-----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, QehtzmQbWHETgjuWZsv4CG2k+T9CUNELGfhfq4TjjPZqxKm3J2nwkZKXtyg490j6 xhE/0BMYCPn8BhEISL9/zw== 0000807607-98-000006.txt : 19981002 0000807607-98-000006.hdr.sgml : 19981002 ACCESSION NUMBER: 0000807607-98-000006 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19981001 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: 485APOS SEC ACT: SEC FILE NUMBER: 033-11410 FILM NUMBER: 98719525 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-04533 FILM NUMBER: 98719526 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122888515 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWERS CITY: PITTSBURG STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD MUNICIPAL FUND INC DATE OF NAME CHANGE: 19900814 FORMER COMPANY: FORMER CONFORMED NAME: FORTRESS HIGH YIELD TAX FREE FUND INC DATE OF NAME CHANGE: 19881024 485APOS 1 1933 Act File No. 33-11410 1940 Act File No. 811-4533 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X --- Pre-Effective Amendment No. .._____ Post-Effective Amendment No. 20 .__X__ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 __X__ Amendment No. 19 .__X__ FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (Exact Name of Registrant as Specified in Charter) Federated Investors Funds 5800 Corporate Drive Pittsburgh, Pennsylvania 15237-7000 (Address of Principal Executive Offices) (412) 288-1900 (Registrant's Telephone Number) John W. McGonigle, Esquire, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b). on _________________, pursuant to paragraph (b). 60 days after filing pursuant to paragraph (a)(i). X on November 30, 1998, pursuant to paragraph (a)(i). 75 days after filing pursuant to paragraph (a)(ii). on _________________, pursuant to paragraph (a)(ii) of Rule 485. If appropriate, check the following box: This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Copies to: Matthew G. Maloney, Esquire Dickstein Shapiro Morin & Oshinsky, LLP 2101 L Street, N.W. Washington, D.C. 20037 CROSS-REFERENCE SHEET This Amendment to the Registration Statement of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., which is comprised of four classes of shares, (1) Class A Shares; (2) Class B Shares; (3) Class C Shares; and (4) Class F Shares, is comprised of the following: PART A. INFORMATION REQUIRED IN A PROSPECTUS. Prospectus Heading (Rule 404(c) Cross Reference) Item 1. Cover Page....................(1-4) Cover Page. Item 2. Synopsis (1-4) Summary of Fund Expenses. Item 3. Condensed Financial Information (1-4) Financial Highlights; (1-4) Performance Information. Item 4. General Description of Registrant (1-4) General Information; (1-4) Year 2000 Statement; (1-4) Investment Information; (1-4) Investment Objective; (1-4) Investment Policies; (1-4) Investment Risks; (1-4) High Yield Securities; (1-4) Reducing Risks of Lower Rated Securities;(1-4) Investment Limitations. Item 5. Management of the Fund (1-4) Fund Information; (1-4) Management of the Fund; (1-3) Distribution of Shares; (4) Distribution of Class F Shares; (1-4) Distribution Plan and Shareholder Services; (1-4) Supplemental Payments to Financial Institutions; (1-4) Administration of the Fund; (1-4) Administrative Services. Item 6. Capital Stock and Other Securities (1-4) General Information; (1-4) Calling the Fund; (1-4) Account and Share Information; (1-4) Dividends and Distributions; (1-4) Shareholder Information; (1-4) Tax Information; (1-4) Federal Income Tax; (1-4) State and Local Taxes. Item 7. Purchase of Securities Being Offered (1-4) Net Asset Value; (1-4) Investing in the Fund; (1-4) Purchasing Shares; (1-4) Purchasing Shares Through a Financial Intermediary; (1-4) Purchasing Shares by Wire; (1-4) Purchasing Shares by Check; (1-4) Systematic Investment Program; (4) Eliminating the Sales Charge; (1) Class A Shares; (2) Class B Shares; (3) Class C Shares; (1-4) Account and Share Information; (1-4) Confirmations and Account Statements. Item 8. Redemption or Repurchase (1-4) Redeeming and Exchanging Shares; (1-4) Redeeming or Exchanging Shares Through a Financial Intermediary; (1-4) Redeeming or Exchanging Shares by Telephone; (1-4) Redeeming or Exchanging Shares by Mail; (1-4) Requirements for Redemption; (1-4) Requirements for Exchange; (1-4) Systematic Withdrawal Program; (1-3) Systematic Withdrawal Program ("SWP") on Class B Shares; (1-4) Contingent Deferred Sales Charge; (1-4) Account and Share Information;(1-4) Accounts With Low Balances. Item 9. Pending Legal Proceedings None. PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION. Item 10. Cover Page....................(1-4) Cover Page. Item 11. Table of Contents (1-4) Table of Contents. Item 12. General Information and History (1-4) General Information About the Fund; (1-4) About Federated Investors, Inc. Item 13. Investment Objectives and Policies (1-4) Investment Objective and Policies; (1-4) Investment Limitations. Item 14. Management of the Fund (1-4) Federated Municipal High Income Bond Fund, Inc. Management; (1-4) Directors' Compensation. Item 15. Control Persons and Principal Holders of Securities (1-4) Fund Ownership. Item 16. Investment Advisory and Other Services (1-4) Investment Advisory Services; (1-4) Other Services. Item 17. Brokerage Allocation (1-4) Brokerage Transactions. Item 18. Capital Stock and Other Securities Not applicable. Item 19. Purchase, Redemption and Pricing of Securities Being Offered (1-4) Purchasing Shares; (1-4) Determining Net Asset Value; (1-4) Redeeming Shares. Item 20. Tax Status (1-4) Tax Status. Item 21. Underwriters (1-4) Distribution Plan and Shareholder Services. Item 22. Calculation of Performance Data (1-4) Total Return; (1-4) Yield; (1-4) Tax-Equivalent (1-4) Yield; (1-4) Performance Comparisons. Item 23. Financial Statements To be filed by Amendment. Federated Municipal High Income Bond Fund, Inc. Class A Shares, Class B Shares, Class C Shares Prospectus The shares of Federated Municipal High Income Bond Fund, Inc. (the "Fund") represent interests in a diversified, open-end, management investment company (a mutual fund) that seeks a high level of current income exempt from the federal regular income tax by investing primarily in a professionally managed, diversified portfolio of municipal bonds. The shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks, including the possible loss of principal. This prospectus contains the information you should read and know before you invest in Class A Shares, Class B Shares, and Class C Shares of the Fund. Keep this prospectus for future reference. The Fund may invest primarily in lower rated municipal bonds, commonly referred to as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and interest than investments in higher rated municipal securities. Purchasers should carefully assess the risks associated with an investment in this Fund. The Fund's investment adviser will endeavor to limit these risks through diversifying the portfolio and through careful credit analysis of individual issuers. The Fund has also filed a Statement of Additional Information for Class A Shares, Class B Shares, Class C Shares and Class F Shares dated November 30, 1998, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information or to