-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VpS3yWpYmxF7w90HwQU/sd9ngJ6ju++3t/k8rjseBvg0zTbyi9qcmukB0CllN3oT 1Bd47AdxgM4UCOcjj2RekQ== 0000807607-99-000008.txt : 19990503 0000807607-99-000008.hdr.sgml : 19990503 ACCESSION NUMBER: 0000807607-99-000008 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL OPPORTUNITIES FUND INC CENTRAL INDEX KEY: 0000807607 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251542736 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04533 FILM NUMBER: 99605686 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122888515 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWERS CITY: PITTSBURG STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD MUNICIPAL FUND INC DATE OF NAME CHANGE: 19900814 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD TAX FREE FUND INC DATE OF NAME CHANGE: 19881024 N-30D 1 SEMI-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 12th Semi-Annual Report. At the end of the reporting period, this $483 million fund was invested across 173 issues, had an average maturity of slightly more than 10 years, and an average coupon rate of 6.35%. This report covers the first half of the fund's fiscal year, which is the six-month period from September 1, 1998 through February 28, 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 Invest ment Management Company. Following their discussion covering the fund's performance and investment strategy are three additional items of share holder interest. First is a series of graphs showing the fund's long-term investment performance. Second is a complete listing of the fund's municipal bond holdings, and third is the publication of the fund's financial state ments. This fund pursues monthly tax-free income from a broadly diversified portfo lio of long-term municipal bonds. 1 The fund is carefully managed to be as tax efficient as possible by avoiding taxable gains. In fact, the fund has a long-standing record of never making a taxable distribution to shareholders. The yield generated by the fund during the reporting period substantially exceeded that of its peer group, and the fund's total return was competitive with the returns of the 264 general municipal funds as tracked by the Lipper General Municipal Funds Average. 2 1 State, local, and federal alternative minimum taxes may apply. 2 The Lipper General Municipal Funds Average figure represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category. This figure does not take sales charges into account. Individual share class total return performance for the six-month reporting period, including income distributions, follows. 3 TOTAL RETURN INCOME DISTRIBUTIONS NET ASSET VALUE CHANGE Class A Shares 1.34% $0.28 $11.04 to $10.91= (1%) Class B Shares 0.95% $0.23 $11.03 to $10.90= (1%) Class C Shares 1.03% $0.23 $11.03 to $10.91= (1%) Class F Shares 1.34% $0.28 $11.04 to $10.91= (1%) Thank you for selecting Federated Municipal Opportunities Fund, Inc. as a convenient, diversified way to pursue tax-free income. Of course, you have the option of receiving income from the fund or building your account by reinvesting your dividends and compounding tax-free. Sincerely, [Graphic] Richard B. Fisher President April 15, 1999 3 Performance quoted is based on net asset value, represents past perfor mance, and is not indicative of future results. Investment return and prin cipal 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 (3.22%), (4.48%), 0.05% and (0.64%), respectively. [Graphic] Mary Jo Ochson Senior Vice President Federated Investment Management Company [Graphic] J. Scott Albrecht Vice President Federated Investment Management Company Investment Review WHAT IS YOUR VIEW OF THE MUNICIPAL BOND MARKET OVER THE REPORTING PERIOD? The municipal bond market offered investors remarkable relative value during the six-month reporting period ended February 28, 1999. Municipal bond issu ance was extremely heavy for most of 1998, due largely to a low interest rate environment. Because of the attractive rates, municipal entities sold a record number of bonds to refinance existing debt and build new projects. As for the other side of the supply/demand coin, demand for municipal bonds was impacted by the "rate shock" from individual investors which occurred when long-term yields on municipal bonds were at or below the 5.00% thresh old. As a result of this supply/demand imbalance, the yield on municipal securities surged to over 104% of Treasuries in October 1998. The average spread in the fourth quarter of 1998 was 96% of Treasuries, while the histor ical average spread is closer to 85%. Year-to-date municipal bond issuance has slowed, at least in comparison to that in January and February of 1998. Although the average spread between municipal bonds and Treasuries had declined to approximately 90% by February 28, 1999, municipal bond yields are still at very attractive lev els. HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. PERFORM WITH RESPECT TO TOTAL RETURN DURING THE REPORTING PERIOD? For the six-month period ended February 28, 1999, the Class A Shares of the fund produced a total return that was competitive with the returns of the 264 general municipal funds tracked by Lipper Analytical Services, Inc. The fund's Class A Shares returned 1.34%, based on net asset value, 1 while the Lipper General Municipal Funds Average returned 1.76%. The income generated by the fund, however, substantially exceeded that of its peer group. The fund's total return was affected by spread widening between BBB- and AAA- rated bonds. When credit spreads widened, lower rated bonds underperformed higher rated bonds. The portfolio maintained a greater percentage of assets in BBB-rated securities than other funds in its peer group. WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF FEBRUARY 28, 1999?
COUPON PERCENTAGE ISSUER MATURITY RATE OF NET ASSETS Indianapolis, IN Airport Authority (FDX Corp.) 01/15/2017 7.100% 4.0% District of Columbia Revenue Bonds (American University) 10/1/2026 5.625% 3.7% Illinois Health Facilities Authority (Edgewater Hospital & Medical Center) 7/01/2024 9.250% 2.6% Springfield, TN Hospital Revenue Bonds (Northcrest Medical Center) 04/01/2024 8.500% 2.1% Pennsylvania Wastewater Treatment Revenue Bonds 12/01/2024 7.600% 1.9%
These five holdings comprised 14.3% of the fund's total net assets. HOW WERE THE FUND'S ASSETS ALLOCATED IN TERMS OF CREDIT QUALITY AT THE END OF THE REPORTING PERIOD?
