-----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, PCQT3Jwez3hncfDufxaa2vlyoIEv2NY/2LBK3j0Vi7BAdFVnL//s1mMSg9ns6NEb YoYr8yfVWTxfjRJZ+qLbVw== 0000807607-96-000014.txt : 19961016 0000807607-96-000014.hdr.sgml : 19961016 ACCESSION NUMBER: 0000807607-96-000014 CONFORMED SUBMISSION TYPE: N14EL24 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19961015 SROS: NONE 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: N14EL24 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14065 FILM NUMBER: 96642995 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122881900 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 N14EL24 1 Reg. No.333- ----- 811-4533 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (formerly, Fortress Municipal Income Fund, Inc.) (Exact Name of Registrant as Specified in Charter) (412) 288-1900 (Area Code and Telephone Number) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) JOHN W. MCGONIGLE, ESQUIRE Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) Copies to: Byron F. Bowman, Esquire Matthew G. Maloney, Esquire Senior Corporate Counsel Dickstein Shapiro Morin & Oshinsky LLP Federated Investors 2101 L Street, N.W. Federated Investors Tower Washington, D.C. 20037 Pittsburgh, PA 15222 Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, that it elects to register an indefinite amount of securities under the Securities Act of 1933, as amended, and filed the Notice required by that Rule for Registrant's fiscal year ended August 31, 1995 on October 16, 1995. Accordingly, no filing fee is submitted herewith. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. CROSS REFERENCE SHEET PURSUANT TO ITEM 1(A) OF FORM N-14 SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY FORM N-14 Item of Part A of Form N-14 and Caption or Location in Caption Prospectus 1.Beginning of Registration Statement and Outside Front Cross Reference Sheet; Cover Page of Prospectus Cover Page 2.Beginning and Outside Back Cover Page of Prospectus Table of Contents 3.Fee Table, Synopsis Information Summary of Expenses; Summary; and Risk Factors Risk Factors 4.Information About the Information About the Transaction Reorganization 5.Information About the Information About the Federated Registrant Fund and the State Bond Fund 6.Information About the Information About the Federated Fund Company Being Acquired and the State Bond Fund 7.Voting Information Voting Information 8.Interest of Certain Persons and Experts Not Applicable 9.Additional Information Required for Reoffering by Persons Deemed to be Underwriters Not Applicable STATE BOND MINNESOTA TAX-FREE INCOME FUND 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 Dear Shareholder: The Board of Directors and management of State Bond Minnesota Tax- Free Income Fund (the `State Bond Fund'') are pleased to submit for your vote a proposal to transfer all of the net assets of the State Bond Fund to Federated Municipal Opportunities Fund, Inc. (the "Federated Fund"), a mutual fund advised by Federated Advisers. The Federated Fund has an investment objective similar to that of the State Bond Fund in that it seeks a high level of current income exempt from the federal regular income tax by investing primarily in a professionally managed, diversified portfolio of municipal bonds (although the Federated Fund does not seek income exempt from Minnesota personal income tax). As part of the transaction, holders of shares in the State Bond Fund would receive Class A Shares of the Federated Fund equal in value to their shares in the State Bond Fund and the State Bond Fund would be liquidated. Shareholders receiving Class A Shares of the Federated Fund as a result of the proposed reorganization would not have to pay a sales load upon receiving such Shares, nor would they be subject to any contingent deferred sales charges in connection with the exercise of exchange rights or redemptions of such Shares. The Board of Directors of the State Bond Fund, as well as ARM Capital Advisors, Inc., the State Bond Fund's manager, and ARM Financial Services, Inc., the State Bond Fund's distributor, believe the proposed agreement and plan of reorganization is in the best interests of State Bond Fund shareholders for the following reasons: -- The reorganization of the State Bond Fund into the Federated Fund may ultimately provide operating efficiencies as a result of the size of the Federated Fund which were not available to State Bond Fund shareholders due to the smaller size of the State Bond Fund. -- The Federated Fund offers an investment portfolio which invests in municipal bonds to achieve a high level of current income exempt from the federal regular income tax. Although the Federated Fund, unlike the State Bond Fund, invests in municipal bonds which are generally not exempt from the Minnesota personal income tax, the tax-equivalent yield produced by the Federated Fund historically has exceeded the tax-equivalent yield produced by the State Bond Fund. The Federated Fund is managed by Federated Advisers, a subsidiary of Federated Investors. Federated Investors was founded in 1955 and is located in Pittsburgh, Pennsylvania. Federated Advisers and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. With over $90 billion invested across more than 250 funds under management and/or administration by its subsidiaries, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 2,000 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Federated Investors also has an excellent reputation for customer servicing, having received a #1 rating for five years in a row by Dalbar, Inc. The shareholder services for the Federated funds include advanced technological systems that result in quick shareholder access to a broad spectrum of information. We believe the transfer of the State Bond Fund's assets in this transaction presents an exciting investment opportunity for our shareholders. Your vote on the transaction is critical to its success. The transfer will be effected only if approved by a majority of all of the State Bond Fund's outstanding shares on the record date voted in person or represented by proxy. We hope you share our enthusiasm and will participate by casting your vote in person, or by proxy if you are unable to attend the meeting. Please read the enclosed prospectus/proxy statement carefully before you vote. THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST INTEREST OF THE STATE BOND FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL. Thank you for your prompt attention and participation. Sincerely, Dale C. Bauman President STATE BOND MINNESOTA TAX-FREE INCOME FUND 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF STATE BOND MINNESOTA TAX-FREE INCOME FUND: A Special Meeting of Shareholders of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc. (the `State Bond Fund'') will be held at 4:30 p.m. on December , 1996 at: ----- 100 North Minnesota Street, New Ulm, Minnesota 56073-0069, for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between the State Bond Fund and Federated Municipal Opportunities Fund, Inc. (the "Federated Fund"), whereby the Federated Fund would acquire all of the net assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to the holders of its shares in complete liquidation of the State Bond Fund; and 2. To transact such other business as may properly come before the meeting or any adjournment thereof. By Order of the Board of Directors, Dated: November , 1996 Kevin L. Howard -- Secretary Shareholders of record at the close of business on October 11, 1996, are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please sign and return the enclosed proxy card. Your vote is important. TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU ATTEND THE MEETING. PROSPECTUS/PROXY STATEMENT NOVEMBER , 1996 ---- Acquisition of the Assets of STATE BOND MINNESOTA TAX-FREE INCOME FUND, a portfolio of STATE BOND TAX-FREE INCOME FUNDS, INC. 100 North Minnesota Street P.O. Box 69 New Ulm, Minnesota 56073-0069 Telephone Number: 1-800-328-4735 By and in exchange for Class A Shares of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-341-7400 This Prospectus/Proxy Statement describes the proposed Agreement and Plan of Reorganization (the "Plan") whereby Federated Municipal Opportunities Fund, Inc., a Maryland corporation (the "Federated Fund"), would acquire all of the net assets of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc., a Maryland corporation (the `State Bond Fund''), in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to the holders of its shares, in complete liquidation of the State Bond Fund. As a result of the Plan, each shareholder of the State Bond Fund will become the owner of the Federated Fund's Class A Shares having a total net asset value equal to the total net asset value of his or her holdings in the State Bond Fund. THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN. The Shares of each of the Federated Fund and the State Bond Fund represent interests of separate open-end management investment companies. The Federated Fund's investment objective is to provide a high level of current income which is generally exempt from the federal regular income tax, which it pursues by investing primarily in a diversified portfolio of municipal bonds. The State Bond Fund's investment objective is to maximize current income exempt from both federal income tax and Minnesota personal income tax to the extent consistent with preservation of capital, by investing primarily in Minnesota tax exempt securities. For a comparison of the investment policies of the Federated Fund and the State Bond Fund, see "Summary-Investment Objectives, Policies and Limitations." This Prospectus/Proxy Statement should be retained for future reference. It sets forth concisely the information about the Federated Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Federated Fund dated September 1, 1996, which is incorporated herein by reference. Statements of Additional Information for the Federated Fund dated September 1, 1996 (relating to the Federated Fund's prospectus of the same date) and November , 1996 (relating to this Prospectus/Proxy ---- Statement), the Annual Report to Shareholders dated August 31, 1995 and the Semi-Annual Report to Shareholders dated February 29, 1996, all containing additional information, have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information, the Annual Report and the Semi-Annual Report may be obtained without charge by writing or calling the Federated Fund at the address and telephone number shown above. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Page No. Summary of Expenses Summary About the Proposed Reorganization Investment Objectives, Policies and Limitations Advisory and Other Fees Distribution Arrangements Purchase, Exchange and Redemption Procedures Dividends Tax Consequences Risk Factors Information About the Reorganization Background and Reasons for the Proposed Reorganization Agreement Among ARM, ARM Capital and Federated Description of the Plan of Reorganization Description of Federated Fund Shares Federal Income Tax Consequences Comparative Information on Shareholder Rights and Obligations Capitalization Information About the Federated Fund and the State Bond Fund Federated Municipal Opportunities Fund, Inc. State Bond Minnesota Tax-Free Income Fund Voting Information Outstanding Shares and Voting Requirements Dissenter's Right of Appraisal Other Matters and Discretion of Persons Named in the Proxy Agreement and Plan of Reorganization -- Exhibit A SUMMARY OF EXPENSES Federated State Pro Forma Fund Bond Combined (Class A Fund Shares) SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................... Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of None None None offering price)................ Contingent Deferred Sales Charge (as a percentage of original purchase None(2) None None(2) price or redemption proceeds, as applicable)...................... Redemption Fee (as a percentage of amount redeemed, if None None None applicable)(3)................... Exchange Fee..................... None None None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee................... 0.60% 0.43%(4) 0.60% 12b-1 Fee........................ 0.00%(5) 0.25% 0.00%(5) Total Other Expenses............. 0.48%(6) 0.32% 0.46%(6) Total Operating 1.08% 1.00% 1.06% Expenses(7)...................... (1) This sales charge would not be applicable to shares of the Federated Fund acquired under the proposed reorganization. (2) Class A Shares purchased with the proceeds of a redemption of shares of an unaffiliated investment company purchased or redeemed with a sales charge and not distributed by Federated Securities Corp. may be charged a contingent deferred sales charge of 0.50 of 1% for redemptions made within one full year of purchase. For a more complete description see `Summary - Distribution Arrangements.'' This contingent deferred sales charge would not be applicable to shares of the Federated Fund acquired under the proposed reorganization. (3) Wire-transferred redemptions of Class A Shares of the Federated Fund of less than $5,000 may be subject to additional fees. A $10.00 fee will be charged for certain redemptions of State Bond Fund shares by wire transfer. (4) The management fee of the State Bond Fund is net of expense reimbursements. Without such reimbursements, the management fee would have been 0.60%. (5) The Federated Fund has no present intention of paying or accruing the 12b-1 fee. If the Federated Fund were paying or accruing the 12b-1 fee, it would be able to pay up to 0.25% of its average daily net assets for the 12b-1 fee. For a more complete description see `Summary-Distribution Arrangements.'' (6) Total other expenses for the Federated Fund and the Pro Forma Combined Fund include a shareholder services fee of 0.25%. (7) The total operating expenses for Class A Shares of the Federated Fund are based on expenses expected during the fiscal year ending August 31, 1996. The total operating expenses for the State Bond Fund are based upon expenses incurred by the State Bond Fund during its fiscal year ended June 30, 1996. The total operating expenses for the State Bond Fund were 1.00% for the fiscal year ended June 30, 1996 and would have been 1.17% absent the reimbursement of a portion of the management fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of shares of each of the Federated Fund, the State Bond Fund and the pro forma combined fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses see "Summary - Advisory and Other Fees" and "Summary - Distribution Arrangements." Long-term shareholders of the State Bond Fund may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. EXAMPLE The Example below is intended to assist an investor in understanding the various costs that an investor will bear directly or indirectly. The Example assumes payment of operating expenses at the levels set forth in the table above. The Example does not include sales charges or contingent deferred sales charges since such sales charges are not applicable to Federated Fund Shares received as a result of the proposed reorganization. Shares purchased subsequent to the reorganization may be subject to sales charges. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Federated Fund dated September 1, 1996 and the Prospectus of the State Bond Fund dated November 1, 1995, each of which is incorporated herein by reference thereto. An investor would pay the 1 year 3 years 5 years 10 years following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. Expenses would be the same if there were no redemption at the end of each time period. Federated Fund................ $11 $34 $60 $132 State Bond Fund............... $10 $32 $55 $122 Pro Forma Combined............ $11 $34 $58 $129 THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. SUMMARY This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Prospectus/Proxy Statement, the Prospectus of the Federated Fund dated September 1, 1996, the Statement of Additional Information of the Federated Fund dated September 1, 1996, the Prospectus of the State Bond Fund dated November 1, 1995, the Statement of Additional Information of the State Bond Fund dated November 1, 1995, and the Plan, a copy of which is attached to this Prospectus/Proxy Statement as Exhibit A. About the Proposed Reorganization The Board of Directors of the State Bond Fund has voted to recommend to holders of the shares of the State Bond Fund the approval of the Plan whereby the Federated Fund would acquire all of the net assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to its shareholders in complete liquidation and dissolution of the State Bond Fund (the "Reorganization"). As a result of the Reorganization, each shareholder of the State Bond Fund will become the owner of the Federated Fund's Class A Shares having a total net asset value equal to the total net asset value of his or her holdings in the State Bond Fund on the date of the Reorganization, i.e., the Closing Date (as hereinafter defined). As a condition to the Reorganization transactions, the Federated Fund and the State Bond Fund will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code of 1986, as amended (the `Code''), so that no gain or loss will be recognized by either the Federated Fund or the State Bond Fund or the shareholders of the State Bond Fund. The tax basis of the Federated Fund's Class A Shares received by State Bond Fund shareholders will be the same as the tax basis of their shares in the State Bond Fund. After the acquisition is completed, the State Bond Fund will be dissolved. Investment Objectives, Policies and Limitations The investment objective of the Federated Fund is to provide a high level of current income which is generally exempt from the federal regular income tax by investing primarily in a diversified portfolio of municipal bonds. This investment objective may not be changed without the affirmative vote of a majority of the outstanding voting securities of the Federated Fund, as defined in the Investment Company Act of 1940, as amended (the `1940 Act''). The investment objective of the State Bond Fund is to seek to maximize current income exempt from both federal income tax and Minnesota personal income tax to the extent consistent with preservation of capital, by investing primarily in Minnesota tax exempt securities. This investment objective may not be changed without the affirmative vote of a majority of the outstanding voting securities of the State Bond Fund, as defined in the 1940 Act. The Federated Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax (the `AMT'')). Unlike most of the dividend income generated by the State Bond Fund, the dividend income generated by the Federated Fund will generally be subject to Minnesota personal income tax for shareholders who are Minnesota residents; however, the tax-equivalent yield produced by the Federated Fund historically has exceeded the tax-equivalent yield produced by the State Bond Fund. The Federated Fund invests primarily in municipal bonds. Municipal bonds are debt obligations issued by or on behalf of states, territories and possessions of the United States, including the District of Columbia, and their political subdivisions, agencies and instrumentalities, the interest from which is exempt from the federal regular income tax. The Federated Fund may invest in municipal bonds, the interest on which may be included in calculating the federal AMT. The municipal bonds which the Federated Fund buys are rated `Ba'' or better by Moody's Investors Service, Inc. (`Moody's'') or ``BB'' or better by Standard & Poor's Ratings Group (`S&P'') or, if not rated, are determined by Federated Advisers (as hereinafter defined) to be of comparable quality. The Federated Fund will limit its purchases of municipal bonds rated Ba and BB (commonly known as `junk bonds'') to up to but less than 35% of its net assets. The Federated Fund may purchase securities on a when-issued or delayed delivery basis, purchase a right to sell a security held by it back to the issuer or to another party at an agreed upon price at any time during a stated period or on a certain date, or hedge all or a portion of its investments by entering into future contracts or options on them. If necessary for temporary defensive purposes, the Federated Fund may invest in short-term tax-exempt or taxable temporary investments. Unless otherwise designated, the investment policies of the Federated Fund may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The State Bond Fund invests at least 80% of the value of its assets in debt obligations issued by or on behalf of the State of Minnesota and its political subdivisions, the income on which is exempt from federal income tax and Minnesota personal income tax (`Minnesota Tax Exempt Securities'). Up to 20% of the assets of the State Bond Fund may generate interest which may be included in calculating the federal AMT and the Minnesota AMT. The State Bond Fund intends to invest its assets such that at least 95% of its tax-exempt interest income is derived from Minnesota Tax Exempt Securities. The Minnesota Tax Exempt Securities in which the State Bond Fund invests primarily consist of bonds rated Aaa, Aa, A, Baa, Ba and B by Moody's or rated AAA, AA, A, BBB, BB and B by S&P, notes rated MIG-1, MIG-2 and MIG-3 by Moody's or SP-1 and SP-2 by S&P, and commercial paper rated Prime-1 and Prime-2 by Moody's or A-1 and A-2 by S&P. The State Bond Fund may invest in Minnesota Tax Exempt Securities which are not rated if, in the judgment of ARM Capital (as hereinafter defined), the financial condition of the issuer of such securities at the time of purchase is comparable to, and the securities are otherwise similar in quality to, those rated securities in which the State Bond Fund may invest. As a matter of fundamental policy, the State Bond Fund may not invest more than 25% of its assets in unrated Minnesota Tax Exempt Securities. Additionally, as a matter of fundamental policy, the State Bond Fund may not purchase Minnesota Tax Exempt Securities that are not rated within the three highest grades by either Moody's or S&P, or that are unrated, unless such securities are insured as to the payment of all installments of principal and interest. The State Bond Fund does not currently invest in, and has no current intention to invest in, bonds rated below A or unrated bonds that are comparable to and otherwise similar in quality to securities rated below A. The State Bond Fund may purchase floating rate, variable rate, and inverse or reverse floating rate Minnesota Tax Exempt Securities; enter into repurchase agreements; and purchase new issues of Minnesota Tax Exempt Securities on a when-issued basis. If necessary for temporary defensive purposes, the State Bond Fund may invest its assets in taxable obligations or may hold its assets in cash. Unless otherwise designated, the investment policies of the State Bond Fund may be changed by the Board of Directors without shareholder approval. The State Bond Fund is a `non-diversified'' management investment company and as such is not required to meet any diversification requirements under the 1940 Act. The State Bond Fund is required to meet certain standards to qualify as a regulated investment company (`RIC'') under the Code. At the end of each fiscal quarter with respect to at least 50% of its total assets: (1) the State Bond Fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. Government obligations) and (2) the State Bond Fund may not own more than 10% of the outstanding voting securities of any one issuer. By comparison, the Federated Fund, as a `diversified'' investment company, must at all times satisfy those two conditions with respect to 75% of the value of its total assets. As for the other 50% of the State Bond Fund's total assets not subject to the limitations described above, the sole limitation on concentration of these assets is that at the end of each fiscal quarter not more than 25% of such assets may be invested in the securities of any one issuer. Both the Federated Fund and the State Bond Fund are subject to certain investment limitations. For the Federated Fund, these include investment limitations which prohibit it from (1) borrowing money directly or through reverse repurchase agreements or pledging securities except, under certain circumstances, the Federated Fund may borrow up to one-third of the value of its total assets and pledge 10% of the value of those assets to secure such borrowings; (2) investing more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, as amended (the `1933 Act''), except for certain restricted securities which meet the criteria for liquidity as established by the Directors; (3) investing more than 5% of its total assets in securities of one issuer (except cash and cash items and U.S. government obligations); or (4) investing more than 5% of its total assets in industrial development bonds of issuers that have a record of less than three years of continuous operations. The first two investment limitations listed above cannot be changed without shareholder approval; the last two limitations may be changed by the Board of Directors without shareholder approval, although shareholders will be notified before any material change becomes effective. The State Bond Fund has investment limitations which prohibit it from (1) borrowing money, except for temporary purposes in emergency situations and in an aggregate amount not in excess of 20% of the value of the total assets of the State Bond Fund; provided that borrowings in excess of 5% of such value are permitted from banks only; (2) mortgaging or pledging assets, except that up to 10% of the value of the State Bond Fund's assets can be used to secure borrowings; (3) purchasing securities of any issuer if immediately thereafter, with respect to 50% of the State Bond Fund's total assets, more than 5% of such assets would be invested in the securities of any one issuer, except that this limitation does not apply to obligations issued or guaranteed as to principal and interest either by the U.S. government or its agencies or instrumentalities; or (4) purchasing private activity bonds if immediately thereafter more than 25% of the State Bond Fund's assets would be invested in private activity bonds which are based, directly or indirectly, on the credit of private entities in any one industry or in securities of private issuers in any one industry. The above investment limitations of the State Bond Fund cannot be changed without shareholder approval. In addition to the policies and limitations set forth above, both the Federated Fund and the State Bond Fund are subject to certain additional investment policies and limitations, described in the Federated Fund's Statement of Additional Information dated September 1, 1996 and the State Bond Fund's Statement of Additional Information dated November 1, 1995. Reference is hereby made to the Federated Fund's Prospectus and Statement of Additional Information, each dated September 1, 1996, and to the State Bond Fund's Prospectus and Statement of Additional Information, each dated November 1, 1995, which set forth in full the investment objective, policies and investment limitations of each of the Federated Fund and the State Bond Fund, all of which are incorporated herein by reference thereto. Advisory and Other Fees The annual investment advisory fee for the Federated Fund is 0.60 of 1% of the Federated Fund's average daily net assets. The investment adviser to the Federated Fund, Federated Advisers ("Federated Advisers"), a subsidiary of Federated Investors, may voluntarily choose to waive a portion of its advisory fee or reimburse the Federated Fund for certain operating expenses. This voluntary waiver of the advisory fee may be terminated by Federated Advisers at any time in its sole discretion. Federated Advisers has also undertaken to reimburse the Federated Fund for operating expenses in excess of limitations established by certain states. The maximum annual management fee for the State Bond Fund is 0.60 of 1% of the first $100 million of the average daily net assets of the State Bond Fund and 0.55 of 1% of the average daily net assets of the State Bond Fund in excess of $100 million. The State Bond Fund's investment manager, ARM Capital Advisors, Inc.