ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated Municipal Opportunities Fund, Inc.
President's Message
Dear Fellow Shareholder:
Federated Municipal Opportunities Fund, Inc. was created in 1987, and I am
pleased to present its 13th Annual Report. The fund invests in 181 tax-free
bonds that provide tax-free income to shareholders. For the last decade, the
fund has earned a 4-star rating by Morningstar, 1 and 79% of the fund's holdings
are rated "BBB" or better. The purchasers of this fund want to avoid federal
taxes on the income of their investment. The fund's investment objective is to
provide shareholders with a high level of current income which is generally
exempt from federal regular income tax.2
At the end of the reporting period, the fund's $457.5 million portfolio was
invested across 181 tax-free securities issued by municipalities in 39 states,
the District of Columbia and Puerto Rico. This report covers the 12-month
reporting period from September 1, 1998 through August 31, 1999. It begins with
an interview with Mary Jo Ochson, Senior Vice President, who co-manages the fund
with J. Scott Albrecht, Vice President, both of Federated Investment Management
Company, the fund's investment adviser. Following their comments covering the
municipal market, the fund's performance, and investment strategy are three
additional items of shareholder interest. First is a series of graphs showing
the fund's long-term investment performance. Second is a complete listing of the
fund's broadly diversified municipal bond holdings, and third is the publication
of the fund's financial statements.
Over the 12-month reporting period, the broad bond market was weak from a total
return perspective as rising rates caused bond prices to decline. Although
municipal bond prices also suffered from this trend, municipal bonds continued
to offer historically high yields compared to the yields available on Treasury
securities. As a result, Federated Municipal Opportunities Fund, Inc. produced a
very competitive stream of income.
1 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.
2 State, local, and federal alternative minimum taxes may apply.
Due to its high-coupon bond holdings, the fund was able to deliver a yield
advantage over the average municipal bond fund. The fund's 30-day SEC yield for
Class A Shares on August 31, 1999 was 4.66%, based on offering price (i.e., less
any applicable sales charge). 3 This is the equivalent of a 7.72% yield on a
taxable bond investment for an investor in the 39.6% federal income tax bracket
and equivalent to taxable yields of 7.28% and 6.75% for investors in the 36% and
31% tax brackets, respectively.
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows. 4
<TABLE>
<CAPTION>
TOTAL RETURN INCOME NET ASSET VALUE CHANGE <S> <C> <C> <C>
Class A Shares (2.58%) $0.55 $11.04 to $10.22 = (7.43%) Class B Shares (3.23%)
$0.47 $11.03 to $10.22 = (7.34%) Class C Shares (3.24%) $0.47 $11.03 to $10.22 =
(7.34%) Class F Shares (2.58%) $0.55 $11.04 to $10.22 = (7.43%) </TABLE>
Thank you for investing a portion of your wealth in Federated Municipal
Opportunities Fund, Inc. You are one of approximately 12,000 shareholders who
earn monthly investment income free from federal tax. Of course, you have the
option of receiving income from the fund or building your account by reinvesting
your dividends to compound tax-free. As always, we welcome your comments and
suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
October 15, 1999
3 The 30-day current SEC yield is calculated by dividing the investment income
per share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day current SEC yield as
of August 31, 1999 for Class B, C, and F Shares were 4.12%, 4.12% and 4.83%,
respectively, based on offering price (i.e., less any applicable sales charge).
The taxable yield equivalents, based on offering price (i.e., less any
applicable sales charge), for investors in 39.6%, 36%, and 31% federal tax
brackets were as follows: Class B Shares: 6.82%, 6.44% and 5.97%, respectively;
Class C Shares: 6.82%, 6.44% and 5.97%, respectively; and Class F Shares: 8.00%,
7.55% and 7.00%, respectively.
4 Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C and F
Shares were (6.96%), (8.32%), (4.17%) and (4.46%), respectively.
[Graphic]
Mary Jo Ochson
Senior Vice President
Federated Investment Management Company
[Graphic]
J. Scott Albrecht
Vice President
Federated Investment Management Company
Investment Review
THE FUND'S FISCAL YEAR SAW THE FEDERAL RESERVE BOARD (THE "FED") POLICY CHANGE
FROM ONE OF "EASING" OR REDUCING RATES, TO "TIGHTENING" OR INCREASING RATES.
WHILE BOND PRICES IN GENERAL HAVE DECLINED AS A RESULT, MUNICIPAL BONDS REMAINED
ATTRACTIVE RELATIVE TO TREASURIES FROM A PRICE AND YIELD PERSPECTIVE. WHAT ARE
YOUR COMMENTS ON THE MUNICIPAL BOND MARKETPLACE OVER THE FUND'S FISCAL YEAR?
From a total return standpoint, the reporting period was relatively difficult,
reflecting a rise in interest rates across the maturity spectrum after October
1998. The continued strong growth of the domestic economy and diminished
concerns about international economic problems were the primary reasons for the
rise in yields. For example, yields on the 30-year Treasury bonds moved up 0.95%
since August 1998, while the Bond Buyer Revenue Bond Index ("RBI") was up 0.58%
over the same period. 1
The reduced appetite for tax-exempt securities from traditional crossover buyers
(corporations and insurance companies) was also a driver of the upward trend in
municipal yields. Demand was weak from crossover buyers due to the large supply
of pre-Year 2000 ("Y2K") corporate debt issuance, which has created attractive
relative value opportunities in the corporate bond market. Although direct
retail demand has been powerful, it was not able to support the trading of
larger blocks of municipal bonds, which normally would support bond prices.
1 The Bond Buyer Revenue Bond Index is a standard against which municipal bonds
are measured. This index is unmanaged and investments cannot be made in an
index.
Municipal yields as a percentage of Treasury yields are down from last year's
record levels, but remain high when compared to any year except 1998. The
RBI/30-Year Treasury ratio is now 94% compared to an historical average of about
88%. We believe that at these levels municipal bonds offer attractive relative
value.
HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. PERFORM ON A TOTAL
RETURN BASIS FOR THE 12-MONTH REPORTING PERIOD ENDED AUGUST 31, 1999?
On a relative basis, the fund's total return lagged the general municipal funds
tracked by Lipper Analytical Services, Inc. For the 12-month reporting period
ended August 31, 1999, the fund's Class A, B, C and F Shares returned (2.58%),
(3.23%), (3.24%) and (2.58%), based on net asset value, 2 respectively, while
the Lipper General Municipal Funds Average returned (1.63%).3
HOW DID THE FUND PERFORM WITH RESPECT TO INCOME?
Federated Municipal Opportunities Fund, Inc. again produced more federal
tax-exempt income than the average long-term general municipal bond fund. As of
August 31, 1999, the fund's Class A Shares had a 30-day SEC yield of 4.66% (an
increase from 4.33% a year earlier), which beat the 4.42% 30-day SEC yield of
other funds with Class A Shares in its Lipper peer group. The fund's core
positions in high coupon bonds (both investment and non-investment grade) were
behind the strong income performance. This performance is even more impressive
on a tax-equivalent basis. Tax-equivalent yields for the fund's Class A Shares
ranged from 6.75% for an investor in the 31% tax bracket to 7.72% for an
investor in the 39.6% tax bracket. 4
2 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C and F
Shares were (6.96%), (8.32%), (4.17%) and (4.46%), respectively.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper figures do not take sales charges into account.
4 The 30-day current SEC yield is calculated by dividing the investment income
per share for the prior 30 days by the maximum offering price per share on that
date. The SEC yields are compounded and annualized. The 30-day SEC yields on
August 31, 1999 for Class B, C and F shares were 4.12%, 4.12%, and 4.83%, based
on offering price (i.e., less any applicable sales charge), respectively. The
taxable yield equivalents, based on offering price for investors in 39.6%, 36%,
and 31% federal tax brackets were as follows: Class B Shares: 6.82%, 6.44% and
5.97%, respectively; Class C Shares: 6.82%, 6.44% and 5.97%, respectively; and
Class F Shares: 8.00%, 7.55% and 7.00%, respectively.
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF AUGUST 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
ISSUER MATURITY COUPON RATE NET ASSETS
<S> <C> <C> <C>
Indianapolis, IN Airport
Authority, Special
Facilities Revenue Bonds 1/15/2017 7.100% 4.0%
District of Columbia,
Revenue Bonds 10/1/2026 5.625% 3.6%
Illinois Health Facilities
Authority Hospital Revenue
Bonds 7/1/2004 9.250% 2.6%
Springfield, TN Health &
Educational Facilities
Board, Hospital Revenue
Bonds 4/1/2006 8.500% 2.0%
St. Paul, MN Housing &
Redevelopment Authority,
Hospital Revenue Refunding
Bonds 11/1/2017 6.625% 1.9%
TOTAL 14.1%
</TABLE>
HOW WERE THE FUND'S ASSETS ALLOCATED IN TERMS OF CREDIT QUALITY AT THE END OF
THE REPORTING PERIOD?