PERCENTAGE OF NET ASSETS AAA 20.4% AA 6.5% A 5.6% BBB 34.4% BB or lower 3.5% Non-rated 29.6%
HOW DID THE FUND PERFORM IN TERMS OF INCOME AND YIELD? Federated Municipal Opportunities Fund, Inc. produced more federal tax-exempt income than the average long-term general municipal fund. As of February 28, 1999, the Class A Shares of the fund produced a 30-day SEC yield of 4.30%, based on net asset value, 2 which beat the average yield of 3.79% for its Lipper peer group. The fund's core position in lower rated bonds (BBB and below)3 with attractive coupons was the driving force behind the fund's excellent income performance. This performance is even more impressive on a tax equivalent basis, with yields ranging from 5.97% for an investor in the 28% tax bracket to 7.12% for an investor in the 39.6% tax bracket. 1 Performance quoted 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 for Class B, C, and F Shares, based on net asset value, were 0.95%, 1.03%, and 1.34%, respec tively. 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 (3.22%), (4.48%), 0.05%, and (0.64%), respectively. 2 The 30-day SEC yields as of February 28, 1999 for Class B, C, and F Shares, were 3.55%, 3.55%, and 4.30%, based on net asset value, respectively. Based on offering price, the SEC yields were 4.10%, 3.55%, 3.55%, and 4.26% for Class A, B, C, and F Shares, respectively. 3 Lower rated bonds involve a higher degree of risk than investment grade bonds in return for higher yield potential. YOU HAVE DISCUSSED THE TAX EFFICIENCY OF THIS FUND IN THE PAST. HOW DO YOU MANAGE A FUND FOR TAX EFFICIENCY? We make every effort to avoid transactions in the fund that would result in a capital gain not offset by capital losses. The fund accomplishes this by pri marily carrying over losses from previous tax years or tax-loss swaps in the current year. In fact, the fund has a long-standing record of never making a taxable distribution. DURING THE YEAR, THE FUND'S BOARD OF DIRECTORS VOTED TO ALLOW THE FUND TO INVEST A GREATER PERCENTAGE OF ITS ASSETS IN HIGHER YIELDING, LOWER RATED MUNICIPAL BONDS. TO WHAT EXTENT HAVE YOU USED THIS FLEXIBILITY, AND WHAT IS THE AVERAGE CREDIT QUALITY OF THE FUND'S PORTFOLIO? Though the policy is in place to allow us to invest in lower rated municipal bonds, we have done so on a limited basis, and the flexibility has not resulted in a significantly lower overall credit quality. The average quality of the fund's portfolio was BBB as of the end of the reporting period. We will continue to selectively participate in the income opportunities that can be found in the below-investment-grade area of the market, where investors can be rewarded with added yield for assuming incremental risk. We believe that this is an ongoing process that can benefit shareholders who want to pursue a higher level of tax-free income. WHAT ROLE DOES CREDIT ANALYSIS PLAY IN MANAGING THE FUND? The fund uses a very credit intensive approach to selecting securities. We have pulled together a team of experienced analysts who do extensive research on every issue. The analysts who work on this fund have an average of 13 years of analytical experience. Each analyst also has relevant work experi ence in some of the sectors that they follow. Each issue is independently reviewed by our analysts regardless of whether or not it has received a rating from one of the rating agencies. This review involves discussions with the issuer, borrower, investment bankers, and other involved parties. When appropriate, our analyst makes an on-site visit. After the research is complete, the analyst's recommendation is reviewed by our credit committee, which consists of senior department personnel, includ ing portfolio managers and other analysts. If the committee agrees that the security meets our standards, we buy it. After we purchase an issue, we continue to follow it. In addition to follow ing broad sector trends, the credit staff reviews all of our securities on at least an annual basis; many are reviewed more frequently-quarterly or even monthly. When we see signs of changing situations, we alter our holdings accordingly. WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET FOR THE BALANCE OF 1999? We continue to be very optimistic about the municipal bond market. The U.S. economy remains strong, which has contributed to the fiscal health of state and local governments and other municipal bond issuers. Although the economy is steaming, we do not expect to see any Federal Reserve Board tight ening moves any time soon. Inflation continues to be barely noticeable, there is less government borrowing, and the global economy remains relatively weak. This should keep interest rates in a narrow trading range. In an environment of stable interest rates, credits that have higher yields-such as those you see in Federated Municipal Opportunities Fund, Inc.-have an advantage for total return. Two Ways You May Seek to Invest for Success: RESULTS OF A $12,000 INVESTMENT IF YOU MADE AN INITIAL INVESTMENT OF $12,000 IN 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 $27,211 ON 2/28/99. YOU WOULD HAVE EARNED A 7.17% AVERAGE ANNUAL TOTAL RETURN FOR THE INVESTMENT LIFE SPAN. 1 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 3/31/99, the Class A Shares' average annual 1-year and since inception (8/5/96) total returns were (0.15)% and 5.06%, respectively. Class B Shares' average annual 1-year and since inception (8/5/96) total returns were (1.67)%, and 4.68%, respectively. Class C Shares' average annual 1-year and since inception (8/5/96) total returns were 2.80% and 6.07%, respectively. Class F Shares' average annual 1-year, 5-year, and 10-year total returns were 2.57%, 6.25%, and 7.05%, respectively. 2 [Graphic] 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 and the 1.00% contingent deferred sales charge for Class F Shares. Data quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. 2 The total returns stated take into account the 4.50% sales charge for Class A Shares, the 5.50% contingent deferred sales charge for Class B Shares, the 1.00% contingent deferred sales charge for Class C Shares, and the 1.00% sales charge and 1.00% contingent deferred sales charge for Class F Shares. ONE STEP AT A TIME $1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 11 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $18,629. With this approach, the key is consistency. If you had started investing $1,000 annually in the Class F Shares of Feder ated Municipal Opportunities Fund, Inc. on 4/10/87, reinvested your divi dends and capital gains and did not redeem any shares, you would have invested only $12,000, but your account would have reached a total value of $18,629 1 by 2/28/99. You would have earned an average annual total return of 6.76%. A practical investment plan helps you pursue a high level of income through tax-free municipal bonds. Through systematic investing, you buy shares on a regular basis and reinvest all tax-free earnings. An investment plan works for you even if you invest only $1,000 annually. You can take it one step at a time. Put time, money, and compounding to work. [Graphic] 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. However, by investing reg ularly over time and buying shares at various prices, investors can pur chase more shares at lower prices. All accumulated shares have the ability to pay income to the investor. Because such a plan involves continuous investment, regardless of changing price levels, the investor should consider whether or not to continue pur chases through periods of low price levels. Hypothetical Profile: Investing Tax-Free Monthly Income Fred and Margie Potter both work and have no children. At the peak of their careers, this tax-sensitive couple was seeking a way to keep more of what they earn. On April 10, 1987, they invested $5,000 in the Class F Shares of Federated Municipal Opportunities Fund, Inc. and continue to invest $500 in the fund on the last day of every month. As this chart shows, since that time, their investment has grown-on a tax-free basis-to $118,484. 