(`ARM Capital''), a wholly-owned subsidiary of ARM Financial Group, Inc. (`ARM''), has voluntarily agreed to reimburse the State Bond Fund for any expenses incurred by it in excess of 1% of average daily net assets of the State Bond Fund. This voluntary arrangement may be terminated by ARM Capital at any time in its sole discretion. ARM Capital has also undertaken to reimburse the State Bond Fund for operating expenses in excess of limitations established by certain states. Federated Services Company, an affiliate of Federated Advisers, provides certain administrative personnel and services necessary to operate the Federated Fund at an annual rate based upon the average aggregate daily net assets of all funds advised by Federated Advisers and its affiliates. The rate charged is 0.15 of 1% on the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of all such funds' average aggregate daily net assets in excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for each additional class of shares of any such portfolio. Federated Services Company may choose voluntarily to waive a portion of its fee. The administrative fee expense for the Federated Fund's fiscal year ending August 31, 1995 was $423,163. Administrative personnel and other services necessary to operate the State Bond Fund are currently provided by ARM Capital and are included in the annual management fee for the State Bond Fund, as discussed above. The Federated Fund has entered into a Shareholder Services Agreement under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Class A Shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Shareholder Services Agreement provides that Federated Shareholder Services ("FSS"), an affiliate of Federated Advisers, will either perform shareholder services directly or will select financial institutions to perform such services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedule of such fees and the basis upon which such fees will be paid is determined from time to time by the Federated Fund and FSS. Other than in connection with payments under a Rule 12b-1 plan as described below, the State Bond Fund does not make payments to obtain similar shareholder services. Distribution Arrangements Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers, is the principal distributor for shares of the Federated Fund. The Federated Fund has adopted a Rule 12b-1 Distribution Plan (the `Distribution Plan'') pursuant to which the Federated Fund will pay a fee to the distributor in an amount computed at an annual rate of 0.25 of 1% of the average daily net assets of the Class A Shares to finance any activity which is principally intended to result in the sale of Class A Shares subject to the Distribution Plan. The Federated Fund is not currently making payments for Class A Shares under the Distribution Plan, nor does it anticipate doing so in the immediate future. In addition, FSC, from its own assets, may pay financial institutions supplemental fees as financial assistance for providing substantial sales services, distribution-related support services or shareholder services with respect to the Federated Fund. Such assistance will be predicated upon the amount of Class A Shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by FSC may be reimbursed by Federated Advisers or its affiliates. If a financial institution elects to waive receipt of this payment, the Federated Fund will waive any applicable contingent deferred sales charge (such contingent deferred sales charges are discussed below). ARM Financial Services, Inc. (`ARMFS''), an affiliate of ARM Capital, is the principal distributor for shares of the State Bond Fund. The State Bond Fund has also adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant to which the State Bond Fund pays ARMFS an amount equal to an annual rate of 0.25 of 1% of the average daily net assets of the State Bond Fund. The fee may be used by ARMFS to (i) provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in connection with the sale of State Bond Fund shares and to pay for other advertising and promotional expenses in connection with the sale of State Bond Fund shares, and (ii) to provide compensation to entities in connection with the provision of certain personal and account maintenance services to State Bond Fund shareholders including, but not limited to, responding to shareholder inquiries and providing information on their investments. The Federated Fund will not assume any liabilities or make any voluntary reimbursements on account of the State Bond Fund's Rule 12b-1 Plan. Certain costs exist with respect to the purchase and sale of Federated Fund and State Bond Fund shares. Class A Shares of the Federated Fund and shares of the State Bond Fund are sold at their net asset value next determined after an order is received, plus a maximum sales charge of 4.50%. No sales charge will be imposed in connection with the issuance of Federated Fund shares to State Bond Fund shareholders as a result of the Reorganization. Class A Shares of the Federated Fund purchased with the proceeds of a redemption of shares of an unaffiliated investment company purchased or redeemed with a sales charge and not distributed by FSC may be charged a contingent deferred sales charge of 0.50 of 1% for redemptions made within one full year of purchase. Any such charge will be imposed on the lesser of the net asset value of the redeemed shares at the time of purchase or redemption. The contingent deferred sales charges are not imposed in connection with the exercise of exchange rights, nor will they be imposed on redemptions of Federated Fund shares received by shareholders of the State Bond Fund as a result of the consummation of the Reorganization. For a complete description of sales charges, contingent deferred sales charges and exemptions from such charges, reference is hereby made to the Prospectus of the Federated Fund dated September 1, 1996, and the Prospectus of the State Bond Fund dated November 1, 1995, each of which is incorporated herein by reference thereto. Purchase, Exchange and Redemption Procedures The transfer agent and dividend disbursing agent for the Federated Fund is Federated Shareholder Services Company (formerly called Federated Services Company). The transfer agent and dividend disbursing agent for the State Bond Fund is ARM Transfer Agency, Inc. Procedures for the purchase, exchange and redemption of the Federated Fund's Class A Shares differ slightly from procedures applicable to the purchase, exchange and redemption of the State Bond Fund's shares. Any questions about such procedures may be directed to, and assistance in effecting purchases, exchanges or redemptions of the Federated Fund's Class A Shares or the State Bond Fund's shares may be obtained from FSC, principal distributor for the Federated Fund, at 1-800-341-7400 or from ARMFS, principal distributor for the State Bond Fund, at 1-800-328-4735. Reference is made to the Prospectus of the Federated Fund dated September 1, 1996, and the Prospectus of the State Bond Fund dated November 1, 1995, for a complete description of the purchase, exchange and redemption procedures applicable to purchases, exchanges and redemptions of Federated Fund and State Bond Fund shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief listing of the significant purchase, exchange and redemption procedures applicable to the Federated Fund's Class A Shares and the State Bond Fund's shares. Purchases of Class A Shares of the Federated Fund may be made through a financial institution who has an agreement with FSC or, once an account has been established, by wire or check. Purchases of shares of the State Bond Fund may be made through ARMFS and through certain broker- dealers under contract with ARMFS or directly by check once an account has been established. The minimum initial investment in the Federated Fund is $500. Subsequent investments must be in amounts of at least $100. The minimum initial investment in the State Bond Fund is $500. Subsequent investments must be in an amount of at least $50. The Federated Fund and the State Bond Fund each reserve the right to reject any purchase request. In connection with the sale of Class A Shares of the Federated Fund, FSC may from time to time offer certain items of nominal value to any shareholder. The purchase price of the Federated Fund's Class A Shares and the State Bond Fund's shares is based on net asset value plus a sales charge. The net asset value per share for each of the Federated Fund and the State Bond Fund is calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Inc. (the `NYSE'') on each day on which the Federated Fund and the State Bond Fund compute their net asset value. Purchase and redemption orders for the Federated Fund received from broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase orders for shares of the State Bond Fund received from authorized broker/dealers will be executed at the offering price next determined after the receipt of the order by the broker/dealer, provided that the broker/dealer promptly transmits the order to ARMFS the same day. Redemption orders for shares of the State Bond Fund received by the State Bond Fund's transfer agent from authorized dealers or representatives of ARMFS prior to the close of the NYSE will be entered at that day's price; such redemption orders received after the close of the NYSE will be entered at the net asset value determined at the close of the NYSE on the next trading day. Federated Fund purchase orders by wire are considered received upon receipt of payment by wire. Federated Fund purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs the business day after receipt. Holders of Class A Shares of the Federated Fund have exchange privileges with respect to Class A Shares in certain of the funds for which affiliates of Federated Investors serve as investment adviser or principal underwriter (collectively, the "Federated Funds"), each of which has different investment objectives and policies. Class A Shares in the Federated Fund may be exchanged for Class A Shares of certain Federated Funds at net asset value without a contingent deferred sales charge. To the extent a shareholder exchanges Class A Shares of the Federated Fund for Class A Shares in other Federated Funds, the time for which the exchanged- for shares are to be held will be added to the time for which exchanged- from shares were held for purposes of satisfying the applicable holding period. Class A Shares to be exchanged must have a net asset value which meets the minimum investment requirement for the fund into which the exchange is being made. Holders of shares of the State Bond Fund have exchange privileges with respect to shares in certain of the other funds for which ARM Capital serves as investment manager (collectively, the `State Bond Group''), each of which has different investment objectives and policies. Any exchange for shares of other funds in the State Bond Group will generally be at the respective net asset values next determined after receipt of the request for exchange. Exercise of the exchange privilege is treated as a sale for federal income tax purposes and, accordingly, may have tax consequences for the shareholder. Information on share exchanges may be obtained from the Federated Fund or the State Bond Fund, as appropriate. Redemptions of Federated Fund Class A Shares may be made through a financial institution, by telephone, by mailing a written request or through the Federated Fund's Systematic Withdrawal Program. Redemptions of State Bond Fund shares may be made through an authorized dealer or representative of ARMFS, by mailing a written request to the State Bond Fund's transfer agent or through the State Bond Fund's quick redemption service or check redemption service. Class A Shares of the Federated Fund are redeemed at their net asset value, less any applicable contingent deferred sales charge, next determined after the redemption request is received. Shares of the State Bond Fund are redeemed at their net asset value, determined at the close of the NYSE on the date the redemption request is received. Proceeds will ordinarily be distributed by check within seven days after receipt of a redemption request. Dividends Each of the Federated Fund's and the State Bond Fund's current policy is to pay dividends monthly from net investment income and to make annual distributions of net realized capital gains, if any. With respect to both the Federated Fund and the State Bond Fund, unless a shareholder otherwise instructs, dividends and capital gain distributions will be reinvested automatically in additional shares at net asset value, subject to no sales charge. Tax Consequences As a condition to the Reorganization transactions, the Federated Fund and the State Bond Fund will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Code so that no gain or loss will be recognized by either the Federated Fund or the State Bond Fund or the shareholders of the State Bond Fund. The tax basis of the Federated Fund shares received by State Bond Fund shareholders will be the same as the tax basis of their shares in the State Bond Fund. RISK FACTORS As with other mutual funds that invest in municipal bonds, the Federated Fund is subject to market risks and credit risks. The value of the Class A Shares will fluctuate. The amount of this fluctuation is dependent upon the quality and maturity of the municipal bonds in the Federated Fund's portfolio as well as on market conditions. Generally speaking, the lower quality, long-term bonds (including junk bonds) in which the Federated Fund invests have greater fluctuation in value than high quality, shorter-term bonds. Municipal bond prices are interest rate sensitive, which means that their value varies inversely with market interest rates. Prices of bonds also fluctuate with changes in the perceived quality of the credit of their issuers. Since the State Bond Fund invests primarily in Minnesota Tax Exempt Securities and because it seeks to maximize income derived from Minnesota Tax Exempt Securities, it is susceptible to factors adversely affecting the State of Minnesota and issuers of Minnesota Tax Exempt Securities in addition to generally being subject to the risk factors summarized above. Investment in a non-diversified investment company such as the State Bond Fund may entail greater risks than investment in a `diversified'' fund. Because of the relatively small number of issuers of investment grade Minnesota Tax Exempt Securities, the State Bond Fund's non-diversified status permits it from time to time to concentrate its assets in the securities of a few issuers which ARM Capital deems to be attractive investments, rather than invest in securities of a large number of issuers merely to satisfy the 1940 Act's diversification requirements. Although ARM Capital believes that the ability to concentrate the investments of the State Bond Fund in particular issuers is advantageous when investing in Minnesota Tax Exempt Securities, such concentration involves an increased risk of loss to the State Bond Fund should any particular issuer be unable to make interest or principal payments or should the market value of particular securities decline. A full discussion of the risks inherent in investment in the Federated Fund and the State Bond Fund is set forth in the Federated Fund's Prospectus and Statement of Additional Information, each dated September 1, 1996 and the State Bond Fund's Prospectus and Statement of Additional Information, each dated November 1, 1995, each of which is incorporated herein by reference thereto. INFORMATION ABOUT THE REORGANIZATION Background and Reasons for the Proposed Reorganization On June 14, 1995, SBM Company, which was then the investment adviser to the State Bond Fund, completed the sale of substantially all of its business operations to ARM (the `1995 Transaction''). In connection with the 1995 Transaction, ARM Capital became the investment manager of the State Bond Fund. In addition, ARM acquired all of the outstanding stock of SBM Financial Services, Inc., the predecessor in interest to ARMFS, the current distributor of shares of the State Bond Fund. Considerations of the Board of Directors of the State Bond Fund. On June 6, 1996, ARM management advised the Board of Directors of the State Bond Fund that ARM was considering redirecting its corporate strategy away from the management and distribution of retail mutual funds in order to concentrate more fully on its core businesses. Moreover, ARM management stated that due to the relatively small net assets in the State Bond Fund and the other mutual funds in the State Bond Group, ARM and its affiliates were not in a position to provide the value-added shareholder services, technological advancements, comprehensive distribution networks and diversified product choices that many larger mutual fund complexes offer. As a result, management stated that ARM was engaged in the identification and analysis of various potential alternatives for the State Bond Fund and the other funds in the State Bond Group. After conducting a screening process, ARM determined that in its judgment, the proposed Reorganization was the most desirable alternative involving the State Bond Fund that was reasonably available and that it should be presented to the State Bond Fund's Board of Directors for its consideration. A meeting of the entire Board of Directors was held on August 16, 1996, at which Federated (as defined below) presented to the Board information relating to the overall reputation, financial strength and stability of Federated Investors, the parent company of Federated Advisers (together with its affiliates, `Federated''). Federated, founded in 1955, is among the seven largest mutual fund sponsors, with over $90 billion invested across more than 250 funds under management and/or administration by its subsidiaries, and over 2,000 employees. Federated's management also discussed the growth of assets under management and/or administration by Federated from approximately $35 billion in 1989 to over $90 billion as of August 1996. Federated's management explained to the Board that the majority of this growth came from within Federated through its multiple distribution channels. The Board was also informed of the variety of investment products available through Federated, including international funds and an array of domestic funds broader than currently offered in the State Bond Group, the exchange privileges that would be available to former State Bond Fund shareholders if the Reorganization is consummated, and the multiple sales charge (or `load'') structures available to prospective shareholders. The Board took into account that if the Reorganization takes place, shareholders of the State Bond Fund would exchange their shares for Shares of the Federated Fund without the imposition of any sales charge. Federated's management advised the Board of its reputation for customer servicing, noting that it has received a #1 rating for five years in a row by Dalbar, Inc. Federated's management stated that its shareholder services include advanced technological systems that result in quick shareholder access to a broad spectrum of information, including: telephonic automated yield and performance information; consolidated monthly shareholder statements; no-fee IRAs; quarterly newsletters; year- end tax reporting information; direct deposit; and telephonic redemption and exchange. Federated's management also discussed comparative sales loads with the Board. In particular, it was noted that the maximum front end sales load of the Federated Fund is the same as that of the State Bond Fund. Federated's management described rights of accumulation and other programs that can reduce sales charges with respect to the Federated Fund. Federated's management also reviewed with the Board relative asset size and expense ratios, including relative advisory fees. The Board discussed the fact that the Federated Fund is larger in asset size than the State Bond Fund and considered potential economies of scale that might be experienced by former State Bond Fund shareholders if they were to become shareholders of a larger fund. The Board noted that the expense ratio of the Federated Fund presently is higher than that of the State Bond Fund, but only after taking into account current expense reimbursement arrangements by ARM Capital. The Board noted that ARM Capital could terminate its voluntary expense reimbursement arrangements with respect to the State Bond Fund at any time in its sole discretion. Federated's management advised the Board that the expense ratio of the Federated Fund is lower than the average for municipal bond funds distributed through brokers (as reported by Strategic Insight), and is competitive. Federated's management discussed with the Board expense waiver and reimbursement arrangements with respect to both the Federated Fund in particular and to the complex generally. The Chief Investment Officer, Fixed-Income, of Federated discussed with the Board the investment philosophy of Federated Advisers for its funds, including the Federated Fund. He also described the background and significant investment experience of Federated portfolio managers and other related personnel issues. The Board was presented with materials comparing the investment objectives and policies of the State Bond Fund with those of the Federated Fund, and determined that they were similar in many respects. The Board also considered the differences between the two funds, including the emphasis of the State Bond Fund on income exempt from Minnesota personal income tax and the Federated Fund's policies with respect to junk bonds. The Board noted that although the Federated Fund, unlike the State Bond Fund, invests in municipal bonds which are generally not exempt from the Minnesota personal income tax, the tax-equivalent yield produced by the Federated Fund historically has exceeded the tax-equivalent yield produced by the State Bond Fund. The Board was also presented with and discussed materials comparing the performance, Morningstar ratings and relative risks of the State Bond Fund and the Federated Fund. Federated's management also presented biographical information about each of the Directors of the Federated Fund and reviewed with the Board the structure of its compliance and internal audit departments and the scope of its training programs. The Board also considered the potential benefits to ARM if the Reorganization is consummated. The Board discussed the fact that ARM and ARM Capital would be compensated for selling the books, records and goodwill relating to the management of the State Bond Group, agreeing to certain non-competition arrangements and cooperating in assisting in the transfer of the net assets of the State Bond Group to the Federated Funds. They also took into account the proposed payment to ARMFS of 0.25% of the average daily net assets of the Federated Fund attributable to shareholder accounts serviced by ARMFS, as well as the possible compensation of ARMFS for distribution of additional Federated financial products in the future. The Board noted that the State Bond Fund would not bear any of the costs involved in the Reorganization, which would be borne entirely by ARM and/or Federated. In addition, the Board discussed the anticipated tax- free nature of the Reorganization to the State Bond Fund and its shareholders. In connection with their consideration of the Reorganization, the Board also reviewed their fiduciary obligations under state and federal law. They considered the requirements of Section 15(f) of the 1940 Act, which provides that an investment manager to an investment company, and the affiliates of such manager (such as ARM), may receive any amount or benefit in connection with a sale of any interest in such investment manager which results in an assignment of an investment management contract if (1) for a period of three years after such assignment, at least 75% of the board of directors of the investment company are not `interested persons'' (as defined in the 1940 Act) of the new investment manager or its predecessor; and (2) no `unfair burden'' (as defined in the 1940 Act) is imposed on the investment company as a result of the assignment or any express or implied terms, conditions or understandings applicable thereto. With respect to the first condition of Section 15(f) relating to Board composition, the Board was advised that the Federated Fund's Board of Directors presently consists of thirteen (13) Directors, only three (3) of whom are `interested persons.'' With respect to the second condition of Section 15(f), while there is no specific definition of `unfair burden,'' it includes any arrangement, for two years after the transaction, pursuant to which the predecessor or successor adviser is entitled to receive compensation from any person in connection with the mutual fund's purchase or sale of securities, other than bona fide ordinary compensation as principal underwriter. The definition of unfair burden also includes any payments from the fund for other than bona fide investment advisory or other services. The Board considered the fact that representations were made by Federated and ARM that the agreement among Federated, ARM and ARM Capital would contain representations and covenants that the Reorganization would not impose an unfair burden on the State Bond Group. After reviewing and considering all of the information provided by Federated and ARM, including the terms of the Reorganization, the Board, including all of the Directors who are not interested persons of the State Bond Fund or ARM Capital, voted unanimously at a special telephonic meeting held on August 26, 1996, to approve the Reorganization and to recommend it to the shareholders of the State Bond Fund for their approval. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE REORGANIZATION. Considerations of the Board of Directors of the Federated Fund. The Board of Directors of the Federated Fund, including a majority of the independent Directors, have unanimously concluded that consummation of the Reorganization is in the best interests of the Federated Fund and the shareholders of the Federated Fund and that the interests of Federated Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously voted to approve the Plan. Agreement Among ARM, ARM Capital and Federated The Reorganization is being proposed as part of an agreement by and among Federated, ARM, and ARM Capital, pursuant to which ARM and ARM Capital would be compensated for selling to Federated the books, records and goodwill relating to the management of the State Bond Group and cooperating in facilitating the transaction contemplated by the agreement. As part of that agreement, ARM Capital and its affiliates have agreed not to compete with Federated by providing investment advisory services to certain investment companies. Following the Reorganization, ARM or its affiliates have agreed to provide certain services to shareholders for which ARM or its affiliates may receive fees paid by Federated and/or mutual funds in which the shareholders are invested. Description of the Plan of Reorganization The Plan provides that the Federated Fund will acquire all of the net assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to its shareholders in complete liquidation of the State Bond Fund on or about December , 1996 (the "Closing Date"). Shareholders of the State Bond --- Fund will become shareholders of the Federated Fund as of the close of business on the Closing Date, and will be entitled to the Federated Fund's next dividend distribution. As of or prior to the Closing Date, the State Bond Fund will declare and pay a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders all taxable income for the period ending on the Closing Date. In addition, the State Bond Fund's dividend will include its net capital gains realized in the period ending on the Closing Date. Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance satisfactory to the State Bond Fund and the Federated Fund, as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by shareholders of the State Bond Fund prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. Federated Advisers is responsible for the payment of substantially all of the expenses of the Reorganization incurred by either party, whether or not the Reorganization is consummated. Such expenses include, but are not limited to, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the State Bond Fund's shareholders and the costs of holding the Special Meeting (as hereinafter defined). ARM is responsible for the payment of the legal fees of the State Bond Fund. The accountants' fees of the State Bond Fund will be borne equally by Federated Advisers and ARM. The foregoing description of the Plan entered into between the Federated Fund and the State Bond Fund, is qualified in its entirety by the terms and provisions of the Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference thereto. Description of Federated Fund Shares Full and fractional Class A Shares of the Federated Fund will be issued without the imposition of a sales charge or other fee to the shareholders of the State Bond Fund in accordance with the procedures described above. Class A Shares of the Federated Fund to be issued to shareholders of the State Bond Fund under the Plan will be fully paid and nonassessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Federated Fund dated September 1, 1996 provided herewith for additional information about Class A Shares of the Federated Fund. Federal Income Tax Consequences As a condition to the Reorganization, the Federated Fund and the State Bond Fund will receive an opinion from Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Federated Fund, to the effect that, on the basis of the existing provisions of the Code, current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization as set forth in the Plan will constitute a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the Federated Fund upon its receipt of the State Bond Fund's assets solely in exchange for Federated Fund Class A Shares; (3) no gain or loss will be recognized by the State Bond Fund upon the transfer of its assets to the Federated Fund in exchange for Federated Fund Class A Shares or upon the distribution (whether actual or constructive) of the Federated Fund Class A Shares to the State Bond Fund shareholders in exchange for their shares of the State Bond Fund; (4) no gain or loss will be recognized by shareholders of the State Bond Fund upon the exchange of their State Bond Fund shares for Federated Fund Class A Shares; (5) the tax basis of the State Bond Fund's assets acquired by the Federated Fund will be the same as the tax basis of such assets to the State Bond Fund immediately prior to the Reorganization; (6) the tax basis of Federated Fund Class A Shares received by each shareholder of the State Bond Fund pursuant to the Plan will be the same as the tax basis of State Bond Fund shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the State Bond Fund in the hands of the Federated Fund will include the period during which those assets were held by the State Bond Fund; and (8) the holding period of Federated Fund Class A Shares received by each shareholder of the State Bond Fund will include the period during which the State Bond Fund shares exchanged therefor were held by such shareholder, provided the State Bond Fund shares were held as capital assets on the date of the Reorganization. Shareholders should recognize that an opinion of counsel is not binding on the Internal Revenue Service (`IRS'') or any court. The State Bond Fund does not expect to obtain a ruling from the IRS regarding the consequences of the Reorganization. Accordingly, if the IRS sought to challenge the tax treatment of the Reorganization and was successful, neither of which is anticipated, the Reorganization would be treated as a taxable sale of assets of the State Bond Fund, followed by the taxable liquidation of the State Bond Fund. Comparative Information on Shareholder Rights and Obligations General. Both the Federated Fund and the State Bond Fund are open- end management investment companies registered under the 1940 Act, which continuously offer to sell shares at their current net asset value. The Federated Fund is organized as a corporation under the laws of the State of Maryland and is governed by its Articles of Incorporation, Bylaws, and Board of Directors, in addition to applicable state and Federal law. The State Bond Fund is organized as a separate series of State Bond Tax-Free Income Funds, Inc. under the laws of the State of Maryland and is governed by its Articles of Incorporation, Bylaws, and Board of Directors, in addition to applicable state and Federal law. Set forth below is a brief summary of the significant rights of shareholders of the Federated Fund and the State Bond Fund. Shares of the Federated Fund and the State Bond Fund. The Federated Fund is authorized to issue 2,000,000,000 shares of common stock, par value $0.001 per share. The Board of Directors has established four classes of shares of the Federated Fund, known as Class A Shares, Class B Shares, Class C Shares and Class F Shares. The State Bond Fund has an authorized capital of 10,000,000,000 shares of common stock with a par value of $.00001 per share. The State Bond Fund is currently the sole investment portfolio of State Bond Tax-Free Income Funds, Inc. and has only one class of shares. Issued and outstanding shares of both the Federated Fund and State Bond Fund are fully paid and nonassessable, and freely transferable. Voting Rights. Neither the Federated Fund nor the State Bond Fund is required to hold annual meetings of shareholders, except as required under the 1940 Act. Shareholder approval is necessary only for certain changes in operations or the election of directors under certain circumstances. The Federated Fund requires that a special meeting of shareholders be called for any permissible purpose upon the written request of the holders of at least 10% of the shares of the series of the Federated Fund entitled to vote. A special meeting of the shareholders of the State Bond Fund is required to be called upon the written request of shareholders representing not less than 25% of the shares issued and outstanding and entitled to vote. Each share of the Federated Fund gives the shareholder one vote in director elections and other matters submitted to shareholders for vote. All shares of each series or class in the Federated Fund have equal voting rights except that in matters affecting only a particular series or class, only shares of that series or class are entitled to vote. All shares of the State Bond Fund have equal voting rights. Directors. The Bylaws of the Federated Fund provide that the term of office of each Director shall be until his or her resignation or removal and until the election and qualification of his or her successor. A Director of the Federated Fund may be removed by a vote of a majority of all shares entitled to vote at any special meeting of shareholders. A vacancy on the Board may be filled by a majority of the Directors remaining in office. The Bylaws of the State Bond Fund provide that each Director holds office from the time of his or her election until the next annual meeting of shareholders and until his or her successor is duly elected and qualifies. A Director of the State Bond Fund may be removed, with or without cause, by the affirmative vote of a majority of the votes entitled to be cast for the election of Directors, and such shareholders may elect a qualified person as Director to replace the Director so removed. In case of any vacancy on the Board of Directors, a majority of the remaining Directors may elect a successor to hold office until the next annual meeting of the shareholders and until his or her successor is duly elected and qualifies. With respect to both the Federated Fund and the State Bond Fund, a meeting of shareholders will be required for the purpose of electing additional Directors whenever fewer than a majority of the Directors then in office were elected by shareholders. Liability of Directors and Officers. The Amended and Restated Articles of Incorporation of the Federated Fund and the Articles of Amendment and Restatement of the State Bond Fund both contain provisions eliminating liability of their respective directors and officers to the corporation or its shareholders to the fullest extent permitted by Maryland law. Therefore, directors and officers will not be liable for monetary damages to the corporation or its shareholders for breach of the duty of care. However, such elimination of liability regarding a director's duty of care does not permit the elimination or limitation of liability (1) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services; (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was committed in bad faith or was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (3) for any action or failure to act occurring prior to February 18, 1988. In addition, due to the provisions of the 1940 Act, shareholders would still have the right to pursue monetary claims against directors or officers for acts involving willful malfeasance, bad faith, gross negligence or reckless disregard of their duties as directors or officers. Under the agreement by and among Federated, ARM and ARM Capital, Federated has agreed for a period of three (3) years following the Closing to provide coverage under a directors and officers liability insurance policy for the current Directors of the State Bond Fund. Termination or Liquidation. In the event of the termination or liquidation of the Federated Fund or any series or class of the Federated Fund or of the termination or liquidation of the State Bond Fund, the shareholders of the respective fund or class are entitled to receive, when and as declared by its Directors the excess of the assets belonging to the respective fund or class over the liabilities belonging to the respective fund or class. In either case, the assets belonging to the fund or class will be distributed among the shareholders in proportion to the number of shares of the respective fund or class held by them. Capitalization The following table sets forth the unaudited capitalization of the Class A Shares of the Federated Fund and the shares of the State Bond Fund as of September 30, 1996 and on a pro forma combined basis as of that date: Federated Fund State Bond Pro Forma (Class A Shares) Fund Combined Net Assets............... $102,936* $18,798,727 $18,901,663 Net Asset Value Per Share $10.42 $10.61 $10.42 Shares Outstanding....... 9,876 1,772,336 1,813,484 *Class A Shares of the Federated Fund were established by the Board of Directors, commencing August 5, 1996. The net assets of all classes of Shares of the Federated Fund as of September 30, 1996 were $384,460,081. INFORMATION ABOUT THE FEDERATED FUND AND THE STATE BOND FUND Federated Municipal Opportunities Fund, Inc. Information about the Federated Fund is contained in the Federated Fund's current Prospectus dated September 1, 1996, a copy of which is included herewith and incorporated by reference herein. Additional information about the Federated Fund is included in the Federated Fund's Annual Report to Shareholders dated August 31, 1995, the Semi-Annual Report to Shareholders dated February 29, 1996, the Statement of Additional Information dated September 1, 1996 and the Statement of Additional Information dated November , 1996 (relating to this Prospectus/Proxy -- Statement), each of which is incorporated herein by reference. Copies of the Annual Report, the Semi-Annual Report and Statements of Additional Information, which have been filed with the Securities and Exchange Commission (the "SEC"), may be obtained upon request and without charge by contacting the Federated Fund at 1-800-341-7400 or by writing the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Federated Fund is subject to the informational requirements of the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by the Federated Fund can be obtained by calling or writing the Federated Fund and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Federated Fund with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Federated Fund and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the SEC. State Bond Minnesota Tax-Free Income Fund Information about the State Bond Fund and State Bond Tax-Free Income Funds, Inc. is contained in the State Bond Fund's current Prospectus dated November 1, 1995, the Annual Report to Shareholders dated June 30, 1996, its Statement of Additional Information dated November 1, 1995 and the Statement of Additional Information dated November , 1996 -- (relating to this Prospectus/Proxy Statement), each of which is incorporated herein by reference. Copies of such Prospectus, Annual Report, and Statement(s) of Additional Information, which have been filed with the SEC, may be obtained upon request and without charge from the State Bond Fund by calling 1-800-328-4735 or by writing to the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073- 0069. The State Bond Fund is subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by State Bond Tax-Free Income Funds, Inc. or its portfolio, the State Bond Fund, can be obtained by calling or writing the State Bond Fund and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section. VOTING INFORMATION This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Directors of the State Bond Fund of proxies for use at the Special Meeting of Shareholders (the "Special Meeting") to be held at 4:30 p.m. on December , 1996 at: 100 North Minnesota Street, -- New Ulm, Minnesota 56073-0069, and at any adjournments thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Special Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the State Bond Fund an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Special Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by Federated Advisers. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the State Bond Fund, Federated Advisers and their respective affiliates at no additional cost to the State Bond Fund. Such solicitations may be by telephone, telegraph or personal contact. Federated Advisers will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. Outstanding Shares and Voting Requirements The Board of Directors of the State Bond Fund has fixed the close of business on October 11, 1996 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the record date, there were shares ------- of the State Bond Fund outstanding. Each of the State Bond Fund's shares is entitled to one vote and fractional shares have proportionate voting rights. [On the record date, the Directors and officers of the State Bond Fund as a group owned less than 1% of the outstanding shares of the State Bond Fund.] To the best knowledge of ARM Capital, as of the record date, no person, except as set forth in the table below, owned beneficially or of record 5% or more of the State Bond Fund's outstanding shares. Percent of Shares Owned Percent of Outstanding Name and Address of Beneficially Outstanding Shares of the Beneficial Owner Shares Federated Fund Following Reorganization As of the record date, there were Class A, Class B, -------- ---- ---- Class C and Class F Shares of the Federated Fund outstanding. On --------- the record date, the Directors and officers of the Federated Fund as a group owned less than 1% of the outstanding Class A, Class B, Class C and Class F Shares of the Federated Fund outstanding. To the best knowledge of Federated Advisers, as of the record date, no person, except as set forth in the table below, owned beneficially or of record 5% or more of the Federated Fund's outstanding Class A, Class B, Class C or Class F Shares. Percent of Outstanding Shares Owned Percent of Shares of the Class A Name and Address of Beneficially Outstanding Federated Fund Shares Beneficial Owner Shares Following Reorganization Shares Owned Percent of Class B Name and Address of Beneficially Outstanding Shares Beneficial Owner Shares Shares Owned Percent of Class C Name and Address of Beneficially Outstanding Shares Beneficial Owner Shares Shares Owned Percent of Class F Name and Address of Beneficially Outstanding Shares Beneficial Owner Shares Approval of the Plan requires the affirmative vote of a majority of the outstanding shares of the State Bond Fund. The votes of shareholders of the Federated Fund are not being solicited since their approval is not required in order to effect the Reorganization. One-third of the issued and outstanding shares of the State Bond Fund, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Because approval of the Reorganization requires the approval of a majority of the outstanding shares of the State Bond Fund, abstentions and "broker non-votes" will have the same effect as if they were votes against the Reorganization. Dissenter's Right of Appraisal Shareholders of the State Bond Fund objecting to the Reorganization have no appraisal rights under the State Bond Fund's Articles of Incorporation or Maryland law. Under the Plan, if approved by State Bond Fund shareholders, each shareholder will become the owner of Class A Shares of the Federated Fund having a total net asset value equal to the total net asset value of his or her holdings in the State Bond Fund at the Closing Date. OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY Management of the State Bond Fund knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. If at the time any session of the Special Meeting is called to order, a quorum is not present in person or by proxy, the persons named as proxies may vote those proxies which have been received to adjourn the Special Meeting to a later date. In the event that a quorum is present but sufficient votes in favor of one or more of the proposals have not been received, the persons named as proxies may propose one or more adjournments of the Special Meeting to permit further solicitation of proxies with respect to any such proposal. All such adjournments will require the affirmative vote of a majority of the shares present in person or by proxy at the session of the Special Meeting to be adjourned. The persons named as proxies will vote those proxies which they are entitled to vote in favor of the proposal, in favor of such an adjournment, and will vote those proxies required to be voted against the proposal, against any such adjournment. Whether or not shareholders expect to attend the meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the "Agreement"), between FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and STATE BOND TAX-FREE INCOME FUNDS, INC., a Maryland corporation (hereinafter called the "Corporation") on behalf of its portfolio STATE BOND MINNESOTA TAX-FREE INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the net assets of the Acquired Fund in exchange solely for Class A Shares of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date (as hereinafter defined), of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Corporation and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all of the net assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Directors, including a majority of the directors who are not "interested persons" (as defined under the 1940 Act), of the Corporation has determined that the exchange of all of the net assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the net assets of the Acquired Fund, including all securities and cash, other than cash in an amount necessary to pay any unpaid dividends and distributions as provided in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring Fund agrees in exchange therefor to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account, for the benefit of its shareholders, on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge or make provision for the discharge of all of its liabilities and obligations prior to or on the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims created by the Acquired Fund. All cash delivered shall be in the form of immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund Shareholder shall have the right to receive any unpaid dividends or other distributions which were declared before the Valuation Date (as hereinafter defined) with respect to the shares of the Acquired Fund that are held by the shareholder on the Valuation Date. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders, and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders, based on their ownership of shares of the Acquired Fund on the Closing Date. All issued and outstanding Shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares, after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Corporation up to and including the Closing Date and such later dates, with respect to dissolution and deregistration of the Corporation, on which the Corporation is dissolved and deregistered. 1.9 The Corporation shall be deregistered as an investment company under the 1940 Act and dissolved as a Maryland corporation as promptly as practicable following the Closing Date and the making of all distributions pursuant to paragraph 1.5. 2.VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date (such time and date being herein called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of each Acquiring Fund Share shall be the net asset value per share computed as of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1, by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3.CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be December , 1996 or such later date as -- the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4.REPRESENTATIONS AND WARRANTIES. 4.1 The Corporation represents and warrants to the Acquiring Fund as follows: (a) The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has power to own all of its properties and assets and to carry out this Agreement. (b) The Corporation is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Corporation is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Corporation's Articles of Incorporation or Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statement of Assets and Liabilities of the Acquired Fund at June 30, 1995 and 1996, have been audited by Ernst & Young LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since June 30, 1996, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date shall have been filed or an appropriate extension obtained, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof or contest in good faith, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Corporation and, subject to the approval of the Acquired Fund Shareholders, this Agreement constitutes the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (only insofar as it relates to the Acquired Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 4.2 The Acquiring Fund represents and warrants to the Corporation as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1994 and 1995, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) The unaudited Statement of Assets and Liabilities of the Acquiring Fund at February 29, 1996 has been prepared in accordance with generally accepted accounting principles, consistently applied, although subject to year-end adjustments, and on a basis consistent with the Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1995 which has been audited by Deloitte & Touche LLP, independent auditors, and such statement (copies of which have been furnished to the Acquired Fund) fairly reflects the financial condition of the Acquiring Fund as of such date, and there are no known liabilities of the Acquiring Fund, contingent or otherwise, as of such date not disclosed therein. (h) Since February 29, 1996, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed or an appropriate extension obtained, by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof or contest in good faith, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding Acquiring Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (l) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (m) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Corporation will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Corporation's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of the Prospectus/Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a dividend or dividends, with a record date and ex-dividend date prior to the Valuation Date, which, together with all previous dividends, shall have the effect of distributing to its shareholders all of its investment company taxable income, if any, plus the excess of its interest income, if any, excludable from gross income under Code section 103(a) over its deductions disallowed under Code sections 265 and 171(a)(2) for the taxable periods or years ended on or before June 30, 1996 and for the period from said date to and including the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized in taxable periods or years ended on or before June 30, 1996 and in the period from said date to and including the Closing Date. 6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Corporation contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Corporation made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, either party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Corporation's Articles of Incorporation and the 1940 Act. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Corporation shall have received an opinion of Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for Federal income tax purposes: (a) The transfer of all of the Acquired Fund net assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9.TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Directors of the Corporation or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Acquired Fund Shareholders) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors or officers of the Corporation or the Acquiring Fund or the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Directors of the Acquiring Fund or the Board of Directors of the Corporation, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 An agreement has been entered into under which Federated Advisers will assume substantially all of the expenses of the reorganization including registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will assume the legal fees of the Acquired Fund. The accountants' fees of the Acquired Fund will be borne equally by Federated Advisers and ARM Financial Group, Inc. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: STATE BOND TAX-FREE INCOME FUNDS, INC., on behalf of its portfolio, Attest: STATE BOND MINNESOTA TAX-FREE INCOME FUND /s/ Sheri Bean By: /s/ Kevin L. Howard Name: Sheri Bean Name: Kevin L. Howard Title: Assistant Secretary Title: Vice President and Secretary Acquiring Fund: Attest: FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. /s/ S. Elliot Cohan By: /s/ J. Christopher Donahue Name: S. Elliot Cohan Name: J. Christopher Donahue Title: Assistant Secretary Title: Executive Vice President STATEMENT OF ADDITIONAL INFORMATION November , 1996 --- ACQUISITION OF THE ASSETS OF STATE BOND MINNESOTA TAX-FREE INCOME FUND, A PORTFOLIO OF STATE BOND TAX-FREE INCOME FUNDS, INC. 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 TELEPHONE NUMBER: 1-800-328-4735 BY AND IN EXCHANGE FOR CLASS A SHARES OF FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 TELEPHONE NUMBER: 1-800-341-7400 This Statement of Additional Information dated November , 1996 --- is not a prospectus. A Prospectus/Proxy Statement dated November , 1996 --- related to the above-referenced matter may be obtained from Federated Municipal Opportunities Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. TABLE OF CONTENTS 1. Statement of Additional Information of Federated Municipal Opportunities Fund, Inc., dated September 1, 1996. 