PERCENTAGE OF
NET ASSETS
AAA 20.5%
AA 10.7%
A 5.9%
BBB 42.3%
BB 17.5%
B 1.7%
Non-rated securities made up 27% of the portfolio's average quality. These
securities were assigned a rating as follows: AA, 1.9%; A, 1.1%; BBB, 8.2%; BB,
14.0% and B, 1.7%.
WHAT IS YOUR OUTLOOK FOR MUNICIPAL CREDIT QUALITY AND CREDIT SPREADS AS WE
APPROACH THE YEAR 2000?
Municipal credit quality in general has benefited from the strong U.S. economy.
Municipal tax receipts at all levels of government have exceeded forecasts,
which has allowed municipal fund balances and reserves to expand. There are
sectors of the municipal revenue bond market that have experienced credit
weakness. For example, the hospital sector, in particular, has experienced
credit downgrades as a result of the reductions in Medicare reimbursement by the
federal government and overly ambitious expansion plans.
Y2K spending by municipal governments is a potential credit factor that must be
taken into consideration as far as both the cost and effectiveness of their Y2K
preparedness. While the market does not expect any material interruptions in the
supply of necessary municipal services, there does remain the potential for some
functions to suffer temporary disruptions.
At the time of this writing, quality spreads were at their widest level since
late 1997. If one believes that the U.S. economy will remain in good shape, a
valid argument can be made that quality spreads may actually tighten from here
on many lower rated bonds. Even if spreads continue to widen a bit more, the
absolute levels of yield earned on lower rated bonds should translate into
superior relative performance.
Last Meeting of Shareholders
An Annual Meeting of fund shareholders was held on March 26, 1999 and reconvened
on May 11, 1999. On January 12, 1999, the record date for shareholders voting at
the meeting, there were 44,112,715.175 total outstanding shares. The following
items were considered by shareholders and the results of their voting were as
follows:
AGENDA ITEM 1
Election of Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 35,685,883 1,262,672
John T. Conroy, Jr. 35,803,516 1,145,039
Nicholas P. Constantakis 35,839,553 1,109,002
John F. Cunningham 35,826,315 1,122,240
J. Christopher Donahue 35,818,517 1,130,038
Peter E. Madden 35,874,405 1,074,150
Charles F. Mansfield, Jr. 35,874,027 1,074,528
John E. Murray, Jr. 35,880,615 1,067,940
John S. Walsh 35,880,615 1,067,940
</TABLE>
1 The following Directors of the fund continued their terms as Directors of
the fund: John F. Donahue, Lawrence D. Ellis, M.D. and Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the fund's independent
auditor.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
35,428,252 299,837 1,220,465
</TABLE>
AGENDA ITEM 3
To make changes to the fund's fundamental investment policies:
(a) To make non-fundamental and to amend the fund's fundamental investment
policy governing investments in restricted securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
22,939,092 1,543,030 1,936,873
</TABLE>
(b) To amend the fund's fundamental investment policy regarding borrowing to
permit the purchase of securities while borrowings are outstanding:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
22,338,721 2,094,432 1,985,843
</TABLE>
(c) To make non-fundamental and to amend the fund's fundamental investment
policy to permit the fund to invest in the securities of other investment
companies:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
23,007,839 1,650,769 1,760,386
</TABLE>
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
If you made an initial investment of $13,000 in the Class F Shares of Federated
Municipal Opportunities Fund, Inc. on 4/10/87, reinvested your dividends and
capital gains, and did not redeem any shares, your account would have been worth
$28,458 on 8/31/99. You would have earned a 6.53% 1 average annual total return
for the investment life span.
One key to investing wisely is to reinvest all tax-free distributions in fund
shares. This increases the number of shares on which you can earn future
tax-free dividends, and you gain the benefit of compounding tax-free.
As of 9/30/99, the Class A Shares' average annual 1-year and since-inception
(8/5/96) total returns were (8.15%) and 2.78%, respectively. Class B Shares'
average annual 1-year and since-inception (8/5/96) total returns were (9.67%)
and 2.63%, respectively. Class C Shares' average annual 1-year and since
inception (8/5/96) total returns were (5.58%) and 3.49%, respectively. Class F
Shares' average annual 1-year, 5-year, and 10-year total returns were (5.69%),
5.11%, and 5.99%, respectively. 2
Graphic representation omitted. See Appendix A.
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1.00% sales
charge for Class F Shares. A contingent deferred sales charge of 1.00% would be
applied on any redemption of Class F Shares less than four years from the
purchase date. Data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge;
and Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales
charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 12
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $20,930.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class F Shares of Federated
Municipal Opportunities Fund, Inc. on 4/10/87, reinvested your dividends and
capital gains, and did not redeem any shares, you would have invested only
$13,000, but your account would have reached a total value of $20,930 1 by
8/31/99. You would have earned an average annual total return of
5.98%.
A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all tax-free earnings. An investment plan works for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time, money and compounding to work.
Graphic representation omitted. See Appendix B.
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile-Investing for Tax-Free Monthly Income
Fred and Marge Potter both work and have no children. At the peak of their
careers, this tax-sensitive couple was seeking a way to keep more of what they
earned. On April 10, 1987, they invested $5,000 in the Class F Shares of
Federated Municipal Opportunities Fund, Inc. and continue to invest $500 in the
fund on the first of every month.
As this chart shows, since that time, their investment has grown-on a tax-free
basis-to $118,460. 1 This represents a 5.89% average annual total return for
investors in the 39.6% federal tax bracket.2 For the Potters, the decision to
invest tax-free has made the future worth waiting for.
Graphic representation omitted. See Appendix C.
1 Income may be subject to the federal alternative minimum tax and state and
local taxes. Upon redemption, any capital gains are subject to taxes.
2 This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Municipal Opportunities Fund, Inc.-Class A Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
the Federated Municipal Opportunities Fund, Inc. (Class A Shares) (the "Fund")
from August 5, 1996 (start of performance) to August 31, 1999 compared to the
Lehman Brothers Municipal Bond Index (LBMBI).2
AVERAGE ANNUAL TOTAL RETURNS 3 FOR THE PERIOD ENDED AUGUST 31, 1999
1 Year (6.96%)
Start of Performance (8/5/96) 3.00%
Graphic representation omitted. See Appendix D.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBI has been adjusted to reflect reinvestment of dividends
on securities in the index.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.
Federated Municipal Opportunities Fund, Inc.-Class B Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Municipal Opportunities Fund, Inc. (Class B Shares) (the "Fund") from
August 5, 1996 (start of performance) to August 31, 1999 compared to the Lehman
Brothers Municipal Bond Index (LBMBI).2
AVERAGE ANNUAL TOTAL RETURNS 3 FOR THE PERIOD ENDED AUGUST 31, 1999
1 Year (8.32%)
Start of Performance (8/5/96) 2.89%
Graphic representation omitted. See Appendix E.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 3.00% contingent deferred sales charge on any redemption
less than four years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBI has been adjusted to reflect reinvestment of dividends
on securities in the index.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.
Federated Municipal Opportunities Fund, Inc.-Class C Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Municipal Opportunities Fund, Inc. (Class C Shares) (the "Fund") from
August 5, 1996 (start of performance) to August 31, 1999 compared to the Lehman
Brothers Municipal Bond Index (LBMBI).2
AVERAGE ANNUAL TOTAL RETURNS 3 FOR THE PERIOD ENDED AUGUST 31, 1999
1 Year (4.17%)
Start of Performance (8/5/96) 3.78%
Graphic representation omitted. See Appendix F.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
one year from the purchase date. The Fund's performance assumes the reinvestment
of all dividends and distributions. The LBMBI has been adjusted to reflect
reinvestment of dividends on securities in the index.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.
