-----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, BhJCgXFyc0HT9ZAM1LNGrBK4jW/dEBlS1/eAeahD7Oyv0PlZlf2JziwPkuQk/k/y SjqIyQd7PRDkoiU+ayC1Hw== 0000807607-96-000028.txt : 19961202 0000807607-96-000028.hdr.sgml : 19961202 ACCESSION NUMBER: 0000807607-96-000028 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961126 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: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04533 FILM NUMBER: 96672974 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 N-30D 1 Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) 10TH ANNUAL REPORT AUGUST 31, 1996 ESTABLISHED 1987 TAX-FREE INCOME PRESIDENT'S MESSAGE [Graphic] Dear Fellow Shareholder: I am pleased to present the 10th Annual Report of Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.). This Report covers the 12-month period from September 1, 1995, through August 31, 1996. It begins with a discussion with Mary Jo Ochson, Senior Vice President, Federated Advisers, about the municipal market, the fund's performance, and investment strategy. Following her discussion are four additional items of shareholder interest. First are the results of a recent shareholder meeting. Second is a series of graphs that display the fund's performance with income dividends reinvested and the investment results of making additional investment in the fund shares with dividends reinvested. Third is a complete listing of the fund's municipal bond holdings. Fourth are the fund's financial statements. Federated Municipal Opportunities Fund, Inc. has provided tax-free income from a broadly diversified list of long-term municipal issues since 1987.* The fund's 30-day SEC yield on August 31, 1996, was 5.79% based on offering price -- free of federal regular income tax. This is the equivalent of a taxable yield of 8.39% for investors in the 31% federal income tax bracket. During the 12-month period, the fund paid a healthy dividend stream totaling $0.65 per share. The fund's total return was 2.47% based on net asset value.** This return was affected by a decline in share price due to interest rate increases in 1996 that caused bond prices to decline, as well as certain holdings that did not perform as well as expected. At the end of the period, the fund's total net assets stood at $383 million. The fund's portfolio included 98 tax-free securities issued by municipalities across our country. The fund's average maturity was 24 years. The top five issuers consisted of: 1. $18.4 million Texas -- Houston Water and Sewer System 2. $18.0 million Indiana -- Indianapolis Airport Authority 3. $17.2 million Utah -- Intermountain Power Agency 4. $15.9 million Texas -- Dallas-Fort Worth International Airport 5. $12.5 million Pennsylvania -- Pennsylvania State Higher Education Facilities Authority
* State, local, and federal alternative minimum taxes may apply. ** Performance is for Class F Shares. Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total return for the period based on offering price was 0.44%. Additionally, on August 5, 1996, three additional classes of shares -- A, B, and C were added to the fund. Thank you for selecting the Federated Municipal Opportunities Fund, Inc. as a convenient way to invest in a broad list of municipal securities. You can receive income from the fund or increase your wealth by reinvesting your dividends and compounding tax free. Sincerely, [Graphic] Richard B. Fisher President October 15, 1996 INVESTMENT REVIEW [Graphic] Mary Jo Ochson Senior Vice President Federated Advisers [Graphic] MARY JO, COULD YOU PLEASE COMMENT ON DEVELOPMENTS IN THE MUNICIPAL MARKETS OVER THE FUND'S FISCAL YEAR, WHICH ENDED AUGUST 31, 1996. Early in the period, economic statistics indicated that the economy was slowing to a greater extent than was acceptable. As a result, the Federal Reserve Board (the "Fed") cut the Federal Funds Rate twice over the 12-month period -- in December 1995 and January 1996 -- to provide the economy with enough stimulus to avoid a recession. However, perceptions of slow growth by market participants constrained government spending, and a benign inflationary environment resulted in yields on 30-year Treasury bonds dropping steadily from 6.68% on August 1, 1995, to 6.00% by February 1996. Then, as the 12-month reporting period progressed, economic growth accelerated as evidenced by real GDP growth of 2.0% in the first quarter of 1996 and 4.2% for the second quarter. Strong economic data, such as large increases in hourly wages and a 7-year low in the unemployment rate, fueled concerns in the market that inflation, although still low, could increase. This prompted a dramatic rise in rates for the 30-year Treasury bond, which ended the period at 7.03%. Yields on long-term municipal bonds traced a similar pattern as Treasurys. On September 1, 1995, the Municipal Bond Index yield was 6.07%; it fell to 5.51% by early February 1996; and climbed to 6.02% by August 1996. [Graphic] HOW HAS THE MUNICIPAL BOND MARKET FARED VERSUS OTHER FIXED-INCOME SECTORS OVER THE PAST 12 MONTHS? The municipal bond market experienced strong performance relative to the Treasury issue market over the reporting period. From September 1995 to February 1996, the 30-year A-rated municipal yield was in a range of 90%-92% of comparable Treasury issues. Since that time, with the resurgence of Senator Dole as the Republican presidential candidate and the flat tax passage appearing less probable, municipal bond values increased versus those of Treasury issues. By March 1996, long-term municipal yields descended to 87.3% of long-term Treasury yields. Municipals continued to outperform Treasurys throughout the spring and summer months due to strong retail demand coupled with the limited amount of new municipal bond issuance. The valuation of municipals versus Treasurys ended the reporting period at a period low of 83.8%. [Graphic] IN THIS ENVIRONMENT, HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND PERFORM WITH RESPECT TO INVESTMENT RETURN? For the 12-month period ended August 31, 1996, shareholders experienced a total return of 2.47% based on net asset value.