2. Statement of Additional Information of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc., dated November 1, 1995. 3. Financial Statements of Federated Municipal Opportunities Fund, Inc., dated August 31, 1995. 4. Financial Statements (unaudited) of Federated Municipal Opportunities Fund, Inc., dated February 29, 1996. 5. Financial Statements of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc., dated June 30, 1996. 6. Pro Forma Financial Information of Federated Municipal Opportunities Fund, Inc., dated August 31, 1996. The Statement of Additional Information of Federated Municipal Opportunities Fund, Inc. (the "Federated Fund"), dated September 1, 1996, is incorporated herein by reference to Post-Effective Amendment No. 14 to the Federated Fund's Registration Statement on Form N-1A (File Nos. 33-11410 and 811-4533) which was filed with the Securities and Exchange Commission on or about May 23, 1996. A copy may be obtained, upon request and without charge, from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1800-3417400. The Statement of Additional Information of State Bond Minnesota Tax-Free Income Fund (the "State Bond Fund"), a portfolio of State Bond Tax-Free Income Funds, Inc. (the "Corporation"), dated November 1, 1995, is incorporated herein by reference to Post-Effective Amendment No. 10 to the Corporation's Registration Statement on Form N-1A (File Nos. 33-18934 and 811-5412) which was filed with the Securities and Exchange Commission on or about August 28, 1995. A copy may be obtained, upon request and without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-328-4735. The audited financial statements of the Federated Fund, dated August 31, 1995, are incorporated herein by reference to the Federated Fund's Annual Report to Shareholders dated August 31, 1995 which was filed with the Securities and Exchange Commission. A copy may be obtained, upon request and without charge, from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-341-7400. The audited financial statements of the State Bond Fund, dated June 30, 1996, are incorporated herein by reference to the State Bond Fund's Annual Report to Shareholders dated June 30, 1996, which was filed with the Securities and Exchange Commission. A copy may be obtained, upon request and without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number 1-800-328- 4735. The unaudited financial statements of the Federated Fund, dated February 29, 1996, are incorporated herein by reference to the Federated Fund's Semi-Annual Report to Shareholders, dated February 29, 1996, which was filed with the Securities and Exchange Commission. A copy may be obtained, upon request and without charge, from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1- 800-341-7400. The pro forma financial information of the Federated Fund, dated August 31, 1996 is included herein. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) STATE BOND MINNESOTA TAX-FREE INCOME FUND STATE BOND TAX EXEMPT FUND INTRODUCTION TO PROPOSED MERGER AUGUST 31, 1996 (UNAUDITED) The accompanying unaudited Pro Forma Combining Portfolio of Investments and Statement of Assets and Liabilities reflect the accounts of Federated Municipal Opportunities Fund, Inc. , State Bond Minnesota Tax- Free Income Fund, and State Bond Tax Exempt Fund, collectively (`the Funds''), for the year ended August 31, 1996. These statements have been derived from the books and records utilized in calculating daily net asset values at August 31, 1996. The accompanying unaudited Pro Forma Combining Statement of Operations reflects the accounts of the Funds, for the years ended August 31, 1996, June 30, 1996, and June 30, 1996, respectively, the most recent fiscal year ends of the Funds. The Pro Forma statements give effect to the proposed transfer of assets from State Bond Minnesota Tax- Free Income Fund in exchange for Class A Shares of Federated Municipal Opportunities Fund, Inc. and State Bond Tax Exempt Fund in exchange for Class A Shares of Federated Municipal Opportunities Fund, Inc. These two separate proposed transfers will be transacted simultaneously. PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS AUGUST 31, 1996 (UNAUDITED)
FEDERATED FEDERATED MUNICIPAL MUNICIPAL OPPORTUNITIES OPPORTUNITIES FUND, INC. FUND, INC. (FORMERLY, STATE BOND (FORMERLY, STATE FORTRESS MINNESOTA STATE FORTRESS BOND STATE BOND MUNICIPAL TAX-FREE BOND MUNICIPAL MINNESO TAX INCOME INCOME TAX PRO FORMA INCOME TA TAX- EXEMPT PRO FORMA FUND, INC.) FUND EXEMPT COMBINED FUND, INC.) FREE FUND COMBINED FUND INCOME FUND MOODY'S/ PRINCIPAL PRINCIPAL PRINCIPAL S&P AMOUNT AMOUNT PRINCIPAL AMOUNT RATING* VALUE VALUE VALUE VALUE AMOUNT MUNICIPAL BONDS (97.7%) ALABAMA- 1.2% 6,000,000 --- --- 6,000,000 Courtland, AL, IDB, Solid Waste Disposal Revenue Bonds (Series BBB/Baa1 5,869,680 --- --- 5,869,680 A), 6.375% (Champion International Corp.)/(Original Issue Yield: 6.52%), 3/1/2029 ALASKA-- 0.4% - --- --- 690,000 690,000 Alaska Housing Finance Corp., Collateralized, Veterans Mortgage Program, Series 1991 B-1, 6.900%, due 2032 Aaa/AAA --- --- 708,471 708,471 - --- --- 325,000 325,000 Alaska Housing Aaa/AAA Finance Corp., --- --- 334,419 334,419 Collaterized Home Mortgage Bonds, 1988 Series A-1, 7.625%, due 2013 - --- --- 1,000,000 1,000,000 Alaska Valdez Marine Terminal, 5.650%, due 2028 Aa3/AA- --- --- 940,090 940,090 Total --- --- 1,982,980 1,982,980 ARIZONA-0.3% - --- --- 1,500,000 1,500,000 Arizona Industrial A/A --- --- 1,478,205 1,478,205 Development Authority, 5.450%, due 2009 ARKANSAS--1.7% 2,920,000 --- --- 2,920,000 Conway, AR, Hospital Authority, Revenue BBB/NR 2,976,560 --- --- 2,976,560 Bonds, 7.125% (Conway Regional Hospital), 2/1/2013 3,000,000 --- --- 3,000,000 Conway, AR, Hospital Authority, Revenue BBB/NR 3,205,800 --- --- 3,205,800 Refunding Bonds, 8.125% (Conway Regional Hospital), 7/1/2005 1,000,000 --- --- 1,000,000 Conway, AR, Hospital Authority, Revenue BBB/NR 1,074,850 --- --- 1,074,850 Refunding Bonds, 8.375% (Conway Regional Hospital), 7/1/2011 1,000,000 --- --- 1,000,000 Little Rock, AR, Health Facilities A+/NR 1,062,400 --- --- 1,062,400 Board, Revenue Refunding Bonds, 7.00% (Baptist Medical Center, AR), 10/1/2017 Total 8,319,610 --- --- 8,319,610 CALIFORNIA-0.5% - --- --- 500,000 500,000 Berkeley, CA, School District, 5.800%, due 2020 Aaa/AAA --- --- 488,600 488,600 - --- --- 1,000,000 1,000,000 Central Coast Water Authority Revenue Bonds, Series 1992, 6.350%, Aaa/AAA --- --- 1,075,550 1,075,550 due 2007 - --- --- 1,000,000 1,000,000 Walnut Valley, CA, Water District, Certificate of Participation, 6.125%, due 2009 Aaa/AAA --- --- 1,032,820 1,032,820 Total --- --- 2,596,970 2,596,970 COLORADO--0.8% 695,000 --- --- 695,000 Colorado HFA, SFM Revenue Bonds (Series AA/NR 729,250 --- --- 729,250 A-2), 7.70% (FHA GTD), 2/1/2023 2,775,000 --- --- 2,775,000 Colorado HFA, SFM Revenue Bonds (Series AA/NR 2,891,162 --- --- 2,891,162 C-2), 7.375% (FHA GTD), 8/1/2023 295,000 --- --- 295,000 El Paso County, CO, HFA, SFM Revenue AAA/NR 310,573 --- --- 310,573 Bonds, 8.00% (GNMA COL), 9/1/2022 - --- --- 210,000 210,000 Housing Finance Agency, Single Family Aa/NR --- --- 214,505 214,505 Housing Revenue Bonds, 1986 Series A, 8.000%, due 2017 Total 3,930,985 --- 214,505 4,145,490 DISTRICT OF COLUMBIA- 0.3% - --- --- 1,250,000 1,250,000 District of Columbia University Revenue NR/AAA --- --- 1,275,012 1,275,012 Bonds, 6.300%, due 2013 IDAHO--0.9% 1,145,000 --- --- 1,145,000 Idaho Housing Agency, SFM Revenue Bonds AA/NR 1,193,823 --- --- 1,193,823 (Series A), 7.50% (FHA GTD), 7/1/2024 2,785,000 --- --- 2,785,000 Idaho Housing Agency, SFM Revenue Bonds AA/Aa 2,918,290 --- --- 2,918,290 (Series F-2), 7.80% (FHA GTD), 1/1/2023 Total 4,112,113 --- --- 4,112,113 ILLINOIS--7.0% - --- --- 2,000,000 2,000,000 Chicago, IL, Water Revenue Bonds, 7.200% due 2016 A1/AA- --- --- 2,194,460 2,194,460 - --- --- 1,000,000 1,000,000 Chicago, IL, Public District Capital Improvement Bonds, Aaa/AAA --- --- 1,024,200 1,024,200 5.450%, due 2004 - --- --- 1,480,000 1,480,000 City of Chicago, IL, Gas Supply Revenue Bonds, 7.500%, due Aa3/AA- --- --- 1,606,111 1,606,111 2015 - --- --- 1,100,000 1,100,000 City of Chicago, IL, Gas Supply Revenue Aa3/AA --- --- 1,198,076 1,198,076 Bonds, 7.500%, due 2015 - -- --- 500,000 500,000 Cook County, IL, Aaa/AAA --- --- 499,945 499,945 6.000%, due 2017 - --- --- 1,000,000 1,000,000 Cook County, IL Community Cons. School District #6, Aaa/AAA --- --- 1,023,880 1,023,880 5.875%, due 2008 4,500,000 --- --- 4,500,000 Granite City, IL, Hospital Facilities Authority, Revenue BB+/Baa 4,637,520 --- --- 4,637,520 Refunding Bonds (Series A), 8.125% (St. Elizabeth Medical Center)/(Original Issue Yield: 8.167%), 6/1/2008 3,000,000 --- --- 3,000,000 Illinois Development Finance Authority, Housing Revenue NR 2,667,210 --- --- 2,667,210 Bonds, 6.10% (Catholic Charities Housing Development Corp), 1/1/2020 10,000,000 --- --- 10,000,000 Illinois Health Facilities Authority, Hospital Revenue NR 10,459,300 --- --- 10,459,300 Bonds (Series A), 9.25% (Edgewater Hospital & Medical Center, IL), 7/1/2024 - --- --- 1,400,000 1,400,000 Illinois Health Facility Authorized Revenue, 6.000%, due 2015 Aaa/AAA --- --- 1,378,468 1,378,468 - --- --- 1,000,000 1,000,000 Illinois State Dedicated Tax, 6.000%, due 2015 Aaa/AAA --- --- 998,760 998,760 - --- --- 1,050,000 1,050,000 Illinois State University Auxiliary Facility System, Board of Regents Revenue Bonds, Series 1989, 7.400%, Aaa/A --- --- 1,156,680 1,156,680 due 2014 - --- --- 500,000 500,000 Illinois State University Auxiliary Facility System, Board of Regents Revenue Bonds, Series 1989, 7.400%, Aaa/A --- --- 550,800 550,800 due 2013 - --- --- 2.350,000 2.350,000 Metropolitan Pier Exposition Authority, IL, Dedicated State Tax Rev. Bonds, 6.000%, due 2104 A/A+ --- --- 2,337,052 2,337,052 - --- --- 2,000,000 2,000,000 Rolling Meadows, IL, Mortgage Revenue Bonds Woodfield Garden, 7.750% due 2004 NR/A- --- --- 2,122,240 2,122,240 Total 17,764,030 --- 16,090,672 33,854,702 INDIANA--9.2% - --- --- 550,000 550,000 Beech Grove, IN, IDR 8.750%, (Westvaco A1/A --- --- 556,424 556,424 Corp) due 2010 - --- --- 1,000,000 1,000,000 Highland, IN, School Building Corp., 6.750%, due 2012 NR/AAA --- --- 1,105,850 1,105,850 1,300,000 1,300,000 Indiana Municipal Power Agency, Series 1992 A, 6.000%, due Aaa/AAA --- --- 1,363,245 1,363,245 2007 3,000,000 --- --- 3,000,000 Indiana Port Commission, Port NR/Aa3 3,232,500 --- --- 3,232,500 Facility Revenue Refunding Bonds, 6.875% (Cargill, Inc.), 5/1/2012 855,000 --- --- 855,000 Indiana State HFA, SFM Revenue Bonds NR/Aaa 902,410 --- --- 902,410 (Series A), 8.20% (GNMA COL), 7/1/2020 - --- --- 1,100,000 1,100,000 Indiana State Toll Roads, Revenue Refunding Bond, A-/A --- --- 1,099,967 1,099,967 6.00%, due 2013 2,785,000 --- --- 2,785,000 Indiana State HFA, SFM Revenue Home NR/Aaa 2,941,406 --- --- 2,941,406 Mortgage Program (Series F-2), 7.75% (GNMA COL), 7/1/2022 - --- --- 1,150,000 1,150,000 Indiana Transportation Finance Authority, Series A, 6.250%, due A/NR --- --- 1,160,108 1,160,108 2016 17,100,000 --- --- 17,100,000 Indianapolis, IN, Airport Authority, Special Facilities BBB/Baa2 18,041,355 --- --- 18,041,355 Revenue Bonds, 7.10% (Federal Express Corp.)/(Original Issue Yield: 7.178%), 1/15/2017 - --- --- 3,225,000 3,225,000 Indianapolis, IN, Public Improvement Bonds, Bank Series C, Aaa/NR --- --- 3,558,014 3,558,014 6.700%, due 2017 2,750,000 --- --- 2,750,000 LaPorte County, IN, Hospital Authority, Hospital Facilities Revenue Refunding BBB-/Aaa 2,870,780 --- --- 2,870,780 Bond, 8.75% (LaPorte Hospital, Inc., IN)/(United States Treasury PRF)/(Original Issue Yield: 8.848%), 3/1/1997 (@102) 5,000,000 --- --- 5,000,000 LaPorte County, IN, Hospital Authority, Hospital Facility BBB/Baa1 4,587,750 --- --- 4,587,750 Revenue Refunding Bonds, 6.00% (LaPorte Hospital, Inc., IN)/(Original Issue Yield: 6.35%), 3/1/2023 3,000,000 --- --- 3,000,000 LaPorte County, IN, Hospital Authority, Hospital Facility BBB/Baa 2,908,350 --- --- 2,908,350 Revenue Refunding Bonds, 6.25% (LaPorte Hospital, Inc., IN)/(Original Issue Yield: 6.35%), 3/1/2012 Total 35,484,551 --- 8,843,608 44,328,159 IOWA--0.2% 1,000,000 --- --- 1,000,000 Davenport, IA, PCA, PCR Refunding Bonds, NR 1,057,090 --- --- 1,057,090 Nicols-Homeshield Project, 8.375% (Quanex Corp.), 12/1/2005 KENTUCKY--1.0% 3,500,000 --- --- 3,500,000 Kenton County, KY, Airport Board, Special Facilities BB/Ba3 3,729,600 --- --- 3,729,600 Revenue Bonds (Series A), 7.50% (Delta Air Lines, Inc.)/(Original Issue Yield: 7.60%), 2/1/2020 1,200,000 --- --- 1,200,000 Kentucky Pollution Abatement & Water NR 1,200,000 --- --- 1,200,000 Resource Finance Authority Daily VRDNs (Toyota Motor Credit Corp.) Total 4,929,600 --- --- 4,929,600 LOUISIANA-5.5% 3,000,000 --- --- 3,000,000 De Soto Parish, LA, Environmental Improvement A-/A3 3,381,990 --- --- 3,381,990 Authority, Revenue Bonds, 7.70% (International Paper Co.), 11/1/2018 5,000,000 --- --- 5,000,000 Lake Charles, LA, Harbor & Terminal District, Port NR/Baa3 5,598,550 --- --- 5,598,550 Facilities Revenue Refunding Bond, Trunkline Lining Co Project, 7.75% (Panhandle Eastern Corp.), 8/15/2022 - --- --- 750,000 750,000 Rapides Parish, LA, Housing & Mortgage Finance Authority, Single Family Mortgage, 7.250%, due Aaa/AA- --- --- 847,770 847,770 2010 5,645,000 --- --- 5,645,000 St. Charles Parish, LA, PCR Bonds, 7.50% (Louisiana Power & BBB+/Baa2 5,956,660 --- --- 5,956,660 Light Co.)/(Original Issue Yield: 7.542%), 6/1/2021 1,400,000 --- --- 1,400,000 St. Charles Parish, LA, PCR Bonds, 8.00% NR/Baa3 1,523,914 --- --- 1,523,914 (Louisiana Power & Light Co.), 12/1/2014 2,100,000 --- --- 2,100,000 St. Charles Parish, LA, PCR Bonds, 8.25% --- (Louisiana Power & NR 2,289,462 --- 2,289,462 Light Co.)/(Original Issue Yield: 8.273%), 6/1/2014 3,650,000 --- --- 3,650,000 St. Charles Parish, LA, Solid Waste --- Disposal Revenue BBB+/Baa2 3,758,770 --- 3,758,770 Bonds (Series A), 7.00% (Louisiana Power & Light Co.)/(Original Issue Yield: 7.04%), 12/1/2022 3,000,000 --- --- 3,000,000 St. James Parish, LA, Solid Waste Disposal Revenue Bonds, 7.70% NR 3,049,200 --- --- 3,049,200 (Freeport McMoRan, Inc.)/(Original Issue Yield: 7.75%), 10/1/2022 Total 25,558,546 --- 847,770 26,406,316 MAINE--1.0% - --- --- 400,000 400,000 Maine State Housing Authority, Mortgage Purchase Bonds, 1988 Series B, 8.000%, due 2015 A1/AA- --- --- 420,596 420,596 4,200,000 --- --- 4,200,000 Maine State Housing Authority, Revenue A+/A1 4,418,778 --- --- 4,418,778 Bonds (Series D-3), 8.20%, 11/15/2019 Total 4,418,778 --- 420,596 4,839,374 MARYLAND-0.2% - --- --- 740,000 740,000 Maryland City Housing Multi-Family Housing, FNMA, Series A, 7.250% due 2023 NR/AAA --- --- 767,927 767,927 MASSACHUSETTS--2.8% 21,000,000 --- --- 21,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue NR 11,350,500 --- --- 11,350,500 Bonds (Series A), 9.00% (Massachusetts Recycling Association), 8/1/2016 - --- --- 1,000,000 1,000,000 Massachusetts State Housing Project Financial Agency, A1/A+ --- --- 1,008,500 1,008,500 6.300%, due 2013 - --- --- 1,000,000 1,000,000 Massachusetts State Housing Project Financial Agency, Aaa/AAA --- --- 1,005,550 1,005,550 6.100%, due 2016 Total 11,350,500 --- 2,014,050 13,364,550 MICHIGAN--0.7% - --- --- 500,000 500,000 Clintondale, MI, Community Schools, 5.750%, due 2016 Aa/AA --- --- 488,450 488,450 - --- --- 145,000 145,000 Michigan State Housing Development Authority, Single Family, Series A, 7.550%, due 2014 NR/AA+ --- --- 145,042 145,042 - --- --- 1,000,000 1,000,000 Michigan State Housing Development, Series B, 6.950%, due NR/AA+ --- --- 1,051,960 1,051,960 2020 1,500,000 --- --- 1,500,000 Western Townships, MI, Utilities BBB+/NR 1,639,890 --- --- 1,639,890 Authority, LT GO Sewer Disposal System Bonds, 8.20%, 1/1/2018 Total 1,639,890 --- 1,685,452 3,325,342 MINNESOTA--10.0% - --- 235,000 --- 235,000 Albany, MN, Independent School Aa1/NR --- 242,645 --- 242,645 District #745, GO Bonds, 6.000%, due 2009 - --- --- Bloomington Port 200,000 200,000 Authority, Series Aaa/AAA --- 202,052 --- 202,052 1994 A, 5.250%, due 2003 - --- 100,000 800,000 900,000 Burnsville, MN, Multi-Family Housing Revenue Refunded NR/AAA --- 104,559 836,472 941,031 Bonds, Coventry Court Apartments Project, Series 1989, 7.500%, due 2027 - --- 250,000 --- 250,000 Centennial Minnesota --- --- Independent School Aaa/AAA 270,255 270,255 District #12, GO Bonds, Series 1991 A, 7.150%, due 2011 - --- --- 800,000 800,000 City of Minnetonka, MN, Multi-Family Rental Housing Rev. Bonds, 7.250%, due 2002 NR/AAA --- --- 830,192 830,192 - --- 150,000 --- 150,000 Coon Rapids, MN, GO Tax Increment Bonds, A/NR --- 151,877 --- 151,877 Series 1986 B2, 7.750%, due 2006 - --- 300,000 --- 300,000 Dakota County, MN, GO Aaa/AAA --- 312,642 --- 312,642 Refunded Bonds, 6.450%, due 2010 - --- 170,000 --- 170,000 Dakota County, MN Housing and Revenue NR/AAA --- 175,850 --- 175,850 Authority, SFM Rev. Bonds, 7.200%, due 2009 - --- --- Duluth, MN, GO Water 285,000 285,000 Rev., Series 1992 A, A/NR --- 295,870 --- 295,870 6.250%, due 2007 - --- --- Duluth, MN, Economic --- 60,000 60,000 Development Aaa/AAA --- 64,926 64,926 Authority, 6.200%, due 2012 - --- --- Duluth, MN, Economic 140,000 140,000 Development Aaa/AAA --- 145,062 --- 145,062 Authority, 6.200%, due 2012 - --- --- Eden Prairie, MN, 100,000 100,000 Multi-Family Housing NR/AAA --- 104,199 --- 104,199 Preserve Place Apartments, 7.875%, due 2017 - --- --- Eden Prairie, MN, 300,000 300,000 Housing & A/NR --- 312,033 --- 312,033 Redevelopment Authority, 6.200%, due 2008 - --- --- Edina, MN, 300,000 300,000 Independent School A1/NR --- 299,037 --- 299,037 District #273, 5.750%, due 2013 - --- --- Foley, MN, 100,000 100,000 Independent School Aaa/AAA --- 104,567 --- 104,567 District #51 MBIA, 7.500%, due 2008 - --- --- Hennepin County, MN, 165,000 165,000 Lease Revenue Aa/AA --- 176,971 --- 176,971 Certificate of Participation, Series 1991, 6.800%, due 2017 - --- 225,000 --- 225,000 Kandiyohi County, MN, GO Refunded Bonds, A/NR --- 224,330 --- 224,330 Series 1993, 5.650%, due 2011 - --- 150,000 --- 150,000 Metropolitan Council, Aaa/AAA --- 162,480 --- 162,480 MN, 7.250%, due 2007 - --- 275,000 --- 275,000 Minneapolis, MN, Aaa/AAA --- 278,196 --- 278,196 5.750%, due 2010 - --- 250,000 --- 250,000 Minneapolis, MN, Aaa/AAA --- 261,645 --- 261,645 6.250%, due 2012 - --- 200,000 --- 200,000 Minneapolis, MN, Multi-Family Housing NR/AAA --- 211,190 --- 211,190 Revenue, 7.125%, due 2010 - --- 300,000 --- 300,000 Minneapolis, MN, Multi-Family Housing NR/AAA --- 311,466 --- 311,466 Revenue, 7.050%, due 2022 - --- 400,000 2,000,000 2,400,000 Minneapolis, MN, Special School Aaa/AAA --- 407,148 2,035,740 2,442,888 District #001, 5.900%, due 2011 Minnesota Housing Finance Agency, Single - --- --- 1,300,000 1,300,000 Family Mortgage, Aa/AA+ --- --- 1,319,240 1,319,240 6.250%, due 2015 - --- --- 1,460,000 1,460,000 Minnesota Housing Finance Authority, Series 1993E, 6.000%, NR/AA+ --- --- 1,459,913 1,459,913 due 2014 - --- --- 500,000 500,000 Minnesota Housing Aa/AA+ --- --- 527,775 527,775 Finance Authority Agency, Single Family Mortgage Revenue Bonds 1989 D Series, 7.350%, due 2016 - --- 300,000 --- 300,000 Minnesota State University Board A/NR --- 303,645 --- 303,645 Revenue, 6.000%, due 2013 - --- 300,000 --- 300,000 Minnesota Public --- --- Access Authority, Aa1/AAA 329,412 329,412 Water Pollution Control, Revenue Bonds, Series 1990 A, 7.100%, due 2012 - --- 250,000 --- 250,000 Minnesota Public Facilities Authority, Aa1/AAA --- 276,925 --- 276,925 Water Pollution Control, Revenue Bonds, Series 1991 A, 6.950%, due 2013 - --- 250,000 --- 250,000 Minnesota Public Facilities Authority, Aa1/AAA --- 266,548 --- 266,548 Water Pollution Control, Revenue Bonds, Series 1992 A, 6.500%, due 2014 - --- 150,000 --- 150,000 Minnesota State, Aaa/AAA --- 162,714 --- 162,714 7.000%, due 2007 1,640,000 --- --- 1,640,000 Minnesota State HFA, SFM Revenue Bonds AA/Aa 1,730,167 --- --- 1,730,167 (Series A), 7.95% (FHA GTD), 7/1/2022 585,000 --- --- 585,000 Minnesota State HFA, SFM Revenue Bonds AA+/Aa 601,930 --- --- 601,930 (Series D), 8.05% (FHA GTD), 8/1/2018 3,000,000 --- --- 3,000,000 Minnesota State HFA, SFM Revenue Bonds AA/Aa 3,094,860 --- --- 3,094,860 (Series E), 6.85%, 1/1/2024 - --- 240,000 --- 240,000 Minnesota State --- Housing Finance Aa/AA+ --- 253,087 253,087 Agency, 7.300%, due 2017 - --- 175,000 --- 175,000 Minnesota State Housing Finance NR/AA+ --- 175,844 --- 175,844 Agency, Rental Housing, Series C Refunded Bonds, 6.150%, due 2014 - --- 90,000 --- 90,000 Minnesota State Housing Insurance Aa/AA+ --- 94,802 --- 94,802 Agency, 7.650%, due 2008 - --- 160,000 --- 160,000 Minnesota State Housing Finance NR/AA+ --- 159,990 --- 159,990 Agency, 6.000%, due 2014 - --- 195,000 --- 195,000 Minnesota State Housing Finance Aa/AA+ --- 204,994 --- 204,994 Agency, 7.100%, due 2011 - --- 335,000 --- 335,000 Minnesota State Housing Finance Aa/AA+ --- 334,310 --- 334,310 Agency, Single Family Mortgage, 5.850%, due 2011 - --- 300,000 --- 300,000 Minnesota State Higher Education Aa/AA- --- 311,982 --- 311,982 Facilities, 6.300%, due 2014 - --- 200,000 --- 200,000 Minnesota State Higher Education A1/NR --- 198,710 --- 198,710 Facilities, 5.450%, due 2007 - --- 315,000 --- 315,000 Minnesota State Higher Education A1/NR --- 303,591 --- 303,591 Facilities, 5.600%, due 2014 - --- 40,000 --- 40,000 Minnesota State Housing Development Aa/AA+ --- 40,895 --- 40,895 Single Family Mortgage, Series B, 7.250%, due 2016 - --- 100,000 --- 100,000 Minnetonka, MN, Multi-Family Housing NR/AA --- 102,595 --- 102,595 Revenue Bonds (Cedar Hills East Project), 7.500%, due 2017 - --- 300,000 --- 300,000 Moorhead, MN, Public Utility Revenue Aaa/AAA --- 315,060 --- 315,060 Bonds, Series 1992, 6.050%, due 2006 - --- 285,000 --- 285,000 Northern Mu;nicipal Power Agency, MN, Aaa/AAA --- 308,302 --- 308,302 Electric Revenue Refunded Bonds, Series A, 7.250%, due 2017 - --- 530,000 --- 530,000 Northern Municipal Power Agency, MN, A/A --- 524,048 --- 524,048 Electric Revenue Refunded Bonds, 6.000%, due 2020 - --- 300,000 --- 300,000 Owatonna, MN, Public Utility Refunded A1/NR --- 326,346 --- 326,346 Bonds, Series 1990, 7.400%, due 2007 - --- 100,000 --- 100,000 Ramsey & Washington Counties Resource A1/AA- --- 104,928 --- 104,928 Recovery Revenue Bonds, NSP Project, 6.750%, due 2006 - --- 150,000 --- 150,000 Red Wing Independent School District #256, A1/NR --- 155,328 --- 155,328 GO School Building, Series 1998 A, 7.300%, due 2004 - --- 100,000 --- 100,000 Robbinsdale Hospital Refunded Revenue Aaa/AAA --- 107,973 --- 107,973 NMMCP, 1989, 7.200%, due 2005 - --- 300,000 --- 300,000 Robbinsdale Hospital Refunded Revenue Aaa/AAA --- 289,641 --- 289,641 NMMCP, Series A, 5.450%, due 2013 - --- 370,000 --- 370,000 Robbinsdale Hospital Aaa/AAA --- 357,224 --- 357,224 Revenue, 5.450%, due 2013 - --- 500,000 --- 500,000 Rochester, MN, Health Care Facility Revenue NR/AA+ --- 512,180 --- 512,180 Bonds, Mayo Medical Center, 6.250%, due 2021 - --- 500,000 --- 500,000 Rosemount, MN, Independent School Aa1/AA --- 502,880 --- 502,880 District, 5.875%, due 2014 - --- 300,000 --- 300,000 Roseville, MN, Independent School Aaa/AAA --- 286,944 --- 286,944 District, 5.250%, due 2013 - --- 300,000 --- 300,000 St. Anthony-New Brighton Independent Aa1/NR --- 301,377 --- 301,377 School District #282, GO Bonds, 5.700%, due 2012 - --- 250,000 --- 250,000 St. Cloud, MN, Hydro Electric Generator NR/A- --- 256,580 --- 256,580 Facility Gross Revenue Bonds, 7.375%, due 2018 - --- 480,000 --- 480,000 St. Louis Park, MN, Aaa/AAA --- 444,149 --- 444,149 Health Care Facility, 5.200%, due 2016 - --- 100,000 --- 100,000 St. Paul, MN, GO Street Improvement, Aa/AA+ --- 100,009 --- 100,009 Special Assessment Bonds, Series 1988 D, 7.200%, due 2008 - --- 300,000 --- 300,000 St. Paul, MN, Housing & Redevelopment NR/A- --- 323,805 --- 323,805 Authority, Package R, 6.450%, due 2007 - --- 300,000 --- 300,000 St. Paul, MN, Housing and Redevelpment Aaa/AAA --- 298,794 --- 298,794 Authority Revenue Bonds, 5.400%, due 2008 - --- 300,0000 --- 300,0000 St. Paul, MN, Independent School Aa/AA --- 297,531 --- 297,531 District #625, Series C, 5.550%, due 2012 - --- 400,000 --- 400,000 St. Paul, MN, Independent School Aa/AA --- 409,564 --- 409,564 District #625, Series 1994 C, 6.050%, due 2012 - --- 150,000 --- 150,000 St. Paul, MN, Independent School Aa/AA --- 159,455 --- 159,455 District #625, School Building Bonds, Series 1990 D, 7.250%, due 2009 - --- 300,000 --- 300,000 St. Paul, MN, Independent School Aa/AA --- 282,756 --- 282,756 District #625, 5.250%, due 2015 - --- 300,000 --- 300,000 St. Paul, MN, Independent School Aa1/AA --- 289,140 --- 289,140 District, 5.200%, due 2011 9,000,000 --- --- 9,000,000 St. Paul, MN, Housing & Redevelopment Authority , Hospital Revenue Refunding BBB-/Baa 8,952,300 --- --- 8,952,300 Bonds ( Series A), 6.625% (Healtheast, MN)/(Original Issue Yield: 6.687%), 11/1/2017 - --- 300,000 --- 300,000 Southern, MN, Municipal Power Aaa/AAA --- 321,102 --- 321,102 Agency, Power Supply, 8.125%, due 2018 10,000,000 --- --- 10,000,000 Southern Minnesota Municipal Power --- Agency, Supply System AAA/Aaa 8,751,300 --- 8,751,300 Revenue Bonds (Series A), 4.75% (MBIA Insurance Corporation INS)/(Original Issue Yield: 5.52%), 1/1/2016 - --- 325,000 --- 325,000 Stearns County, MN, GO Refunded Bonds, A/NR --- 337,028 --- 337,028 Series B, 6.000%, due 2007 - --- 300,000 --- 300,000 Stearns County, MN, Independent #2753, Aa1/NR --- 279,954 --- 279,954 5.000%, due 2012 - --- 200,000 --- 200,000 Wayzata, MN, Tax Aa/NR --- 216,496 --- 216,496 Increment Bonds, 7.000%, due 2010 - --- 250,000 --- 250,000 Wayzata, MN, Independent School Aa1/NR --- 254,750 --- 254,750 District #284, GO Bonds, Series 1994 B, 5.800%, due 2009 - --- 300,000 --- 300,000 Western Minnesota Municipal Power A1/A --- 308,934 --- 308,934 Agency, Power Supply Revenue Refunded Bonds, 6.875%, due 2007 - --- 250,000 --- 250,000 Western Minnesota --- --- Municipal Power, A1/A 249,990 249,990 Series A, 6.125%, due 2016 - --- 200,000 --- 200,000 Western Minnesota --- --- Municipal Power Agency, Transmission Aaa/AAA 215,808 215,808 Project Revenue Refunded Bonds, Series 1991, 6.750%, due 2016 - --- 250,000 --- 250,000 Whitewater Bear Lake Aa1/NR --- 254,928 --- 254,928 School, 6.000%, due 2012 - --- 100,000 --- 100,000 Worthington, MN, GO Water Revenue Bonds, A/NR --- 106,597 --- 106,597 Series 1990 A, 7.000%, due 2010 - --- 350,000 --- 350,000 Wright County, MN, GO Jail Refunded Bonds, A/NR --- 363,132 --- 363,132 Series 1992 B, 6.000%, due 2007 Total 23,130,557 18,201, 7,009,332 48,341,666 777 MONTANA--0.2% 1,130,000 --- --- 1,130,000 Montana State Board of Housing, SFM NR/Aa 1,174,918 --- --- 1,174,918 Revenue Bonds (Series B-2), 7.50% (FHA GTD), 4/1/2023 NEVADA-0.8% - --- --- 350,000 350,000 Clark County, NV, Improvement District, 5.850% due Aaa/AAA --- --- 347,277 347,277 2015 - --- --- 1,000,000 1,000,000 Clark County, NV, School District, General Obligation Bonds, 5.300%, due 2004 Aaa/AAA --- --- 1,012,490 1,012,490 - --- --- 1,000,000 1,000,000 Humbolt County, NV,Pollution Control Revenue Bonds, Idaho Power Company, 8.300%, due 2014 NR/A+ --- --- 1,159,620 1,159,620 - --- --- 800,000 800,000 Lyon County, NV, School District, 6.750%. due 2011 Aaa/AAA --- --- 891,328 891,328 - --- --- 585,000 585,000 Washoe County, NV, General Obligation Bonds, Aaa/AAA --- --- 606,446 606,446 6.000%, due 2009 Total --- --- 4,017,161 4,017,161 NEW HAMPSHIRE--4.8% 9,000,000 --- --- --- New Hampshire Higher Educational & Health Facilities Authority, Hospital Revenue A-/NR 8,456,670 --- --- 8,456,670 Bonds, 6.00% (Nashua Memorial Hospital, NH)/(Original Issue Yield: 6.40%), 10/1/2023 - --- --- 1,080,000 1,080,000 New Hampshire Municipal Bond Bank, Series 91 J. Non- State Guaranteed, 6.900%, due 2012 NR/A+ --- --- 1,187,460 1,187,460 1,265,000 --- --- 1,265,000 New Hampshire State HFA, SFM Revenue A+/Aa 1,328,958 --- --- 1,328,958 Bonds (Series B), 7.75%, 7/1/2023 6,520,000 --- --- 6,520,000 New Hampshire State HFA, SFM Revenue A+/Aa 6,759,871 --- --- 6,759,871 Bonds (Series D), 7.25%, 7/1/2015 2,865,000 --- --- 2,865,000 New Hampshire State IDA, PCR Bonds ( BBB-/Baa3 3,040,710 --- --- 3,040,710 Series A), 8.00% (United Illuminating Co.), 12/1/2014 1,500,000 --- --- 1,500,000 New Hampshire State IDA, PCR Bonds BBB-/Baa3 1,617,465 --- --- 1,617,465 (Series B), 10.75% (United Illuminating Co.), 10/1/2012 - --- --- 900,000 900,000 State of New Hampshire Turnpike System Revenue Bonds, 8.375% Aaa/A --- --- 961,497 961,497 due 2017 Total 21,203,674 --- 2,148,957 23,352,631 NEW YORK--2.6% - --- --- 1,000,000 1,000,000 New York Metro Transit Authority, 5.100%, due 2004 Aaa/AAA --- --- 1,008,280 1,008,280 2,500,000 --- --- 2,500,000 New York State Energy Research & Development Authority, Electric AA-/Aa2 2,688,875 --- --- 2,688,875 Facilities Revenue Bonds (Series A), 7.50% (Consolidated Edison Co.)