Federated Municipal Opportunities Fund, Inc.-Class F Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Municipal Opportunities Fund, Inc. (Class F Shares) (the "Fund") from
August 31, 1989 to August 31, 1999 compared to the Lehman Brothers Municipal
Bond Index (LBMBI).2
AVERAGE ANNUAL TOTAL RETURNS 3 FOR THE PERIOD ENDED AUGUST 31, 1999
1 Year (4.46%)
5 Years 4.80%
10 Years 6.00%
Start of Performance (4/10/87) 6.53%
Graphic representation omitted. See Appendix G.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900). A contingent deferred sales charge of 1.00% would be applied on any
redemption less than four years from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The LBMBI has been
adjusted to reflect reinvestment of dividends on securities in the index.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-93.9%
ALASKA-1.2%
$ 1,440,000 Alaska Industrial
Development and Export
Authority, Power Revenue
Bonds, 5.875% (Upper Lynn
Canal Regional Power
Supply System)/(Original
Issue Yield: 6.00%),
1/1/2032 BB+ $ 1,307,246
310,000 Alaska State Housing
Finance Corp., COL Home
Mortgage Revenue Bonds,
(Series B-1), 6.90% (GNMA
LOC), 6/1/2032 AAA 322,512
4,000,000 Alaska State Housing
Finance Corp., Mortgage
Revenue Bonds (Series 1997
A-2), 5.75% (Original
Issue Yield: 5.778%),
6/1/2024 AAA 3,937,360
TOTAL 5,567,118
ARIZONA-1.5%
4,985,000 Gilbert, AZ IDA, Revenue
Bonds (Series 1999A),
5.85% (Southwest Student
Services Corp.)/(Original
Issue Yield: 5.90%),
2/1/2019 NR 4,586,399
2,400,000 Maricopa County, AZ, IDA,
Solid Waste Disposal
Revenue Bonds (Series
1999A), 7.50% (Rainbow
Valley Landfill Project),
12/1/2020 NR 2,341,680
TOTAL 6,928,079
ARKANSAS-1.6%
2,920,000 Conway, AR Hospital
Authority, Revenue Bonds,
7.125% (Conway Regional
Hospital), 2/1/2013 BBB+ 3,064,511
2,215,000 Conway, AR Hospital
Authority, Revenue
Refunding Bonds, 8.125%
(Conway Regional
Hospital), 7/1/2005 BBB+ 2,302,891
1,000,000 Conway, AR Hospital
Authority, Revenue
Refunding Bonds, 8.375%
(Conway Regional
Hospital), 7/1/2011 BBB+ 1,041,680
1,000,000 Little Rock, AR Health
Facilities Board, Revenue
Refunding Bonds, 7.00%
(Baptist Medical Center,
AR), 10/1/2017 A 1,055,340
TOTAL 7,464,422
CALIFORNIA-5.1%
2,000,000 California Statewide
Communities Development
Authority,
Multifamily Housing
Revenue Bonds (Series
1999W), 6.65% (El Sereno
City Lights Project),
7/1/2039 NR 1,929,520
2,000,000 California Statewide
Communities Development
Authority,
Multifamily Housing
Revenue Bonds (Series
1999X), 6.65% (Magnolia
City Lights Project),
7/1/2039 NR 1,929,520
1,500,000 Folsom, CA, Special Tax
Bonds (Series 1999), 6.00%
(Folsom, CA Community
Facilities District No.
7)/(Original Issue Yield:
6.077%), 9/1/2024 NR 1,459,350
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 2,300,000 San Dimas, CA Housing
Authority, Mobile Home
Park Revenue Bonds (Series
1998A), 5.70% (Charter Oak
Mobile Home Estates
Acquisition
Project)/(Original Issue
Yield: 5.90%), 7/1/2028 NR $ 2,163,771
24,000,000 San Joaquin Hills, CA
Transportation Corridor
Agency, Toll Road Capital
Appreciation Refunding
Revenue Bonds (MBIA
INS)/(Original Issue
Yield: 5.625%), 1/15/2025 AAA 5,544,720
21,625,000 San Joaquin Hills, CA
Transportation Corridor
Agency, Toll Road Capital
Appreciation Refunding
Revenue Bonds (Series A)
(MBIA INS)/(Original Issue
Yield: 5.60%), 1/15/2023 AAA 5,622,933
2,000,000 Stockton, CA Public
Financing Authority,
Reassessment Revenue
Bonds, (Series 1998),
5.80% (Arch Road & Stockton
Business Park
Ads)/(Original Issue
Yield: 5.80%), 9/2/2020 NR 1,906,980
1,250,000 Temecula, CA Community
Facilities District No.
88-12, Special Tax
Refunding Bonds (Series
1998A), 5.625%, 9/1/2017 NR 1,183,713
1,000,000 Vista, CA Mobile Home Park,
Revenue Bonds (Series
1999A), 5.75% (Vista Manor
Mobile Home)/(Original
Issue Yield: 5.821%),
3/15/2029 NR 946,960
800,000 Vista, CA Mobile Home Park,
Revenue Bonds, Series A,
5.875% (Estrella De Oro
Mobile Home)/(Original
Issue Yield: 5.947%),
2/1/2028 NR 783,192
TOTAL 23,470,659
COLORADO-3.0%
220,000 Colorado HFA, SFM Revenue
Bonds (Series A-2), 7.70%
(FHA GTD), 2/1/2023 AA+ 228,142
1,310,000 Colorado HFA, SFM Revenue
Bonds (Series C-2), 7.375%
(FHA GTD), 8/1/2023 AA+ 1,352,339
4,995,000 Colorado HFA, SFM Revenue
Bonds (Series 1997C-2),
6.875%, 11/1/2028 Aa 5,406,638
10,000,000 E-470 Public Highway
Authority, CO, Capital
Appreciation Revenue Bonds
(Series B) (MBIA
INS)/(Original Issue
Yield: 5.50%), 9/1/2021 AAA 2,803,400
9,700,000 E-470 Public Highway
Authority, CO, Capital
Appreciation Revenue Bonds
(Series B) (MBIA
INS)/(Original Issue
Yield: 5.52%), 9/1/2022 AAA 2,561,964
5,000,000 E-470 Public Highway
Authority, CO, Capital
Appreciation Revenue Bonds
(Series B) (MBIA
INS)/(Original Issue
Yield: 5.52%), 9/1/2023 AAA 1,244,000
105,000 El Paso County, CO HFA, SFM
Revenue Bonds, 8.00% (GNMA
COL), 9/1/2022 AAA 108,534
TOTAL 13,705,017
CONNECTICUT-0.6%
3,000,000 Connecticut Development
Authority, PCR Refunding
Revenue Bonds (Series A),
5.85% (Connecticut Light &
Power Co.), 9/1/2028 BB- 2,824,980
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
DISTRICT OF COLUMBIA-3.6%
$ 17,000,000 District of Columbia,
Revenue Bonds, 5.625%
(American
University)/(AMBAC
INS)/(Original Issue
Yield: 5.90%), 10/1/2026 AAA $ 16,583,840
FLORIDA-1.9%
2,500,000 Florida Housing Finance
Corp., Multifamily Housing
Revenue Bonds (Series 1998
T-1), 6.50% (Whistler's
Cove Apartments), 1/1/2039 NR 2,358,400
2,475,000 Lee County, FL HFA, SFM
Step Coupon Revenue Bonds,
6.85% (GNMA COL), 3/1/2029 Aaa 2,706,908
16,925,000 Miami-Dade County, FL,
Special Obligation Capital
Appreciation Revenue Bonds
(Series B) (MBIA
INS)/(Original Issue
Yield: 5.65%), 10/1/2031 AAA 2,570,908
1,460,000 Orange County, FL HFA,
Multifamily Housing
Revenue Bonds
(Series 1999B), 6.50%
(Palm West Apartments
Project), 3/1/2034 NR 1,394,563
TOTAL 9,030,779
GEORGIA-0.3%
1,640,000 Forsyth County, GA
Hospital Authority,
Revenue Anticipation
Certificates (Series
1998), 6.375% (Georgia
Baptist Health Care
System)/(Original Issue
Yield: 6.45%), 10/1/2028 NR 1,518,968
IDAHO-0.4%
550,000 Idaho Housing Agency, SFM
Revenue Bonds (Series A),
7.50% (FHA GTD), 7/1/2024 AA 573,320
1,395,000 Idaho Housing Agency, SFM Revenue Bonds (Series F- 2), 7.80%
(FHA GTD),
1/1/2023 AA 1,438,175
TOTAL 2,011,495
ILLINOIS-5.7%