make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated November 30, 1998 The Fund was incorporated under the laws of the State of Maryland on November 26, 1986. On November xx, 1998, the Fund changed its name from Federated Municipal Opportunities Fund, Inc. to Federated Municipal High Income Bond Fund, Inc. Shares of the Fund are offered in four classes of shares known as Class A Shares, Class B Shares, Class C Shares and Class F Shares which represent interests in a single portfolio of securities. The Fund is designed for individuals as a convenient means of accumulating an interest in a professionally managed, diversified portfolio of high income municipal bonds. This prospectus relates to Class A Shares, Class B Shares and Class C Shares ("Shares") of the Fund. The Fund's current net asset value and offering price may be found in the mutual funds section of local newspapers under "Federated" and the appropriate class designation listing. Calling the Fund Call the Fund at 1-800-341-7400. Year 2000 Statement Like other mutual funds and business organizations worldwide, the Fund's service providers (among them, the adviser, distributor, administrator and transfer agent) must ensure that their computer systems are adjusted to properly process and calculate date-related information from and after January 1, 2000. Many software programs and, to a lesser extent, the computer hardware in use today cannot distinguish the year 2000 from the year 1900. Such a design flaw could have a negative impact in the handling of securities trades, pricing and accounting services. The Fund and its service providers are actively working on necessary changes to computer systems to deal with the year 2000 issue and believe that systems will be year 2000 compliant when required. Analysis continues regarding the financial impact of instituting a year 2000 compliant program on the Fund's operations. Investment Objective The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax (federal regular income tax does not include the federal alternative minimum tax). The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds. As a matter of fundamental policy, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax. As a matter of non-fundamental policy, under normal circumstances, the Fund will invest 65% of its net assets in lower quality municipal bonds. These bonds will usually offer higher yields than higher rated bonds but involve greater investment risk at the time of issue. (See "Investment Risks.") Investment Policies Unless otherwise designated, the investment policies described below may be changed by the Directors without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. Acceptable Investments The Fund invests primarily in high income 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. It is likely, however, that shareholders will be required to include interest from a portion of the municipal bonds owned by the Fund in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. Characteristics The municipal bonds in which the Fund generally invests are rated Baa or lower by Moody's Investors Service, Inc. ("Moody's") or rated BBB or lower by Standard & Poor's ("S&P"). The Fund may buy bonds which are unrated but which the adviser judges to be similar in quality to those rated bonds which it purchases. (See "High Yield Securities.") A description of the ratings categories is contained in the Appendix to this prospectus. The Fund may invest any or all of its assets in higher quality tax-exempt securities when the difference in returns between quality classifications is very narrow or when the adviser expects increased volatility in interest rates. This may reduce the Fund's current income. When-Issued and Delayed Delivery Transactions The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. Inverse Floaters The Fund may invest in securities known as "inverse floaters" which represent interests in municipal securities. The Fund intends to purchase inverse floaters to assist in duration management and to seek current income. These obligations pay interest rates that vary inversely with changes in the interest rates of specified short-term municipal securities or an index of short-term municipal securities. The interest rates on inverse floaters will typically decline as short-term market interest rates increase and increase as short-term market rates decline. Inverse floaters will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast). As a result, the market values of inverse floaters will generally be more volatile than the market values of fixed-rate municipal securities. Typically, the portion of the portfolio invested in inverse floaters will be subject to additional volatility. Financial Futures The Fund may purchase and sell interest rate and index financial futures contracts. These financial futures contracts may be used to hedge all or a portion of its portfolio against changes in the market value of portfolio securities and interest rates, provide additional liquidity, and accomplish its current strategies in a more expeditious fashion. Financial futures contracts call for the delivery of particular debt instruments at a certain time in the future. The seller of the contract agrees to make delivery of the type of instrument called for in the contract and the buyer agrees to take delivery of the instrument at the specified future time. As a matter of investment policy, which may be changed without shareholder approval, the Fund may not purchase or sell futures contracts if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions would exceed 5% of the market value of the Fund's total assets. When the Fund purchases futures contracts, an amount of municipal securities, cash or cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Fund's custodian (or the broker, if legally permitted) to collateralize the position. Risks When the Fund uses financial futures, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In these events, the Fund may lose money on the futures contract. It is not certain that a secondary market for positions in futures contracts will exist at all times. Although the investment adviser will consider liquidity before entering into futures transactions, there is no assurance that a liquid secondary market on an exchange or otherwise will exist for any particular futures contract at any particular time. The Fund's ability to establish and close out futures positions depends on this secondary market. Temporary Investments The Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax, except when investing for "defensive" purposes as described below. This policy cannot be changed without approval of shareholders. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest all of its assets in higher quality tax-exempt or taxable temporary investments. These temporary investments include: fixed or variable rate notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which the organization selling the Fund a bond or temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). There are no rating requirements applicable to temporary investments. However, the investment adviser will limit temporary investments to those it considers to be of good quality. Other Investment Techniques The Fund may purchase a right to sell a security held by it back to the issuer or to another party at an agreed upon price at any time during a stated period or on a certain date. These rights may be referred to as "liquidity puts" or "standby commitments." The Fund may also hedge all or a portion of its investments by entering into futures contracts or options on them. Any gains realized on futures contracts and options thereon are taxable. The Fund will notify shareholders before it engages in these futures transactions. Portfolio Turnover Although the Fund does not intend to invest for the purpose of seeking short-term profits, securities in its portfolio will be sold whenever the Fund's investment adviser believes it is appropriate to do so in light of the Fund's investment objective, without regard to the length of time a particular security may have been held. Municipal Bonds Municipal bonds are generally issued to finance public works such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. Municipal bonds are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Certain types of "private activity" municipal bonds are issued to obtain funding for privately operated facilities. There are two categories of municipal bonds: general obligation and revenue. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility. Payment of principal and interest on such bonds is dependent solely on the revenue generated by the facility financed by the bond or other specified sources of revenue or collateral. Private activity bonds are typically one type of "revenue" bonds. In most cases, lower quality bonds are private activity bonds or other revenue bonds which are not payable from general tax revenues. The Fund may invest more than 25% of the value of its assets in private activity bonds which may result in more than 25% of the Fund's assets being invested in one industry. It is also possible that the Fund may from time to time invest more than 25% of its assets in health care facilities revenue obligations, housing agency revenue obligations or electric utility obligations. Economic, business, political and other developments generally affecting the revenues of issuers in such a market segment (for example, proposed legislation or pending court decisions affecting the financing of projects and market factors affecting the demand for their services or products) may have a general adverse impact on all municipal bonds in the segment. The Fund does not intend to purchase securities if, as a result of such purchase, more than 25% of the value of its total assets would be invested in the securities of governmental subdivisions located in any one state, territory or possession of the United States. Investment Risks The value of Shares will fluctuate. The amount of this fluctuation is dependent upon the quality and maturity of the municipal bonds in the Fund's portfolio as well as on market conditions. Generally speaking, the lower quality, long-term bonds in which the Fund invests have greater fluctuation in value than high quality, shorter-term bonds. Municipal bond prices are interest rate sensitive, which means that their value varies inversely with market interest rates. Thus, if market interest rates have increased from the time a bond was purchased, the bond, if sold, might be sold at a price less than its cost. Similarly, if market interest rates have declined from the time a bond was purchased, the bond, if sold, might be sold at a price greater than its cost. (In either instance, if the bond was held to maturity, no loss or gain normally would be realized as a result of interim market fluctuations.) Prices of lower grade bonds also fluctuate with changes in the perceived quality of the credit of their issuers. Consequently, shares may not be suitable for persons who cannot assume the somewhat greater risks of capital depreciation associated with higher tax-exempt income yields. In addition, lower grade bonds have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. A large portion of the Fund's portfolio may be invested in bonds whose interest payments are from revenues of similar projects (such as housing or hospitals) or where issuers share the same geographic location. As a result, the Fund may be more susceptible to similar economic, political or regulatory developments than would a portfolio of bonds with a greater geographic and project variety. This susceptibility may result in greater fluctuations in share price. Many issuers of municipal bonds which have characteristics of rated bonds choose to not have their obligations rated. Unrated bonds may carry a greater risk and a higher yield than rated securities. Although unrated bonds are not necessarily of lower quality, the market for them may not be as broad as that for rated bonds since many investors rely solely on the major rating agencies for credit appraisal. High Yield Securities The Fund invests in municipal securities rated Ba or lower by Moody's or rated BB or lower by S&P (commonly known as "junk bonds"). There is no minimal acceptable rating for a security to be purchased or held in the Fund's portfolio, and the Fund may, from time to time, purchase or hold securities rated in the lowest rating category or securities in default. Lower rated securities will usually offer higher yields than higher rated securities. However, there is more risk associated with these investments. This is because of reduced creditworthiness and increased risk of default. Regarding lower rated debt securities: (i) an economic downturn may have a more significant effect on the yield, price and potential for default as compared to debt securities of higher quality, (ii) the secondary market for such securities may at times be less liquid or respond more adversely to negative publicity or investor perceptions, making it more difficult to value or dispose of the securities; (iii) the likelihood that these securities will help the Fund achieve its investment objective is more dependent on the adviser's own credit analysis and (iv) lower rated debt securities may be less sensitive to interest rate changes. The Fund may, from time to time, own zero coupon bonds. A zero coupon bond makes no periodic interest payments and the entire obligation becomes due only upon maturity. The prices of zero coupon bonds are generally more sensitive to fluctuations in interest rates than are conventional bonds. Although these securities pay no interest to holders prior to maturity, interest on these securities is reported as income to the Fund and distributed to shareholders. The table below shows the weighted average of the ratings of the bonds in the Fund's portfolio during the Fund's fiscal year ended August 31, 1998. The credit rating categories are those provided by S&P, which is a nationally recognized statistical rating organization ("NRSRO"). The percentages in the column titled "Rated" reflect the percentage of bonds in the portfolio which received a rating from at least one NRSRO. The percentages in the column titled "Not Rated" reflect the percentage of bonds in the portfolio which are not rated but which the Fund's investment adviser has judged