1 This represents a 6.72% average annual total return for investors in the 36% federal tax bracket.2 For the Potters, the decision to invest tax-free has made the future worth waiting for. [Graphic] See Appendix C 1 This chart assumes that the subsequent investments are made on the last day of each month. Income may be subject to the federal alternative minimum tax and state and local taxes. 2 This hypothetical scenario is provided for illustrative purposes only and does not represent the results obtained by any particular shareholder. Past performance does not guarantee future results. Portfolio of Investments FEBRUARY 28, 1999 (UNAUDITED)
PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- 100.5% 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+ $ 1,433,635 390,000 Alaska State Housing Finance Corp., Collateralized Home Mortgage Revenue Bonds, Series B-1, 6.90% (GNMA LOC), 6/1/2032 AAA 412,554 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 4,162,520 TOTAL 6,008,709 ARIZONA-1.0% 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 4,935,599 ARKANSAS-1.6% 2,920,000 Conway, AR Hospital Authority, Revenue Bonds, 7.125% (Conway Regional Hospital), 2/1/2013 BBB+ 3,125,597 2,500,000 Conway, AR Hospital Authority, Revenue Refunding Bonds, 8.125% (Conway Regional Hospital), 7/1/2005 BBB+ 2,646,075 1,000,000 Conway, AR Hospital Authority, Revenue Refunding Bonds, 8.375% (Conway Regional Hospital), 7/1/2011 BBB+ 1,061,650 1,000,000 Little Rock, AR Health Facilities Board, Revenue Refunding Bonds, 7.00% (Baptist Medical Center, AR), 10/1/2017 A 1,082,990 TOTAL 7,916,312 CALIFORNIA-5.5% 6,000,000 California Statewide Communities Development Authority, Special Facilities Revenue Bonds, 5.625% (United Air Lines)/(Original Issue Yield: 5.75%), 10/1/2034 Baa2 6,146,460 5,000,000 Foothill/Eastern Transportation Corridor Agency, CA, Sr. Lien Toll Road Capital Appreciation Revenue Bonds (Series A) (Original Issue Yield: 7.30%), 1/1/2026 BBB- 1,178,850 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 2,277,161 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 6,369,120 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 6,370,076 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued CALIFORNIA-CONTINUED $ 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 $ 2,035,980 1,250,000 Temecula, CA Community Facilities District No. 88-12, Special Tax Refunding Bonds (Series 1998A), 5.625%, 9/1/2017 NR 1,265,850 1,000,000 West Sacramento, CA, Limited Obligation Refunding Improvement Bonds, 5.60% (West Sacramento Reassessment District of 1998)/(Original Issue Yield: 5.70%), 9/2/2017 NR 998,270 TOTAL 26,641,767 COLORADO-3.1% 325,000 Colorado HFA, SFM Revenue Bonds (Series A- 2), 7.70% (FHA GTD), 2/1/2023 AA+ 341,474 1,595,000 Colorado HFA, SFM Revenue Bonds (Series C- 2), 7.375% (FHA GTD), 8/1/2023 AA+ 1,634,907 5,000,000 Colorado HFA, Single Family Mortgage Revenue Bonds (Series 1997C-2), 6.875%, 11/1/2028 Aa2 5,621,350 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 3,152,300 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 2,900,882 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 1,418,450 115,000 El Paso County, CO HFA, SFM Revenue Bonds, 8.00% (GNMA COL), 9/1/2022 AAA 120,282 TOTAL 15,189,645 CONNECTICUT-0.6% 3,000,000 Connecticut Development Authority, PCR Refunding Revenue Bonds (Series A), 5.85% (Connecticut Light & Power Co.), 9/1/2028 Ba3 3,010,980 DISTRICT OF COLUMBIA- 3.7% 17,000,000 District of Columbia, Revenue Bonds, 5.625% (American University)/(AMBAC INS)/(Original Issue Yield: 5.90%), 10/1/2026 AAA 17,885,360 FLORIDA-1.7% 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 2,485,600 2,475,000 Lee County, FL HFA, Single Family Mortgage Step Coupon Revenue Bonds, 5.60% (GNMA Collateralized Home Mortgage Program COL), 3/1/2029 Aaa 2,808,283 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued FLORIDA-CONTINUED $ 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 $ 2,914,316 TOTAL 8,208,199 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 1,600,460 IDAHO-0.5% 685,000 Idaho Housing Agency, SFM Revenue Bonds (Series A), 7.50% (FHA GTD), 7/1/2024 AA 724,689 1,735,000 Idaho Housing Agency, SFM Revenue Bonds (Series F-2), 7.80% (FHA GTD), 1/1/2023 AA 1,808,790 TOTAL 2,533,479 ILLINOIS-6.0% 2,360,000 Chicago, IL, Collateralized SFM Revenue Bonds (Series A), 7.25% (GNMA COL), 9/1/2028 Aaa 2,683,745 2,000,000 Chicago, IL, Water Revenue Bonds, 7.20% (PRF)/(Original Issue Yield: 7.35%), 11/15/2016 AA- 2,098,740 1,100,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples Gas Light & Coke Co.), 3/1/2015 AA- 1,160,192 1,480,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples Gas Light & Coke Co.), 3/1/2015 AA- 1,560,986 3,000,000 Illinois Development Finance Authority, Housing Revenue Bonds, 6.10% (Catholic Charities Housing Development Corp.), 1/1/2020 NR 3,052,860 2,500,000 Illinois Development Finance Authority, Mortgage Revenue Refunding Bonds, Series A, 5.80% (MBIA INS)/(FHA LOC), 7/1/2028 AAA 2,618,675 9,900,000 Illinois Health Facilities Authority, Hospital Revenue Bonds (Series A), 9.25% (Edgewater Hospital & Medical Center, IL), 7/1/2024 NR 12,563,496 1,050,000 Illinois State University, Auxilary Facilities System Revenue Bonds, 7.40% (PRF)/(Original Issue Yield: 7.444%), 4/1/2014 Aaa 1,098,184 2,000,000 Rolling Meadows, IL, Multifamily Mortgage Revenue Refunding Bonds, 7.75% (Woodfield Garden Apartments)/(Banque Paribas, Paris LOC), 2/1/2004 A 2,142,960 TOTAL 28,979,838 INDIANA-5.9% 550,000 Beech Grove, IN, Economic Development Revenue Bond, 8.75% (Westvaco Corp.), 7/1/2010 A 558,211 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued INDIANA-CONTINUED $ 1,000,000 Goshen, IN, Revenue Bonds (Series 1998), 5.75% (Greencroft Obligated Group)/(Original Issue Yield: 5.87%), 8/15/2028 NR $ 963,600 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 NR 1,966,840 3,000,000 2 Indiana Port Commission, Port Facility Revenue Refunding Bonds, 6.875% (Cargill, Inc.), 5/1/2012 Aa3 3,265,440 480,000 Indiana State HFA, SFM Revenue