2,020,000 Chicago, IL COL SFM Revenue Bonds (Series A), 7.25%
(GNMA COL), 9/1/2028 Aaa 2,235,736
1,480,000 Chicago, IL, Gas Supply
Revenue Bonds, 7.50%
(Peoples Gas Light & Coke
Company), 3/1/2015 AA- 1,529,876
1,100,000 Chicago, IL, Gas Supply
Revenue Bonds, 7.50%
(Peoples Gas Light & Coke
Company), 3/1/2015 AA- 1,137,070
2,000,000 Chicago, IL, Water Revenue
Bond, 7.20% (United States
Treasury PRF)/(Original
Issue Yield: 7.35%),
11/15/1999 (@102) AAA 2,054,060
3,000,000 Illinois Development
Finance Authority, Housing
Revenue Bonds, 6.10%
(Catholic Charities
Housing Development
Corp.), 1/1/2020 NR 2,940,510
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
ILLINOIS-CONTINUED
$ 2,500,000 Illinois Development
Finance Authority,
Mortgage Revenue Refunding
Bonds, Series A, 5.80%
(MBIA INS), 7/1/2028 AAA $ 2,505,350
9,825,000 Illinois Health Facilities
Authority, Hospital
Revenue Bonds (Series A),
9.25% (Edgewater Hospital
& Medical Center, IL),
(State & Local Government
Securities PRF), 7/1/2004
(@102) NR 11,935,705
2,000,000 Rolling Meadows, IL,
Multifamily Mortgage
Revenue Refunding Bonds,
7.75% (Woodfield Garden
Apartments)/(Banque
Paribas, Paris LOC),
2/1/2004 A 2,133,100
TOTAL 26,471,407
INDIANA-6.2%
550,000 Beech Grove, IN, Economic
Development Revenue Bond,
8.75% (Westvaco Corp.),
7/1/2010 A 556,859
1,000,000 Goshen, IN, Revenue Bonds
(Series 1998), 5.75%
(Greencroft Obligated
Group)/(Original Issue
Yield: 5.87%), 8/15/2028 NR 908,700
2,000,000 Indiana Health Facilities
Finance Authority
Rehabilitation Center,
Revenue Refunding Bonds
(Series 1998), 5.625%
(Greenwood Village South
Project)/(Original Issue
Yield: 5.802%), 5/15/2028 BBB- 1,794,900
3,000,000 2 Indiana Port Commission,
Port Facility Revenue
Refunding Bonds, 6.875%
(Cargill, Inc.), 5/1/2012 A1 3,175,290
1,735,000 Indiana State HFA, SFM
Revenue Home Mortgage
Program
(Series F-2), 7.75% (GNMA
COL), 7/1/2022 Aaa 1,802,023
17,100,000 Indianapolis, IN Airport
Authority, Special
Facilities Revenue Bonds,
7.10% (Federal Express
Corp.)/(Original Issue
Yield: 7.178%), 1/15/2017 BBB 18,478,431
2,000,000 South Bend, IN, Economic
Development Revenue Bonds
(Series 1999A), 6.25%
(Southfield
Village)/(Original Issue
Yield: 6.375%), 11/15/2029 NR 1,861,620
TOTAL 28,577,823
IOWA-0.2%
1,000,000 Davenport, IA PCA, PCR
Refunding Bonds, Nicols-
Homeshield Project, 8.375%
(Quanex Corp.), 12/1/2005 NR 1,008,720
KANSAS-1.2%
1,500,000 2 Kansas Development Finance
Authority, Multifamily
Housing Revenue Bonds,
Series 1998K, 6.375%
(Pioneer Olde Town
Apartments), 10/1/2017 NR 1,437,870
50,000 Manhattan, KS, Industrial
Revenue Bonds (Series
1999), 6.25%
(Farrar Corporation
Project), 8/1/2006 NR 49,720
1,625,000 Manhattan, KS, Industrial
Revenue Bonds (Series
1999), 7.00%
(Farrar Corporation
Project), 8/1/2014 NR 1,626,593
2,260,000 Sedgwick & Shawnee
Counties, KS, SFM Revenue
Bonds (Series 1997A-1),
6.95% (GNMA COL), 6/1/2029 Aaa 2,434,562
TOTAL 5,548,745
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
KENTUCKY-1.6%
$ 3,500,000 Kenton County, KY Airport
Board, Special Facilities
Revenue Bonds (Series A),
7.50% (Delta Air Lines,
Inc.)/(Original Issue
Yield: 7.60%), 2/1/2020 BBB- $ 3,715,110
4,000,000 Kentucky EDFA, Hospital
System Refunding Revenue
Bonds, 5.875% (Appalachian
Regional Health
Center)/(Original Issue
Yield: 5.92%), 10/1/2022 BBB 3,649,680
TOTAL 7,364,790
LOUISIANA-4.9%
3,000,000 De Soto Parish, LA
Environmental Improvement
Authority, Revenue Bonds,
7.70% (International Paper
Co.), 11/1/2018 BBB+ 3,353,430
1,000,000 Iberville Parish, LA, PCR
Refunding Bonds, (Series
1998), 5.70% (Entergy Gulf
States, Inc.)/(Original
Issue Yield: 5.699%),
1/1/2014 BB+ 934,150
LOUISIANA-4.9%
2,800,000 Lake Charles, LA Harbor &
Terminal District, Port
Facilities Revenue
Refunding Bond, Trunkline
Lining Co. Project, 7.75%
(Panhandle Eastern Corp.),
8/15/2022 A3 3,095,540
5,645,000 St. Charles Parish, LA, PCR
Bonds, 7.50% (Louisiana
Power &
Light Co.)/(Original Issue
Yield: 7.542%), 6/1/2021 BBB 5,923,242
1,400,000 St. Charles Parish, LA, PCR
Bonds, 8.00% (Louisiana
Power & Light Co.),
12/1/2014 Baa3 1,450,848
3,650,000 St. Charles Parish, LA,
Solid Waste Disposal
Revenue Bonds (Series A),
7.00% (Louisiana Power &
Light Co.)/(Original Issue
Yield: 7.04%), 12/1/2022 BBB 3,856,590
3,000,000 St. James Parish, LA, Solid
Waste Disposal Revenue
Bonds, 7.70% (Freeport
McMoRan, Inc.)/(Original
Issue Yield: 7.75%),
10/1/2022 NR 3,166,140
1,000,000 West Feliciana Parish, LA,
PCR Bonds, 5.80% (Entergy
Gulf States, Inc.),
12/1/2015 BB+ 947,060
TOTAL 22,727,000
MASSACHUSETTS-1.4%
5,000,000 Massachusetts HEFA,
Revenue Bonds (Series
1999A), 5.75% (Caritas
Christi Obligated
Group)/(Original Issue
Yield: 5.80%), 7/1/2028 BBB 4,537,850
2,300,000 Massachusetts IFA,
Refunding Revenue Bonds
(Series 1998A),
5.625% (Chestnut Knoll at
Glenmeadow)/(Original
Issue Yield:
5.70%), 2/15/2025 NR 2,101,602
TOTAL 6,639,452
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-2.0%
$ 1,000,000 Chelsea, MI Economic
Development Corp., Revenue
Refunding Bonds (Series
1998), 5.40% (United
Methodist Retirement
Communities,
Inc.)/(Original Issue
Yield: 5.52%), 11/15/2018 BBB $ 897,370
2,250,000 Chelsea, MI Economic
Development Corp., Revenue
Refunding Bonds (Series
1998), 5.40% (United
Methodist Retirement
Communities,
Inc.)/(Original Issue
Yield: 5.58%), 11/15/2027 BBB 1,968,233
1,755,000 Island City Academy, MI,
Certificates of
Participation, 7.25%,
12/1/2029 NR 1,755,456
455,000 Michigan State HDA, SFM
Revenue Bonds (Series B),
6.95%, 12/1/2020 AA+ 470,775
1,000,000 Michigan Strategic Fund,
Limited Obligation Revenue
Bonds, 6.90% (Central
Wayne Energy Recovery
Limited Partnership),
7/1/2019 NR 991,560
1,000,000 Michigan Strategic Fund,
Resource Recovery Limited
Obligation Revenue Bonds,
7.00% (Central Wayne
Energy Recovery Limited
Partnership), 7/1/2027 NR 1,001,520
2,100,000 Mosaica Academy of
Saginaw, MI, Certificates
of Participation,
7.00%, 6/1/2029 NR 2,048,445
TOTAL 9,133,359
MINNESOTA-4.7%
250,000 Centennial Independent
School District No. 012,
MN, UT GO Bonds, (Series
A), 7.15% (FSA INS)/(PRF),
2/1/2011 AAA 253,630
90,000 Dakota County, MN Housing &
Redevelopment Authority,
SFM Revenue Bonds, 7.20%
(GNMA GTD), 12/1/2009 AAA 90,235
165,000 Hennepin Co. MN, Lease
Revenue Certificates of
Participation,(Series A),
6.80%, 5/15/2017 AA 174,200
200,000 Minneapolis, MN