* In comparison, the Lipper General Municipal Debt Fund Average total return was 4.68%. The biggest factor for the fund's below-average performance was its holdings in paper de-inking issues involving plants that convert office waste paper to recycled, marketable pulp. Weakness in pulp prices drove down the value of the bonds over the past 12 months. Over recent months, we have been in discussions with the management of these projects to improve operations at the facilities. [Graphic] AS AN INCOME-ORIENTED FUND, HOW DID FEDERATED MUNICIPAL OPPORTUNITIES FUND PERFORM IN TERMS OF INCOME AND DISTRIBUTION YIELD? Very well. The fund provided a distribution yield on August 31, 1996, of 6.16%, compared to the 5.05%** distribution yield of the Lipper General Municipal Debt Fund Average. The fund's taxable equivalent yields for investors in the 39.6%, 36%, and 31% tax brackets were 10.20%, 9.63%, and 8.93%, respectively. The 30-day SEC was 5.79% for the same period. The above-average income performance was primarily the result of a high concentration in higher yielding sectors of the municipal market, such as hospital and housing bonds. Perhaps one of the most important considerations for shareholders over the long term is the fund's record of balancing gains and losses for securities sold so as not to distribute any net realized capital gains, which are taxable. The fund has also avoided market discount bonds that could produce taxable ordinary income for shareholders. * Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total return quoted is for Class F Shares. Total return for the period for Class F Shares based on offering price was 0.44%. Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into this category. This figure does not reflect a sales charge. ** Distribution rate reflects actual distribution made to shareholders. It is calculated by dividing the monthly annualized dividend plus short-term capital gains, if any, by the average 30-day offering price. SHAREHOLDER MEETING RESULTS A Special Meeting of the Shareholders of Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal Income Fund, Inc.) was held on July 17, 1996. On March 19, 1996, the record date for shareholders voting at the meeting, there were 38,858,427 total outstanding shares. The following items were considered by shareholders and the results of their voting were as follows:
ABSTENTIONS WITHHELD AND BROKER AUTHORITY AGENDA ITEM FOR AGAINST NON-VOTES TO VOTE 1. To approve or disapprove an amendment to and restatement of the Fund's Articles of Incorporation to permit the Fund to establish and designate separate portfolios and classes of shares. 19,876,457 1,629,541 1,699,343 0 2. To approve or disapprove an amendment to the Fund's Articles of Incorporation to permit the Fund's Board of Directors to redeem all outstanding shares of any portfolio or class of the Fund.* 18,609,165 2,538,499 2,057,675 0 * The votes cast for this proposal were not sufficient to approve it, and the Fund's management decided to postpone consideration of this item until a later time. 3. To approve or disapprove revisions to the Fund's fundamental investment limitations to permit the unrestricted acquisition of certain securities eligible for resale under Rule 144A of the Securities Act of 1933, as amended. 19,241,075 1,870,687 2,093,577 0 4. To elect four Directors.** Thomas G. Bigley 22,275,517 0 0 929,823 Peter E. Madden 22,286,719 0 0 918,621 John T. Conroy, Jr. 22,270,123 0 0 935,217 John E. Murray, Jr. 22,249,307 0 0 956,033 ** The following Directors of the Fund continued their terms as Directors of the Fund: John F. Donahue, William J. Copeland, James E. Dowd, Lawrence D. Ellis, M.D., Richard B. Fisher, Edward L. Flaherty, Jr., Gregor F. Meyer, Wesley W. Posvar, and Marjorie P. Smuts.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) INITIAL INVESTMENT: IF YOU MADE AN INITIAL INVESTMENT OF $10,000 IN FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. ON APRIL 10, 1987, REINVESTED YOUR DIVIDENDS AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH $18,916 ON AUGUST 31, 1996. YOU WOULD HAVE EARNED A 7.02% AVERAGE ANNUAL TOTAL RETURN FOR THE NINE-YEAR INVESTMENT LIFE SPAN.* One key to investing wisely is to reinvest all tax-free distributions in fund shares. This increases the number of shares on which you can earn future tax-free dividends, and you gain the benefit of compounding tax free. As of September 30, 1996, the Class A Shares' cumulative since inception (8/5/96) total return was 0.50%. Class B Shares' cumulative since inception (8/5/96) total return was 0.50%. Class C Shares' cumulative since inception (8/5/96) total return was 0.50%. Class F Shares' average annual one-year, five-year, and since inception (4/10/87) total returns were 1.41%, 5.87% and 7.11%, respectively. [Graphic] * Total return represents the change in the value of an investment after reinvesting all income and capital gains, and takes into account the 1% sales charge and the 1% contingent deferred sales charge for Class F Shares. Data quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) ONE STEP AT A TIME: $1,000 INVESTED EACH YEAR FOR NINE YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $13,824. With this approach, the key is consistency. If you had started investing $1,000 annually in Federated Municipal Opportunities Fund, Inc. on April 10, 1987, reinvested your dividends and capital gains, and didn't redeem any shares, you would have invested only $10,000, but your account would have reached a total value of $13,824* by August 31, 1996. You would have earned an average annual total return of 6.48%. A practical investment plan helps you pursue a high level of income through tax-free municipal bonds. Through systematic investing, you buy shares on a regular basis and reinvest all tax-free earnings. An investment plan works for you even if you invest only $1,000 annually. You can take it one step at a time. Put time, money, and compounding to work! [Graphic] * No method of investing can guarantee a profit or protect against loss in down markets. However, by investing regularly over time and buying shares at various prices, investors can purchase more shares at lower prices, and all accumulated shares have the ability to pay income to the investor. Because such a plan involves continuous investment, regardless of changing price levels, the investor should consider whether or not to continue purchases through periods of low price levels. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) INVESTING FOR TAX-FREE MONTHLY INCOME [Graphic] Fred and Margie Potter both work, and have no children. At the peak of their careers, this tax-sensitive couple was seeking a way to keep more of what they earn. On April 10, 1987, they invested $5,000 in Federated Municipal Opportunities Fund, Inc., and continue to invest $500 in the fund on the first of every month. As this chart shows, since that time, their investment has grown -- on a tax-free basis -- to $85,020 by August 31, 1996.* This represents a 6.43% average annual total return. For the Potters, the decision to invest tax-free has made the future worth waiting for. [Graphic] * Income may be subject to the federal alternative minimum tax and state and local taxes. This hypothetical scenario is provided for illustrative purposes only and does not represent the results obtained by any particular shareholder. Past performance does not guarantee future results. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) SERVING A WIDE RANGE OF INVESTORS FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. APPEALS TO A BROAD RANGE OF TAX-SENSITIVE INVESTORS SEEKING TAX-FREE CURRENT INCOME.* The fund invests primarily in a diversified portfolio of quality municipal bonds. Fund shares are not insured or guaranteed by the federal government, and the value of your investment may fluctuate. Mutual funds involve risk, including possible loss of principal. SOME OF THE FUND'S MAJOR SHAREHOLDER GROUPS INDIVIDUALS AND JOINT TENANTS $151,443,884 TRUSTS 29,677,391 CORPORATIONS 6,062,531 CUSTODIANS (UNDER UNIFORM GIFT TO MINORS ACTS) 1,879,308
* Income may be subject to the federal alternative minimum tax and state and local taxes. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) PORTFOLIO UPDATE [Graphic] * Represents the credit quality of the fund's portfolio of investments. As a percentage of total portfolio market value. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) GROWTH OF $10,000 INVESTED IN FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (CLASS F SHARES) The graph below illustrates the hypothetical investment of $10,000 in the Federated Municipal Opportunities Fund, Inc. (the "Fund") from April 10, 1987 (start of performance) to August 31, 1996 compared to the Lehman Brothers Revenue Bond Index (LBRBI). [Graphic] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 31, 1997, AND TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN, CONSTITUTES THE FUND'S ANNUAL REPORT. * Represents a hypothetical investment of $10,000 in the fund after deducting the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900). The fund's performance assumes the reinvestment of all dividends and distributions. The LBRBI has been adjusted to reflect reinvestment of dividends on securities in the index. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. The LBRBI is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the fund's performance. This index is unmanaged. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) PORTFOLIO OF INVESTMENTS AUGUST 31, 1996
PRINCIPAL CREDIT AMOUNT RATING* VALUE SHORT-TERM MUNICIPALS -- 0.3% $ 1,200,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs (Toyota Motor Credit Corp.) AAA $ 1,200,000 TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 1,200,000 LONG-TERM MUNICIPALS -- 97.9% ALABAMA -- 1.5% 6,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue Bonds (Series A), 6.375% (Champion International Corp.)/(Original Issue Yield: 6.52%), 3/1/2029 Baa1 5,869,680 ARKANSAS -- 2.2% 2,920,000 Conway, AR Hospital Authority, Revenue Bonds, 7.125% (Conway Regional Hospital), 2/1/2013 BBB 2,976,560 3,000,000 Conway, AR Hospital Authority, Revenue Refunding Bonds, 8.125% (Conway Regional Hospital), 7/1/2005 BBB 3,205,800 1,000,000 Conway, AR Hospital Authority, Revenue Refunding Bonds, 8.375% (Conway Regional Hospital), 7/1/2011 BBB 1,074,850 1,000,000 Little Rock, AR Health Facilities Board, Revenue Refunding Bonds, 7.00% (Baptist Medical Center, AR), 10/1/2017 A+ 1,062,400 Total 8,319,610 COLORADO -- 1.0% 695,000 Colorado HFA, SFM Revenue Bonds (Series A-2), 7.70% (FHA GTD), 2/1/2023 AA 729,250 2,775,000 Colorado HFA, SFM Revenue Bonds (Series C-2), 7.375% (FHA GTD), 8/1/2023 AA 2,891,162 295,000 El Paso County, CO HFA, SFM Revenue Bonds, 8.00% (GNMA COL), 9/1/2022 AAA 310,573 Total 3,930,985
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED IDAHO -- 1.1% $ 1,145,000 Idaho Housing Agency, SFM Revenue Bonds (Series A), 7.50% (FHA GTD), 7/1/2024 AA $ 1,193,823 2,785,000 Idaho Housing Agency, SFM Revenue Bonds (Series F-2), 7.80% (FHA GTD), 1/1/2023 AA 2,918,290 Total 4,112,113 ILLINOIS -- 4.6% 4,500,000 Granite City, IL Hospital Facilities Authority, Revenue Refunding Bonds (Series A), 8.125% (St. Elizabeth Medical Center)/(Original Issue Yield: 8.167%), 6/1/2008 Baa 4,637,520 3,000,000 Illinois Development Finance Authority, Housing Revenue Bonds, 6.10% (Catholic Charities Housing Development Corp), 1/1/2020 NR 2,667,210 10,000,000 Illinois Health Facilities Authority, Hospital Revenue Bonds (Series A), 9.25% (Edgewater Hospital & Medical Center, IL), 7/1/2024 NR 10,459,300 Total 17,764,030 INDIANA -- 9.3% 3,000,000 Indiana Port Commission, Port Facility Revenue Refunding Bonds, 6.875% (Cargill, Inc.), 5/1/2012 Aa3 3,232,500 855,000 Indiana State HFA, SFM Revenue Bonds (Series A), 8.20% (GNMA COL), 7/1/2020 Aaa 902,410 2,785,000 Indiana State HFA, SFM Revenue Home Mortgage Program (Series F-2), 7.75% (GNMA COL), 7/1/2022 Aaa 2,941,406 17,100,000 Indianapolis, IN Airport Authority, Special Facilities Revenue Bonds, 7.10% (Federal Express Corp.)/ (Original Issue Yield: 7.178%), 1/15/2017 Baa2 18,041,355 2,750,000 LaPorte County, IN Hospital Authority, Hospital Facilities Revenue Refunding Bond, 8.75% (LaPorte Hospital, Inc., IN)/(United States Treasury PRF)/ (Original Issue Yield: 8.848%), 3/1/1997 (@102) Aaa 2,870,780