Bonds (Series A), 8.20% (GNMA COL), 7/1/2020 Aaa 496,877 2,025,000 Indiana State HFA, SFM Revenue Home Mortgage Program (Series F-2), 7.75% (GNMA COL), 7/1/2022 Aaa 2,130,907 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 19,167,561 TOTAL 28,549,436 IOWA-0.2% 1,000,000 Davenport, IA PCA, PCR Refunding Bonds, Nicols- Homeshield Project, 8.375% (Quanex Corp.), 12/1/2005 NR 1,020,230 KANSAS-0.8% 1,500,000 2 Kansas Development Finance Authority, Multifamily Housing Revenue Bonds, Series 1998K, 6.375% (Pioneer Olde Town Apartments), 10/1/2017 NR 1,496,640 2,260,000 Sedgwick & Shawnee Counties, KS, Single Family Mortgage Revenue Bonds (Series 1997A-1), 5.50% (GNMA Collateralized Home Mortgage Program COL), 6/1/2029 Aaa 2,517,098 TOTAL 4,013,738 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- 3,822,770 4,000,000 Kentucky Economic Development Finance Authority, Hospital System Refunding Revenue Bonds, 5.875% (Appalachian Regional Health Center)/(Original Issue Yield: 5.92%), 10/1/2022 BBB 4,098,080 TOTAL 7,920,850 LOUISIANA-6.1% 3,000,000 De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds, 7.70% (International Paper Co.), 11/1/2018 BBB+ 3,444,510 1,000,000 Iberville Parish, LA, Pollution Control Revenue Refunding Bonds, Series 1998, 5.70% (Entergy Gulf States, Inc.)/(Original Issue Yield: 5.699%), 1/1/2014 BB+ 990,740 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued LOUISIANA-CONTINUED $ 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 $ 3,166,072 3,900,000 Louisiana HFA, Single Family Mortgage Revenue Bonds (Series C-1), 5.75% (GNMA Collateralized Home Mortgage Program COL), 12/1/2028 Aaa 4,022,811 5,645,000 St. Charles Parish, LA, PCR Bonds, 7.50% (Louisiana Power & Light Co.)/(Original Issue Yield: 7.542%), 6/1/2021 BBB 6,056,464 1,400,000 St. Charles Parish, LA, PCR Bonds, 8.00% (Louisiana Power & Light Co.), 12/1/2014 BBB 1,475,936 2,100,000 St. Charles Parish, LA, PCR Bonds, 8.25% (Louisiana Power & Light Co.)/(Original Issue Yield: 8.273%), 6/1/2014 BBB 2,180,283 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 3,936,050 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 3,223,980 1,000,000 West Feliciana Parish, LA, PCR Bonds, 5.80% (Entergy Gulf States, Inc.), 12/1/2015 BB+ 1,000,940 TOTAL 29,497,786 MASSACHUSETTS-3.0% 5,000,000 Massachusetts HEFA, Revenue Bonds (Series 1999A), 5.75% (Caritas Christi Obligated Group)/(Original Issue Yield: 5.80%), 7/1/2028 BBB 4,964,500 7,128,654 Massachusetts IFA, 8.50%, 11/1/2012 NR 7,110,832 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 2,255,334 TOTAL 14,330,666 MICHIGAN-2.3% 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 NR 977,380 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 NR 2,168,775 590,000 Michigan State Housing Development Authority, Single Family Mortgage Revenue Bonds (Series B), 6.95%, 12/1/2020 AA+ 621,594 5,000,000 Michigan Strategic Fund, Limited Obligation Revenue Refunding Bonds, Series A, 5.55% (Detroit Edison Co.)/(MBIA INS), 9/1/2029 AAA 5,073,750 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued MICHIGAN-CONTINUED $ 1,000,000 Michigan Strategic Fund, Resource Recovery Limited Obligation Revenue Bonds, 6.90% (Central Wayne Energy Recovery Limited Partnership), 7/1/2019 NR $ 1,026,880 1,000,000 Michigan Strategic Fund, Resource Recovery Limited Obligation Revenue Bonds, 7.00% (Central Wayne Energy Recovery Limited Partnership), 7/1/2027 NR 1,034,790 TOTAL 10,903,169 MINNESOTA-5.2% 900,000 Burnsville, MN, Multifamily Housing Revenue Refunding Bonds, Coventry Court Apartments, 7.50% (FHA/VA Mtgs COL)/(Original Issue Yield: 7.56%), 9/1/2027 AAA 926,865 250,000 Centennial Independent School District No. 012, MN, UT GO Bonds, Series A, 7.15% (FSA INS)/(Prerefunded PRF), 2/1/2011 AAA 259,207 95,000 Dakota County, MN Housing & Redevelopment Authority, SFM Revenue Bonds, 7.20% (GNMA GTD), 12/1/2009 AAA 96,144 165,000 Hennepin Co. MN, Lease Revenue Certificates of Participation, Series A, 6.80%, 5/15/2017 AA 179,376 200,000 Minneapolis, MN Multifamily Housing Authority, Multifamily Housing Revenue Bonds, 7.125% (Seward Towers)/(GNMA COL), 12/20/2010 AAA 209,432 300,000 Minneapolis, MN Multifamily Housing Authority, Multifamily Housing Revenue Bonds, Churchill Project, 7.05% (FHA GTD), 10/1/2022 AAA 322,179 320,000 Minnesota State HFA, SFM Revenue Bonds (Series D), 8.05% (FHA GTD), 8/1/2018 AA+ 326,922 3,000,000 Minnesota State HFA, SFM Revenue Bonds (Series E), 6.85%, 1/1/2024 AA+ 3,174,870 170,000 Minnesota State HFA, Single Family Mortgage Revenue Bonds, Series B, 7.30% (FHA/VA Mtgs LOC)/(Original Issue Yield: 7.342%), 1/1/2017 AA+ 174,520 185,000 Minnesota State HFA, Single Family Mortgage Revenue Bonds, Series C, 7.10% (FHA/VA mtgs COL), 7/1/2011 AA+ 194,798 100,000 Minnetonka, MN, Multifamily Housing Revenue Bonds, Cedare Hills East Project, 7.50% (FHA COL), 12/1/2017 A+ 104,380 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 9,091,420 8,000,000 2 VRDC/IVRC Trust, GO Inverse Variable Rate Certificates, 8.023% (University of Minnesota), 5/18/2012 AA 9,850,000 TOTAL 24,910,113 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- 2,497,000 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued MONTANA-0.2% $ 950,000 Montana State Board of Housing, SFM Revenue Bonds (Series B-2), 7.50% (FHA GTD), 4/1/2023 Aa2 $ 998,041 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- 3,003,180 5,110,000 Clark County, NV, Industrial Development Revenue Bonds (Series 1997A), 5.90% (Nevada Power Co.), 11/1/2032 BBB- 5,122,673 TOTAL 8,125,853 NEW HAMPSHIRE-2.0% 600,000 New Hampshire Higher Educational & Health Facilities Authority, Revenue Bonds (Series 1998), 5.75% (RiverMead at Peterborough), 7/1/2028 NR 594,486 875,000 New Hampshire State HFA, SFM Revenue Bonds (Series B), 7.75%, 7/1/2023 A+ 926,949 4,735,000 New Hampshire State HFA, SFM Revenue Bonds (Series D), 7.25%, 7/1/2015 A+ 4,964,884 2,865,000 New Hampshire State IDA, PCR Bonds ( Series A), 8.00% (United Illuminating Co.), 12/1/2014 BBB- 3,002,663 TOTAL 9,488,982 NEW MEXICO-0.7% 2,000,000 Farmington, NM, PCR Refunding Bonds (Series 1997), 6.375% (Public Service Co. New Mexico), 4/1/2022 BB+ 2,140,480 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 1,216,488 TOTAL 3,356,968 NEW YORK-5.8% 2,500,000 Brookhaven, NY IDA, Senior Residential Housing Revenue Bonds, 6.25% (Woodcrest Estates), 12/1/2023 NR 2,490,350 500,000 Monroe County, NY IDA, Civic Facility Revenue Bonds, 5.70% (Volunteers of America of Western New York)/(Original Issue Yield: 5.80%), 8/1/2018 NR 488,615 3,000,000 New York City, NY IDA, Industrial Development Revenue Bonds (Series 1997), 5.75% (Brooklyn Navy Yard Cogeneration Partners, L.P. Project)/(Original Issue Yield: 5.81%), 10/1/2036 BBB- 3,084,240 1,500,000 New York City, NY IDA, Industrial Development Revenue Refunding Bonds (Series 1998), 6.00% (Field Hotel Associates, LP-JFK Project), 11/1/2028 NR 1,484,250 5,000,000 2 New York City, NY, Residual Interest Tax- Exempt Securities (Series PA-147), 8.537%, 8/1/2007 NR 5,976,600 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued NEW YORK-CONTINUED $ 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+ $ 2,603,975 3,300,000 New York State Energy Research & Development Authority, PCR Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/(Morgan Guaranty Trust Co., New York LOC) AA+ 3,300,000 280,000 New York State Environmental Facilities Corp., PCR State Water Revolving Fund, 7.25% (Original Issue Yield: 7.334%), 6/15/2010 NR 306,611 2,620,000 New York State Environmental Facilities Corp., PCR State Water Revolving Fund, 7.25% (United States Treasury PRF), 6/15/2001 (@102) NR 2,890,227 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 5,224,400 TOTAL 27,849,268 NORTH CAROLINA-1.1% 3,000,000 Martin County, NC IFA, (Series 1995) Solid Waste Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.), 11/1/2025 A 3,134,790 2,400,000 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 2,353,488 TOTAL 5,488,278 NORTH DAKOTA-0.7% 1,835,000 North Dakota State HFA, SFM Revenue Bonds (Series C), 7.30%, 7/1/2024 A+ 1,923,300 1,205,000 North Dakota State HFA, SFM Revenue Bonds, Series A, 6.75% (FHA/VA Mtgs COL), 7/1/2012 A+ 1,272,251 TOTAL 3,195,551 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 1,950,120 1,680,000 2 Franklin County, OH, Multifamily Housing Revenue Refunding Bonds (Series 1998B), 6.25% (Jefferson Chase Apartments Project), 11/1/2015 NR 1,678,085 500,000 Ohio State Water Development Authority, PCR Bonds (Series A), 8.10% (Ohio Edison Co.)/(Original Issue Yield: 8.142%), 10/1/2023 BB+ 522,175 1,500,000 Ohio State Water Development Authority, PCR Refunding Revenue Bonds (Series 1997A), 6.10% (Cleveland Electric Illuminating Co.), 8/1/2020 BB+ 1,519,545 TOTAL 5,669,925 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued 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 $ 4,947,261 1,250,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.375% (American Airlines), 12/1/2020 BBB- 1,338,363 6,200,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60% (American Airlines)/(Original Issue Yield: 7.931%), 12/1/2030 BBB- 6,732,022 TOTAL 13,017,646 PENNSYLVANIA-10.2% 3,000,000 Allegheny County, PA HDA, Health & Education Revenue Bonds, 7.00% (Rehabilitation Institute of Pittsburgh)/(Original Issue Yield: 7.049%), 6/1/2010 NR 3,349,320 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) NR 2,791,100 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 2,257,793 4,985,000 Allegheny County, PA Higher Education, Bldg. Auth. Revenue Bonds, 7.375% (La Roche College), 7/15/2012 NR 5,326,024 1,480,000 Allegheny County, PA IDA, Revenue Bonds, 8.75% (United Parcel Service), 2/15/2009 NR 1,517,947 3,000,000 Delaware County, PA Authority, College Revenue Bonds, 7.25% (Eastern College)/(United States Treasury PRF)/(Original Issue Yield: 7.875%), 3/1/2012 NR 3,444,120 2,055,000 Erie County, PA Hospital Authority, Revenue Bonds, 7.50% (Erie Infants & Youth Home, Inc.), 10/1/2011 NR 2,165,991 400,000 Erie County, PA IDA, Pollution Control Revenue Refunding Bonds, 7.15% (International Paper Co.), 9/1/2013 BBB+ 427,684 6,000,000 2 Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 1997B), 6.125% (National Gypsum Co.), 11/1/2027 NR 5,905,380 3,500,000 2 Pennsylvania EDFA, Resource Recovery Revenue Bonds (Series A), 6.40% (Northampton Generating), 1/1/2009 BBB- 3,679,445 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 9,093,840 1,740,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenue Bonds, 6.75% (Thiel College), 9/1/2017 NR 1,847,741 1,200,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 1996), 7.15% (Thiel College), 5/15/2015 NR 1,327,824 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued PENNSYLVANIA-CONTINUED $ 3,875,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series A), 7.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/(Original Issue Yield: 7.45%), 3/1/2021 AAA $ 4,241,420 1,750,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series A), 8.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/(Original Issue Yield: 8.448%), 3/1/1999 (@102) AAA 1,786,278 TOTAL 49,161,907 PUERTO RICO-0.5% 1,000,000 2 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securites (Series PA 331A), 8.76% (AMBAC INS), 7/1/2013 NR 1,201,800 1,000,000 2 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securities (Series PA 331B), 8.76% (AMBAC INS), 7/1/2014 NR 1,190,680 TOTAL 2,392,480 SOUTH CAROLINA-0.8% 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- 1,874,242 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 1,999,820 TOTAL 3,874,062 TENNESSEE-3.6% 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 1,131,684 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 1,018,930 3,100,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue Bonds, 8.25% (NorthCrest Medical Center)/(Original Issue Yield: 8.50%), 4/1/2012 Aaa 3,822,703 7,800,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue Bonds, 8.50% (NorthCrest Medical Center)/(Original Issue Yield: 8.875%), 4/1/2024 Aaa 10,028,148 1,255,000 Tennessee Housing Development Agency, Homeownership Program, Issue V Revenue Bonds, 7.65%, 7/1/2022 AA 1,307,258 TOTAL 17,308,723 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued TEXAS-12.0% $ 2,500,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 BBB+ $ 2,703,375 1,800,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 8.125% (Texas Utilities Electric Co.), 2/1/2020 BBB+ 1,891,116 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- 7,767,179 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- 3,298,590 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- 2,536,824 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- 2,731,375 1,000,000 Guadalupe-Blanco River Authority TX, Industrial Development Corp., PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 NR 1,053,490 2,500,000 Guadalupe-Blanco River Authority TX, Industrial Development Corp., PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 NR 2,633,725 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 5,438,250 3,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds, 5.60% (Valero Energy Corp.), 4/1/2032 BBB- 2,926,590 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 1,857,000 4,000,000 2 Matagorda County, TX Navigation District Number One, Residual Interest Tax-Exempt Securities (Series PA- 427), 7.761% (Houston Industries, Inc.)/(MBIA INS), 11/1/2029 NR 4,013,360 7,630,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement Bonds, 6.75% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 BBB+ 8,519,887 500,000 Sabine River Authority, TX, PCR Bonds (Series B) Daily VRDNs (Texas Utilities Electric Co.)