Multifamily Housing
Authority, Multifamily
Housing Revenue Bonds,
7.125% (Seward
Towers)/(GNMA COL),
12/20/2010 AAA 206,968
300,000 Minneapolis, MN
Multifamily Housing
Authority, Multifamily
Housing Revenue Bonds,
Churchill Project, 7.05%
(FHA GTD), 10/1/2022 AAA 316,674
3,000,000 Minnesota State HFA, SFM
Revenue Bonds (Series E),
6.85%, 1/1/2024 AA+ 3,107,820
100,000 Minnesota State HFA,
Single Family Mortgage
Revenue Bonds, Series C,
7.10% (FHA/VA Mortgages
COL), 7/1/2011 AA+ 103,749
100,000 Minnetonka, MN,
Multifamily Housing
Revenue Bonds, Cedare
Hills East Project, 7.50%
(FHA COL), 12/1/2017 A+ 103,336
8,770,000 St. Paul, MN Housing &
Redevelopment Authority,
Hospital Revenue Refunding
Bonds (Series A), 6.625%
(Healtheast, MN)/(Original
Issue Yield: 6.687%),
11/1/2017 BBB 8,784,295
8,000,000 2 VRDC/IVRC Trust, GO
Inverse Variable Rate
Certificates, 7.773%
(University of Minnesota),
5/18/2012 AA 8,580,000
TOTAL 21,720,907
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MISSISSIPPI-0.5%
$ 2,500,000 Mississippi Business
Finance Corp., PCR Bonds,
5.875% (System Energy
Resources, Inc.)/(Original
Issue Yield: 5.934%),
4/1/2022 BBB- $ 2,356,700
MISSOURI-0.5%
2,445,000 Kansas City, MO IDA,
Multifamily Housing
Revenue Bonds, 6.90%
(Woodbridge Apartments
Project), 8/1/2030 NR 2,410,305
MONTANA-0.2%
850,000 Montana State Board of
Housing, SFM Revenue Bonds
(Series B-2), 7.50% (FHA
GTD), 4/1/2023 Aa2 881,918
NEVADA-1.7%
3,000,000 Clark County, NV,
Industrial Development
Refunding Revenue Bonds
(Series 1995B), 5.90%
(Nevada Power Co.),
10/1/2030 BBB 2,871,630
5,110,000 Clark County, NV,
Industrial Development
Revenue Bonds (Series
1997A), 5.90% (Nevada
Power Co.), 11/1/2032 BBB 4,887,255
TOTAL 7,758,885
NEW HAMPSHIRE-1.9%
600,000 New Hampshire Higher
Educational & Health
Facilities
Authority, Revenue Bonds
(Series 1998), 5.75%
(RiverMead at
Peterborough), 7/1/2028 NR 552,228
795,000 New Hampshire State HFA,
SFM Revenue Bonds (Series
B), 7.75%, 7/1/2023 A+ 829,877
4,420,000 New Hampshire State HFA,
SFM Revenue Bonds (Series
D), 7.25%, 7/1/2015 A+ 4,572,623
2,865,000 New Hampshire State IDA,
PCR Bonds ( Series A),
8.00% (United Illuminating
Co.), 12/1/2014 BBB+ 2,966,421
TOTAL 8,921,149
NEW JERSEY-0.5%
2,550,000 New Jersey EDA, Revenue
Bonds (Series 1997A),
5.875% (Host Marriott
Corp.), 12/1/2027 NR 2,360,204
NEW MEXICO-1.2%
2,500,000 Dona Ana County, NM,
Multifamily Housing
Revenue Bonds
(Series 1999A), 6.75%
(Montana Meadows
Apartments), 8/1/2029 NR 2,487,075
2,000,000 Farmington, NM, PCR
Refunding Bonds (Series
1997), 6.375% (Public
Service Co. New Mexico),
4/1/2022 BB+ 2,042,980
1,250,000 Santa Fe County, NM,
Project Revenue Bonds
(Series 1998A), 5.625% (El
Castillo Retirement
Residences)/(Original
Issue Yield: 5.828%),
5/15/2025 NR 1,137,963
TOTAL 5,668,018
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW YORK-3.1%
$ 2,500,000 Brookhaven, NY IDA, Senior
Residential Housing
Revenue Bonds, 6.25%
(Woodcrest Estates),
12/1/2023 NR $ 2,360,325
1,500,000 New York City, NY IDA,
Industrial Development
Revenue Refunding Bonds
(Series 1998), 6.00%
(Field Hotel Associates,
L.P.- JFK
Project), 11/1/2028 NR 1,434,540
2,500,000 New York State Energy
Research & Development
Authority, Electric
Facilities Revenue Bonds
(Series A), 7.50%
(Consolidated Edison
Co.)/(Original Issue
Yield: 7.65%), 1/1/2026 A+ 2,551,375
280,000 New York State
Environmental Facilities
Corp., PCR State Water
Revolving Fund, 7.25%
(Original Issue Yield:
7.334%), 6/15/2010 AA+ 299,090
2,620,000 New York State
Environmental Facilities
Corp., PCR State Water
Revolving Fund, 7.25%
(United States Treasury
PRF), 6/15/2001 (@102) AAA 2,810,736
5,000,000 New York State
Environmental Facilities
Corp., Solid Waste
Disposal Revenue Bonds,
6.10% (Occidental
Petroleum Corp.)/(Original
Issue Yield: 6.214%),
11/1/2030 BBB+ 4,969,800
TOTAL 14,425,866
NORTH CAROLINA-0.6%
1,000,000 Martin County, NC IFA,
(Series 1995) Solid Waste
Disposal Revenue Bonds,
6.00% (Weyerhaeuser Co.),
11/1/2025 A 997,940
2,000,000 North Carolina Medical
Care Commission, Health
Care Facilities First
Mortgage Revenue Refunding
Bonds (Series 1998),
5.625% (United Church
Retirement
Homes)/(Original Issue
Yield: 5.80%), 9/1/2024 NR 1,835,620
TOTAL 2,833,560
NORTH DAKOTA-0.6%
1,660,000 North Dakota State HFA, SFM
Revenue Bonds (Series C),
7.30%, 7/1/2024 A+ 1,716,241
1,095,000 North Dakota State HFA, SFM
Revenue Bonds, (Series A),
6.75% (FHA COL), 7/1/2012 A+ 1,135,515
TOTAL 2,851,756
OHIO-1.2%
2,000,000 Cleveland, OH, Airport
Special Refunding Revenue
Bonds (Series 1999), 5.70%
(Continental Airlines,
Inc.)/(Original Issue
Yield: 5.80%), 12/1/2019 BB 1,864,620
1,680,000 2 Franklin County, OH,
Multifamily Housing
Revenue Refunding
Bonds (Series 1998B),
6.25% (Jefferson Chase
Apartments
Project), 11/1/2015 NR 1,615,454
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
OHIO-CONTINUED
$ 1,500,000 Ohio State Air Quality
Development Authority, PCR
Refunding Revenue Bonds
(Series 1997A), 6.10%
(Cleveland Electric
Illuminating Co.),
8/1/2020 BB+ $ 1,464,450
500,000 Ohio State Water
Development Authority, PCR
Bonds (Series A), 8.10%
(Ohio Edison
Co.)/(Original Issue
Yield: 8.142%), 10/1/2023 BB- 513,985
TOTAL 5,458,509
OKLAHOMA-2.7%
4,585,000 Jackson County, OK Hospital Authority, Hospital Revenue
Refunding Bonds, 7.30% (Jackson County Memorial Hospital,
OK)/(Original Issue Yield:
7.40%), 8/1/2015 BB 4,778,625
1,250,000 Tulsa, OK Municipal
Airport, Revenue Bonds,
7.375% (American
Airlines), 12/1/2020 BBB- 1,303,550
6,200,000 Tulsa, OK Municipal
Airport, Revenue Bonds,
7.60% (American
Airlines)/(Original Issue
Yield: 7.931%), 12/1/2030 BBB- 6,542,922
TOTAL 12,625,097
OREGON-0.5%
2,500,000 Klamath Falls, OR, Senior
Lien Electric Revenue
Refunding Bonds, 6.00%
(Klamath Cogeneration
Project), 1/1/2025 NR 2,355,800
PENNSYLVANIA-10.4%
3,000,000 Allegheny County, PA HDA,
Health & Education Revenue
Bonds, 7.00%
(Rehabilitation Institute
of Pittsburgh)/(Original
Issue Yield: 7.049%),
(United States Treasury
PRF), 6/1/2002 (@102) AAA 3,257,400
2,500,000 Allegheny County, PA HDA,
Health & Education Revenue
Bonds, 7.00%
(Rehabilitation Institute
of Pittsburgh)/(United
States Treasury
PRF)/(Original Issue
Yield: 7.132%), 6/1/2002
(@102) AAA 2,714,500
2,330,000 Allegheny County, PA HDA,
Health Care Facilities
Revenue Bonds (Series
1998), 5.875% (Villa St.