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED INDIANA -- CONTINUED $ 5,000,000 LaPorte County, IN Hospital Authority, Hospital Facility Revenue Refunding Bonds, 6.00% (LaPorte Hospital, Inc., IN)/(Original Issue Yield: 6.35%), 3/1/2023 Baa1 $ 4,587,750 3,000,000 LaPorte County, IN Hospital Authority, Hospital Facility Revenue Refunding Bonds, 6.25% (LaPorte Hospital, Inc., IN)/(Original Issue Yield: 6.35%), 3/1/2012 Baa1 2,908,350 Total 35,484,551 IOWA -- 0.3% 1,000,000 Davenport, IA PCA, PCR Refunding Bonds, Nicols- Homeshield Project, 8.375% (Quanex Corp.), 12/1/2005 NR 1,057,090 KENTUCKY -- 1.3% 3,500,000 Kenton County, KY Airport Board, Special Facilities Revenue Bonds (Series A), 7.50% (Delta Air Lines, Inc.)/ (Original Issue Yield: 7.60%), 2/1/2020 Ba3 3,729,600 LOUISIANA -- 6.7% 3,000,000 De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds, 7.70% (International Paper Co.), 11/1/2018 A3 3,381,990 5,000,000 Lake Charles, LA Harbor & Terminal District, Port Facilities Revenue Refunding Bond, Trunkline Lining Co Project, 7.75% (Panhandle Eastern Corp.), 8/15/2022 Baa3 5,598,550 5,645,000 St. Charles Parish, LA, PCR Bonds, 7.50% (Louisiana Power & Light Co.)/(Original Issue Yield: 7.542%), 6/1/2021 Baa2 5,956,660 1,400,000 St. Charles Parish, LA, PCR Bonds, 8.00% (Louisiana Power & Light Co.), 12/1/2014 Baa2 1,523,914 2,100,000 St. Charles Parish, LA, PCR Bonds, 8.25% (Louisiana Power & Light Co.)/(Original Issue Yield: 8.273%), 6/1/2014 Baa2 2,289,462
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED LOUISIANA -- CONTINUED $ 3,650,000 St. Charles Parish, LA, Solid Waste Disposal Revenue Bonds (Series A), 7.00% (Louisiana Power & Light Co.)/ (Original Issue Yield: 7.04%), 12/1/2022 Baa2 $ 3,758,770 3,000,000 St. James Parish, LA, Solid Waste Disposal Revenue Bonds, 7.70% (Freeport McMoRan, Inc.)/(Original Issue Yield: 7.75%), 10/1/2022 NR 3,049,200 Total 25,558,546 MAINE -- 1.2% 4,200,000 Maine State Housing Authority, Revenue Bonds (Series D-3), 8.20%, 11/15/2019 A+ 4,418,778 MASSACHUSETTS -- 3.0% 21,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series A), 9.00% (Massachusetts Recycling Association), 8/1/2016 NR 11,350,500 MICHIGAN -- 0.4% 1,500,000 Western Townships MI, Utilities Authority, LT GO Sewer Disposal System Bonds, 8.20%, 1/1/2018 BBB+ 1,639,890 MINNESOTA -- 6.0% 1,640,000 Minnesota State HFA, SFM Revenue Bonds (Series A), 7.95% (FHA GTD), 7/1/2022 AA 1,730,167 585,000 Minnesota State HFA, SFM Revenue Bonds (Series D), 8.05% (FHA GTD), 8/1/2018 AA 601,930 3,000,000 Minnesota State HFA, SFM Revenue Bonds (Series E), 6.85%, 1/1/2024 AA 3,094,860 10,000,000 Southern Minnesota Municipal Power Agency, Supply System Revenue Bonds (Series A), 4.75% (MBIA INS)/ (Original Issue Yield: 5.52%), 1/1/2016 AAA 8,751,300
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 9,000,000 St. Paul, MN Housing & Redevelopment Authority , Hospital Revenue Refunding Bonds (Series A), 6.625% (Healtheast, MN)/(Original Issue Yield: 6.687%), 11/1/2017 Baa $ 8,952,300 Total 23,130,557 MONTANA -- 0.3% 1,130,000 Montana State Board of Housing, SFM Revenue Bonds (Series B-2), 7.50% (FHA GTD), 4/1/2023 Aa 1,174,918 NEW HAMPSHIRE -- 5.5% 9,000,000 New Hampshire Higher Educational & Health Facilities Authority, Hospital Revenue Bonds, 6.00% (Nashua Memorial Hospital, NH)/(Original Issue Yield: 6.40%), 10/1/2023 A- 8,456,670 1,265,000 New Hampshire State HFA, SFM Revenue Bonds (Series B), 7.75%, 7/1/2023 A+ 1,328,958 6,520,000 New Hampshire State HFA, SFM Revenue Bonds (Series D), 7.25%, 7/1/2015 A+ 6,759,871 2,865,000 New Hampshire State IDA, PCR Bonds ( Series A), 8.00% (United Illuminating Co.), 12/1/2014 Baa3 3,040,710 1,500,000 New Hampshire State IDA, PCR Bonds (Series B), 10.75% (United Illuminating Co.), 10/1/2012 Baa3 1,617,465 Total 21,203,674 NEW YORK -- 1.9% 2,500,000 New York State Energy Research & Development Authority, Electric Facilities Revenue Bonds (Series A), 7.50% (Consolidated Edison Co.)/(Original Issue Yield: 7.65%), 1/1/2026 AA- 2,688,875 5,000,000 New York State Environmental Facilities Corp., Solid Waste Disposal Revenue Bonds, 6.10% (Occidental Petroleum Corp.)/(Original Issue Yield: 6.214%), 11/1/2030 Baa3 4,763,750 Total 7,452,625
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED NORTH CAROLINA -- 1.9% $ 1,500,000 Haywood County, NC Industrial Facilities & Pollution Control Financing Authority, (Series A) Revenue Bonds, 5.75% (Champion International Corp.)/(Original Issue Yield: 5.975%), 12/1/2025 Baa1 $ 1,372,530 6,000,000 Martin County, NC IFA, (Series 1995) Solid Waste Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.), 11/1/2025 A2 5,886,000 Total 7,258,530 NORTH DAKOTA -- 0.7% 2,635,000 North Dakota State HFA, SFM Revenue Bonds (Series C), 7.30%, 7/1/2024 Aa 2,726,171 OHIO -- 0.4% 500,000 Ohio State Water Development Authority, PCR Bonds (Series A), 8.10% (Ohio Edison Co.)/(Original Issue Yield: 8.142%), 10/1/2023 Baa3 530,100 1,250,000 Ohio State Water Development Authority, PCR Bonds (Series A-1), 9.75% (Cleveland Electric Illuminating Co.), 11/1/2022 Ba2 1,293,500 Total 1,823,600 OKLAHOMA -- 3.2% 4,585,000 Jackson County, OK Hospital Authority, Hospital Revenue Refunding Bonds, 7.30% (Jackson County Memorial Hospital, OK)/(Original Issue Yield: 7.40%), 8/1/2015 BBB- 4,415,768 1,250,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.375% (American Airlines), 12/1/2020 Baa2 1,316,875 6,200,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60% (American Airlines)/(Original Issue Yield: 7.931%), 12/1/2030 Baa2 6,611,990 Total 12,344,633