/(Original Issue Yield: 7.65%), 1/1/2026 5,000,000 --- --- 5,000,000 New York State Environmental Facilities Corp., Solid Waste Disposal BBB/Baa3 4,763,750 --- --- 4,763,750 Revenue Bonds, 6.10% (Occidental Petroleum Corp.)/(Original Issue Yield: 6.214%), 11/1/2030 - --- --- 2,900,000 2,900,000 New York State Environment Pollution Control Revenue Aa/A --- --- 3,221,755 3,221,755 Bonds, 7.250%, due 2010 - --- --- 1,000,000 1,000,000 New York State Local Government Assistance Corp., A/A --- --- 994,240 994,240 6.000%, due 2016 Total 7,452,625 --- 5,224,275 12,676,900 NORTH CAROLINA--1.7% 1,500,000 --- --- 1,500,000 Haywood County, NC, Industrial Facilties & Pollution Control Financing Authority, BBB/Baa1 1,372,530 --- --- 1,372,530 (Series A) Revenue Bonds, 5.75% (Champion International Corp.)/(Original Issue Yield: 5.975%), 12/1/2025 6,000,000 --- --- 6,000,000 Martin County, NC, IFA, (Series 1995) A/A2 5,886,000 --- --- 5,886,000 Solid Waste Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.), 11/1/2025 - --- --- 1,000,000 1,000,000 Wake County, NC, Ind. Facilities Pollution Control, Carolina Power and Light, 6.900%, due 2009 A2/A1 --- --- 1,070,020 1,070,020 Total 7,258,530 --- 1,070,020 8,328,550 NORTH DAKOTA--0.9% - --- --- 1,560,000 1,560,000 North Dakota Housing, Single Family Mortgage, 1992 Series A, 6.750%, due 2012 Aa/A+ --- --- 1,620,949 1,620,949 2,635,000 --- --- 2,635,000 North Dakota State HFA, SFM Revenue A+/Aa 2,726,171 --- --- 2,726,171 Bonds (Series C), 7.30%, 7/1/2024 Total 2,726,171 --- 1,620,949 4,347,120 OHIO--0.4% 500,000 --- --- --- Ohio State Water Development Authority, PCR Bonds BBB-/Baa3 530,100 --- --- 530,100 (Series A), 8.10% (Ohio Edison Co.)/(Original Issue Yield: 8.142%), 10/1/2023 1,250,000 --- --- 1,250,000 Ohio State Water Development Authority, PCR Bonds BB/Ba2 --- --- (Series A-1), 9.75% 1,293,500 1,293,500 (Cleveland Electric Illuminating Co.), 11/1/2022 Total 1,823,600 --- --- 1,823,600 OKLAHOMA--2.6% 4,585,000 --- --- 4,585,000 Jackson County, OK, Hospital Authority, Hospital Revenue BBB-/NR 4,415,768 --- --- 4,415,768 Refunding Bonds, 7.30% (Jackson County Memorial Hospital, OK)/(Original Issue Yield: 7.40%), 8/1/2015 1,250,000 --- --- 1,250,000 Tulsa, OK, Municipal Airport, Revenue BB+/Baa2 1,316,875 --- --- 1,316,875 Bonds, 7.375% (American Airlines), 12/1/2020 6,200,000 --- --- 6,200,000 Tulsa, OK, Municipal Airport, Revenue Bonds, 7.60% BB+/Baa2 6,611,990 --- --- 6,611,990 (American Airlines)/(Original Issue Yield: 7.931%), 12/1/2030 Total 12,344,633 --- --- 12,344,633 OREGON-0.1% - --- --- 500,000 500,000 Portland Oregon Sewer System, 6.050%, due 2009 A1/A+ --- --- 522,655 522,655 PENNSYLVANIA--11.3% 3,000,000 --- --- 3,000,000 Allegheny County, PA, HDA, Health & Education Revenue BBB/NR 3,061,110 --- --- 3,061,110 Bonds, 7.00% (Rehabilitation Institute of Pittsburgh)/(Original Issue Yield: 7.049%), 6/1/2010 2,500,000 --- --- 2,500,000 Allegheny County, PA, HDA, Health & Education Revenue BBB/NR 2,533,875 --- --- 2,533,875 Bonds, 7.00% (Rehabilitation Institute of Pittsburgh)/(Original Issue Yield: 7.132%), 6/1/2022 5,370,000 --- --- 5,370,000 Allegheny County, PA, Higher Education, NR 5,516,655 --- --- 5,516,655 Building Authority Revenue Bonds, 7.375% (La Roche College), 7/15/2012 1,690,000 --- --- 1,690,000 Allegheny County, PA, IDA, Revenue Bonds, NR 1,780,162 --- --- 1,780,162 8.75% (United Parcel Service), 2/15/2009 665,000 --- --- 665,000 Allegheny County, PA, Residential Finance Agency, Mortgage NR/Aaa 697,332 --- --- 697,332 Revenue Bonds (Series G), 9.50% (GNMA COL), 12/1/2018 3,000,000 --- --- 3,000,000 Delaware County Authority, PA, College Revenue NR 3,377,070 --- --- 3,377,070 Bonds, 7.25% (Eastern College)/(United States Treasury PRF)/(Original Issue Yield: 7.875%), 3/1/2012 2,055,000 --- --- 2,055,000 Erie County, PA, Hospital Authority, NR 2,112,951 --- --- 2,112,951 Revenue Bonds, 7.50% (Erie Infants & Youth Home , Inc.), 10/1/2011 - --- --- 400,000 400,000 Erie County, PA, Industrial Development Auth., Pollution Control Revenue Refunded Bonds, Series 1991, 7.150%, A3/A- --- --- 423,124 423,124 due 2013 1,730,000 --- --- 1,730,000 Northeastern, PA, Hospital & Education Authority, College BBB/NR 1,598,364 --- --- 1,598,364 Revenue Refunding Bonds (Series B), 6.00% (Kings College, PA)/(Original Issue Yield: 6.174%), 7/15/2018 10,000,000 --- --- 10,000,000 Pennsylvania EDFA, Wastewater Treatment Revenue Bonds (Series BBB-/Baa1 11,009,800 --- --- 11,009,800 A), 7.60% (Sun Co., Inc.)/(Original Issue Yield: 7.653%), 12/1/2024 6,000,000 --- --- 6,000,000 Pennsylvania Housing Finance Authority, AA/AA 6,242,460 --- --- 6,242,460 SFM Revenue Bonds (Series 34-B), 7.00% (FHA and FHA GTDs), 4/1/2024 2,660,000 --- --- 2,660,000 Pennsylvania Housing Finance Authority, AA/Aa 2,797,495 --- --- 2,797,495 SFM Revenue Bonds (Series28), 7.65% (FHA GTD), 10/1/2023 1,740,000 --- --- 1,740,000 Pennsylvania State Higher Education Facilities Authority, NR 1,801,022 --- --- 1,801,022 College & University Revenue Bonds, 6.75% (Thiel College ), 9/1/2017 3,250,000 --- --- 3,250,000 Pennsylvania State Higher Education Facilities Authority, College & University BBB+/NR 3,202,030 --- --- 3,202,030 Revenue Refunding Bonds (Series A), 6.10% (Allegheny College, Meadville, PA)/(Original Issue Yield: 6.23%), 11/1/2008 1,200,000 --- --- 1,200,000 Pennsylvania State Higher Education Facilities Authority, NR 1,205,952 --- --- 1,205,952 Revenue Bonds (Series 1996), 7.15% (Thiel College ), 5/15/2015 3,875,000 --- --- 3,875,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series AAA/NR 4,335,854 --- --- 4,335,854 A), 7.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/(Original Issue Yield: 7.45%), 3/1/2021 1,750,000 --- --- 1,750,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series BBB/Baa1 1,940,803 --- --- 1,940,803 A), 8.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/(Original Issue Yield: 8.448%), 3/1/2011 Total 53,212,935 --- 423,124 54,636,059 RHODE ISLAND-0.4% - --- --- 1,675,000 1,675,000 Rhode Island Depositors, Economic Protection Corp. Aaa/AAA --- --- 1,851,076 1,851,076 Bonds, 6.625%, due 2019 SOUTH CAROLINA--0.2% 810,000 --- --- 810,000 South Carolina State Housing Finance & Development AA/Aa 840,586 --- --- 840,586 Authority, Homeownership Mortgage Revenue Bonds (Series A), 7.40% (FHA GTD), 7/1/2023 SOUTH DAKOTA-0.5% - --- --- 1,400,000 1,400,000 South Dakota Housing Development, Multi- Famkily Housing Revenue Bonds, 6.700%, due 2020 A1/A+ --- --- 1,424,430 1,424,430 - --- --- 950,000 950,000 South Dakota State Building Authority Co-op, Series A, A1/A+ --- --- 977,332 977,332 7.500%, due 2016 Total --- --- 2,401,762 2,401,762 TENNESSEE--3.5% 2,475,000 --- --- 2,475,000 Memphis-Shelby County, TN, Airport BBB/Baa2 2,572,020 --- --- 2,572,020 Refunding Revenue Bonds, 6.75% (Federal Express Corp.), 9/1/2012 3,100,000 --- --- 3,100,000 Springfield, TN, Health & Educational Facilities Board, Hospital Revenue NR 3,266,036 --- --- 3,266,036 Bonds, 8.25% (Jesse Holman Jones Hospital Corp, TN)/(Original Issue Yield: 8.50%), 4/1/2012 7,800,000 --- --- 7,800,000 Springfield, TN, Health & Educational Facilities Board, Hospital Revenue NR 8,212,464 --- --- 8,212,464 Bonds, 8.50% (Jesse Holman Jones Hospital Corp, TN)/(Original Issue Yield: 8.875%), 4/1/2024 2,825,000 --- --- 2,825,000 Tennessee Housing Development Agency, Homeownership NR/Aa 2,936,362 --- --- 2,936,362 Program, Issue V Revenue Bonds, 7.65%, 7/1/2022 Total 16,986,882 --- --- 16,986,882 TEXAS--12.6% 2,500,000 --- --- 2,500,000 Brazos River Authority, TX, PCR BBB/Baa2 2,743,225 --- --- 2,743,225 Revenue Bonds (Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 1,800,000 --- --- 1,800,000 Brazos River Authority, TX, PCR BBB/Baa2 1,966,104 --- --- 1,966,104 Revenue Bonds (Series A), 8.125% (Texas Utilities Electric Co.), 2/1/2020 - --- --- 1,000,000 1,000,000 Brownsville, TX, Utility System Revenue, 6.875%, due 2020 Aaa/AAA 1,098,600 1,098,600 7,320,000 --- --- 7,320,000 Dallas-Fort Worth, TX, International Airport Facilities, BB/Ba3 7,564,781 --- --- 7,564,781 Revenue Bonds, 7.125% (Delta Air Lines, Inc.)/(Original Issue Yield: 7.55%), 11/1/2026 3,000,000 --- --- 3,000,000 Dallas-Fort Worth, TX, International Airport Facilities, BB+/Baa2 3,165,180 --- --- 3,165,180 Revenue Bonds, 7.25% (American Airlines)/(Original Issue Yield: 7.428%), 11/1/2030 2,370,000 --- --- 2,370,000 Dallas-Fort Worth, TX, International Airport Facilities, BB+/Baa2 2,507,105 --- --- 2,507,105 Revenue Bonds, 7.50% (American Airlines)/(Original Issue Yield: 8.20%), 11/1/2025 2,500,000 --- --- 2,500,000 Dallas-Fort Worth, TX, International Airport Facilities, BB/Ba3 2,673,000 --- --- 2,673,000 Revenue Bonds, 7.625% (Delta Air Lines, Inc.)/(Original Issue Yield: 7.65%), 11/1/2021 1,000,000 --- --- 1,000,000 Guadalupe-Blanco River Authority TX, Industrial NR 1,051,630 --- --- 1,051,630 Development Corp PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 2,500,000 --- --- 2,500,000 Guadalupe-Blanco River Authority TX, Industrial NR 2,683,200 --- --- 2,683,200 Development Corp., PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 5,000,000 --- --- 5,000,000 Gulf Coast, TX, Waste Disposal Authority, Revenue Bonds (Series BBB/Baa1 5,132,350 --- --- 5,132,350 A), 6.875% (Champion International Corp.)/(Original Issue Yield: 7.15%), 12/1/2028 20,000,000 --- --- 20,000,000 Houston, TX, Water & Sewer System, Junior Lien Refunding AAA/Aaa 18,365,800 --- --- 18,365,800 Revenue Bonds (Series A), 5.25% (FGIC INS)/(Original Issue Yield: 5.60%), 12/1/2025 - --- --- 1,545,000 1,545,000 Houston, TX, Water & Sewer Revenue Refunded Bonds, 6.400%, due A/A --- --- 1,625,618 1,625,618 2009 7,630,000 --- --- 7,630,000 Richardson, TX, Hospital Authority, Hospital Refunding & BBB-/Baa 7,613,824 --- --- 7,613,824 Improvement Bonds, 6.75% (Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 - --- --- 1,000,000 1,000,000 Texas Water Development Board Revenue, State Revolving Fund Bonds, Aa1/AAA --- --- 1,071,120 1,071,120 6.400%, due 2007 1,700,000 --- --- 1,700,000 Tyler, TX, Health Facilities Development Corp., NR/Baa 1,696,124 --- --- 1,696,124 Revenue Bonds, 6.75% (East Texas Medical Center)/(Original Issue Yield: 7.00%), 11/1/2025 Total 57,162,323 --- 3,795,338 60,957,661 UTAH--5.0% - --- --- 1,000,000 1,000,000 Intermountain Power Agency Utah Power Aa/AA- --- --- 985,100 985,100 Supply, 6.000%, due 2016 20,000,000 --- --- 20,000,000 Intermountain Power Agency, UT, Refunding Revenue Bonds (Series AA-/Aa 17,240,200 --- --- 17,240,200 A), 5.00% (Original Issue Yield: 5.687%), 7/1/2023 980,000 --- --- 980,000 Utah State HFA, SFM Revenue Bonds (Series AA/NR 1,013,722 --- --- 1,013,722 B-3), 7.10%, 7/1/2024 1,445,000 --- --- 1,445,000 Utah State HFA, SFM Revenue Bonds (Series AA/NR 1,498,942 --- --- 1,498,942 E-2), 7.15% (FHA GTD)/(Original Issue Yield: 7.169%), 7/1/2024 1,860,000 --- --- 1,860,000 Utah State HFA, Single Family AA/NR 1,950,619 --- --- 1,950,619 Mortgage Revenue Bonds, 7.55% (FHA GTD), 7/1/2023 455,000 --- --- 455,000 Utah State HFA, Single Family AA/NR 477,532 --- --- 477,532 Mortgage Revenue Bonds, 7.75% (FHA GTD), 1/1/2023 - --- --- 1,000,000 1,000,000 Utah State Municipal Finance Co-op, Government Revenue Bonds, 6.400%, due 2009 A/A --- --- 1,018,130 1,018,130 Total 22,181,015 --- 2,003,230 24,184,245 VIRGINIA-0.1% - --- --- 135,000 135,000 Virginia Housing Authority, Residential Mortgage Revenue Bonds, Series B, 7.550%, due 2012 Aa/AAA --- --- 136,096 136,096 - --- --- 500,000 500,000 Virginia Housing Development Authority, Series C 1992, Aa1/AA+ --- --- 522,140 522,140 6.500%, due 2007 Total --- --- 658,236 658,236 WASHINGTON--4.9% 4,250,000 --- --- 4,250,000 Pierce County, WA, Economic Development Corp., Solid Waste BBB/Baa2 3,803,070 --- --- 3,803,070 Revenue Bond, 5.80% (Occidental Petroleum Corp.)/(Original Issue Yield: 5.90%), 9/1/2029 4,075,000 --- --- 4,075,000 Pilchuck Development Public Corp., WA, Special Facilities BBB+/Baa1 3,837,957 --- --- 3,837,957 Airport Revenue Bonds ( Series 1993) , Tramco, Inc. Project, 6.00% (Goodrich (B.F.) Co.), 8/1/2023 4,300,000 --- --- 4,300,000 Port of Camas- Washougal, WA, PCR Refunding Bonds BBB+/NR 4,323,306 --- --- 4,323,306 (Series 1993), 6.70% (James River Project, WA)/(Original Issue Yield: 6.75%), 4/1/2023 - --- --- 1,000,000 1,000,000 Skagit County, WA, Cons. School District, 6.700%, due Aaa/AAA --- --- 1,118,290 1,118,290 2007 - --- --- 1,500,000 1,500,000 Washington State Municipal Finance Co- op, Government Revenue Aa/AA --- --- 1,465,380 1,465,380 Bonds, 5.600%, due 2007 10,000,000 --- --- 10,000,000 Washington State, UT, GO (Series A), 5.375% AAA/Aa 9,313,100 --- --- 9,313,100 (Original Issue Yield: 6.00%), 7/1/2021 Total 21,277,433 --- 2,583,670 23,861,103 WEST VIRGINIA--0.5% 5,000,000 --- --- 5,000,000 Marion County, WV, County Commission, Solid Waste Facility NR 2,429,200 --- --- 2,429,200 Revenue Bonds (Series 1993), 7.75% (American Power Paper Recycling), 12/1/2011 WISCONSIN--0.4% - --- --- 985,000 985,000 Wisconsin Housing and Economic Development Authority, Series A, 7.100%, due 2023 Aa/AA --- --- 1,030,526 1,030,526 - --- --- 550,000 550,000 Wisconsin Housing and Economic Development Authority, 6.000%, due 2015 Aa/AA --- --- 542,647 542,647 565,000 --- --- 565,000 Wisconsin Housing & Economic Development Authority, A+/Aa 579,681 --- 579,681 Homeownership Revenue Bonds (Series E), 8.00% (FHA GTD)/(Original Issue Yield: 8.044%), 3/1/2021 Total 579,681 --- 1,573,173 2,152,854 WYOMING-0.5% - --- --- 2,150,000 2,150,000 Sweetwater County, WY, PCR for Idaho Power, 7.625%, due A3/A --- --- 2,222,218 2,222,218 2013 TOTAL MUNICIPAL $376,220,136 18,201,777 77,342,923 471,764,836 BONDS (IDENTIFIED COST $471,438,409) SHORT-TERM SECURITIES ( 0.6%) - --- --- 1,150,000 1,150,000 American Express Credit Corp., 5.280%, due 09/03/1996 --- --- 1,150,000 1,150,000 - --- --- 950,000 950,000 Ford Motor Credit Corp., 5.230%, due 09/04/1996 --- --- 949,862 949,862 - --- 820,000 --- 820,000 Ford Motor Credit --- 820,000 --- 820,000 Corp., 5.160%, due 09/03/1996 TOTAL SHORT-TERM --- 820,000 2,099,862 2,919,862 SECURITIES, AT AMORTIZED COST TOTAL INVESTMENTS $376,220,136 $19,021 $79,442,785 $474,684,698 (IDENTIFIED COST ,777 $474,358,271)(A)
* Please refer to the Appendix of the Federated Municipal Opportunities Fund, Inc. Prospectus as of September 1, 1996 for an explanation of the credit ratings. (a) The cost of investments for federal tax purposes amounts to $474,358,271. The net unrealized appreciation of investments on a federal tax basis amounts to $326,427 which is comprised of $16,464,732 appreciation and $16,138,305 depreciation at August 31, 1996. Note: The categories of investments are shown as a percentage of net assets ($ 482,861,043) at August 31, 1996. The following acronym(s) are used throughout this portfolio: COL --Collateralized EDFA --Economic Development Financing Authority FGIC --Financial Guaranty Insurance Company FHA --Federal Housing Administration GNMA --Government National Mortgage Association GO --General Obligation GTD --Guaranteed HDA --Hospital Development Authority HFA --Housing Finance Authority IDA --Industrial Development Authority IDB --Industrial Development Bond IFA --Industrial Finance Authority INS --Insured LT --Limited Tax MBIA --Municipal Bond Investors Assurance PCA --Pollution Control Authority PCR --Pollution Control Revenue PRF --Prerefunded SFM --Single Family Mortgage UT --Unlimited Tax VRDNs --Variable Rate Demand Notes (See Notes to Pro Forma Financial Statements)
Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) State Bond Minnesota Tax-Free Income Fund State Bond Tax Exempt Fund Pro Forma Combining Statement of Assets and Liabilities August 31, 1996 (unaudited) Federated State Bond State Municipal Minnesota Bond Opportunities Tax-Free Tax Exempt Pro Forma Pro Forma Fund, Inc. Income Fund Adjustment Combined Fund Assets: Investments in $376,220,136 $ 19,021,777 $ 79,442,785 $ --- $ 474,684,698 securities, at value Cash 32,391 24,959 15,433 --- 72,783 Income receivable 6,897,754 261,034 1,299,429 --- 8,458,217 Receivable due from --- 6,206 1,827 8,033 affiliates Receivable for shares 273,742 --- --- --- 273,742 sold Total assets 383,424,023 19,313,976 80,759,474 --- 483,497,473 Liabilities: Income distributions 942 87,407 69,481 --- 157,830 payable Payable for shares 270,076 --- --- --- 270,076 redeemed Accrued expenses 123,827 17,663 67,036 --- 208,526 Total liabilities 394,845 105,070 136,517 --- 636,432 Total Net Assets $383,029,178 $ 19,208,906 $ 80,622,957 $ --- $ 482,861,041 Net Assets Consists of: Paid in capital $396,775,582 $ 18,694,128 $ 77,104,625 $ --- $ 492,574,335 Net unrealized (3,518,145) 468,398 3,360,390 --- 310,643 appreciation (depreciation) of investments Accumulated net realized (11,001,821) 46,380 157,942 --- (10,797,499) gain (loss) on investments Undistributed net 773,562 --- --- --- 773,562 investment income Total Net Assets $383,029,178 $ 19,208,906 $ 80,622,957 $ --- $ 482,861,041 Class A Shares $296 $ 19,208,906 $ 80,622,957 $ --- $ 99,832,159 Class B Shares $296 $ --- $ --- $ --- $ 296 Class C Shares $296 $ --- $ --- $ --- $ 296 Class F Shares $383,028,290 $ --- $ --- $ --- $ 383,028,290 Shares Outstanding: Class A Shares 28.662 1,820,401 7,474,279 371,820.649 (a) 9,666,529.311 Class B Shares 28.662 --- --- --- 28.662 Class C Shares 28.662 --- --- --- 28.662 Class F Shares 37,075,241.000 --- --- --- 37,075,241.000 Total Shares Outstanding 37,075,326.986 1,820,401 7,474,279 371,820.649 46,741,827.635 Net Asset Value, Offering Price, and Redemption Proceeds Per Share: Class A Shares: Net Asset Value Per Share $10.33 $ 10.55 $ 10.79 $ --- $ 10.33 Offering Price Per Share $10.82* 11.05** $ 11.30** $ --- $ 10.82* $ Redemption Proceeds Per $10.33 $ 10.55 $ 10.79 $ --- $ 10.33 Share Class B Shares: Net Asset Value Per Share $10.33 $ --- $ --- $ --- $ 10.33 Offering Price Per Share $10.33 $ --- $ --- $ --- $ 10.33 Redemption Proceeds Per $9.76 $ --- $ --- $ --- $ 9.76 Share *** Class C Shares: Net Asset Value Per Share $10.33 $ --- $ --- $ --- $ 10.33 Offering Price Per Share $10.33 $ --- $ --- $ --- $ 10.33 Redemption Proceeds Per $10.23 $ --- $ --- $ --- $ 10.23 Share *** Class F Shares: Net Asset Value Per Share $10.33 $ --- $ --- $ --- $ 10.33 Offering Price Per Share $10.43 $ --- $ --- $ --- $ 10.43 * Redemption Proceeds Per $10.23 $ --- $ --- $ --- $ 10.23 Share *** Investments, at $379,738,281 $ 18,548,504 $ 76,071,486 $ --- $ 474,358,271 identified cost
(a) Adjustment to reflect share balance as a result of the combination, based on the exchange ratios of 1.02172889271 for State Bond Minnesota Tax-Free Income Fund and 1.04445450212 for State Bond Tax Exempt Fund. * See ``What Shares Cost'' in the Federated Municipal Opportunities Fund, Inc. Prospectus as of September 1, 1996. ** See ``How Are The Fund's Sales Charges Determined'' in the State Bond Minnesota Tax-Free Income Fund and State Bond Tax-Exempt Prospectuses each dated as of November 1, 1995. *** See ``Contingent Deferred Sales Charge'' in the Federated Municipal Opportunities Fund, Inc. Prospectus as of September 1, 1996. (See Notes to Pro Forma Financial Statements) Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) State Bond Minnesota Tax-Free Income Fund State Bond Tax Exempt Fund Pro Forma Combining Statement of Operations Year Ended August 31, 1996 (unaudited)
Federated State State Bond Municipal Minnesota Bond Opportunities Tax-Free Tax Exempt Pro Forma Pro Forma Fund, Inc. Income Fund(a) Adjustment Combined Fund(a) INVESTMENT INCOME: Interest 28,818,178 $1,135,500 $ 5,041,950 $--- $ 34,995,628 EXPENSES: Investment advisory fee 2,475,132 113,090 407,880 81,718 (a) 3,077,820 Administrative personnel 311,976 --- --- 75,829 (b) 387,805 and services fee Transfer agent and 235,048 7,625 31,461 (3,616) (c) 270,518 dividend disbursing agent fees and expenses Accounting and custodian 175,732 18,684 30,415 (20,978) (d) 203,853 fees Professional Fees 21,106 16,868 20,498 (37,366) (e) 21,106 Distribution services --- 47,121 204,057 (251,178) (f) --- fee- Class A Shares Shareholder services fee- 1,031,305 --- --- 251,178 (f) 1,282,483 Class F Shares Printing and postage 75,552 8,069 18,150 (16,771) (g) 85,000 Other expenses 155,218 9,666 23,952 (24,815) (h) 164,021 Total expenses 4,481,069 221,123 736,413 54,001 5,492,606 Waivers- Waiver of investment --- (32,639) --- 32,639 (i) --- advisory fee Waiver of shareholder (41,252) --- --- --- (41,252) services fee- Class F Shares Total waivers (41,252) (32,639) --- 32,639 (41,252) Net expenses 4,439,817 188,484 736,413 86,640 5,451,354 Net investment 24,378,361 947,016 4,305,537 (86,640) 29,544,274 income REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain on (116,813) 53,432 40,206 --- (23,175) investments Net change in unrealized (13,721,871) (128,527) 64,146 --- (13,786,252) appreciation (depreciation) of investments Net realized and (13,838,684) (75,095) 104,352 --- (13,809,427) unrealized gain (loss) on investments Change in net assets 10,539,677 $871,921 $ 4,409,889 $(86,640) $ 15,734,847 resulting from operations
* Represents the fiscal year ended June 30, 1996. (See Notes to the Pro Forma Combining Statement of Operations) (See Notes to Pro Forma Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) d STATE BOND MINNESOTA TAX-FREE INCOME FUND STATE BOND TAX EXEMPT FUND PRO FORMA COMBINING STATEMENT OF OPERATIONS NOTES YEAR ENDED AUGUST 31, 1996 (UNAUDITED) (a) Federated Advisers (the `Adviser'') receives for its services an annual investment advisory fee equal to 0.60% of the Federated Municipal Opportunities Fund Inc.'s (the ``Federated Fund'') average daily net assets. The adviser may voluntarily choose to waive a portion of its fee. ARM Capital Advisors, Inc. charged 0.60% and 0.50%, respectively, of State Bond Minnesota Tax-Free Income Fund's and State Bond Tax-Exempt Fund's average daily net assets for its advisory fee. (b) Federated Administrative Services (`FAS'') provides the Federated Fund with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the fund for the period. (c) Federated Services Company serves as transfer and dividend disbursing agent for the Federated Fund. The fee is based on the size, type, and number of accounts and transactions made by shareholders. (d) Fees reflect custodian costs for the Federated Fund paid to State Street Bank and Trust Company. The custodian fee is based on a percentage of assets, plus out-of-pocket expenses. Federated Services Company maintains the Federated Fund's accounting records. The fee is based on the level of the Federated Fund's average net assets for the period, plus out- of-pocket expenses. (e) Adjustment to reflect the audit fee and legal fee reductions due to the combining of two portfolios into one. (f) Under the terms of a Shareholder Services Agreement with Federated Shareholder Services (`FSS'') the Federated Fund will pay FSS up to 0.25% of average daily net assets of the Federated Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. SBM Financial Services, Inc. received 0.25% of the average daily net assets of State Bond Minnesota Tax-Free Income Fund and State Bond Tax-Exempt Fund, respectively, under the terms of a distribution plan pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended, to finance activities intended to result in the sale of State Bond Minnesota Tax-Free Income Fund's and State Bond Tax-Exempt Fund's shares and to provide certain services for shareholders and to maintain shareholder accounts. Class A Shares of the Federated Fund do not have a distribution plan. (g) Adjustment to reflect printing and postage expenses are adjusted to reflect estimated savings to be realized by combining three portfolios into a single portfolio. (h) Adjustment reflects the elimination of the Directors/Trustees fees for State Bond Minnesota Tax-Free Income Fund and State Bond Tax-Exempt Fund, the state registration costs for the Federated Fund only, and the decrease in insurance fees due to the reduction in coverage requirement of one portfolio only. (i) The expenses accrued on the Federated Fund are sufficient to cover all expenses. Therefore, no reimbursement is necessary. Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) State Bond Minnesota Tax-Free Income Fund State Bond Tax Exempt Fund Notes to Pro Forma Financial Statements (unaudited) 1. Basis of Combination The accompanying unaudited Pro Forma Combining Portfolio of Investments, Statement of Assets and Liabilities reflect the accounts of Federated Municipal Opportunities Fund, Inc. , State Bond Minnesota Tax-Free Income Fund, and State Bond Tax Exempt Fund, collectively (`the Funds''), for the year ended August 31, 1996. These statements have been derived from the books and records utilized in calculating daily net asset values at August 31, 1996. The accompanying unaudited Pro Forma Combining Statement of Operations reflects the accounts of the Funds, for the years ended August 31, 1996, June 30, 1996, and June 30, 1996, respectively, the most recent fiscal year ends of the Funds. The Pro Forma Combining Portfolio of Investments, Statement of Assets and Liabilities, and Statement of Operations (`Pro Forma Financial Statements') should be read in conjunction with the historical financial statements of the Funds which have been incorporated by reference in the Statement of Additional Information. The Funds follow generally accepted accounting principles applicable to management investment companies which are disclosed in the historical financial statements of each fund. The Pro Forma Financial Statements give effect to the proposed transfer of the assets of State Bond Minnesota Tax-Free Income Fund, and State Bond Tax Exempt Fund in exchange for Class A Shares of Federated Municipal Opportunities Fund, Inc. Under generally accepted accounting principles, Federated Municipal Opportunities Fund, Inc. will be the surviving entity for accounting purposes with its historical cost of investment securities and results of operations being carried forward. The Pro Forma Financial Statements have been adjusted to reflect the anticipated advisory and administration fee arrangements for the surviving entity. Certain other operating costs have also been adjusted to reflect anticipated expenses of the combined entity. Other costs which may change as a result of the reorganization are currently undeterminable. For the fiscal years ended August 31, 1996, June 30, 1996, and June 30, 1996, respectively, the Funds paid investment advisory fees computed at the annual rate of each fund's average net assets as follows: FUND PERCENT OF EACH FUND'S AVERAGE NET ASSETS Federated Municipal Opportunities Fund, Inc 0.60% State Bond Minnesota Tax-Free Income Fund 0.43%* State Bond Tax Exempt Fund 0.50% The advisor may voluntarily choose to waive a portion of their fees and reimburse certain operating expenses of the Funds. *The advisory fee of the State Bond Fund is net of expense reimbursements. Without such reimbursements, the advisory fee would have been 0.60%. 