Joseph of Baden,
Inc.)/(Original Issue
Yield: 6.02%), 8/15/2018 NR 2,151,079
4,770,000 Allegheny County, PA
Higher Education, Building
Authority Revenue Bonds,
7.375% (La Roche College),
7/15/2012 NR 4,988,132
1,480,000 Allegheny County, PA IDA,
Revenue Bonds, 8.75%
(United Parcel Service),
2/15/2009 NR 1,499,847
1,000,000 Bucks County, PA IDA, First
Mortgage Health Care
Facilities Revenue Bonds
(Series 1999), 6.30%
(Chandler Hall Health
Services Obligated
Group)/(Original Issue
Yield: 6.40%), 5/1/2029 NR 934,780
1,500,000 Chartiers Valley, PA
Industrial & Commercial
Development Authority,
First Mortgage Revenue
Refunding Bonds (Series
1999), 6.375% (Asbury
Health Center)/(Original
Issue Yield: 6.52%),
12/1/2024 NR 1,447,890
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 3,000,000 Delaware County, PA
Authority, College Revenue
Bonds, 7.25% (Eastern
College)/(United States
Treasury PRF)/(Original
Issue Yield: 7.875%),
3/1/2004 (@100) AAA $ 3,320,490
2,055,000 Erie County, PA Hospital
Authority, Revenue Bonds,
7.50% (Erie Infants & Youth
Home, Inc.), 10/1/2011 NR 2,120,472
400,000 Erie County, PA IDA, PCR
Refunding Bonds, 7.15%
(International Paper Co.),
9/1/2013 BBB+ 422,168
6,000,000 2 Pennsylvania EDFA, Exempt
Facilities Revenue Bonds
(Series 1997B), 6.125%
(National Gypsum Co.),
11/1/2027 NR 5,800,440
4,000,000 2 Pennsylvania EDFA, Exempt
Facilities Revenue Bonds,
6.25% (National Gypsum
Co.), 11/1/2027 NR 3,930,400
3,500,000 Pennsylvania EDFA,
Resource Recovery Revenue
Bonds (Series A), 6.40%
(Northampton Generating),
1/1/2009 BBB- 3,573,430
8,000,000 Pennsylvania EDFA,
Wastewater Treatment
Revenue Bonds (Series A),
7.60% (Sun Co.,
Inc.)/(Original Issue
Yield: 7.653%), 12/1/2024 BBB 8,749,760
1,740,000 Pennsylvania State Higher
Education Facilities
Authority, College &
University Revenue Bonds,
6.75% (Thiel College),
(United States Treasury
PRF), 9/1/2003 (@102) AAA 1,893,277
1,200,000 Pennsylvania State Higher
Education Facilities
Authority, Revenue Bonds
(Series 1996), 7.15%
(Thiel College), (United
States Treasury PRF),
5/15/2006 (@102) AAA 1,367,220
TOTAL 48,171,285
PUERTO RICO-0.4%
1,000,000 2 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securites (Series
PA 331A), 7.203% (AMBAC
INS), 7/1/2013 NR 1,057,520
1,000,000 2 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securities (Series
PA 331B), 7.203% (AMBAC
INS), 7/1/2014 NR 1,049,900
TOTAL 2,107,420
SOUTH CAROLINA-1.2%
$ 2,000,000 Charleston, SC, Industrial
Refunding Revenue Bonds,
6.95% (AEI Resources,
Inc.), 8/10/2028 NR $ 1,967,820
15,550,000 Connector 2000
Association, Inc., SC,
Toll Road Capital
Appreciation Revenue Bonds
(Series 1998A) (Original
Issue Yield: 5.85%),
1/1/2034 BBB- 1,617,822
2,000,000 South Carolina Jobs-EDA,
First Mortgage Health
Facilities Revenue
Refunding Bonds (Series
1998), 5.70% (The Lutheran
Homes of South Carolina,
Inc.)/(Original Issue
Yield: 5.80%), 5/1/2026 NR 1,867,720
TOTAL 5,453,362
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
TENNESSEE-3.3%
$ 1,160,000 Metropolitan Government
Nashville & Davidson
County, TN HEFA, Refunding
Revenue Bonds (Series
1998), 5.65% (The
Blakeford at Green
Hills)/(Original Issue
Yield: 5.75%), 7/1/2024 NR $ 1,037,864
1,000,000 Shelby County, TN Health
Education & Housing
Facilities Board, Health
Care Facilities Revenue
Bonds (Series 1997A),
6.375% (Kirby Pines
Retirement
Community)/(Original Issue
Yield: 6.50%), 11/15/2025 NR 967,170
3,100,000 Springfield, TN Health &
Educational Facilities
Board, Hospital Revenue
Bonds, 8.25% (NorthCrest
Medical Center)/(Original
Issue Yield: 8.50%),
(PRF), 4/1/2006 (@102) AAA 3,655,303
7,800,000 Springfield, TN Health &
Educational Facilities
Board, Hospital Revenue
Bonds, 8.50% (NorthCrest
Medical Center)/(Original
Issue Yield: 8.875%),
(PRF), 4/1/2006 (@102) Aaa 9,553,596
5,000 Tennessee Housing
Development Agency,
Homeownership Program,
Issue V Revenue Bonds,
7.65%, 7/1/2022 AA 5,121
TOTAL 15,219,054
TEXAS-11.8%
2,500,000 Brazos River Authority,
TX, PCR Revenue Bonds
(Series A), 7.875% (Texas
Utilities Electric Co.),
3/1/2021 BBB+ 2,647,575
1,800,000 Brazos River Authority,
TX, PCR Revenue Bonds
(Series A), 8.125% (Texas
Utilities Electric Co.),
2/1/2020 BBB+ 1,856,250
7,320,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue Bonds,
7.125% (Delta Air Lines,
Inc.)/(Original Issue
Yield: 7.55%), 11/1/2026 BBB- 7,562,072
3,000,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue Bonds,
7.25% (American
Airlines)/(Original Issue
Yield: 7.428%), 11/1/2030 BBB- 3,192,330
2,370,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue Bonds,
7.50% (American
Airlines)/(Original Issue
Yield: 8.20%), 11/1/2025 BBB- 2,478,214
2,500,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue Bonds,
7.625% (Delta Air Lines,
Inc.)/(Original Issue
Yield: 7.65%), 11/1/2021 BBB- 2,652,350
1,000,000 Guadalupe-Blanco River
Authority TX, Industrial
Development Corp., PCR
Bonds, 8.60% (A.P. Green
Industries), 4/1/2009 NR 1,040,180
2,500,000 Guadalupe-Blanco River
Authority TX, Industrial
Development Corp., PCR
Bonds, 8.60% (A.P. Green
Industries), 4/1/2009 NR 2,600,450
5,000,000 Gulf Coast, TX Waste
Disposal Authority,
Revenue Bonds (Series A),
6.875% (Champion
International
Corp.)/(Original Issue
Yield: 7.15%), 12/1/2028 BBB 5,310,800
3,000,000 Gulf Coast, TX Waste
Disposal Authority,
Revenue Bonds, 5.60%
(Valero Energy Corp.),
4/1/2032 BBB- 2,731,740
5,000,000 Harris County-Houston, TX
Sports Authority, Special
Revenue Jr. Lien Capital
Appreciation Revenue Bonds
(Series B) (MBIA
INS)/(Original Issue
Yield: 5.45%), 11/15/2017 AAA 1,734,700
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
TEXAS-CONTINUED
$ 4,000,000 2 Matagorda County, TX
Navigation District Number
One, Residual Interest
Tax-Exempt Securities
(Series PA-427), 6.088%
(Houston Industries,
Inc.)/(MBIA INS),
11/1/2029 NR $ 3,304,960
4,675,000 Richardson, TX Hospital
Authority, Refunding
Revenue Bonds, 6.75%
(Baylor/Richardson Medical
Center, TX)/(Original
Issue Yield: 6.82%),
12/1/2023 BBB+ 4,835,259
2,955,000 Richardson, TX Hospital Authority, Refunding Revenue Bonds,
6.75% (Baylor/Richardson Medical Center, TX)/(Original Issue
Yield:
6.82%), 12/1/2023 BBB+ 3,245,565
1,000,000 Tarrant County, TX HFDC,
Revenue Bonds (Series
1998C), 5.75% (Bethesda
Living Center)/(Original
Issue Yield: 5.89%),
8/15/2018 NR 932,390
1,000,000 Tarrant County, TX HFDC,
Revenue Bonds (Series
1998C), 5.75% (Bethesda
Living Center)/(Original
Issue Yield: 5.97%),
8/15/2028 NR 906,290
7,500,000 West Side Calhoun County,
TX Navigation District,
Solid Waste Revenue Bond,
6.40% (Union Carbide
Corp.)/(Original Issue
Yield: 6.437%), 5/1/2023 BBB 7,654,125
TOTAL 54,685,250
UTAH-0.5%
560,000 Hildale, UT, Electric
Revenue Bonds (Series
1995), 7.00%, 9/1/2002 NR 545,569
425,000 Utah State HFA, SFM Revenue
Bonds (Series B-3), 7.10%,
7/1/2024 AAA 440,355
485,000 Utah State HFA, SFM Revenue Bonds (Series E-2), 7.15% (FHA
GTD)/(Original Issue
Yield: 7.169%), 7/1/2024 AAA 501,844
530,000 Utah State HFA, SFM Revenue
Bonds, 7.55% (FHA GTD),
7/1/2023 AAA 550,511
60,000 Utah State HFA, SFM Revenue
Bonds, 7.75% (FHA GTD),
1/1/2023 AAA 60,589
TOTAL 2,098,868
VIRGINIA-1.1%
7,500,000 Pocohontas Parkway
Association, VA, Toll Road
Capital Appreciation
Revenue Bonds (Series B)
(Original Issue Yield:
5.75%), 8/15/2017 BBB- 2,473,200
16,000,000 Pocohontas Parkway
Association, VA, Toll Road
Capital Appreciation
Revenue Bonds (Series
1998B) (Original Issue
Yield: 5.90%), 8/15/2029 BBB- 2,434,720
TOTAL 4,907,920
WASHINGTON-0.9%
4,300,000 Port of Camas-Washougal,
WA, PCR Refunding Bonds (Series 1993), 6.70% (James River
Project, WA)/(Original Issue Yield:
6.75%), 4/1/2023 BBB- 4,422,894
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
WISCONSIN-2.0%
$ 1,250,000 Wisconsin HEFA, Revenue
Bonds (Series 1998), 5.70%
(United Lutheran Program
For The Aging,
Inc.)/(Original Issue
Yield: 5.778%), 3/1/2028 NR $ 1,149,738
2,000,000 Wisconsin HEFA, Revenue
Bonds (Series B), 6.75%
(Grant Regional Health
Center, Inc.)/(Original
Issue Yield: 6.90%),
10/1/2022 NR 1,974,540
1,750,000 Wisconsin HEFA, Revenue
Bonds, 5.80% (Beaver Dam
Community Hospitals,
Inc.), 8/15/2028 NR 1,601,635
2,300,000 Wisconsin HEFA, Revenue
Bonds, Series 1998, 5.75%
(Attic Angel Obligated
Group)/(Original Issue
Yield: 6.00%), 11/15/2027 NR 2,059,029
2,470,000 Wisconsin Housing & EDA,
Home Ownership Revenue
Bonds (Series H), 5.75%,
9/1/2028 AA 2,418,843
TOTAL 9,203,785
TOTAL LONG-TERM
MUNICIPALS (IDENTIFIED
COST $430,282,047) 435,475,165
SHORT-TERM MUNICIPALS-4.7%
CONNETICUT-1.4%
6,600,000 Connecticut State HEFA,
(1999 Series U-1) Weekly
VRDNs (Yale University) AAA 6,600,000
IDAHO-0.2%
700,000 Boise, ID Industrial
Development Corp., Multi-
Mode Variable Rate
Industrial Development
Revenue Bonds (Series
1998) Weekly VRDNs
(Multiquip Inc.