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED PENNSYLVANIA -- 13.9% $ 3,000,000 Allegheny County, PA HDA, Health & Education Revenue Bonds, 7.00% (Rehabilitation Institute of Pittsburgh)/(Original Issue Yield: 7.049%), 6/1/2010 BBB $ 3,061,110 2,500,000 Allegheny County, PA HDA, Health & Education Revenue Bonds, 7.00% (Rehabilitation Institute of Pittsburgh)/(Original Issue Yield: 7.132%), 6/1/2022 BBB 2,533,875 5,370,000 Allegheny County, PA Higher Education, Building Authority Revenue Bonds, 7.375% (La Roche College), 7/15/2012 NR 5,516,655 1,690,000 Allegheny County, PA IDA, Revenue Bonds, 8.75% (United Parcel Service), 2/15/2009 NR 1,780,162 665,000 Allegheny County, PA Residential Finance Agency, Mortgage Revenue Bonds (Series G), 9.50% (GNMA COL), 12/1/2018 Aaa 697,332 3,000,000 Delaware County Authority, PA, College Revenue Bonds, 7.25% (Eastern College)/(United States Treasury PRF)/(Original Issue Yield: 7.875%), 3/1/2012 NR 3,377,070 2,055,000 Erie County, PA Hospital Authority, Revenue Bonds, 7.50% (Erie Infants & Youth Home, Inc.), 10/1/2011 NR 2,112,951 1,730,000 Northeastern, PA Hospital & Education Authority, College Revenue Refunding Bonds (Series B), 6.00% (Kings College, PA)/(Original Issue Yield: 6.174%), 7/15/2018 BBB 1,598,364 10,000,000 Pennsylvania EDFA, Wastewater Treatment Revenue Bonds (Series A), 7.60% (Sun Co., Inc.)/(Original Issue Yield: 7.653%), 12/1/2024 Baa1 11,009,800 6,000,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds (Series 34-B), 7.00% (FHA VA GTD), 4/1/2024 Aa 6,242,460 2,660,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds (Series 28), 7.65% (FHA GTD), 10/1/2023 Aa 2,797,495
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED PENNSYLVANIA -- CONTINUED $ 1,740,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenue Bonds, 6.75% (Thiel College ), 9/1/2017 NR $ 1,801,022 3,250,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenue Refunding Bonds (Series A), 6.10% (Allegheny College, Meadville, PA)/(Original Issue Yield: 6.23%), 11/1/2008 BBB+ 3,202,030 1,200,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 1996), 7.15% (Thiel College ), 5/15/2015 NR 1,205,952 3,875,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series A), 7.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/ (Original Issue Yield: 7.45%), 3/1/2021 AAA 4,335,854 1,750,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series A), 8.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/ (Original Issue Yield: 8.448%), 3/1/2011 Baa1 1,940,803 Total 53,212,935 SOUTH CAROLINA -- 0.2% 810,000 South Carolina State Housing Finance & Development Authority, Homeownership Mortgage Revenue Bonds (Series A), 7.40% (FHA GTD), 7/1/2023 Aa 840,586 TENNESSEE -- 4.4% 2,475,000 Memphis-Shelby County, TN, Airport Refunding Revenue Bonds, 6.75% (Federal Express Corp.), 9/1/2012 Baa2 2,572,020 3,100,000 Springfield, TN, Health & Educational Facilities Board, Hospital Revenue Bonds, 8.25% (Jesse Holman Jones Hospital Corp, TN)/(Original Issue Yield: 8.50%), 4/1/2012 NR 3,266,036
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED TENNESSEE -- CONTINUED $ 7,800,000 Springfield, TN, Health & Educational Facilities Board, Hospital Revenue Bonds, 8.50% (Jesse Holman Jones Hospital Corp, TN)/(Original Issue Yield: 8.875%), 4/1/2024 NR $ 8,212,464 2,825,000 Tennessee Housing Development Agency, Homeowner- ship Program, Issue V Revenue Bonds, 7.65%, 7/1/2022 Aa 2,936,362 Total 16,986,882 TEXAS -- 14.9% 2,500,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 Baa2 2,743,225 1,800,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 8.125% (Texas Utilities Electric Co.), 2/1/2020 Baa2 1,966,104 7,320,000 Dallas-Fort Worth, TX, International Airport Facilities, Revenue Bonds, 7.125% (Delta Air Lines, Inc.)/(Original Issue Yield: 7.55%), 11/1/2026 Ba3 7,564,781 3,000,000 Dallas-Fort Worth, TX, International Airport Facilities, Revenue Bonds, 7.25% (American Airlines)/(Original Issue Yield: 7.428%), 11/1/2030 Baa2 3,165,180 2,370,000 Dallas-Fort Worth, TX, International Airport Facilities, Revenue Bonds, 7.50% (American Airlines)/(Original Issue Yield: 8.20%), 11/1/2025 Baa2 2,507,105 2,500,000 Dallas-Fort Worth, TX, International Airport Facilities, Revenue Bonds, 7.625% (Delta Air Lines, Inc.)/(Original Issue Yield: 7.65%), 11/1/2021 Ba3 2,673,000 1,000,000 Guadalupe-Blanco River Authority TX, Industrial Development Corp PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 NR 1,051,630 2,500,000 Guadalupe-Blanco River Authority TX, Industrial Development Corp., PCR Bonds, 8.60% (A.P. Green Industries), 4/1/2009 NR 2,683,200
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED TEXAS -- CONTINUED $ 5,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds (Series A), 6.875% (Champion International Corp.)/(Original Issue Yield: 7.15%), 12/1/2028 Baa1 $ 5,132,350 20,000,000 Houston, TX Water & Sewer System, Junior Lien Refunding Revenue Bonds (Series A), 5.25% (FGIC INS)/(Original Issue Yield: 5.60%), 12/1/2025 Aaa 18,365,800 7,630,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement Bonds, 6.75% (Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 Baa 7,613,824 1,700,000 Tyler, TX Health Facilities Development Corp., Revenue Bonds, 6.75% (East Texas Medical Center)/(Original Issue Yield: 7.00%), 11/1/2025 Baa 1,696,124 Total 57,162,323 UTAH -- 5.8% 20,000,000 Intermountain Power Agency, UT, Refunding Revenue Bonds (Series A), 5.00% (Original Issue Yield: 5.687%), 7/1/2023 Aa 17,240,200 980,000 Utah State HFA, SFM Revenue Bonds (Series B-3), 7.10%, 7/1/2024 AA 1,013,722 1,445,000 Utah State HFA, SFM Revenue Bonds (Series E-2), 7.15% (FHA GTD)/(Original Issue Yield: 7.169%), 7/1/2024 AA 1,498,942 1,860,000 Utah State HFA, SFM Revenue Bonds, 7.55% (FHA GTD), 7/1/2023 AA 1,950,619 455,000 Utah State HFA, SFM Revenue Bonds, 7.75% (FHA GTD), 1/1/2023 AA 477,532 Total 22,181,015