2. Shares of Beneficial Interest The Pro Forma net asset value per share assumes the issuance of 9,666,500.649 shares of the Federated Municipal Opportunities Fund, Inc.'s Class A Shares in exchange for 1,820,401 and 7,474,279 shares from State Bond Minnesota Tax-Free Income Fund, and State Bond Tax Exempt Fund, respectively, which would have been issued at August 31, 1996, in connection with the proposed reorganization. STATE BOND MINNESOTA TAX-FREE INCOME FUND, a Portfolio of STATE BOND TAX-FREE INCOME FUNDS, INC., SPECIAL MEETING OF SHAREHOLDERS December , 1996 == STATE BOND MINNESOTA TAX-FREE INCOME FUND, a Portfolio of STATE BOND TAX-FREE INCOME FUNDS, INC. CUSIP NO. 85657M108 The undersigned shareholder(s) of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc. (the `State Bond Fund'), hereby appoint(s) Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of them true and lawful proxies, with power of substitution of each, to vote all shares of the State Bond Fund which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on December , 1996, at 100 North Minnesota Street, New Ulm, -- Minnesota 56073-0069, at 4:30 p.m. (local time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The proxies named will vote the shares represented by this proxy in accordance with the choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PROPOSAL TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE STATE BOND FUND AND FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS X KEEP THIS PORTION FOR YOUR RECORDS. DETACH AND RETURN THIS PORTION ONLY. STATE BOND MINNESOTA TAX-FREE INCOME FUND, a portfolio of State Bond Tax-Free Income Funds, Inc. RECORD DATE SHARES: ----------------- VOTE ON THE PROPOSAL FOR AGAINST ABSTAIN Please sign EXACTLY as your name(s) appear(s) above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. - ----------------------------------- Signature(s) of Shareholder(s) Date: --------------------------------- PART C - OTHER INFORMATION Item 15. Indemnification Indemnification is provided to directors and officers of the Registrant pursuant to the Registrant's Articles of Incorporation, except where such indemnification is not permitted by law. However, the Articles of Incorporation do not protect the directors or officers from liability based on willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office. Directors and officers of the Registrant are insured against certain liabilities, including liabilities arising under the Securities Act of 1933 (the "Act"). Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers, and controlling persons of the Registrant by the Registrant pursuant to the Articles of Incorporation or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by directors, officers, or controlling persons of the Registrant in connection with the successful defense of any act, suit, or proceeding) is asserted by such directors, officers, or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Insofar as indemnification for liabilities may be permitted pursuant to Section 17 of the Investment Company Act of 1940 for directors, officers, or controlling persons of the Registrant by the Registrant pursuant to the Articles of Incorporation or otherwise, the Registrant is aware of the position of the Securities and Exchange Commission as set forth in Investment Company Act Release No. IC-11330. Therefore, the Registrant undertakes that in addition to complying with the applicable provisions of the Articles of Incorporation or otherwise, in the absence of a final decision on the merits by a court or other body before which the proceeding was brought, that an indemnification payment will not be made unless in the absence of such a decision, a reasonable determination based upon factual review has been made (i) by a majority vote of a quorum of non-party directors who are not interested persons of the Registrant or (ii) by independent legal counsel in a written opinion that the indemnitee was not liable for an act of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties. The Registrant further undertakes that advancement of expenses incurred in the defense of a proceeding (upon undertaking for repayment unless it is ultimately determined that indemnification is appropriate) against an officer, director, or controlling person of the Registrant will not be made absent the fulfillment of at least one of the following conditions: (i) the indemnitee provides security for his undertaking; (ii) the Registrant is insured against losses arising by reason of any lawful advances; or (iii) a majority of a quorum of disinterested non-party directors or independent legal counsel in a written opinion makes a factual determination that there is reason to believe the indemnitee will be entitled to indemnification. Item 16. Exhibits 1.1 Conformed Copy of Articles of Incorporation of the Registrant, as restated* 2.1 Bylaws of the Registrant, as amended* 3 Not Applicable 4 Agreement and Plan of Reorganization dated September 23, 1996, between State Bond Tax-Free Income Funds, Inc., a Maryland corporation, on behalf of its portfolio, State Bond Minnesota Tax-Free Income Fund, and Federated Municipal Opportunities Fund, Inc., a Maryland corporation* 5 Copy of Specimen Certificate for Shares of Capital Stock of the Registrant(1) 6.1 Conformed Copy of Investment Advisory Contract of the Registrant(2) 7.1 Conformed Copy of Distributor's Contract of the Registrant(3) 7.2 Form of Exhibits A through D to the Distributor's Contract of the Registrant(3) 7.3 The Registrant hereby incorporates the conformed copy of the specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust Series II Registration Statement on Form N-1A, filed with the Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269) 8 Not Applicable 9 Conformed Copy of Custodian Agreement of the Registrant(4) 10.1 Conformed Copy of Distribution Plan of the Registrant, as amended(5) 10.2 The Registrant hereby incorporates the conformed copy of the specimen Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc. Registration Statement on Form N-1A, filed with the Commission on January 26, 1996. (File Nos. 33-52149 and 811-07141) 10.3 The responses described in Item 16 (7.3) are hereby incorporated by reference 11 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors regarding legality of shares being issued* 12 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax consequences of Reorganization(6) 13.1 Conformed Copy of Agreement for Fund Accounting Services, Administrative Services, Shareholder Recordkeeping Services and Custody Services Procurement(3) 13.2 Conformed Copy of Shareholder Services Agreement(7) 13.3 The responses described in Item 16 (7.3) and Item 16 (10.2) are hereby incorporated by reference 14.1 Conformed Copy of Consent of Independent Auditors of Federated Municipal Opportunities Fund, Inc., Deloitte & Touche LLP* 14.2 Conformed Copy of Consent of Independent Auditors of State Bond Minnesota Tax-Free Income Fund, Ernst & Young LLP* 15 Not Applicable 16 Conformed Copy of Power of Attorney* 17.1 Declaration under Rule 24f-2* 17.2 Form of Proxy of State Bond Minnesota Tax-Free Income Fund* * Filed electronically. (1) Response is incorporated by reference to Registrant's Initial Registration Amendment No. 1 filed on January 21, 1987. (File Nos. 33-11410 and 811-4533) (2) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 4 on Form N-1A filed August 25, 1989. (File Nos. 33-11410 and 811-4533) (3) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 13 on Form N-1A filed on May 3, 1996. (File Nos. 33-11410 and 811-4533) (4) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 12 on Form N-1A filed October 25, 1995. (File Nos. 33-11410 and 811-4533) (5) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 5 on Form N-1A filed October 25, 1989. (File Nos. 33-11410 and 811-4533) (6) To be filed by Post-Effective Amendment pursuant to `Dear Registrant'' letter dated February 15, 1996. (7) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 10 on Form N-1A filed October 26, 1994. (File Nos. 33-11410 and 811-4533) Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Federated Municipal Opportunities Fund, Inc., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on October 10, 1996. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (Registrant) By: * Richard B. Fisher President SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on October 10, 1996: * Chairman and Director John F. Donahue (Chief Executive Officer) * President and Director Richard B. Fisher * Executive Vice President and Treasurer John W. McGonigle (Principal Financial and Accounting Officer) * Director Thomas G. Bigley * Director John T. Conroy, Jr. * Director William J. Copeland * Director James E. Dowd * Director Lawrence D. Ellis, M.D. * Director Edward L. Flaherty, Jr. * Director Peter E. Madden * Director Gregor F. Meyer * Director John E. Murray, Jr., J.D., S.J.D. * Director Wesley W. Posvar * Director Marjorie P. Smuts 1* By: /s/ S. Elliott Cohan Attorney in Fact EX-99.LEGLTYSHRSOPIN 2 EXHIBIT 11 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 October 11, 1996 The Directors of Federated Municipal Opportunities Fund , Inc. Federated Investors Tower Pittsburgh, PA 15222-3779 Gentlemen: Federated Municipal Opportunities Fund, Inc. (the `Fund''), a Maryland Corporation, proposes to issue shares of capital stock (such shares of capital stock being herein referred to as `Shares'') in connection with the acquisition of the assets of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc., a Maryland corporation, pursuant to the Agreement and Plan of Reorganization dated as of September 23, 1996 (`Agreement''), filed as an exhibit to the registration statement of the Fund filed on Form N-14 (Securities Act of 1933 No. to be assigned) under the Securities Act of 1933 as amended (`N- 14 Registration'). As counsel I have participated in the organization of the Fund, its registration under the Investment Company Act of 1940, the registration of its securities on Form N-1A under the Securities Act of 1933 and its N-14 Registration. I have examined and am familiar with the written Articles of Incorporation dated December 2, 1986 (`Articles of Incorporation''), the Bylaws of the Fund, the Agreement and such other documents and records The Directors of Federated Municipal Opportunities Fund, Inc. October 11, 1996 Page 2 deemed relevant. I have also reviewed questions of law and consulted with counsel thereon as deemed necessary or appropriate for the purposes of this opinion. Based upon the foregoing, it is my opinion that: 1. The Fund is duly organized and validly existing pursuant to the Articles of Incorporation. 2. The Shares which are currently being registered by the N-14 Registration may be legally and validly issued in accordance with the provisions of the Agreement and the Articles of Incorporation upon receipt of consideration sufficient to comply with the provisions of Article Fifth, Section (a), of the Articles of Incorporation and subject to compliance with the Investment Company Act of 1940, as amended, and applicable state laws regulating the sale of securities. Such Shares, when so issued, will be fully paid and non-assessable. I consent to your filing this opinion as an exhibit to the N-14 Registration referred to above and to any application or registration statement filed under the securities laws of any of the states of the United States. Very truly yours, The Directors of Federated Municipal Opportunities Fund, Inc. October 11, 1996 Page 2 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. By:/s/ S. Elliott Cohan S. Elliott Cohan Title: Assistant Secretary EX-99.AUDITORCONSNT 3 Exhibit 14.1 INDEPENDENT AUDITORS' CONSENT To the Board of Directors and Shareholders of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.: We consent to the incorporation by reference in this Registration Statement on Form N-14 of Federated Municipal Opportunities Fund, Inc.(formerly, Fortress Municipal Income Fund, Inc.) of our report dated October 13, 1995, appearing in the Annual Report of Fortress Municipal Income Fund, Inc. for the year ended August 31, 1995, and incorporated in the Prospectus and Statement of Additional Information dated September 1, 1996, and to the reference to us within this registration statement. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania October 10, 1996 EX-99.AUDITORCONSNT 4 Exhibit 14.2 CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions `Financial Highlights''and ``Independent Auditors'' and the use of our report dated August 9, 1996, on the financial statements of State Bond Minnesota Tax- Free Income Fund (the Fund) in the Registration Statement (Form N-1A) of the Fund which is incorporated by reference in, and reference to our firm in Exhibit A of, the Registration Statement (Form N-14) of Federated Municipal Opportunities Fund, Inc. filed with the Securities and Exchange Commission. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Kansas City, Missouri October 10, 1996 EX-99.POWEROFATTY 5 EXHIBIT 16 POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints the Secretary and Assistant Secretary of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. and the Deputy General Counsel of Federated Investors, and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for them and in their names, place and stead, in any and all capacities, to sign any and all documents to be filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means of the Securities and Exchange Commission's electronic disclosure system known as EDGAR; and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to sign and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. SIGNATURES TITLE DATE /s/John F. Donahue Chairman and Director September 30, 1996 John F. Donahue (Chief Executive Officer) /s/Richard B. Fisher President September 30, 1996 Richard B. Fisher and Director /s/John W. McGonigle Treasurer and September 30, 1996 John W. McGonigle Executive Vice President (Principal Financial and Accounting Officer) /s/Thomas G. Bigley Director September 30, 1996 Thomas G. Bigley /s/John T. Conroy, Jr. Director September 30, 1996 John T. Conroy, Jr. /s/William J. Copeland Director September 30, 1996 /s/James E. Dowd Director September 30, 1996 James E. Dowd SIGNATURES TITLE DATE /s/Lawrence D. Ellis, M.D. Director September 30, 1996 Lawrence D. Ellis, M.D. /s/Edward L. Flaherty, Jr. Director September 30, 1996 Edward L. Flaherty, Jr. /s/Peter E. Madden Director September 30, 1996 Peter E. Madden /s/Gregor F. Meyer Director September 30, 1996 Gregor F. Meyer /s/John E. Murray, Jr. Director September 30, 1996 John E. Murray, Jr. /s/Wesley W. Posvar Director September 30, 1996 Wesley W. Posvar /s/Marjorie P. Smuts Director September 30, 1996 Marjorie P. Smuts Sworn to and subscribed before me this 30th day of September, 1996 /s/Jody L.Petras Notarial Seal Jody L. Petras, Notary Public Pittsburgh, Allegheny County My Commission Expires Sept. 27, 1999 Member, Pennsylvania Association of Notaries EX-99.PRIOR24F-2 6 EXHIBIT 17.1 Rule 24f-2 Notice FORTRESS MUNICIPAL INCOME FUND, INC. (Fund Name) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 1933 Act No. 33-11410 (i) fiscal period for which notice is filed August 31, 1995 (ii) The number or amount of securities of the same class or series, if any, which had been registered under the Securities Act of 1933, other than pursuant to Rule 24f-2 but which remained unsold at September 1, 1994, the beginning of the Registrant's fiscal period -0- (iii) The number or amount of securities, if any, registered during the fiscal period of this notice other than pursuant to Rule 24f-2 -0- -0- (iv) The number or amount of securities sold during the fiscal period of this notice 3,617,186 (v) The number or amount or securities sold during the fiscal period of this notice in reliance upon registration pursuant to Rule 24f-2 (see attached Computation of Fee) 3,617,186 WITNESS the due execution hereof this 16th day of October, 1995. By: /s/Charles H. Field Charles H. Field Assistant Secretary COMPUTATION OF FEE 1. Actual aggregate sale price of Registrant's securities sold pursuant to Rule 24f-2 during the fiscal period for which the 24f-2 notice is filed (see Section v) $37,440,198 2. Reduced by the difference between: (a) actual aggregate redemption price of such securities redeemed by the issuer during the fiscal period for which the 24f-2 notice is filed $99,595,322 (b) actual aggregate redemption price of such redeemed securities previously applied by the issuer pursuant to Section 24(e)(2)(a) for the fiscal period for which the 24f-2 notice is filed -0- $99,595,322 Total amount upon which the fee calculation specified in Section 6(b) of the Securities Act of 1933 is based $(62,155,124) FEE SUBMITTED (1/20 of 1% of Total amount) $ -0- CONVERSION OF NET REDEMPTIONS OF RULE 24f-2 NOTICE TO FILING UNDER RULE 24e-2 When a negative amount appears on the line captioned `Total amount upon which the fee calculated specified in Section 6(b) of the Securities Act of 1933 is based', the following calculation should be made to determined the share information needed to file under Rule 24e-2: Total redemptions (per annual report) 9,728,597 Less: Line (v) - Rule 24f-2 Notice 3,617,186 Shares available to register under Rule 24f-2 6,111,411(a) Fund's Current Net Asset Value $ 10.83(b) Multiply: Shares available to register under Rule 24e-2 by the fund's current net asset value (a x b) to obtain Proposed Maximum Aggregate Offering Price $66,186,581 FEDERATED ADMINISTRATIVE SERVICES FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 412-288-1900 October 16, 1995 Fortress Municipal Income Fund, Inc. Federated Investors Tower Pittsburgh, PA 15222-3779 Gentlemen: You have requested my opinion for use in conjunction with a Rule 24f-2 Notice for Fortress Municipal Income Fund, Inc. (`Corporation'') to be filed in respect of shares of the Corporation (`Shares'') sold for the fiscal year ended August 30, 1995, pursuant to the Corporation's registration statement filed with the Securities and Exchange Commission (the `SEC'') under the Securities Act of 1933 (File No. 33-11410) (`Registration Statement''). In its Registration Statement, the Corporation elected to register an indefinite number of shares pursuant to the provisions of Investment Company Act Rule 24f-2. As counsel, I have participated in the preparation and filing of the Corporation's amended Registration Statement under the Securities Act of 1933. Further, I have examined and am familiar with the provisions of the Articles of Incorporation dated December 2, 1986, the Bylaws of the Trust and such other documents and records deemed relevant. I have also reviewed questions of law and consulted with counsel thereon as deemed necessary or appropriate by me for the purposes of this opinion. On the basis of the foregoing, it is my opinion the Shares sold for the fiscal year ended August 30, 1995, registration of which the Rule 24f-2 Notice makes definite in number, were legally issued, fully paid and non- assessable by the Corporation. I hereby consent to the filing of this opinion as an exhibit to the Rule 24f-2 Notice referred to above, the Registration Statement of the Corporation and to any application or registration statement filed under the securities laws of any of the States of the United States. The foregoing opinion is limited to the Federal laws of the United States and the laws of the State of Maryland, and I am expressing no opinion as to the effect of the laws of any other jurisdiction. Very truly yours, Charles H. Field Fund Attorney FORTRESS MUNICIPAL INCOME FUND, INC. Federated Investors Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 October 16, 1995 EDGAR Operations Branch Securities and Exchange Commission Division of Investment Management 450 Fifth Street, Northwest Washington, DC 20549 RE: Rule 15f-2 Notice for FORTRESS MUNICIPAL INCOME FUND, INC. 1933 Act File No. 33-11410 1940 Act File No. 811-4553 Dear Sir or Madam: Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of 1940, I enclose the Rule 24f-2 for FORTRESS MUNICIPAL INCOME FUND, INC. Since the aggregate redemption price of redeemed securities exceeded the aggregate sales price of securities sold during the period for which the Rule 24f-2 Notice is filed, an additional filing fee pursuant to Rule 24f-2 (c) has not been filed. As required by Rule 24f-2(b)(1)(v), a conformed opinion of counsel has been electronically filed herewith which indicates whether the securities, the registration of which this Notice makes definite in number, were legally issued, fully paid and non-assessable. Very truly yours, /s/ Charles H. Field Charles H. Field Assistant Secretary Enclosures cc: Charles H. Morin, Esquire Matthew G. Maloney, Esquire Linda L. Banas EX-99.BYLAWS 7 EXHIBIT 2.1 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. AMENDED and RESTATED BYLAWS ARTICLE I MEETING OF SHAREHOLDERS Section 1. ANNUAL MEETINGS. The Corporation is not required to hold an annual meeting of shareholders in any year in which the election of directors is not required to be acted upon under the Investment Company Act of 1940, as amended. Section 2. SPECIAL MEETINGS. Special Meetings of Shareholders of the Company or of a particular Series or Class may be called by the Chairman, the President or by the Board of Directors; and shall be called by the Secretary whenever ordered by the Chairman, the Board of Directors, or as requested in writing by Shareholders entitled to cast at least 10% of the shares entitled to be cast at the meeting. Such Shareholder request shall state the purpose of such meeting and the matters proposed to be acted on thereat, and no other business shall be transacted at any such special meeting. Unless requested by Shareholders entitled to cast a majority of all the votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any annual or special meeting of the Shareholders held during the preceding 12 months. Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the Corporation or a particular Series or Class, shall be held at the office of the Corporation in Pittsburgh, Pennsylvania, or at such other place within or without the State of Maryland as may be fixed by the Board of Directors. Section 4. NOTICE. Not less than ten nor more than ninety days before the date of every Special Meeting of Shareholders the Secretary or an Assistant Secretary shall give to each Shareholder of record of the Corporation or of the relevant Series or Class written notice of such meeting. Such notice shall be deemed to have been given when mailed to the Shareholder at his address appearing on the books of the Corporation, which shall be maintained separately for the shares of each Series or Class. Notice of a Special Meeting shall state the purpose or purposes for which it is called and no other business shall be transacted at such Special Meeting. Section 5. QUORUM. The presence in person or by proxy of holders of (a) one-half of the shares of stock of the Corporation on all matters requiring a Majority Shareholder Vote, as defined in the Investment Company Act of 1940, or (b) one-third of shares of stock of the Corporation on all other matters permitted by law, in each case, entitled to vote without regard to class shall constitute a quorum at any meeting of the shareholders, except with respect to any matter which by law requires the separate approval of one or more series or class of stock, in which case the presence in person or by proxy of the holders of one-half or one-third, as set forth above, of the shares of stock of each series or class entitled to vote separately on the matter shall constitute a quorum. In the absence of a quorum at any meeting, a majority of those Shareholders present in person or by proxy may adjourn the meeting from time to time to a date not later than 120 days after the original record date without further notice until a quorum, as above defined, shall be present. Section 6. ADJOURNED MEETINGS. A meeting of Shareholders convened on the date for which it was called (including one adjourned to achieve a quorum as above provided in Section 5 of this Article) may be adjourned from time to time without further notice other than by announcement to be given at the meeting to a date not more than 120 days after the record date, and any business may be transacted at the meeting as originally called. Section 7. VOTING. At all meetings of Shareholders each Shareholder shall be entitled to one vote or fraction thereof for each Share or fraction thereof standing in his name on the books of the Corporation on the date for the determination of Shareholders entitled to vote at such meeting. Section 8. PROXIES. Any Shareholder entitled to vote at any meeting of Shareholders may vote either in person or by proxy, but no proxy which is dated more than eleven months before the meeting named therein shall be accepted. Every proxy shall be in writing and signed by the Shareholder or his duly authorized attorney in fact and dated, but need not be sealed, witnessed or acknowledged. Section 9. ACTION BY UNANIMOUS WRITTEN CONSENT OF SHAREHOLDERS. Any action required or permitted to be taken at any meeting of Shareholders may be taken without a meeting, if a consent in writing, setting forth such action, is signed by all the Shareholders entitled to vote on the subject matter thereof, and any other Shareholders, entitled to notice of a meeting of stockholders (but not to vote thereat), have waived in writing any rights which they may have to dissent from such action, and such consent and waiver are filed with the records of the Corporation. ARTICLE II BOARD OF DIRECTORS Section 1. POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as conferred on or reserved to the Shareholders by law, by the Charter or by these Bylaws. Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF OFFICE. The number of Directors of the Corporation can be changed by a majority of the entire Board of Directors from time to time to not less than three or the number of Shareholders, whichever is less, nor more than twenty. Directors need not be Shareholders. The term of office of a Director shall not be affected by any decrease in the number of Directors made by the Board pursuant to the foregoing authorization. Each Director shall hold office until his resignation or removal and until the election and qualification of his successor. Section 3. PLACE OF MEETING. The Board of Directors may hold its meetings at such place or places within or without the State of Maryland as the Board or as the person or persons requesting said meeting to be called may from time to time determine. Section 4. ANNUAL MEETINGS. The Board of Directors shall meet annually for the election of Officers and any other business. Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such intervals and on such dates as the Board may from time to time designate, provided that any Director who is absent when such designation is made shall be given notice of the designation. Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at such times and at such places as may be designated at the call of such meeting. Special meetings shall be called by the Secretary or any Assistant Secretary at the request of the Chairman, the President, or any Director. If the Secretary or any Assistant Secretary when so requested refuses or fails for more than twenty-four hours to call such meeting, the Chairman, the President or such Director may in the name of the Secretary call such meeting by giving due notice in the manner required when notice is given by the Secretary. Section 7. NOTICE. The Secretary or any Assistant Secretary shall give, at least two days before the meeting, notice of each meeting of the Board of Directors, whether Annual, Regular or Special, to each member of the Board by mail, telegram, telephone or electronic facsimile to his last known address. It shall not be necessary to state the purpose or business to be transacted in the notice of any meeting unless otherwise required by law. Personal attendance at any meeting by a Director other than to protest the validity of said meeting shall constitute a waiver of the foregoing requirement of notice. In addition, notice of a meeting need not be given if a written waiver of notice executed by such Director before or after the Meeting is filed with the records of the meeting. Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors may adopt such rules and regulations for the conduct of their meetings and the management of the affairs of the Corporation as they may deem proper and not inconsistent with applicable law, the Charter of the Corporation or these Bylaws. Section 9. QUORUM. One-third of the entire Board of Directors but not less than two directors shall constitute a quorum at any meeting of the Board of Directors unless there is only one director, in which case that one shall constitute a quorum. The action of a majority of Directors present at any meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by applicable law or regulation, the Charter of the Corporation, or these Bylaws. In the absence of a quorum at any meeting a majority of Directors present may adjourn the meeting from day to day or for such longer periods as they may designate until a quorum shall be present. Notice of any adjourned meeting need not be given other than by announcement at the meeting. Section 10. RESIGNATIONS. Any Director of the Corporation may resign at any time by written notice to the Chairman of the Board of Directors or to the Secretary of the Corporation. The resignation of any Director shall take effect at the time specified therein or, if no time is specified, when received by the Corporation. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 11. REMOVAL. At any meeting of Shareholders duly called for the purpose, any Director may be removed from office by the vote of a majority of all of the Shares entitled to vote. Section 12. VACANCIES. Except as otherwise provided by law, any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of Directors may be filled by a majority of the remaining members of the Board of Directors although such majority is less than a quorum and any vacancy occurring by reason of an increase in the number of Directors may be filled by action of a majority of the entire Board of Directors then in office. Section 13. COMPENSATION OF DIRECTORS. The Directors may receive compensation for their services as Directors as determined by the Board of Directors and expenses of attendance at each Meeting. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity, as an Officer, Agent or otherwise, and receiving compensation therefor. Section 14. ACTION BY UNANIMOUS WRITTEN CONSENT OF DIRECTORS. Any action required or permitted to be taken at any Annual, Regular or Special Meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board and such written consent is filed with the minutes of proceedings of the Board. Section 15. TELEPHONE CONFERENCE. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at the meeting. ARTICLE III EXECUTIVE AND OTHER COMMITTEES Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee, which shall consist of two (2) or more Directors. Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring in the Executive Committee from any cause may be filled by the Board of Directors. Section 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All action by the Executive Committee shall be reported to the Board of Directors at its Meeting next succeeding such action. Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The Executive Committee shall fix its own rules of procedure not inconsistent with these Bylaws or with any directions of the Board of Directors. It shall meet at such times and places and upon such notice as shall be provided by such rules or by resolution of the Board of Directors. The presence of a majority shall constitute a quorum for the transaction of business, and in every case the affirmative vote of a majority of the members of the Committee present shall be necessary for the taking of any action. Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals between the Meetings of the Board of Directors the Executive Committee, except as limited by law or by specific directions of the Board of Directors, shall possess and may exercise all the powers of the Board of Directors in the management and direction of the business and conduct of the affairs of the Corporation. Notwithstanding the foregoing, the Executive Committee shall not have the power to elect or remove Trustees, increase or decrease the number of Trustees, elect or remove any officer, declare dividends, issue shares or recommend to shareholders any action requiring shareholder approval. Section 6. OTHER COMMITTEES. From time to time the Board of Directors may appoint any other Committee or Committees which shall have such powers as shall be specified in the resolution of appointment and may be delegated by law. Section 7. COMPENSATION. The members of any duly appointed Committee shall receive such compensation as from time to time may be fixed by the Board of Directors and shall be entitled to reimbursement of expenses incurred in connection with service on any such Committee. Section 8. ACTION BY UNANIMOUS WRITTEN CONSENT OF EXECUTIVE COMMITTEE OR OTHER COMMITTEES. Any action required or permitted to be taken at any meeting of the Executive Committee or any other duly appointed Committee may be taken without a meeting if written consent to such action is signed by all Members of such Committee and such written consent is filed with the minutes of the proceedings of such Committee. Section 9. ADVISORY BOARD. The Directors may appoint an Advisory Board to consist in the first instance of not less than three (3) members. Members of such Advisory Board shall not be Directors or Officers and need not be Shareholders. Members of the Advisory Board shall hold office for such period as the Directors may by resolution provide. Any Member of such Board may resign therefrom by written instrument signed by him which shall take effect upon delivery to the Directors. The Advisory Board shall have no legal powers and shall not perform functions of Directors in any manner, said Board being intended to act merely in an advisory capacity. Such Advisory Board shall meet at such times and upon such notice as the Board of Directors may by resolution provide. The compensation of the Members of the Advisory Board, if any, shall be determined by the Board of Directors. ARTICLE IV OFFICERS Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary. The Board of Directors may elect or appoint a Chairman and other Officers or agents, including one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers. The same person may hold any two offices except those of President and Vice President. Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers shall be elected annually by the Board of Directors at its Annual Meeting. Each Officer shall hold office for one year and until the election and qualification of his successor. Any vacancy in any of the offices may be filled for the unexpired portion of the term by the Board of Directors at any Regular or Special Meeting of the Board. The Board of Directors may elect or appoint additional Officers or agents at any Regular or Special Meeting of the Board. Section 3. REMOVAL. Any Officer elected by the Board of Directors may be removed with or without cause at any time by the Board of Directors. Any other employee of the Corporation may be removed or dismissed at any time by the President. Section 4. RESIGNATIONS. Any Officer may resign at any time by giving written notice to the Board of Directors. Any such resignation shall take effect at the time specified therein or, if no time is specified, at the time of receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any Office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these Bylaws for regular election or appointment to such Office. Section 6. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, if there be a Chairman, shall preside at the meetings of Shareholders and of the Board of Directors. He shall receive such information and reports as he may request from the Officers of the Corporation. He shall counsel and advise the President. Section 7. PRESIDENT. The President of the Corporation shall be the chief executive officer of the Corporation. Unless other provisions are made therefor by the Board or Executive Committee, the President, without limitation, shall employ and define the duties of all employees of the Corporation, shall have the power to discharge any such employees, shall exercise general supervision over the affairs of the Corporation and shall have the power to sign, in the name of and on behalf of the Corporation, powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities or other property owned by the Corporation, and may, in the name of and on behalf of the Corporation, take all such action as the President may deem advisable in entering into agreements to purchase securities or other property in the ordinary course of business, and to sign representation letters in the course of buying securities or other property and shall perform such other duties as may be assigned to him from time to time by the Board of Directors. In the absence of the Chairman of the Board of Directors, the President or an officer or Director appointed by the President, shall preside at all meetings of Shareholders. Section 8. VICE PRESIDENT. The Vice President (or if more than one, the senior Vice President) in the absence of the President shall perform all duties and may exercise any of the powers of the President subject to the control of the Board. Each Vice President shall have the power, without limitation, to sign, in the name of and on behalf of the Corporation, powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities or other property owned by the Corporation, and may, in the name of and on behalf of the Corporation, take all such action as the Vice President may deem advisable in entering into agreements to purchase securities or other property in the ordinary course of business, and to sign representation letters in the course of buying securities or other property shall perform such other duties as may be assigned to him from time to time by the Board of Directors, the Executive Committee, or the President. Section 9. SECRETARY. The Secretary shall keep or cause to be kept in books provided for the purpose the Minutes of the Meetings of the Shareholders, and of the Board of Directors; shall see that all Notices are duly given in accordance with the provisions of these Bylaws and as required by Law; shall be custodian of the records of the Corporation; shall keep directly or through a transfer agent a register of the post office address of each Shareholder, and make all proper changes in such register, retaining and filing his authority for such entries; shall see that the books, reports, statements, certificates and all other documents and records required by law are properly kept and filed; and in general shall perform all duties incident to the Office of Secretary and such other duties as may, from time to time, be assigned to him by the Board of Directors, the Executive Committee, or the President. Section 10. TREASURER. The Treasurer shall have supervision of the custody of all funds and securities of the Corporation, subject to applicable law and the determination from time to time of the Board of Directors. He shall perform such other duties as may be from time to time assigned to him by the Board of Directors, the Executive Committee, or the President. Section 11. ASSISTANT VICE PRESIDENT. The Assistant Vice President or Vice Presidents of the Corporation shall have such authority and perform such duties as may be assigned to them by the Board of Directors, the Executive Committee, or the President of the Corporation. Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform the duties of the Secretary and of the Treasurer respectively, in the absence of those Officers and shall have such further powers and perform such other duties as may be assigned to them respectively by the Board of Directors or the Executive Committee or by the President. Section 13. SALARIES. The salaries of the Officers shall be fixed from time to time by the Board of Directors. No Officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V SHARES AND THEIR TRANSFER Section 1. CERTIFICATES. If issued, share certificates shall be signed by the Chairman, the President, or any Vice President and countersigned by the Treasurer or Secretary or any Assistant Treasurer or Assistant Secretary. The signatures may be either manual or facsimile signatures and the seal may be either facsimile or any other form of Seal. Certificates for shares for which the Corporation has appointed a Transfer Agent and Registrar shall not be valid unless countersigned by such Transfer Agent and registered by such Registrar. In case any Officer who has signed any certificate ceases to be an Officer of the Corporation before the certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if the Officer had not ceased to be such Officer as of the date of its issuance. Share certificates shall be in such form not inconsistent with law and these Bylaws as may be determined by the Board of Directors. Section 2. TRANSFER OF SHARES. Shares shall be transferable on the books of the Corporation by the holder thereof in person or by duly authorized attorney upon surrender of the certificate representing the shares to be transferred properly endorsed. Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Board of Directors may fix in advance a date as the record date for the purpose of determining Shareholders entitled to notice of or to vote at any Meeting of Shareholders or Shareholders to receive payment of any dividend. Such date shall in any case not be more than 90 days and in case of a Meeting of Shareholders not less than l0 days prior to the date on which the particular action requiring such determination of Shareholders is to be taken. Only Shareholders of record on the record date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. Section 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case any Share certificate is lost, mutilated or destroyed the Board of Directors may issue a new certificate in place thereof upon indemnity to the relevant Series or Class against loss and upon such other terms and conditions as the Board may deem advisable. Section 5. TRANSFER AGENT AND REGISTRAR: REGULATIONS. The Board of Directors shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issuance, transfer and registration of Share certificates and may appoint a Transfer Agent and/or Registrar of Share certificates of each Series or Class. ARTICLE VI AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC. Section 1. AGREEMENTS, ETC. The Board of Directors or the Executive Committee may authorize any Officer or Officers, or Agent or Agents of the Corporation to enter into any Agreement or execute and deliver any instrument in the name of the Corporation and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors or by the Executive Committee or by these Bylaws, no Officer, Agent or Employee shall have any power or authority to bind the Corporation by any Agreement or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the payment of money, notes and other evidences of indebtedness shall be signed by such Officer or Officers, Employee or Employees, or Agent or Agents as shall be from time to time designated by the Board of Directors or the Executive Committee, or as may be specified in or pursuant to the agreement between the Corporation on behalf of any Series or Class and the Bank or Trust Company appointed as custodian. Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All endorsements, assignments, stock powers or other instruments of transfer of securities standing in the name of the Corporation or its nominee or directions for the transfer of securities belonging to the Corporation shall be made by such Officer or Officers, Employee or Employees, or Agent or Agents as may be authorized by the Board of Directors or the Executive Committee. ARTICLE VII BOOKS AND RECORDS Section 1. LOCATION. The books and records of the Corporation, including the Stock ledger or ledgers, may be kept in or outside the State of Maryland at such office or agency of the Corporation as may be from time to time determined by the Board of Directors. ARTICLE VIII FISCAL YEAR Section 1. FISCAL YEAR. The Fiscal Year of the Corporation shall be designated from time to time by the Board of Directors. ARTICLE IX INDEMNIFICATION Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall indemnify its directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify its officers to the same extent as its directors and to such further extent as is consistent with law. The Corporation shall indemnify its directors and officers who while serving as directors or officers also serve at the request of the Corporation as a director, officer, partner, trustee, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan to the fullest extent consistent with law. The indemnification and other rights provided by this Article shall continue as to a person who has ceased to be a director of officer and shall inure to the benefit of the heirs, executors and administrators of such a person. This Article shall not protect any such person against any liability to the Corporation or any Shareholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office ("disabling conduct"). Section 2. ADVANCES. Any current or former director or officer of the Corporation seeking indemnification within the scope of this Article shall be entitled to advances from the Corporation for payment of the reasonable expenses incurred by him in connection with the matter as to which he is seeking indemnification in the manner and to the fullest extent permissible under the Maryland General Corporation Law. The person seeking indemnification shall provide to the Corporation a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the person seeking indemnification shall provide security in form and amount acceptable to the Corporation for his undertaking; (b) the Corporation is insured against losses arising by reason of the advance, or (c) a majority of a quorum of directors of the Corporation who are neither 'interested persons' as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("disinterested non-party directors"), or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Corporation at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. Section 3. PROCEDURE. At the request of any person claiming indemnification under this Article, the Board of Directors shall determine, or cause to be determined, in a manner consistent with the Maryland General Corporation Law, whether the standards required by this Article have been met. Indemnification shall be made only following: (a) a final decision on the merits by a court or other body before whom the proceeding was brought that the person to be indemnified was not liable by reason of disabling conduct or (b) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the person to be indemnified was not liable by reason of disabling conduct by (i) the vote of a majority of a quorum of disinterested non-party directors or (ii) an independent legal counsel in a written opinion. Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents who are not officers or directors of the Corporation may be indemnified, and reasonable expenses may be advanced to such employees or agents, as may be provided by action of the Board of Directors or by contract, subject to any limitations imposed by applicable law. Section 5. OTHER RIGHTS. The Board of Directors may make further provisions consistent with law for indemnification and advancement of expenses to directors, officers, employees and agents by resolution, agreement or otherwise. The indemnification provided by this Article shall not be deemed exclusive of any other right, with respect to indemnification or otherwise, to which those seeking indemnification may be entitled under any insurance or other agreement or resolution of Shareholders or disinterested non-party directors or otherwise. Section 6. AMENDMENTS. References in this Article are to the Maryland General Corporation Law and to the Investment Company Act of 1940 as from time to time amended. No amendment of these Bylaws shall affect any right of any person under this Article based on any event, omission or proceeding prior to the amendment. ARTICLE X AMENDMENTS Section 1. The Board of Directors shall have the power to alter, amend or repeal any Bylaws of the corporation and to make Bylaws. EX-99.ARTOFINCOR 8 EXHIBIT 1.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., a Maryland corporation having post office addresses in the City of Pittsburgh, Pennsylvania and the city of Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: WHEREAS, the Corporation desires to restate its charter as currently in effect. The Charter as restated is as follows: FIRST: The name of the corporation is Federated Municipal Opportunities Fund, Inc. ("Corporation"). SECOND: The purpose for which the Corporation is formed is to act as an open-end investment company registered as such with the Securities and Exchange Commission pursuant to the Investment Company Act of 1940 as amended (the "1940 Act") and to exercise and generally to enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the Maryland General Corporation Law now or hereafter in force. THIRD: The post office address of the principal office of the Corporation in the State of Maryland is: c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The resident agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated, which is a corporation organized and existing under the laws of the State of Maryland, the address of which is 32 South Street, Baltimore, Maryland 21202. FOURTH: (a) The Corporation is authorized to issue shares of common stock, par value $0.001 per share. The aggregate par value of all shares which the Corporation is authorized to issue is $2,000,000. Subject to the following paragraph, the authorized shares are classified as $500,000,000 shares of the Class A Shares, $500,000,000 shares of the Class B Shares, $500,000,000 shares of the Class C Shares, and $500,000,000 shares of the Class F Shares. (b) The Board of Directors is authorized to classify or to reclassify (i.e., into series and classes within series), from time to time, any unissued shares of stock of the Corporation, whether now or hereafter authorized, by setting, changing or eliminating the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of or rights to require redemption of the stock. Unless otherwise provided by the Board of Directors prior to the issuance of the stock, the shares of any and all classes of stock shall be subject to the following: (i) The Board of Directors may redesignate a class of stock whether or not shares of such class are issued and outstanding, provided that such redesignation does not affect the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such class of stock. (ii) The assets attributable to each class may be invested in a common investment portfolio. The assets and liabilities of each series and the income and expenses of each class of the Corporation's stock shall be determined separately and, accordingly, the net asset value of shares of the Corporation's stock may vary from class to class. The income or gain and the expense or liabilities of the Corporation shall be allocated to each class of stock as determined by or under the direction of the Board of Directors. (iii) Shares of each class of stock shall be entitled to such dividends or distributions, in stock or in cash or both, as may be declared from time to time by the Board of Directors with respect to such class. Dividends or distributions shall be paid on shares of a class of stock only out of the assets belonging to that series, reflecting expenses attributable to such class. (iv) In the event of the liquidation or dissolution of the Corporation, the stockholders of each class of the Corporation's stock shall be entitled to receive, as a class, out of the assets of the Corporation available for distribution to stockholders, the assets attributable to that class less the liabilities or expenses allocated to that class. The assets so distributable to the stockholders of a class shall be distributed among such stockholders in proportion to the number of shares of that class held by them multiplied by the net asset value of a share of such class on the date of determination and recorded on the books of the Corporation. In the event that there are any assets available for distribution that are not attributable to any particular class of stock, such assets shall be allocated to all classes in proportion to the net asset value of the respective classes. (v) All holders of shares of stock shall vote as a single class except as may be otherwise required by law pursuant to the 1940 Act or any applicable order, rule or interpretation issued by the Securities and Exchange Commission, or otherwise, and except with respect to any matter which affects only one or more series or classes of stock, in which case only the holders of shares of the series or classes affected shall be entitled to vote. (c) The Corporation may issue fractional shares. Any fractional share shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends. FIFTH: (a) The number of Directors of the Corporation shall be thirteen. The number may be changed by the Bylaws of the Corporation or by the Board of Directors pursuant to the Bylaws. (b) The name of the Directors who shall act until their successors are elected and qualify, are: John F. Donahue Richard B. Fisher Thomas G. Bigley Edward L. Flaherty, Jr. John T. Conroy, Jr. Peter E. Madden William J. Copeland Gregor F. Meyer James E. Dowd John E. Murray, Jr. Lawrence D. Ellis, M.D. Wesley W. Posvar Majorie P. Smuts SIXTH: (a) To the extent the Corporation has funds or property legally available therefor, each shareholder shall have the right at such times as may be permitted by the Corporation, but no less frequently than as required under the 1940 Act, to require the Corporation to redeem all or any part of its shares at a redemption price equal to the net asset value per share next determined after the shares are tendered for redemption, less any applicable redemption fee or deferred and/or contingent deferred sales charge as determined by the Board of Directors. The Board of Directors may adopt requirements and procedures for redemption of shares. Notwithstanding the foregoing, the Corporation may postpone payment or deposit of the redemption price and may suspend the right of the shareholders to require the Corporation to redeem shares of any series or class pursuant to the applicable rules and regulations, or any order, of the Securities and Exchange Commission. (b) The Corporation shall have the right, exercisable at the discretion of the Board of Directors, to redeem any shareholder's shares of any series or class for their then current net asset value per share if at such time the shareholder owns shares having an aggregate net asset value of less than $500 or such lesser or greater amount for such series or class set forth in the current registration statement of the Corporation filed with the Securities and Exchange Commission, or regardless of the amount, if a shareholder fails to supply a valid taxpayer identification number. (c) Each share is subject to redemption by the Corporation at the redemption price computed in the manner set forth in subparagraph (a) of Article SIXTH of these Amended and Restated Articles of Incorporation at any time if the Board of Directors, in its sole discretion, determines that failure to so redeem may result in a material adverse impact