Project)/(Bank of Tokyo-
Mitsubishi Ltd. LOC) A- 700,000
MISSOURI-0.3%
1,600,000 Missouri State Health
Facilities Educational
Authority Revenue Bonds,
3.00%, (Series B) AA+ 1,600,000
NEW YORK-1.5%
500,000 New York City Municipal
Water Finance Authority,
Water and Sewer System
Revenue Bonds (Series 1995
A) Daily VRDNs (FGIC
INS)/(FGIC Securities
Purchase, Inc. LIQ) AAA 500,000
300,000 New York City, NY
Transitional Finance
Authority, (1998 Subseries
A-1) Weekly VRDNs
(Commerzbank AG, Frankfurt
LIQ) AA 300,000
600,000 New York City, NY,
Subseries A-10 Daily VRDNs
(Morgan Guaranty Trust
Co., New York LOC) AAA 600,000
5,500,000 New York State Energy
Research & Development
Authority, (1985 Series A)
Daily VRDNs (Niagara
Mohawk Power
Corp.)/(Toronto-Dominion
Bank LOC) AA- 5,500,000
TOTAL 6,900,000
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS-
continued
NORTH CAROLINA-1.0%
$ 4,400,000 Person County, NC
Industrial Facilities &
PCFA Daily VRDNs (Carolina
Power & Light
Co.)/(SunTrust Bank,
Atlanta LOC) Aa3 $ 4,400,000
200,000 Wake County, NC Industrial
Facilities & PCFA, (Series
1990B) Daily VRDNs
(Carolina Power & Light
Co.)/(Bank of New York, New
York LOC) AA- 200,000
TOTAL 4,600,000
TEXAS-0.3%
1,600,000 Harris County, TX HFDC,
(Series 1994) Daily VRDNs
(Methodist Hospital,
Harris County, TX) AA 1,600,000
TOTAL SHORT-TERM
MUNICIPALS (AT AMORTIZED
COST) 22,000,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$452,282,047) 3 $ 457,475,165
</TABLE>
1 Please refer to the "Investment Ratings" in the Statement of Additional
Information for an explanation of the credit ratings. Current credit ratings are
unaudited.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securites laws. These securites have been deemed liquid based upon
criteria approved by the fund's board of directors. At August 31, 1999, these
securities amounted to $29,951,834 which represents 6.5% of net assets.
3 The cost of investments for federal tax purposes amounts to $452,282,047. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,193,118 which is comprised of $17,329,859 appreciation and $12,136,741
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($464,006,608) at August 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation COL -Collateralized EDA
- -Economic Development Authority EDFA -Economic Development Financing Authority
FGIC -Financial Guaranty Insurance Company FHA -Federal Housing Administration
FSA -Financial Security Assurance GNMA -Government National Mortgage Association
GO -General Obligation GTD -Guaranty HDA -Hospital Development Authority HEFA
- -Health and Education Facilities Authority HFA -Housing Finance Authority HFDC
- -Health Facility Development Corporation IDA -Industrial Development Authority
IFA -Industrial Finance Authority INS -Insured LIQ -Liquidity Agreement LOC
- -Letter of Credit MBIA -Municipal Bond Investors Assurance PCA -Pollution
Control Authority PCR -Pollution Control Revenue PCFA -Pollution Control Finance
Authority PRF -Prerefunded SFM -Single Family Mortgage UT -Unlimited Tax VA
- -Veterans Adminstration VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$452,282,047) $ 457,475,165
Cash 28,942
Income receivable 7,404,008
Receivable for investments
sold 7,948,000
Receivable for shares sold 783,582
TOTAL ASSETS 473,639,697
LIABILITIES:
Payable for investments
purchased $ 8,449,451
Payable for shares
redeemed 1,002,531
Accrued expenses 181,107
TOTAL LIABILITIES 9,633,089
Net assets for 45,393,314
shares outstanding $ 464,006,608
NET ASSETS CONSIST OF:
Paid in capital $ 480,874,294
Net unrealized
appreciation of
investments 5,193,118
Accumulated net realized
loss on investments (23,865,842)
Undistributed net
investment income 1,805,038
TOTAL NET ASSETS $ 464,006,608
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($109,296,609 / 10,691,412
shares outstanding) $10.22
Offering Price Per Share
(100/95.50 of $10.22) 1 $10.70
Redemption Proceeds Per
Share $10.22
CLASS B SHARES:
Net Asset Value Per Share
($77,439,602 / 7,579,580
shares outstanding) $10.22
Offering Price Per Share $10.22
Redemption Proceeds Per
Share (94.50/100 of
$10.22) 1 $9.66
CLASS C SHARES:
Net Asset Value Per Share
($7,603,386 / 744,068
shares outstanding) $10.22
Offering Price Per Share $10.22
Redemption Proceeds Per
Share (99.00/100 of
$10.22) 1 $10.12
CLASS F SHARES:
Net Asset Value Per Share
($269,667,011 / 26,378,254
shares outstanding) $10.22
Offering Price Per Share
(100/99.00 of $10.22) 1 $10.32
Redemption Proceeds Per
Share (99.00/100 of
$10.22) 1 $10.12
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 29,968,349
EXPENSES:
Investment advisory fee $ 2,898,235
Administrative personnel
and services fee 364,212
Custodian fees 22,046
Transfer and dividend
disbursing agent fees and
expenses 367,369
Directors'/Trustees' fees 13,610
Auditing fees 13,974
Legal fees 13,084
Portfolio accounting fees 110,844
Distribution services fee-
Class B Shares 485,484
Distribution services fee-
Class C Shares 61,432
Shareholder services fee-
Class A Shares 279,016
Shareholder services fee-
Class B Shares 161,828
Shareholder services fee-
Class C Shares 20,477
Shareholder services fee-
Class F Shares 746,275
Share registration costs 40,508
Printing and postage 24,279
Insurance premiums 11,263
Taxes 36,985
Miscellaneous 22,318
TOTAL EXPENSES 5,693,239
Net investment income 24,275,110
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (17,594,800)
Net change in unrealized
appreciation of
investments (19,467,255)
Net realized and
unrealized loss on
investments (37,062,055)
Change in net assets
resulting from operations $ (12,786,945)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 24,275,110 $ 22,471,420
Net realized gain (loss) on
investments ($1,110,583
and $4,375,593,
respectively, as computed
for federal tax purposes) (17,594,800) 4,375,593
Net change in unrealized
appreciation of
investments (19,467,255) 11,688,975
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (12,786,945) 38,535,988
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (5,694,395) (5,141,911)
Class B Shares (2,791,321) (1,241,221)
Class C Shares (355,204) (144,720)
Class F Shares (15,268,147) (16,533,742)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (24,109,067) (23,061,594)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 105,746,491 75,194,657
Net asset value of shares
issued to shareholders in
payment of
distributions declared 14,496,584 13,981,416
Cost of shares redeemed (101,993,641) (65,472,597)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 18,249,434 23,703,476
Change in net assets (18,646,578) 39,177,870
NET ASSETS:
Beginning of period 482,653,186 443,475,316
End of period (including
undistributed net
investment income of
$1,805,038 and $0,
respectively) $ 464,006,608 $ 482,653,186
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.04 $10.67 $10.33 $10.42
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55 0.54 0.58 0.08
Net realized and
unrealized gain (loss) on
investments (0.82) 0.39 0.33 (0.12)
TOTAL FROM INVESTMENT
OPERATIONS (0.27) 0.93 0.91 (0.04)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.55) (0.56) (0.57) (0.05)
NET ASSET VALUE, END OF
PERIOD $10.22 $11.04 $10.67 $10.33
TOTAL RETURN 2 (2.58%) 8.91% 9.07% (0.36%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.07% 1.08% 1.09% 0.84% 3
Net investment income 5.14% 4.98% 5.29% 6.15% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $109,297 $112,179 $94,941 $296
Portfolio turnover 25% 41% 20% 22%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to August 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.03 $10.66 $10.33 $10.42
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.47 0.44 0.51 0.08
Net realized and
unrealized gain (loss) on
investments (0.81) 0.40 0.31 (0.12)
TOTAL FROM INVESTMENT
OPERATIONS (0.34) 0.84 0.82 (0.04)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.47) (0.47) (0.49) (0.05)
NET ASSET VALUE, END OF
PERIOD $10.22 $11.03 $10.66 $10.33
TOTAL RETURN 2 (3.23%) 8.08% 8.17% (0.36%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.82% 1.83% 1.84% 0.84% 3
Net investment income 4.39% 4.25% 4.55% 6.15% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $77,440 $47,028 $14,997 $296
Portfolio turnover 25% 41% 20% 22%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to August 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.03 $10.66 $10.33 $10.42
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.47 0.45 0.50 0.08
Net realized and
unrealized gain (loss) on
investments (0.81) 0.40 0.32 (0.12)
TOTAL FROM INVESTMENT
OPERATIONS (0.34) 0.85 0.82 (0.04)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.47) (0.48) (0.49) (0.05)
NET ASSET VALUE, END OF
PERIOD $10.22 $11.03 $10.66 $10.33
TOTAL RETURN 2 (3.24%) 8.11% 8.17% (0.36%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.82% 1.83% 1.86% 0.84% 3
Net investment income 4.39% 4.24% 4.51% 6.15% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $7,603 $6,269 $1,950 $296