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS -- CONTINUED WASHINGTON -- 5.5% $ 4,250,000 Pierce County, WA Economic Development Corp., Solid Waste Revenue Bond, 5.80% (Occidental Petroleum Corp.)/(Original Issue Yield: 5.90%), 9/1/2029 Baa2 $ 3,803,070 4,075,000 Pilchuck Development Public Corp., WA, Special Facilities Airport Revenue Bonds (Series 1993),Tramco, Inc. Project, 6.00% (Goodrich (B.F.) Co.), 8/1/2023 Baa1 3,837,957 4,300,000 Port of Camas-Washougal, WA, PCR Refunding Bonds (Series 1993), 6.70% (James River Project, WA)/ (Original Issue Yield: 6.75%), 4/1/2023 BBB+ 4,323,306 10,000,000 Washington State, UT GO (Series A), 5.375% (Original Issue Yield: 6.00%), 7/1/2021 Aa 9,313,100 Total 21,277,433 WEST VIRGINIA -- 0.6% 5,000,000 Marion County, WV County Commission, Solid Waste Facility Revenue Bonds (Series 1993), 7.75% (American Power Paper Recycling), 12/1/2011 NR 2,429,198 WISCONSIN -- 0.2% 565,000 Wisconsin Housing & Economic Development Authority, Homeownership Revenue Bonds (Series E), 8.00% (FHA GTD)/(Original Issue Yield: 8.044%), 3/1/2021 Aa 579,683 TOTAL LONG-TERM MUNICIPALS (AT IDENTIFIED COST $378,538,281) 375,020,136 TOTAL INVESTMENTS (IDENTIFIED COST $379,738,281)(A) $376,220,136
(a) The cost of investments for federal tax purposes amounts to $379,738,281. The net unrealized depreciation of investments on a federal tax basis amounts to $3,518,145 which is comprised of $12,297,397 appreciation and $15,815,542 depreciation at August 31, 1996. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. Note: The categories of investments are shown as a percentage of net assets ($383,029,178) at August 31, 1996. The following acronyms 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 -- Guaranty 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 which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1996 ASSETS: Total investments in securities, at value (identified and tax cost $379,738,281) $ 376,220,136 Cash 32,391 Income receivable 6,897,754 Receivable for shares sold 273,742 Total assets 383,424,023 LIABILITIES: Payable for shares redeemed $ 270,076 Income distribution payable 942 Accrued expenses 123,827 Total liabilities 394,845 NET ASSETS for 37,075,326.989 shares outstanding $ 383,029,178 NET ASSETS CONSIST OF: Paid in capital $ 396,114,211 Net unrealized depreciation of investments (3,518,145) Accumulated net realized loss on investments (10,340,450) Undistributed net investment income 773,562 Total Net Assets $ 383,029,178 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: CLASS A SHARES: Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33 Offering Price Per Share (100/95.50 of $10.33)* $10.82 Redemption Proceeds Per Share $10.33 CLASS B SHARES: Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33 Offering Price Per Share* $10.33 Redemption Proceeds Per Share (94.50/100 of $10.33)** $9.76 CLASS C SHARES: Net Asset Value Per Share ($296.01 O 28.663 shares outstanding) $10.33 Offering Price Per Share* $10.33 Redemption Proceeds Per Share (99.00/100 of $10.33)** $10.23 CLASS F SHARES: Net Asset Value Per Share ($383,028,290 O 37,075,241 shares outstanding) $10.33 Offering Price Per Share (100/99.00 of $10.33)* $10.43 Redemption Proceeds Per Share (99.00/100 of $10.33)** $10.23
* See "What Shares Cost" in the Prospectus. ** See "Contingent Deferred Sales Charge" in the Prospectus. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1996 INVESTMENT INCOME: Interest $ 28,818,178 EXPENSES: Investment advisory fee $ 2,475,132 Administrative personnel and services fee 311,976 Custodian fees 72,027 Transfer and dividend disbursing agent fees and expenses 235,048 Directors'/Trustees' fees 14,008 Auditing fees 15,800 Legal fees 5,306 Portfolio accounting fees 103,705 Shareholder services fee -- Class F Shares 1,031,305 Share registration costs 58,932 Printing and postage 75,552 Insurance premiums 8,526 Taxes 60,672 Miscellaneous 13,080 Total expenses 4,481,069 Waivers -- Waiver of shareholder services fee -- Class F Shares (41,252) Net expenses 4,439,817 Net investment income 24,378,361 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (116,813) Net change in unrealized depreciation of investments (13,721,871) Net realized and unrealized loss on investments (13,838,684) Change in net assets resulting from operations $ 10,539,677
(See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 24,378,361 $ 26,526,286 Net realized gain (loss) on investments ($3,794,684 and $5,647,830, net losses respectively, as computed for federal tax purposes) (116,813) (5,755,376) Net change in unrealized appreciation (depreciation) (13,721,871) 9,394,163 Change in net assets resulting from operations 10,539,677 30,165,073 NET EQUALIZATION CREDITS (DEBITS) -- (42,870) (83,189) DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Class F Shares (24,971,054) (25,975,624) SHARE TRANSACTIONS -- Proceeds from sale of shares 20,142,447 37,161,759 Net asset value of shares issued to shareholders in payment of distributions declared 14,912,188 11,961,548 Cost of shares redeemed (63,560,851) (99,451,503) Change in net assets resulting from share transactions (28,506,216) (50,328,196) Change in net assets (42,980,463) (46,221,936) NET ASSETS: Beginning of period 426,009,641 472,231,577 End of period (including undistributed net investment income of $773,562 and $1,409,125, respectively) $ 383,029,178 $ 426,009,641
(See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) FINANCIAL HIGHLIGHTS -- CLASS A SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 37.