on the Corporation or its shareholders. SEVENTH: The following provisions are hereby adopted for the purpose of defining, limiting, and regulating the powers of the Corporation and of the Directors and shareholders: (a) No shareholder shall have any pre-emptive or preferential right of subscription to any shares of any series or class whether now or hereafter authorized. (b) Without the vote of the shares of any class of stock of the Corporation then outstanding (unless stockholder approval is otherwise required by applicable law) the Corporation may, if approved by the Board of Directors: (i) Sell and convey the assets belonging or attributed to a class or series of stock to another corporation or trust that is a management investment company (as defined in the Investment Company Act of 1940, as amended) and is organized under the laws of any state of the United States for consideration which may include the assumption of all outstanding obligations, taxes and other liabilities, accrued or contingent, belonging or attributed to such class and which may include securities issued by such corporation or trust. Following such sale and conveyance, and after making provision for the payment of any liabilities belonging to attributed to such class that are not assumed by the purchaser of the assets belonging or attributed to such class, the Corporation may, at its option, redeem all outstanding shares of such class at the net asset value thereof as determined by the Board of Directors in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors. Notwithstanding any other provision of the Charter of the Corporation to the contrary, the redemption price may be paid in any combination of cash or other assets belonging to attributed to the class, including but not limited to, the distribution of the securities or other consideration received by the Corporation for the assets belonging or attributed to such class upon such conditions as the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable law and the Charter of the Corporation. (ii) Sell and convert the assets belonging or attributed to a class or series of stock into money and, after making provision for the payment of all obligations, taxes and other liabilities, accrued or contingent, belonging or attributed to such class, the Corporation may, at its option (a) redeem all outstanding shares of such class at the net asset value thereof as determined by the Board of Directors in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors that the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable law and the Charter of the Corporation, or (b) combine the assets belonging or attributed to such class following such sale and conversion with the assets belonging or attributed or more other classes of stock; or (iii) Combine the assets belonging or attributed to a class or series of stock with the assets belonging or attributed to any one or more classes or series of stock of the Corporation if the Board of Directors reasonably determines that such combination will not have a material adverse effect on the stockholders of any class or series of stock of the Corporation participating in such combination. In connection with any such combination of assets, the shares of any class or series of stock of the Corporation then outstanding may, if so determined by the Board of Directors, be converted into shares of any other class or classes or series of stock of the Corporation with respect to which conversion is permitted by applicable law, or may be redeemed, at the option of the Corporation, at the net asset value thereof as determined by the Board of Directors, less such redemption fee or charge, if any, as may be fixed by resolution of the Board of Directors, upon such conditions as the Board of Directors deems, in its sole discretion, to be appropriate consistent with applicable laws and the Charter of the Corporation. Notwithstanding any other provision of this Charter to the contrary, any redemption price, or part thereof, may be paid in shares of any other existing or future class or classes of stock of the Corporation. (iv) Any redemption made pursuant to this section shall be made and be effective upon terms, at the time and in accordance with procedures specified by the Board of Directors. At such time as the redemption is effective, all rights of the holders of such shares shall cease and terminate, except the right to receive the redemption payment, and the shares so redeemed shall no longer be outstanding for any purpose.'' (c) In addition to its other powers explicitly or implicitly granted under these Amended and Restated Articles of Incorporation, by law or otherwise, the Board of Directors of the Corporation (i) is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation, (ii) may from time to time determine whether, to what extent, at what times and places, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the shareholders, and no shareholder shall have any right to inspect any account, book or document of the Corporation except as conferred by statute or as authorized by the Board of Directors of the Corporation, (iii) is empowered to authorize, without shareholder approval, the issuance and sale from time to time of shares of stock of the Corporation whether now or hereafter authorized on such terms and for such consideration as the Board of Directors may determine, and (iv) is authorized to adopt procedures for determination of and, to the extent deemed desirable by the Board of Directors, to maintain the constant the net asset value of shares of the Corporation's stock. (d) Notwithstanding any provision of the laws of the State of Maryland requiring a greater proportion than a majority of the votes of any or all series or classes of shares entitled to be cast to take or authorize any action, the Corporation shall, except to the extent otherwise required by the 1940 Act, take or authorize any such action that otherwise requires a greater proportion of votes upon the concurrence of a majority of the aggregate number of the votes entitled to be cast thereon. (e) The Corporation shall take or authorize any action permitted by the laws of the State of Maryland to be taken upon the concurrence of a majority of shareholders present and voting thereon. (f) The Corporation reserves the right from time to time to make any amendment of its Charter now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in its Charter, of any outstanding shares or any series or class. (g) The Board of Directors is expressly authorized to declare and pay dividends and distributions in cash, securities or other property from surplus or any funds legally available therefor, at such intervals (which may be as frequently as daily) or on such other periodic basis, as it shall determine, for any series or class of stock of the Corporation; to declare such dividends or distributions for any series or class of stock of the Corporation by means of a formula or other method of determination, at meetings held less frequently than the frequency of the effectiveness of such declarations; to establish payment dates for dividends or any other distributions for any series or class of stock of the Corporation on any basis, including dates occurring less frequently than the effectiveness of declarations thereof; and to provide for the payment of declared dividends on a date earlier or later than the specified payment date in the case of shareholders of such series or class of stock redeeming their entire ownership of shares. (h) Any determination made in good faith by or pursuant to the direction of the Board of Directors as to the amount of the assets, debts, obligations or liabilities of the Corporation, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating such reserves or charges, as to the use, alteration or cancellation of any reserves or charges (whether or not any debt, obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the value of or the method of valuing any investment or other asset owned or held by the Corporation, as to the number of shares of any class of stock outstanding, as to the income of the Corporation or as to any other matter relating to the determination of net asset value, the declaration of dividends or the issue, sale, redemption or other acquisition of shares of the Corporation, shall be final and conclusive and shall be binding upon the Corporation and all holders of its shares, past, present and future, and shares of the Corporation are issued and sold on the condition and understanding that any and all such determinations shall be binding as aforesaid. EIGHTH: (a) To the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the Corporation shall have any liability to the Corporation or its shareholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted. (b) The Corporation shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify and advance expenses to its officers to the same extent as its directors and may do so to such further extent as is consistent with law. The Board of Directors may by bylaw, resolution or agreement make further provision for indemnification of directors, officers, employees and agents to the fullest extent permitted by the Maryland General Corporation Law. (c) No provision of this Article shall be effective to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. (d) References to the Maryland General Corporation Law in these Amended and Restated Articles of Incorporation are to that law as from time to time amended. No amendment to the Charter of the Corporation shall affect any right of any person under this Article based on any event, omission or proceeding prior to the amendment. The foregoing restatement to the charter of the Corporation was approved by a majority of the entire Board of Directors as well as a majority of stockholders of the Corporation; and the Corporation is registered as an open-end company under the Investment Company Act of 1940, as amended. The provisions set forth in these Articles of Restatement are all the provisions of the Charter currently in effect. The current address of the principal office of the Corporation, the name and address of the Corporation's resident agent and the number of Directors of the Corporation and the names of those currently in office are stated above. IN WITNESS WHEREOF, Federated Municipal Opportunities Fund, Inc. has caused these presents to be signed in its name and on its behalf by its Executive Vice President and witnessed by its Assistant Secretary on July 17, 1996. The undersigned, John W. McGonigle, Executive Vice President and Secretary of the Corporation, hereby acknowledges in the name and on behalf of the Corporation the foregoing Articles of Amendment to be its corporate act and further certifies to the best of his knowledge, information and belief, that the matters and facts set forth herein with respect to the authorization and approval hereof are true in all material respects and that this statement is made under the penalties of perjury. ATTEST: FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. /s/ S. Elliott Cohan /s/ John W. McGonigle S. Elliott Cohan John W. McGonigle Assistant Secretary Executive Vice President and Secretary EX-99.BALLOT 9 EXHIBIT 17.2 STATE BOND MINNESOTA TAX-FREE INCOME FUND, a Portfolio of STATE BOND TAX-FREE INCOME FUNDS, INC., SPECIAL MEETING OF SHAREHOLDERS December , 1996 == STATE BOND MINNESOTA TAX-FREE INCOME FUND, a Portfolio of STATE BOND TAX-FREE INCOME FUNDS, INC. CUSIP NO. 85657M108 The undersigned shareholder(s) of State Bond Minnesota Tax-Free Income Fund, a portfolio of State Bond Tax-Free Income Funds, Inc. (the `State Bond Fund''), hereby appoint(s) Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of them true and lawful proxies, with power of substitution of each, to vote all shares of the State Bond Fund which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on December , 1996, at 100 North -- Minnesota Street, New Ulm, Minnesota 56073-0069, at 4:30 p.m. (local time) and at any adjournment thereof. Discretionary authority is hereby conferred as to all other matters as may properly come before the Special Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The proxies named will vote the shares represented by this proxy in accordance with the choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER. PROPOSAL TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE STATE BOND FUND AND FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS X KEEP THIS PORTION FOR YOUR RECORDS. DETACH AND RETURN THIS PORTION ONLY. STATE BOND MINNESOTA TAX-FREE INCOME FUND, a portfolio of State Bond Tax-Free Income Funds, Inc. RECORD DATE SHARES: ----------------- VOTE ON THE PROPOSAL FOR AGAINST ABSTAIN Please sign EXACTLY as your name(s) appear(s) above. When signing as attorney, executor, administrator, guardian, trustee, custodian, etc., please give your full title as such. If a corporation or partnership, please sign the full name by an authorized officer or partner. If stock is owned jointly, all owners should sign. - ----------------------------------- Signature(s) of Shareholder(s) Date: ___________________________ EX-99.AGMTPLANREORG 10 EXHIBIT 4 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the "Agreement"), between FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and STATE BOND TAX-FREE INCOME FUNDS, INC., a Maryland corporation (hereinafter called the "Corporation") on behalf of its portfolio STATE BOND MINNESOTA TAX-FREE INCOME FUND (hereinafter called the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the net assets of the Acquired Fund in exchange solely for Class A Shares of the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date (as hereinafter defined), of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Corporation and the Acquiring Fund are registered open-end management investment companies and the Acquired Fund owns securities in which the Acquiring Fund is permitted to invest; WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue shares of common stock or shares of beneficial interest, as the case may be; WHEREAS, the Board of Directors, including a majority of the directors who are not "interested persons" (as defined under the Investment Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that the exchange of all of the net assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Directors, including a majority of the directors who are not "interested persons" (as defined under the 1940 Act), of the Corporation has determined that the exchange of all of the net assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund shareholders; NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND. 1.1 Subject to the terms and conditions contained herein, the Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all of the net assets of the Acquired Fund, including all securities and cash, other than cash in an amount necessary to pay any unpaid dividends and distributions as provided in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring Fund agrees in exchange therefor to deliver to the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such transaction shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account, for the benefit of its shareholders, on the stock record books of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund. 1.2 The Acquired Fund will discharge or make provision for the discharge of all of its liabilities and obligations prior to or on the Closing Date. 1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company (hereinafter called "State Street"), Boston, Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, together with proper instructions and all necessary documents to transfer to the account of the Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions and claims created by the Acquired Fund. All cash delivered shall be in the form of immediately available funds payable to the order of the Custodian for the account of the Acquiring Fund. 1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any dividends or interest received on or after the Closing Date with respect to assets transferred to the Acquiring Fund thereunder. The Acquired Fund will transfer to the Acquiring Fund any distributions, rights or other assets received by the Acquired Fund after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued. 1.5 As soon after the Closing Date as is conveniently practicable, the Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders of record, determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund Shareholder shall have the right to receive any unpaid dividends or other distributions which were declared before the Valuation Date (as hereinafter defined) with respect to the shares of the Acquired Fund that are held by the shareholder on the Valuation Date. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share record books of the Acquiring Fund in the names of the Acquired Fund Shareholders, and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders, based on their ownership of shares of the Acquired Fund on the Closing Date. All issued and outstanding Shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. Share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares, after the Closing Date as determined in accordance with Section 2.3. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.6 Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's current prospectus and statement of additional information. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Corporation up to and including the Closing Date and such later dates, with respect to dissolution and deregistration of the Corporation, on which the Corporation is dissolved and deregistered. 1.9 The Corporation shall be deregistered as an investment company under the 1940 Act and dissolved as a Maryland corporation as promptly as practicable following the Closing Date and the making of all distributions pursuant to paragraph 1.5. 2.VALUATION. 2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date (such time and date being herein called the "Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.2 The net asset value of each Acquiring Fund Share shall be the net asset value per share computed as of the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus or statement of additional information. 2.3 The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's net assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1, by the net asset value of one Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4 All computations of value shall be made in accordance with the regular practices of the Acquiring Fund. 3.CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be December , 1996 or such later date as -- the parties may mutually agree. All acts taking place at the Closing Date shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may mutually agree. 3.2 If on the Valuation Date (a) the primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired Fund, shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, assumption agreements, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4.REPRESENTATIONS AND WARRANTIES. 4.1 The Corporation represents and warrants to the Acquiring Fund as follows: (a) The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has power to own all of its properties and assets and to carry out this Agreement. (b) The Corporation is registered under the 1940 Act, as an open-end, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Corporation is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Corporation's Articles of Incorporation or Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound. (d) The Acquired Fund has no material contracts or other commitments outstanding (other than this Agreement) which will result in liability to it after the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Statement of Assets and Liabilities of the Acquired Fund at June 30, 1995 and 1996, have been audited by Ernst & Young LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein. (h) Since June 30, 1996, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date shall have been filed or an appropriate extension obtained, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof or contest in good faith, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Fund shares, nor is there outstanding any security convertible into any of the Acquired Fund shares. (l) On the Closing Date, the Acquired Fund will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (m) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Corporation and, subject to the approval of the Acquired Fund Shareholders, this Agreement constitutes the valid and legally binding obligation of the Acquired Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (n) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.5 (only insofar as it relates to the Acquired Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 4.2 The Acquiring Fund represents and warrants to the Corporation as follows: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Fund is registered under the 1940 Act as an open-end, diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Acquiring Fund's Articles of Incorporation or Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound. (d) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (e) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1994 and 1995, have been audited by Deloitte & Touche LLP, independent auditors, and have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein. (g) The unaudited Statement of Assets and Liabilities of the Acquiring Fund at February 29, 1996 has been prepared in accordance with generally accepted accounting principles, consistently applied, although subject to year-end adjustments, and on a basis consistent with the Statement of Assets and Liabilities of the Acquiring Fund at August 31, 1995 which has been audited by Deloitte & Touche LLP, independent auditors, and such statement (copies of which have been furnished to the Acquired Fund) fairly reflects the financial condition of the Acquiring Fund as of such date, and there are no known liabilities of the Acquiring Fund, contingent or otherwise, as of such date not disclosed therein. (h) Since February 29, 1996, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (i) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Fund required by law to have been filed or an appropriate extension obtained, by such date shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof or contest in good faith, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (k) All issued and outstanding Acquiring Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (l) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes the valid and legally binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (m) The Prospectus/Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 The Corporation will call a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4 As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Acquired Fund for Federal income tax purposes which will be carried over to the Acquiring Fund as a result of Section 381 of the Code and which will be certified by the Corporation's President and its Treasurer. 5.5 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of the Prospectus/Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a dividend or dividends, with a record date and ex-dividend date prior to the Valuation Date, which, together with all previous dividends, shall have the effect of distributing to its shareholders all of its investment company taxable income, if any, plus the excess of its interest income, if any, excludable from gross income under Code section 103(a) over its deductions disallowed under Code sections 265 and 171(a)(2) for the taxable periods or years ended on or before June 30, 1996 and for the period from said date to and including the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized in taxable periods or years ended on or before June 30, 1996 and in the period from said date to and including the Closing Date. 6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1 All representations and warranties of the Corporation contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets, together with a list of the Acquired Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of the Acquired Fund. 6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Corporation made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request. 7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing Date a certificate executed in its name by its President or Vice President and its Treasurer, in form and substance satisfactory to the Acquired Fund, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request. 7.3 There shall not have been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business since the date hereof other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of any indebtedness, except as otherwise disclosed to and accepted by the Acquired Fund. 8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND. If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, either party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement. 8.1 The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Corporation's Articles of Incorporation and the 1940 Act. 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquiring Fund and the Corporation shall have received an opinion of Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for Federal income tax purposes: (a) The transfer of all of the Acquired Fund net assets in exchange for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders pursuant to the Reorganization will be the same as the tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization; (g) The holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization). 9.TERMINATION OF AGREEMENT. 9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Board of Directors of the Corporation or the Board of Directors of the Acquiring Fund at any time prior to the Closing Date (and notwithstanding any vote of the Acquired Fund Shareholders) if circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 9.2 If this Agreement is terminated and the exchange contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the directors or officers of the Corporation or the Acquiring Fund or the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this Agreement. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Board of Directors of the Acquiring Fund or the Board of Directors of the Corporation, if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be. 11. MISCELLANEOUS. 11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be set forth in a later writing signed by the party to be bound thereby. 11.3 This Agreement shall be governed and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws. 11.4 This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6 An agreement has been entered into under which Federated Advisers will assume substantially all of the expenses of the reorganization including registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the Acquired Fund's shareholders and the costs of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will assume the legal fees of the Acquired Fund. The accountants' fees of the Acquired Fund will be borne equally by Federated Advisers and ARM Financial Group, Inc. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. Acquired Fund: STATE BOND TAX-FREE INCOME FUNDS, INC., on behalf of its portfolio, Attest: STATE BOND MINNESOTA TAX-FREE INCOME FUND /s/ Sheri Bean By: /s/ Kevin L. Howard Name: Sheri Bean Name: Kevin L. Howard Title: Assistant Secretary Title: Vice President and Secretary Acquiring Fund: Attest: FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. /s/ S. Elliot Cohan By: /s/ J. Christopher Donahue Name: S. Elliot Cohan Name: J. Christopher Donahue Title: Assistant Secretary Title: Executive Vice President and Secretary -----END PRIVACY-ENHANCED MESSAGE-----