Portfolio turnover 25% 41% 20% 22%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to August 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.04 $10.67 $10.33 $10.71 $10.56
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55 0.55 0.54 0.69 0.63
Net realized and
unrealized gain (loss)
on investments (0.82) 0.38 0.37 (0.42) 0.15
TOTAL FROM INVESTMENT
OPERATIONS (0.27) 0.93 0.91 0.27 0.78
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.55) (0.56) (0.57) (0.65) (0.63)
NET ASSET VALUE, END OF
PERIOD $10.22 $11.04 $10.67 $10.33 $10.71
TOTAL RETURN 1 (2.58%) 8.91% 9.07% 2.47% 7.73%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.07% 1.08% 1.09% 1.09% 1.08%
Net investment income 2 5.14% 4.98% 5.22% 5.90% 6.18%
Expenses (after waivers) 1.07% 1.08% 1.08% 1.08% 1.08%
Net investment income
(after waivers) 5.14% 4.98% 5.23% 5.91% 6.18%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $269,667 $317,178 $331,588 $383,028 $426,010
Portfolio turnover 25% 41% 20% 22% 13%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
ORGANIZATION
Federated Municipal Opportunities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The investment objective is to provide a
high level of current income which is generally exempt from federal regular
income tax.
The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C
Shares, and Class F Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to prior year interest payments on defaulted
securities. The following reclassifications have been made to the financial
statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED UNDISTRIBUTED
LOSS ON NET INVESTMENT
PAID-IN CAPITAL INVESTMENTS INCOME
<S> <C> <C>
$(1,468,753) $(945,000) $2,413,753
</TABLE>
Net investment income, net realized gains (losses), and net assets were not
affected by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
At August 31, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $4,215,460, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $ 566,748
2004 $3,648,712
Additionally, net capital losses of $19,650,382 attributable to security
transactions after October 31, 1998, are treated as arising on September 1,
1999, the first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At August 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE CAPITAL
SHARE CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000
TOTAL 2,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,892,571 $ 20,449,506 2,396,950 $ 26,115,990
Shares issued to
shareholders in payment of
distributions declared 367,199 3,960,907 325,421 3,526,334
Shares redeemed (1,732,230) (18,757,769) (1,457,233) (15,845,507)
NET CHANGE RESULTING FROM
CLASS A SHARE
TRANSACTIONS 527,540 $ 5,652,644 1,265,138 $ 13,796,817
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,254,176 $ 46,057,634 3,100,694 $ 33,768,993
Shares issued to
shareholders in payment of
distributions declared 123,252 1,325,784 54,169 587,226
Shares redeemed (1,060,466) (11,420,830) (298,593) (3,262,688)
NET CHANGE RESULTING FROM
CLASS B SHARE
TRANSACTIONS 3,316,962 $ 35,962,588 2,856,270 $ 31,093,531
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 598,868 $ 6,508,764 419,685 $ 4,574,972
Shares issued to
shareholders in payment of
distributions declared 22,128 238,543 11,298 122,567
Shares redeemed (445,091) (4,718,986) (45,704) (497,848)
NET CHANGE RESULTING FROM
CLASS C SHARE
TRANSACTIONS 175,905 $ 2,028,321 385,279 $ 4,199,691
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,049,629 $ 32,730,587 985,428 $ 10,734,702
Shares issued to
shareholders in payment of
distributions declared 831,010 8,971,350 899,119 9,745,289
Shares redeemed (6,238,960) (67,096,056) (4,227,235) (45,866,554)
NET CHANGE RESULTING FROM
CLASS F SHARE
TRANSACTIONS (2,358,321) $ (25,394,119) (2,342,688) $ (25,386,563)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,662,086 $ 18,249,434 2,163,999 $ 23,703,476
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.60% of the Fund's average daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Shares.
The Plan provides that the Fund may incur distribution expenses of the average
daily net assets of each class as follows:
PERCENT OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.25%
For the fiscal year ended August 31, 1999, Class A Shares and Class F Shares did
not incur a distribution services fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the year ended August 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $154,265,000 and $159,059,400,
respectively.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1999, were as follows:
Purchases $120,132,324
Sales $131,547,319
INVESTMENT RISK
Although the Fund has a diversified portfolio, the Fund has 19% of its portfolio
invested in lower rated (BB or lower) and comparable quality unrated high-yield
securities. Investments in higher yield securities are accomplished by greater
degree of credit risk and the risk tends to be more sensitive to economic
conditions than higher rated securities. The risk of loss due to default by the
issuer may be significantly greater for the holders of high yielding securities
because such securities are generally unsecured and often subordinated to other
creditors of the issuer.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Municipal Opportunities Fund, Inc. as
of August 31, 1999, the related statement of operations for the year then ended,
the statement of changes in net assets for the years then ended August 31, 1999
and 1998, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Municipal
Opportunities Fund, Inc. as of August 31, 1999, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON, III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
Federated Municipal Opportunities Fund, Inc.
Established 1987
13TH ANNUAL REPORT
ANNUAL REPORT
AS OF AUGUST 31, 1999
[Graphic]
Federated
Federated Municipal Opportunities Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101
G01091-01 (10/99)
[Graphic]
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/10/87
to 8/31/99. The "y" axis is measured in increments of $5,000 ranging from $0 to
$30,000 and indicates that the ending value of hypothetical initial investment
of $13,000 in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $28,458 on 8/31/99
B. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/10/87
to 8/31/99. The "y" axis is measured in increments of $5,000 ranging from $0 to
$30,000 and indicates that the ending value of hypothetical initial investment
of $1,000 in and subsequent investments of $1,000 each year for 12 years in the
fund's Class F Shares, assuming the reinvestment of capital gains and dividends,
would have grown to $20,930 on 8/31/99
C. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/10/87
to 8/31/99. The "y" axis is measured in increments of $20,000 ranging from $0 to
$120,000 and indicates that the ending value of hypothetical initial investment
of $5,000 in and subsequent investments of $500 on the first of every month in
the fund's Class F Shares , assuming the reinvestment of capital gains and
dividends, would have grown to $118,460 on 8/31/99
D. - The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
A Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund") are
represented by a solid line. The Lehman Brothers Municipal Bond Index (LBMBI) is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of the Fund and the LBMBI. The "x" axis reflects computation periods
from 8/5/1996 to 8/31/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the LBMBI. The ending values were $10,957
and $11,927, respectively.
E. - The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
B Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund") are
represented by a solid line. The Lehman Brothers Municipal Bond Index (LBMBI) is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of the Fund and the LBMBI. The "x" axis reflects computation periods
from 8/5/1996 to 8/31/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the LBMBI. The ending values were $10,916
and $11,927, respectively.
F. - The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
C Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund") are
represented by a solid line. The Lehman Brothers Municipal Bond Index (LBMBI) is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
C Shares of the Fund and the LBMBI. The "x" axis reflects computation periods
from 8/5/1996 to 8/31/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class C Shares as compared to the LBMBI. The ending values were $11,218
and $11,927, respectively.
G. - The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
F Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund") are
represented by a solid line. The Lehman Brothers Municipal Bond Index (LBMBI) is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
F Shares of the Fund and the LBMBI. The "x" axis reflects computation periods
from 8/5/1996 to 8/31/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class F Shares as compared to the LBMBI. The ending values were $17,913
and $20,309, respectively.