PERIOD ENDED AUGUST 31, 1996(A) NET ASSET VALUE, BEGINNING OF PERIOD $10.42 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.08 Net realized and unrealized gain (loss) on investments (0.12) Total from investment operations (0.04) LESS DISTRIBUTIONS Distributions from net investment income (0.05) NET ASSET VALUE, END OF PERIOD $10.33 TOTAL RETURN(B) (0.36%) RATIOS TO AVERAGE NET ASSETS Expenses 0.84%* Net investment income 6.15%* SUPPLEMENTAL DATA Net assets, end of period $296 Portfolio turnover 22%
* Computed on an annualized basis. (a) Reflects operations for the period from August 5, 1996 (date of initial public offering) to August 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) FINANCIAL HIGHLIGHTS -- CLASS B SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 37.
PERIOD ENDED AUGUST 31, 1996(A) NET ASSET VALUE, BEGINNING OF PERIOD $10.42 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.08 Net realized and unrealized gain (loss) on investments (0.12) Total from investment operations (0.04) LESS DISTRIBUTIONS Distributions from net investment income (0.05) NET ASSET VALUE, END OF PERIOD $10.33 TOTAL RETURN(B) (0.36%) RATIOS TO AVERAGE NET ASSETS Expenses 0.84%* Net investment income 6.15%* SUPPLEMENTAL DATA Net assets, end of period $296 Portfolio turnover 22%
* Computed on an annualized basis. (a) Reflects operations for the period from August 5, 1996 (date of initial public offering) to August 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) FINANCIAL HIGHLIGHTS -- CLASS C SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 37.
PERIOD ENDED AUGUST 31, 1996(A) NET ASSET VALUE, BEGINNING OF PERIOD $10.42 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.08 Net realized and unrealized gain (loss) on investments (0.12) Total from investment operations (0.04) LESS DISTRIBUTIONS Distributions from net investment income (0.05) NET ASSET VALUE, END OF PERIOD $10.33 TOTAL RETURN(B) (0.36%) RATIOS TO AVERAGE NET ASSETS Expenses 0.84%* Net investment income 6.15%* SUPPLEMENTAL DATA Net assets, end of period $296 Portfolio turnover 22%
* Computed on an annualized basis. (a) Reflects operations for the period from August 5, 1996 (date of initial public offering) to August 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) FINANCIAL HIGHLIGHTS -- CLASS F SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 37.
YEAR ENDED AUGUST 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(A) NET ASSET VALUE, BEGINNING $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23 $9.76 $10.07 $10.00 OF PERIOD INCOME FROM INVESTMENT OPERATIONS Net investment income 0.69 0.63 0.61 0.62 0.66 0.70 0.72 0.74 0.78 0.26 Net realized and unrealized gain (loss) on (0.42) 0.15 (0.73) 0.51 0.39 0.40 (0.23) 0.49 (0.36) 0.07 investments Total from invest- ment operations 0.27 0.78 (0.12) 1.13 1.05 1.10 0.49 1.23 0.42 0.33 LESS DISTRIBUTIONS Distributions from net investment (0.65) (0.63) (0.60) (0.63) (0.66) (0.71) (0.72) (0.76) (0.73) (0.26) income NET ASSET VALUE, END OF PERIOD $10.33 $10.71 $10.56 $11.28 $10.78 $10.39 $10.00 $10.23 $9.76 $10.07 TOTAL RETURN(B) 2.47% 7.73% (1.06%) 10.86% 10.45% 11.37% 4.98% 13.09% 4.43% 3.48% RATIOS TO AVERAGE NET ASSETS Expenses 1.08% 1.08% 1.09% 1.09% 1.05% 1.02% 1.01% 0.90% 1.02% 0.86%* Net investment income 5.91% 6.18% 5.56% 5.65% 6.18% 6.86% 7.07% 7.27% 8.03% 7.14%* Expense waiver/ reimbursement(c) 0.01% 0.00% 0.00% 0.00% 0.14% 0.33% 0.39% 0.83% 0.70% 0.29%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $383,028 $426,010 $472,232 $458,331 $248,768 $135,628 $89,907 $62,501 $25,151 $22,829 Portfolio 22% 13% 27% 7% 14% 18% 24% 24% 34% 0% turnover
* Computed on an annualized basis. (a) Reflects operations for the period from April 10, 1987, (date of initial public investment) to August 31, 1987. For the period from the start of business, April 1, 1987 to April 9, 1987, net investment aggregating $0.01 per share was distributed to the Fund's investment adviser. Such distribution represented the net investment income of the Fund prior to the initial public offering of the Fund shares which commenced on April 10, 1987. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996 1. ORGANIZATION Federated Municipal Opportunities Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The investment objective is to provide a high level of current income which is generally exempt from federal regular income tax. The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares, and Class F Shares. Effective March 31, 1996, the Board of Directors (the "Directors") changed the name of the Fund from Fortress Municipal Income Fund, Inc. to Federated Municipal Opportunities Fund, Inc. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. All other securities are valued at the prices provided by an independent pricing service. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for expiring capital loss carryforwards. The following reclassifications have been made to the financial statements.