/(UBS AG LOC) AA+ 500,000 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 990,850 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 975,050 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 7,880,550 TOTAL 57,717,211 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued UTAH-1.4% $ 715,000 Hildale, UT, Electric Revenue Bonds (Series 1995), 7.00%, 9/1/2002 NR $ 708,122 4,000,000 Tooele County, UT, Hazardous Waste Treatment Revenue Bonds (Series 1998A), 5.70% (Union Pacific Corp.), 11/1/2026 BBB- 3,966,600 540,000 Utah State HFA, SFM Revenue Bonds (Series B- 3), 7.10%, 7/1/2024 AAA 569,776 675,000 Utah State HFA, SFM Revenue Bonds (Series E- 2), 7.15% (FHA GTD)/(Original Issue Yield: 7.169%), 7/1/2024 AAA 709,823 780,000 Utah State HFA, Single Family Mortgage Revenue Bonds, 7.55% (FHA GTD), 7/1/2023 AAA 821,176 105,000 Utah State HFA, Single Family Mortgage Revenue Bonds, 7.75% (FHA GTD), 1/1/2023 AAA 107,796 TOTAL 6,883,293 VIRGINIA-1.5% 7,500,000 Pocohontas Parkway Association, VA, Toll Road Capital Appreciation Revenue Bonds (Series B) (Original Issue Yield: 5.75%), 8/15/2017 BBB- 2,611,200 16,000,000 Pocohontas Parkway Association, VA, Toll Road Revenue Bonds (Series 1998B) (Original Issue Yield: 5.90%), 8/15/2029 BBB- 2,728,320 1,800,000 Rockingham County, VA IDA, Residential Care Facility First Mortgage Revenue Bonds, 5.75% (Virginia Mennonite Retirement Community)/ (Original Issue Yield: 5.90%), 4/1/2028 NR 1,781,064 TOTAL 7,120,584 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- 4,557,656 WEST VIRGINIA-0.4% 287,469 Marion County, WV County Commission, Refunding Revenue Bonds, 10.00% (Adirondack Recycling), 12/1/2025 NR 235,724 2,056,897 Marion County, WV County Commission, Refunding Revenue Bonds, 8.00% (Adirondack Recycling), 12/1/2025 NR 1,748,363 TOTAL 1,984,087 WISCONSIN-2.3% 1,250,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series 1998), 5.70% (United Lutheran Program For The Aging, Inc.)/(Original Issue Yield: 5.778%), 3/1/2028 NR 1,224,800 2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series B), 6.75% (Grant Regional Health Center, Inc.)/(Original Issue Yield: 6.90%), 10/1/2022 NR 2,042,420 1,750,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, 5.80% (Beaver Dam Community Hospitals, Inc.), 8/15/2028 NR 1,695,260 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued WISCONSIN-CONTINUED $ 2,300,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Series 1998, 5.75% (Attic Angel Obligated Group)/(Original Issue Yield: 6.00%), 11/15/2027 NR $ 2,194,269 3,595,000 Wisconsin Housing & Economic Development Authority, Home Ownership Revenue Bonds (Series H), 5.75%, 9/1/2028 Aa2 3,700,729 TOTAL 10,857,478 TOTAL INVESTMENTS (IDENTIFIED COST $456,632,081) 3 $ 485,601,329
Securities that are subject to the Alternative Minimum Tax represent 43.5% of the portfolio as calculated upon total portfolio market value. 1 Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. 2 Securities exempt from registration under the Securities Act of 1933, as amended and may only be sold to dealers and other exempt investors. These securities have been determined to be liquid according to guidelines estab lished by the Board of Directors. At February 28, 1999, these securities amounted to $38,257,430 which represents 7.9% of net assets. 3 The cost of investments for federal tax purposes amounts to $456,244,581. The net unrealized appreciation of investments on a federal tax basis amounts to $29,356,748 which is comprised of $30,801,905 appreciation and $1,445,157 depreciation at February 28, 1999. Note: The categories of investments are shown as a percentage of net assets ($483,151,969) at February 28, 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 FHA -Federal Housing Administration FHA/VA -Federal Housing Administration/Veterans Administration FSA -Financial Security Assurance GNMA - -Government National Mortgage Association GO -General Obligation GTD -Guaranteed 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 LOC -Letter of Credit MBIA -Municipal Bond Investors Assurance PCA -Pollution Control Authority PCR -Pollution Control Revenue PRF - -Prerefunded SFM -Single Family Mortgage UT -Unlimited Tax VRDNs -Variable Rate Demand Notes See Notes which are an integral part of the Financial Statements Statement of Assets and Liabilities FEBRUARY 28, 1999 (UNAUDITED)
ASSETS: Total investments in securities, at value (identified and tax cost $456,632,081) $ 485,601,329 Income receivable 8,478,512 Receivable for investments sold 655,000 Receivable for shares sold 1,271,234 TOTAL ASSETS 496,006,075 LIABILITIES: Payable for investments purchased $ 11,947,219 Payable for shares redeemed 448,785 Payable to Bank 287,621 Accrued expenses 170,481 TOTAL LIABILITIES 12,854,106 Net Assets for 44,299,418 shares outstanding $ 483,151,969 NET ASSETS CONSIST OF: Paid in capital $ 470,354,835 Net unrealized appreciation of investments 28,969,248 Accumulated net realized loss on investments (15,576,157) Distributions in excess of net investment income (595,957) TOTAL NET ASSETS $ 483,151,969 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE CLASS A SHARES: Net Asset Value Per Share ($110,240,437 / 10,107,606 shares outstanding) $10.91 Offering Price Per Share (100/95.50 of $10.91) 1 $11.42 Redemption Proceeds Per Share (100/100 of $10.91) 2 $10.91 CLASS B SHARES: Net Asset Value Per Share ($65,307,854 / 5,989,480 shares outstanding) $10.90 Offering Price Per Share (100/100 of $10.90) 1 $10.90 Redemption Proceeds Per Share (94.50/100 of $10.90) 2 $10.30 CLASS C SHARES: Net Asset Value Per Share ($8,443,485 / 774,221 shares outstanding) $10.91 Offering Price Per Share (100/100 of $10.91) 1 $10.91 Redemption Proceeds Per Share (99/100 of $10.91) 2 $10.80 CLASS F SHARES: Net Asset Value Per Share ($299,160,193 / 27,428,111 shares outstanding) $10.91 Offering Price Per Share (100/99 of $10.91) 1 $11.02 Redemption Proceeds Per Share (99/100 of $10.91) 2 $10.80
1 See "Investing in the Fund" in the Prospectus. 2 See "Contingent Deferred Sales Charge" in the Prospectus. See Notes which are an integral part of the Financial Statements Statement of Operations SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
INVESTMENT INCOME: Interest $ 14,898,986 EXPENSES: Investment advisory fee $ 1,441,081 Administrative personnel and services fee 181,096 Custodian fees 18,493 Transfer and dividend disbursing agent fees and expenses 133,540 Directors'/Trustees' fees 8,869 Auditing fees 9,412 Legal fees 2,896 Portfolio accounting fees 74,456 Distribution services fee-Class B Shares 207,421 Distribution services fee-Class C Shares 27,540 Shareholder services fee-Class A Shares 138,738 Shareholder services fee-Class B Shares 69,140 Shareholder services fee-Class C Shares 9,180 Shareholder services fee-Class F Shares 383,392 Share registration costs 33,847 Printing and postage 24,797 Insurance premiums 3,439 Taxes 17,919 Miscellaneous 3,982 TOTAL EXPENSES 2,789,238 Net investment income 12,109,748 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (10,250,115) Net change in unrealized appreciation of investments 4,308,875 Net realized and unrealized loss on investments (5,941,240) Change in net assets resulting from operations $ 6,168,508
See Notes which are an integral part of the Financial Statements Statement of Changes in Net Assets
