 6, 1998
Thomas G. Bigley
/S/NICHOLAS P. CONSTANTAKIS Director October 6, 1998
Nicholas P. Constantakis
/S/JOHN T. CONROY, JR. Director October 6, 1998
- ---------------------------------
John T. Conroy, Jr.
/S/WILLIAM J. COPELAND Director October 6, 1998
William J. Copeland
<PAGE>
SIGNATURES TITLE DATE
/S/JAMES E. DOWD Director October 6, 1998
James E. Dowd
/S/LAWRENCE D. ELLIS, M.D. Director October 6, 1998
- ---------------------------------
Lawrence D. Ellis, M.D.
/S/EDWARD L. FLAHERTY, JR. Director October 6, 1998
- ---------------------------------
Edward L. Flaherty, Jr.
/S/PETER E. MADDEN Director October 6, 1998
Peter E. Madden
/S/JOHN E. MURRAY, JR. Director October 6, 1998
- ---------------------------------
John E. Murray, Jr.
/S/WESLEY W. POSVAR Director October 6, 1998
Wesley W. Posvar
/S/MARJORIE P. SMUTS Director October 6, 1998
Marjorie P. Smuts
Sworn to and subscribed before me this 6 day of OCTOBER, 1998
/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
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- Class A Shares
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<REALIZED-GAINS-CURRENT> 4,375,593
<APPREC-INCREASE-CURRENT> 11,688,975
<NET-CHANGE-FROM-OPS> 38,535,988
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,141,911)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 2,396,950
<NUMBER-OF-SHARES-REDEEMED> (1,457,233)
<SHARES-REINVESTED> 325,421
<NET-CHANGE-IN-ASSETS> 17,237,984
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<OVERDISTRIB-NII-PRIOR> (205,035)
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<GROSS-ADVISORY-FEES> 2,736,122
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<GROSS-EXPENSE> 5,161,275
<AVERAGE-NET-ASSETS> 100,873,325
<PER-SHARE-NAV-BEGIN> 10.670
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> 0.390
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- Class B Shares
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<PERIOD-END> Aug-31-1998
<INVESTMENTS-AT-COST> 459,926,706
<INVESTMENTS-AT-VALUE> 484,587,079
<RECEIVABLES> 9,738,690
<ASSETS-OTHER> 0
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<TOTAL-ASSETS> 494,325,769
<PAYABLE-FOR-SECURITIES> 10,271,740
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,400,843
<TOTAL-LIABILITIES> 11,672,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 464,057,722
<SHARES-COMMON-STOCK> 4,262,618
<SHARES-COMMON-PRIOR> 1,406,348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (795,209)
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