INCREASE (DECREASE) ACCUMULATED NET REALIZED PAID-IN CAPITAL GAIN/LOSS $(661,371) $661,371
Net investment income, net realized gains/losses, and net assets were not affected by this reclassification. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At August 31, 1996, the Fund, for federal tax purposes, had a capital loss carryforward of $10,340,451, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT 1998 $ 168,972 1999 47,025 2000 68,565 2001 57,182 2002 556,193 2003 5,647,830 2004 3,794,684
EQUALIZATION -- The Fund follows the accounting practice known as equalization. With equalization, a portion of the proceeds from sales and costs of redemptions of fund shares equivalent (on a per share basis) to the amount of undistributed net investment income on the date of the transaction is credited or charged to undistributed net investment income. As a result, undistributed net investment income per share is unaffected by sales or redemptions of fund shares. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. CAPITAL STOCK At August 31, 1996, par value shares ($ 0.001 per share) authorized were as follows:
NUMBER OF PAR VALUE SHARE CLASS NAME CAPITAL STOCK AUTHORIZED Class A Shares 500,000,000 Class B Shares 500,000,000 Class C Shares 500,000,000 Class F Shares 500,000,000
Transactions in capital stock were as follows:
YEAR ENDED AUGUST 31, 1996(A) 1995 CLASS A SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 28.662 $299.97 -- -- Shares issued to shareholders in payment of distributions declared 0.049 0.51 -- -- Shares redeemed (0.048) (0.50) -- -- Net change resulting from Class A Share transactions 28.663 $299.98 -- --
YEAR ENDED AUGUST 31, 1996(A) 1995 CLASS B SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 28.662 $299.97 -- -- Shares issued to shareholders in payment of distributions declared 0.049 0.51 -- -- Shares redeemed (0.048) (0.50) -- -- Net change resulting from Class B Share transactions 28.663 $299.98 -- --
YEAR ENDED AUGUST 31, 1996(A) 1995 CLASS C SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 28.662 $299.97 -- -- Shares issued to shareholders in payment of distributions declared 0.049 0.51 -- -- Shares redeemed (0.048) (0.50) -- -- Net change resulting from Class C Share transactions 28.663 $299.98 -- --
(a) For the period from August 5, 1996 to August 31, 1996.
YEAR ENDED AUGUST 31, 1996 1995 CLASS F SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 1,882,962 $ 20,141,547 3,617,186 37,161,759 Shares issued to shareholders in payment of distributions declared 1,401,501 14,912,186 1,156,534 11,961,548 Shares redeemed (5,975,778) (63,560,849) (9,728,597) (99,451,503) Net change resulting from Class F Share transactions (2,691,315) $(28,507,116) (4,954,877) $(50,328,196) Net change resulting from Fund share transactions (2,691,229.011) $(28,506,216) (4,954,877) $(50,328,196)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.60% of the Fund's average daily net assets. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of daily average net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended August 31, 1996, the Corporation engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $64,500,000 and $72,369,964 respectively. GENERAL -- Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies. 5. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term for the period ended August 31, 1996, were as follows: PURCHASES $ 90,100,358 SALES $ 119,296,935
6. INVESTMENT RISK INVESTMENT RISK -- Although the Fund has a diversified portfolio, the Fund has 21% of its portfolio invested in lower rated and comparable quality unrated high yield securities. Investments in higher yield securities are accomplished by a greater degree of credit risk and the risk tends to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. The Fund held no defaulted securities at August 31, 1996. 7. SUBSEQUENT EVENT On April 2, 1996, the Fund filed a proxy statement with the Security Exchange Commission which seeks shareholder approval to acquire the assets of State Bond Minnesota Tax-Free Income Fund and State Bond Tax Exempt Fund. As of August 31, 1996, these Funds had assets of approximately 19,208,906 and 80,622,957, respectively. INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (formerly, FORTRESS MUNICIPAL INCOME FUND): We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Municipal Opportunities Fund, Inc. as of August 31, 1996, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended August 31, 1996 and 1995, and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at August 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Federated Municipal Opportunity Fund, Inc. as of August 31, 1996, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania October 11, 1996 DIRECTORS John F. Donahue Thomas G. Bigley John T. Conroy, Jr. William J. Copeland James E. Dowd Lawrence D. Ellis, M.D. Richard B. Fisher Edward L. Flaherty, Jr. Peter E. Madden Gregor F. Meyer John E. Murray, Jr. Wesley W. Posvar Marjorie P. Smuts OFFICERS John F. Donahue Chairman Richard B. Fisher President J. Christopher Donahue Executive Vice President Edward C. Gonzales Executive Vice President John W. McGonigle Executive Vice President, Treasurer, and Secretary Douglas L. Hein Assistant Treasurer S. Elliott Cohan Assistant Secretary Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information. [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 313910200 Cusip 313910309 Cusip 313910408 Cusip 313910101 G01091-01 (10/96) FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.) ADDENDUM TO THE ANNUAL REPORT DATED AUGUST 31, 1996 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. Amendment to Annual Report for the year ended August 31, 1996 Since the publication of the Annual Report, there have been significant developments regarding two of the securities held by the Fund. The Fund and its investment adviser have determined that the Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series A), 9.00% (Massachusetts Recycling Association), due 8/1/2016, and the Marion County, WV County Commission, Solid Waste Facility Revenue Bonds (Series 1993), 7.75% (American Power Paper Recycling), due 12/1/2011, should no longer be accounted for as income producing securities. For this reason, accrued interest from these issues will no longer be included in the calculation of the Fund's total return or performance yield. These issues are dependent upon revenue from de-inking plants, which convert office waste paper to recycled, marketable pulp. As discussed in the first answer on page 5 of the Annual Report, weakness in pulp prices drove down the value of these bonds over the past 12 months. The Fund is engaged in discussions with the management of these projects regarding amounts that bondholders may recover on these bonds. November 1, 1996 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 313910200 G01628-02 (11/96) -----END PRIVACY-ENHANCED MESSAGE-----