SIX MONTHS ENDED YEAR (unaudited) ENDED FEBRUARY 28, AUGUST 31, 1999 1998 INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 12,109,748 $ 22,471,420 Net realized gain (loss) on investments ($(10,637,615) and $4,375,593, respectively, as computed for federal tax purposes) (10,250,115) 4,375,593 Net change in unrealized appreciation of investments 4,308,875 11,688,975 CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 6,168,508 38,535,988 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income Class A Shares (2,817,577) (5,141,911) Class B Shares (1,171,825) (1,241,221) Class C Shares (154,481) (144,720) Class F Shares (7,787,064) (16,533,742) CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (11,930,947) (23,061,594) SHARE TRANSACTIONS: Proceeds from sale of shares 42,345,886 75,194,657 Net asset value of shares issued to shareholders in payment of distributions declared 7,164,082 13,981,416 Cost of shares redeemed (43,248,746) (65,472,597) CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 6,261,222 23,703,476 Change in net assets 498,783 39,177,870 NET ASSETS: Beginning of period 482,653,186 443,475,316 End of period $ 483,151,969 $ 482,653,186
See Notes which are an integral part of the Financial Statements Financial Highlights-Class A Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED (UNAUDITED) FEBRUARY 28, YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1 NET ASSET VALUE, BEGINNING OF PERIOD $11.04 $10.67 $10.33 $10.42 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.28 0.54 0.58 0.08 Net realized and unrealized gain (loss) on investments (0.13) 0.39 0.33 (0.12) Total from investment operations 0.15 0.93 0.91 (0.04) LESS DISTRIBUTIONS: Distributions from net investment income (0.28) (0.56) (0.57) (0.05) NET ASSET VALUE, END OF PERIOD $10.91 $11.04 $10.67 $10.33 TOTAL RETURN 2 1.34% 8.91% 9.07% (0.36%) RATIOS TO AVERAGE NET ASSETS: Expenses 1.06% 3 1.08% 1.09% 0.84% 3 Net investment income 5.14% 3 4.98% 5.29% 6.15% 3 SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $110,240 $112,179 $94,941 $296 Portfolio turnover 14% 41% 20% 22%
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 con tingent 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)
SIX MONTHS ENDED (unaudited) FEBRUARY 28, YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1 NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $10.66 $10.33 $10.42 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.23 0.44 0.51 0.08 Net realized and unrealized gain (loss) on investments (0.13) 0.40 0.31 (0.12) Total from investment operations 0.10 0.84 0.82 (0.04) LESS DISTRIBUTIONS: Distributions from net investment income (0.23) (0.47) (0.49) (0.05) NET ASSET VALUE, END OF PERIOD $10.90 $11.03 $10.66 $10.33 TOTAL RETURN 2 0.95% 8.08% 8.17% (0.36%) RATIOS TO AVERAGE NET ASSETS: Expenses 1.82% 3 1.83% 1.84% 0.84% 3 Net investment income 4.42% 3 4.25% 4.55% 6.15% 3 SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $65,308 $47,028 $14,997 $296 Portfolio turnover 14% 41% 20% 22%
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 con tingent 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)
SIX MONTHS ENDED (unaudited) FEBRUARY 28, YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1 NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $10.66 $10.33 $10.42 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.24 0.45 0.50 0.08 Net realized and unrealized gain (loss) on investments (0.13) 0.40 0.32 (0.12) Total from investment operations 0.11 0.85 0.82 (0.04) LESS DISTRIBUTIONS: Distributions from net investment income (0.23) (0.48) (0.49) (0.05) NET ASSET VALUE, END OF PERIOD $10.91 $11.03 $10.66 $10.33 TOTAL RETURN 2 1.03% 8.11% 8.17% (0.36%) RATIOS TO AVERAGE NET ASSETS: Expenses 1.81% 3 1.83% 1.86% 0.84% 3 Net investment income 4.40% 3 4.24% 4.51% 6.15% 3 SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $8,444 $6,269 $1,950 $296 Portfolio turnover 14% 41% 20% 22%
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 con tingent 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)
SIX MONTHS ENDED (unaudited) FEBRUARY 28, YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995 1994 NET ASSET VALUE, BEGINNING OF PERIOD $11.04 $10.67 $10.33 $10.71 $10.56 $11.28 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.28 0.55 0.54 0.69 0.63 0.61 Net realized and unrealized gain (loss) on investments (0.13) 0.38 0.37 (0.42) 0.15 (0.73) Total from investment operations 0.15 0.93 0.91 0.27 0.78 (0.12) LESS DISTRIBUTIONS: Distributions from net investment income (0.28) (0.56) (0.57) (0.65) (0.63) (0.60) NET ASSET VALUE, END OF PERIOD $10.91 $11.04 $10.67 $10.33 $10.71 $10.56 TOTAL RETURN 1 1.34% 8.91% 9.07% 2.47% 7.73% (1.06%) RATIOS TO AVERAGE NET ASSETS: Expenses 1.06% 2 1.08% 1.08% 1.08% 1.08% 1.09% Net investment income 5.13% 2 4.98% 5.23% 5.91% 6.18% 5.56% Expense waiver/reimbursement 3 0.00% 2 0.00% 0.01% 0.01% 0.00% 0.00% SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $299,160 $317,178 $331,588 $383,028 $426,010 $472,232 Portfolio turnover 14% 41% 20% 22% 13% 27%
1 Based on net asset value, which does not reflect the sales charge or con tingent deferred sales charge, if applicable. 2 Computed on an annualized basis. 3 This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Notes to Financial Statements FEBRUARY 28, 1999 (UNAUDITED) ORGANIZATION Federated Municipal Opportunities Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diver sified, open-end management investment company. The investment objective is to provide a high level of current income which is generally exempt from fed eral 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 inde pendent pricing service. However, short-term securities with remaining matu rities of sixty 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. FEDERAL TAXES It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At February 28, 1999, the Fund, for federal tax purposes, had a capital loss carryforward of $5,326,042, which will reduce the Fund's tax able 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 dis tributions 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 $ 755,664 2003 775,694 2004 3,794,684 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 posi tions 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 rev enues 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 February 28, 1999, par value shares ($0.001 per share) authorized were as follows: NUMBER OF PAR VALUE SHARE CLASS NAME CAPITAL STOCK AUTHORIZED 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 Transactions in capital stock were as follows:
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 1999 AUGUST 31, 1998 CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 823,146 $ 9,033,399 2,396,950 $ 26,115,990 Shares issued to shareholders in payment of distributions declared 176,550 1,934,434 325,421 3,526,334 Shares redeemed (1,055,962) (11,565,485) (1,457,233) (15,845,507) NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (56,266) $ (597,652) 1,265,138 $ 13,796,817 SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 1999 AUGUST 31, 1998 CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 2,235,031 $24,514,072 3,100,694 $ 33,768,993 Shares issued to shareholders in payment of distributions declared 51,001 558,620 54,169 587,226 Shares redeemed (559,170) (6,133,216) (298,593) (3,262,688) NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS 1,726,862 $ 18,939,476 2,856,270 $ 31,093,531 SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 1999 AUGUST 31, 1998 CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 366,646 $ 4,023,151 419,685 $ 4,574,972 Shares issued to shareholders in payment of distributions declared 10,339 113,293 11,298 122,567 Shares redeemed (170,927) (1,869,930) (45,704) (497,848) NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 206,058 $ 2,266,514 385,279 $ 4,199,691 SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 1999 AUGUST 31, 1998 CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 435,028 $4,775,264 985,428 $ 10,734,702 Shares issued to shareholders in payment of distributions declared 415,922 4,557,735 899,119 9,745,289 Shares redeemed (2,159,414) (23,680,115) (4,227,235) (45,866,554) NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS (1,308,464) $ (14,347,116) (2,342,688) $ (25,386,563) NET CHANGE RESULTING FROM SHARE TRANSACTIONS 568,190 $ 6,261,222 2,163,999 $ 23,703,476
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE Federated Advisers, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.60% of the Fund's average daily net assets. ADMINISTRATIVE FEE Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc. for the period. The administrative fee received during the period of the Administra tive 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., the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class B and Class C 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 period ended February 28, 1999, Class A Shares and Class F Shares did not incur a distribution service fee. SHAREHOLDER SERVICES FEE Under the terms of a Shareholder Services Agreement with Federated Share holder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age 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 disburs ing 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 TRANSACTION During the period ended February 28, 1999, the Fund engaged in purchase and sales 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 $48,400,000 and $78,100,000, 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 period ended February 28, 1999, were as follows: Purchases $72,611,688 Sales $67,121,665 INVESTMENT RISK Although the Fund has a diversified portfolio, the Fund has 15.1% of its portfolio investment in lower rated and comparable quality unrated high-yield securities. Invesments in higher yield securities are accomplished by greater degree of credit risk and the risk tends to be more sensitive to eco nomic 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. At February 28, 1999, the Fund had no defaulted securities. YEAR 2000 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 mea sures 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. SUBSEQUENT EVENT The Adviser, formerly known as Federated Advisers, changed its name to Feder ated Investment Management Company effective March 31, 1999. Directors JOHN F. DONAHUE THOMAS G. BIGLEY JOHN T. CONROY, JR. WILLIAM J. COPELAND JAMES E. DOWD, ESQ. LAWRENCE D. ELLIS, M.D. RICHARD B. FISHER EDWARD L. FLAHERTY, JR., ESQ. PETER E. MADDEN JOHN E. MURRAY, JR., J.D., S.J.D. WESLEY W. POSVAR MARJORIE P. SMUTS Officers JOHN F. DONAHUE Chairman RICHARD B. FISHER President J. CHRISTOPHER DONAHUE Executive Vice President EDWARD C. GONZALES Executive Vice President JOHN W. MCGONIGLE Executive Vice President and Secretary RICHARD J. THOMAS Treasurer MATTHEW S. HARDIN 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 gov ernment agency. Investment in mutual funds involves investment risk, includ ing 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 con cerning its objective and policies, management fees, expenses, and other information. AS OF FEBRUARY 28, 1999 [Graphic] Federated World-Class Investment Manager SEMI-ANNUAL REPORT Federated Municipal Opportunities Fund, Inc. Established 1987 12TH SEMI-ANNUAL REPORT [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 8040407 (4/99) [Graphic] APPENDIX FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. A. The graphic representation here displayed entitled "Initial Investment" consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The lighter-shaded portion represents the value of Reinvested Income for the Class F shares of Federated Municipal Opportunities Fund, Inc. (the "Fund"). The darker-shaded portion reflects the Principal Value of a $12,000/1,089 Shares investment in the Fund. The color-coded mountain chart is a visual representation of the narrative text above it, which shows that an initial investment of $12,000 in the Fund on 4/10/87, would have a reinvested total worth of $27,211/2,494 Shares on 2/28/99. The "x" axis reflects computation periods from 4/10/87 to 2/28/99. The right margin of the chart reflects the ending values of a hypothetical investment of $12,000 in the Fund measured in increments of $5,000 ranging from $0 to $30,000. B. The graphic representation here displayed, entitled "Yearly Investments of $1,000," consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The lighter-shaded portion represents the value of Reinvested Income for the Class F Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund"). The darker-shaded portion reflects the Principal Value of a $1,000/99 Shares investment in the Fund (totaling $12,000 by 2/28/99). The color-coded mountain chart is a visual representation of the narrative text above it, which shows that $1,000 annual investments in the Class F Shares of Federated Municipal Opportunities Fund, Inc. beginning on 4/10/87 would have a reinvested total value of $18,629/1,708 Shares on 2/28/99. The "x" axis reflects computation periods from 4/10/87 to 2/28/99. The right margin of the chart reflects the ending values of a hypothetical annual investment of $1,000 in the Fund measured in increments of $5,000 ranging from $0 to $20,000. C. The graphic representation here displayed, entitled "Income Over Time," consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The lighter-shaded portion represents the value of Reinvested Income for the Class F Shares of Federated Municipal Opportunities Fund, Inc. (the "Fund") the darker-shaded portion represents the Principal Value of Continuing Investments (totaling $118,484/10,860 Shares by 2/28/99). The color-coded mountain is a visual representation of the narrative text above it, which shows that an original $5,000/495 Shares investment in the Fund on 4/10/87 and additional investments of $500 on the first of every month following would have grown to a reinvested total value of $118,484/10,860 Shares on 2/28/99. The "x" axis reflects computation periods from 4/10/87 to 2/28/99. The right margin of the chart reflects the ending values of a hypothetical original investment and subsequent annual investments in the Fund measured in increments of $20,000 ranging from $0 to $120,000. -----END PRIVACY-ENHANCED MESSAGE-----