to be comparable in quality to the corresponding rated bonds. As a Percentage of Total Market Value of Bond Holdings Not Credit Rating Rated Rated Total AAA x.x% x.x% x.x% BB & BBB x.x x.x x.x B x.x x.x x.x CCC x.x x.x x.x D x.x x.x x.x x.x% x.x% 100.0% Reducing Risks of Lower Rated Securities The Fund's investment adviser believes that the risks of investing in lower rated securities can be reduced. The professional portfolio management techniques used by the Fund to attempt to reduce these risks include: Credit Research When purchasing bonds, rated or unrated, the Fund's investment adviser performs its own credit analysis in addition to using recognized rating agencies. This credit analysis considers the economic feasibility of revenue bond project financing and general purpose borrowings, the financial condition of the issuer or guarantor with respect to liquidity, cash flow and ability to meet anticipated debt service requirements, and political developments that may affect credit quality. Diversification The Fund invests in securities of many different issuers to reduce portfolio risks. Economic Analysis The Fund's adviser also considers trends in the overall economy, in geographic areas, in various industries, and in the financial markets. The Fund will not: n borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; or n invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the directors. The above investment limitations cannot be changed without shareholder approval. The following limitation, however, may be changed by the Directors without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in securities of one issuer (except cash and cash items and U.S. government obligations) . The Fund's net asset value ("NAV") per Share fluctuates and is based on the market value of all securities and other assets of the Fund. The NAV for each class of Shares may differ due to the variance in daily net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. All purchases, redemptions and exchanges are processed at the NAV next determined after the request in proper form is received by the Fund. The NAV is determined as of the close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time) every day the New York Stock Exchange is open. This prospectus offers three classes of Shares each with the characteristics described below. Class A Class B Class C ---------- ------------ ------------ Minimum and Subsequent$1500/$100$1500/$100 $1500/$100 Investment Amounts Maximum Sales Charge 4.50%* None None Maximum ContingentNone 5.50% 1.00%# Deferred Sales Charge** Conversion Feature No Yes No * Class A Shares are sold at NAV, plus a sales charge as follows: Sales Charge Dealer as a Percentage of Concession as ---------------------- Public Net a Percentage of OfferingAmountPublic Offering Amount of Transaction Price Invested Price ------------------ -------- ---------- -------------- Less than $100,000 4.50% 4.71% 4.00% $100,000 but less than $250,000 3.75% 3.90% 3.25% $250,000 but less than $500,000 2.50% 2.56% 2.25% $500,000 but less than $1 million 2.00% 2.04% 1.80% $1 million or greater 0.00% 0.00% 0.25% ** Computed on the lesser of the NAV of the redeemed Shares at the time of purchase or the NAV of the redeemed Shares at the time of redemption. The following contingent deferred sales charge schedule applies to Class B Shares: Year of RedemptionContingent Deferred After Purchase Sales Charge ---------------------- ------------------ First 5.50% Second 4.75% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth 1.00% Seventh and thereafter 0.00% Class B Shares convert to Class A Shares (which pay lower ongoing expenses) approximately eight years after purchase. See "Conversion of Class B Shares." # The contingent deferred sales charge is assessed on Shares redeemed within one year of their purchase date. Shares of the Fund are sold on days on which the New York Stock Exchange is open. Shares of the Fund may be purchased as described below, either through a financial intermediary (such as a bank or broker/dealer) or by sending a wire or check directly to the Fund. Financial intermediaries may impose different minimum investment requirements on their customers. An account must be established with a financial intermediary or by completing, signing, and returning the new account form available from the Fund before Shares can be purchased. Shareholders in certain other funds advised and distributed by affiliates of Federated Investors, Inc. ("Federated Funds") may exchange their Shares for Shares of the corresponding class of the Fund. The Fund reserves the right to reject any purchase or exchange request. In connection with any sale, Federated Securities Corp. may, from time to time, offer certain items of nominal value to any shareholder or investor. Purchasing Shares Through a Financial Intermediary Orders placed through a financial intermediary are considered received when the Fund is notified of the purchase order or when payment is converted into federal funds. Purchase orders through a broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that day's price. Purchase orders through other financial intermediaries must be received by the financial intermediary and transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at that day's price. It is the financial intermediary's responsibility to transmit orders promptly. Financial intermediaries may charge fees for their services. The financial intermediary which maintains investor accounts in Class B Shares or Class C Shares with the Fund must do so on a fully disclosed basis unless it accounts for share ownership periods used in calculating the contingent deferred sales charge (see "Contingent Deferred Sales Charge"). In addition, advance payments made to financial intermediaries may be subject to reclaim by the distributor for accounts transferred to financial intermediaries which do not maintain investor accounts on a fully disclosed basis and do not account for share ownership periods. Purchasing Shares by Wire Shares may be purchased by Federal Reserve wire by calling the Fund. All information needed will be taken over the telephone, and the order is considered received when State Street Bank receives payment by wire. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number -- this number can be found on the account statement or by contacting the Fund); Account Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Purchasing Shares by Check Shares may be purchased by mailing a check made payable to the name of the Fund (designate class of Shares and account number) to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received). Systematic Investment Program Under this program, funds in a minimum amount of $50 may be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in the Fund. Shareholders should contact their financial intermediary or the Fund to participate in this program. Class A Shares Class A Shares are sold at NAV, plus a sales charge. However: No sales charge is imposed for Class A Shares purchased: n through financial intermediaries that do not receive sales charge dealer concessions; n by Federated Life Members; or n through "wrap accounts" or similar programs under which clients pay a fee for services. In addition, the sales charge can be reduced or eliminated by: n purchasing Class A Shares in quantity; n combining concurrent purchases of Class A Shares nby you, your spouse, and your children under age 21, or; nof two or more Federated Funds (other than money market funds); n accumulating purchases (in calculating the sales charge on an additional purchase of Class A Shares, you may count the current value of previous Class A Share purchases still invested in the Fund); n signing a letter of intent to purchase a specific dollar amount of Class A Shares within 13 months; or n using the reinvestment privilege within 120 days of redeeming Class A Shares of an equal or lesser amount. Consult a financial intermediary or Federated Securities Corp. for details on these programs. In order to eliminate the sales charge or receive sales charge reductions, Federated Securities Corp. must be notified by the shareholder in writing or by a financial intermediary at the time of purchase. Dealer Concession For sales of Class A Shares, the distributor will normally offer to pay a dealer up to 90% of the applicable sales charge. Any portion of the sales charge which is not paid to a dealer will be retained by the distributor. However, the distributor may offer to pay dealers up to 100% of the sales charge retained by it. Such payments may take the form of cash or promotional incentives, such as reimbursement of certain expenses of qualified employees and their spouses to attend informational meetings about the Fund or other special events at recreational-type facilities, or items of material value. In some instances, these incentives will be made available only to dealers whose employees have sold or may sell a significant amount of Class A Shares. Financial intermediaries purchasing Class A Shares for their customers in amounts of $1 million or more are eligible to receive an advance commission from the distributor based on the following breakpoints: Advance Commission as a Percentage of Transaction AmountPublic Offering Price ---------------------- ------------------ First $1 - $5 million0.75% Next $5 - $20 million0.50% over $20 million 0.25% For accounts with assets over $1 million, the dealer commission resets annually to the first breakpoint on the anniversary of the first purchase. Class A Share purchases under this program may be made by Letter of Intent or by combining concurrent purchases. The above commission will be paid only on those purchases that were not previously subject to a front-end sales charge and dealer commission. Certain retirement accounts may not be eligible for this program. Financial intermediaries must notify the Fund once an account reaches $1 million in order to qualify for advance commissions. A contingent deferred sales charge of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase if a financial intermediary received an advance commission on the transaction. Federated Securities Corp. may pay fees to banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the bank's customers in connection with the establishment of customer accounts and purchases of Class A Shares. Class B Shares Class B Shares are sold at NAV. Under certain circumstances, a contingent deferred sales charge will be assessed at the time of a redemption. Orders for $250,000 or more of Class B Shares will automatically be invested in Class A Shares. Conversion of Class B Shares Class B Shares will automatically convert into Class A Shares after eight full years from the purchase date. Such conversion will be on the basis of the relative NAVs per Share, without the imposition of any charges. Class B Shares acquired by exchange from Class B Shares of another Federated Fund will convert into Class A Shares based on the time of the initial purchase. Class C Shares Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will be charged on assets redeemed within the first full 12 months following purchase. Shares of the Fund may be redeemed for cash or exchanged for Shares of the same class of other Federated Funds on days on which the Fund computes its NAV. Shares are redeemed at NAV less any applicable contingent deferred sales charge. Exchanges are made at NAV. Shareholders who desire to automatically exchange Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or annual basis may take advantage of a systematic exchange privilege. Information on this privilege is available from the Fund or your financial intermediary. Depending upon the circumstances, a capital gain or loss may be realized when Shares are redeemed or exchanged. Redeeming or Exchanging Shares Through a Financial Intermediary Shares of the Fund may be redeemed or exchanged by contacting your financial intermediary before 4:00 p.m. (Eastern time). In order for these transactions to be processed at that day's NAV, financial intermediaries (other than broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must transmit the request to the Fund before 5:00 p.m. (Eastern time). The financial intermediary is responsible for promptly submitting transaction requests and providing proper written instructions. Customary fees and commissions may be charged by the financial intermediary for this service. Appropriate authorization forms for these transactions must be on file with the Fund. Redeeming or Exchanging Shares by Telephone Shares acquired directly from the Fund may be redeemed in any amount, or exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these transactions must be on file with the Fund. Shares held in certificate form must first be returned to the Fund as described in the instructions under "Redeeming or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the form of a check to the shareholder's address of record or wire-transferred to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions will be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming or Exchanging Shares By Mail" should be considered. The telephone transaction privilege may be modified or terminated at any time. Shareholders would be promptly notified. Redeeming or Exchanging Shares by Mail Shares may be redeemed in any amount, or exchanged, by mailing a written request to: Federated Shareholder Services Company, Fund Name, Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they must accompany the written request. It is recommended that certificates be sent unendorsed by registered or certified mail. All written requests should state: Fund Name and the Share Class name; the account name as registered with the Fund; the account number; and the number of Shares to be redeemed or the dollar amount of the transaction. An exchange request should also state the name of the Fund into which the exchange is to be made. All owners of the account must sign the request exactly as the Shares are registered. A check for redemption proceeds is normally mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption or exchange request is processed. Requirements for Redemption Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. Requirements for Exchange Shareholders must exchange Shares having an NAV equal to the minimum investment requirements of the fund into which the exchange is being made. Contact your financial intermediary directly or the Fund for free information on and prospectuses for the Federated Funds into which your Shares may be exchanged. Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. Upon receipt of proper instructions and required supporting documents, Shares submitted for exchange are redeemed and proceeds invested in the same class of shares of the other fund. Signature guarantees will be required to exchange between fund accounts not having identical shareholder registrations. The exchange privilege may be modified or terminated at any time. Shareholders will be notified of the modification or termination of the exchange privilege. Systematic Withdrawal Program Under this program, Shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder of not less than $100. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through his financial intermediary or by calling the Fund. Because participation in this program may reduce, and eventually deplete the shareholder's investment in the Fund, payments under this program should not be considered as yield or income. It is not advisable for shareholders to continue to purchase Class A Shares subject to a sales charge while participating in this program. A contingent deferred sales charge may be imposed on Class B and C Shares. Systematic Withdrawal Program ("SWP") on Class B Shares A contingent deferred sales charge will not be charged on SWP redemptions of Class B Shares if: n shares redeemed are 12% or less of the account value in a single year; n the account is at least one year old; n all dividends and capital gains distributions are reinvested; and n the account has at least a $10,000 balance when the SWP is established (multiple Class B Share accounts cannot be aggregated to meet this minimum balance). A contingent deferred sales charge will be charged on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, the account is valued when the SWP is established and then annually at calendar year-end. Redemptions can be made only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually. Contingent Deferred Sales Charge The contingent deferred sales charge will be deducted from the redemption proceeds otherwise payable to the shareholder and will be retained by the distributor. Redemptions will be processed in a manner intended to maximize the amount of redemption which will not be subject to a contingent deferred sales charge. The contingent deferred sales charge will not be imposed with respect to Shares acquired through the reinvestment of dividends or distributions of long-term capital gains. In determining the applicability of the contingent deferred sales charge, the required holding period for your new Shares received through an exchange will include the period for which your original Shares were held. Eliminating the Contingent Deferred Sales Charge Upon written notification to Federated Securities Corp. or the transfer agent, no contingent deferred sales charge will be imposed on redemptions: n ollowing the death or disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last surviving shareholder and any designated beneficiaries; n representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 701/2; n which are involuntary redemptions of shareholder accounts that do not comply with the minimum balance requirements; n which are qualifying redemptions of Class B Shares under a Systematic Withdrawal Program; n which are reinvested in the Fund under the reinvestment privilege; n of Shares held by Directors, employees and sales representatives of the Fund, the distributor, or affiliates of the Fund or distributor, employees of any financial intermediary that sells Shares of the Fund pursuant to a sales agreement with the distributor, and their immediate family members to the extent that no payments were advanced for purchases made by these persons; and n of Shares originally purchased through a bank trust department, an investment adviser registered under the Investment Advisers Act of 1940 or retirement plans where the third party administrator has entered into certain arrangements with Federated Securities Corp. or its affiliates, or any other financial intermediary, to the extent that no payments were advanced for purchases made through such entities. For more information regarding the elimination of the contingent deferred sales charge through a Systematic Withdrawal Program, or any of the above provisions, contact your financial intermediary or the Fund. The Fund reserves the right to discontinue or modify these provisions. Shareholders will be notified of such action. Confirmations and Account Statements Shareholders will receive detailed confirmations of transactions (except for systematic program transactions). In addition, shareholders will receive periodic statements reporting all account activity, including dividends paid. The Fund will not issue share certificates. Dividends and Distributions Dividends are declared and paid monthly to all shareholders invested in the Fund on the record date. Net long-term capital gains realized by the Fund, if any, will be distributed at least once every twelve months. Dividends and distributions are automatically reinvested in additional Shares of the Fund on payment dates at the ex-dividend date without a sales charge, unless shareholders request cash payments on the new account form or by contacting the transfer agent. Accounts with Low Balances Due to the high cost of maintaining accounts with low balances, the Fund may close an account by redeeming all Shares and paying the proceeds to the shareholder if the account balance falls below the applicable minimum investment amount. Accounts where the balance falls below the minimum due to NAV changes will not be closed in this manner. Before an account is closed, the shareholder will be notified and allowed 30 days to purchase additional Shares to meet the minimum. Management of the Fund Directors The Fund is managed by the Board of Directors. The Directors are responsible for managing the Fund's business affairs and for exercising all the Fund's powers except those reserved for the shareholders. An Executive Committee of the Directors handles the Director's responsibilities between meetings of the Directors. Investment Adviser Investment decisions for the Fund are made by Federated Advisers, the Fund's investment adviser (the "Adviser"), subject to direction by the Directors. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. Advisory Fees The Adviser receives an annual investment advisory fee equal to 0.60% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse the fund for certain operating expenses. The Adviser can terminate this voluntary waiver of its advisory fee at any time at its sole discretion. Adviser's Background Federated Advisers, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors, Inc. All of the Class A (voting) shares of Federated Investors, Inc. are owned by a trust, the trustees of which are John F. Donahue, Chairman and Director of Federated Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Director of Federated Investors, Inc. Federated Advisers and other subsidiaries of Federated Investors, Inc. serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $120 billion invested across more than 300 funds under management and/or administration by its subsidiaries, as of December 31, 1997, Federated Investors, Inc. is one of the largest mutual fund investment managers in the United States. With more than 2,000 employees, Federated continues to be led by the management who founded the company in 1955. The Federated Funds are presently at work in and through approximately 4,000 financial institutions nationwide. Mary Jo Ochson has been the Fund's portfolio manager since May 1996. Ms. Ochson joined Federated Investors, Inc. or its predecessor in 1982 and has been a Senior Vice President of the Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson served as a Vice President of the Fund's investment adviser. Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh. J. Scott Albrecht has been the Fund's portfolio manager since May 1996 Mr. Albrecht joined Federated Investors, Inc. or its predecessor in 1989 and has been a Vice President of the Fund's investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an Assistant Vice President of the Fund's investment adviser. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University. Both the Corporation and the Adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Directors, and could result in severe penalties. Distribution of Shares Federated Securities Corp. is the principal distributor for Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. Distribution Plan and Shareholder Services Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), Class A Shares, Class B Shares and Class C Shares will pay a fee to the distributor in an amount computed at an annual rate of 0.25%, 0.75% and 0.75%, respectively, of the average daily net assets of each class of Shares to finance any activity which is principally intended to result in the sale of Shares subject to the Distribution Plan. For Class C Shares, the distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. With respect to Class B Shares, because distribution fees to be paid by the Fund to the distributor may not exceed an annual rate of 0.75% of each class of Shares' average daily net assets, it will take the distributor a number of years to recoup the expenses it has incurred for its sales services and distribution-related support services pursuant to the Plan. The Fund is not currently making payments for Class A Shares under the Distribution Plan, nor does it anticipate doing so in the immediate future. The Distribution Plan is a compensation type Plan. As such, the Fund makes no payments to the distributor, except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future made by Shares under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal services for shareholders and for the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of sales services, distribution-related support services, or shareholder services. Supplemental Payments to Financial Institutions In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, the distributor may pay a supplemental fee from its own assets to financial institutions as financial assistance for providing substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars at recreational-type facilities for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of Shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's Adviser or its affiliates. Administrative Services Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Services Company provides these at an annual rate which relates to the average aggregate daily net assets of all of the Federated Funds as specified below: Maximum Average Aggregate Fee Daily Net Assets - ---------- ---------------------------------- 0.150% on the first $250 million 0.125% on the next $250 million 0.100% on the next $250 million 0.075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. Each Share of the Fund gives the shareholder one vote in Director elections and other matters submitted to shareholders for vote. All Shares of each portfolio or class in the Fund have equal voting rights, except that in matters affecting only a particular portfolio or class, only Shares of that portfolio or class are entitled to vote. Directors may be removed by the Directors or shareholders at a special meeting. A special meeting of shareholders shall be called by the Directors upon the written request of shareholders owning at least 10% of the Fund's outstanding Shares of all series entitled to vote. As of November xx, 1998, the following shareholders of record owned 25% or more of the outstanding Shares of the Fund: BHC Securities, Inc., Philadelphia, PA, owned approximately xxx,xxx Class C Shares (xx.xx%) and Merrill Lynch Pierce, Fenner & Smith (as record owner holding Class F Shares for its clients), Jacksonville, FL, owned approximately x,xxx,xxx Class F Shares (xx.xx%) and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Federal Income Tax The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, up to 28% of alternative minimum taxable income for individuals and 20% for corporations, applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternate minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. Information on the tax status of dividends and distributions is provided annually. State and Local Taxes Because interest received by the Fund may not be exempt from all state and local income taxes, shareholders may be required to pay state and local taxes on dividends received from the Fund. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. From time to time, the Fund advertises its total return, yield, and tax-equivalent yield for each class of Shares including Class F Shares as described under "Other Classes of Shares." Total return represents the change, over a specific period of time, in the value of an investment in each class of Shares after reinvesting all income and capital gain distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of each class of Shares is calculated by dividing the net investment income per share (as defined by the SEC) earned by each class of Shares over a thirty day period by the maximum offering price per share of each class on the last day of the period. This number is then annualized using semi-annual compounding. The tax-equivalent yield of each class of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that each class would have had to earn to equal its actual yield, assuming a specific tax rate. The yield and the tax-equivalent yield do not necessarily reflect income actually earned by each class of Shares and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales charge and other similar non-recurring charges, such as the contingent deferred sales charge, which, if excluded, would increase the total return, yield, and tax-equivalent yield. Total return, yield, and tax-equivalent yield will be calculated separately for Class A Shares, Class B Shares, Class C Shares, and Class F Shares. From time to time, advertisements for Class A Shares, Class B Shares, and Class C Shares may refer to ratings, rankings, and other information in certain financial publications and/or compare the performance of Class A Shares, Class B Shares, and Class C Shares to certain indices. The Fund also offers another class of shares called Class F Shares. Class F Shares are sold primarily to customers of financial institutions subject to a front-end sales charge, a contingent deferred sales charge and a minimum initial investment of $1,500. Shares and Class F Shares are subject to certain of the same expenses. Expense differences, however, between Shares and Class F Shares may affect the performance of each class. To obtain more information and a prospectus for Class F Shares, investors may call 1-800-341-7400 or contact their financial institution. APPENDIX Municipal Bond Rating Definitions Standard and Poor's AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's ("S&P"). Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB" rating. Moody's Investors Service, Inc. Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Federated Municipal High Income Bond Fund, Inc. Class A Shares, Class B Shares, Class C Shares Prospectus November 30, 1998 An Open-End, Diversified Management Investment Company Federated Municipal High Income Bond Fund, Inc. Class A Shares, Class B Shares, Class C Shares Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-7000 Distributor Federated Securities Corp. Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA 15222-3779 Investment Adviser Federated Advisers Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA 15222-3779 Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 Independent Auditors Deloitte & Touche LLP 2500 One PPG Place Pittsburgh, PA 15222-5401 Cusip 313910200 Cusip 313910309 Cusip 313910408 G00570-03 (11/98) Federated Municipal High Income Bond Fund, Inc. Class F Shares Prospectus The Class F Shares of Federated Municipal High Income Bond Fund, Inc. (the "Fund") represent interests in a diversified, open-end, management investment company (a mutual fund) that seeks a high level of current income exempt from the federal regular income tax by investing primarily in a professionally managed, diversified portfolio of municipal bonds. The shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks, including the possible loss of principal. This prospectus contains the information you should read and know before you invest in Class F Shares of the Fund. Keep this prospectus for future reference. The Fund may invest primarily in lower rated municipal bonds, commonly referred to as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and interest than investments in higher rated municipal securities. Purchasers should carefully assess the risks associated with an investment in this Fund. The Fund's investment adviser will endeavor to limit these risks through diversifying the portfolio and through careful credit analysis of individual issuers. The Fund has also filed a Statement of Additional Information for Class A Shares, Class B Shares, Class C Shares, and Class F Shares dated November 30, 1998, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information or to make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated November 30, 1998 The Fund was incorporated under the laws of the State of Maryland on November 26, 1986. On November xx, 1998, the Fund changed its name from Federated Municipal Opportunities Fund, Inc. to Federated Municipal High Income Bond Fund, Inc. Shares of the Fund are offered in four classes of shares known as Class A Shares, Class B Shares, Class C Shares and Class F Shares which represent interests in a single portfolio of securities. The Fund is designed for individuals as a convenient means of accumulating an interest in a professionally managed, diversified portfolio of high income municipal bonds. This prospectus relates to Class F Shares ("Shares") of the Fund. The Fund's current net asset value and offering price may be found in the mutual funds section of local newspapers under "Federated" and the appropriate class designation listing. Calling the Fund Call the Fund at 1-800-341-7400. Year 2000 Statement Like other mutual funds and business organizations worldwide, the Fund's service providers (among them, the adviser, distributor, administrator and transfer agent) must ensure that their computer systems are adjusted to properly process and calculate date-related information from and after January 1, 2000. Many software programs and, to a lesser extent, the computer hardware in use today cannot distinguish the year 2000 from the year 1900. Such a design flaw could have a negative impact in the handling of securities trades, pricing and accounting services. The Fund and its service providers are actively working on necessary changes to computer systems to deal with the year 2000 issue and believe that systems will be year 2000 compliant when required. Analysis continues regarding the financial impact of instituting a year 2000 compliant program on the Fund's operations. Investment Objective The investment objective of the Fund is to provide a high level of current income which is generally exempt from the federal regular income tax (federal regular income tax does not include the federal alternative minimum tax). The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. The Fund pursues its investment objective by investing primarily in a diversified portfolio of municipal bonds. As a matter of fundamental investment policy, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax. As a matter of non-fundamental investment policy, under normal circumstances, the Fund will invest 65% of its net assets in lower quality municipal bonds. These bonds will usually offer higher yields than higher rated bonds but involve greater investment risk at the time of issue. (See "Investment Risks.") Investment Policies Unless otherwise designated, the investment policies described below may be changed by the Directors without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. Acceptable Investments The Fund invests primarily in high income 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. It is likely, however, that shareholders will be required to include interest from a portion of the municipal bonds owned by the Fund in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. Characteristics The municipal bonds in which the Fund generally invests are rated Baa or lower by Moody's Investors Service, Inc. ("Moody's") or rated BBB or lower by Standard & Poor's ("S&P"). The Fund may buy bonds which are unrated but which the adviser judges to be similar in quality to those rated bonds which it purchases. (See "High Yield Securities.") A description of the ratings categories is contained in the Appendix to this prospectus. The Fund may invest any or all of its assets in higher quality tax-exempt securities when the difference in returns between quality classifications is very narrow or when the adviser expects increased volatility in interest rates. This may reduce the Fund's current income. When-Issued and Delayed Delivery Transactions The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter in transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. Inverse Floaters The Fund may invest in securities known as "inverse floaters" which represent interests in municipal securities. The Fund intends to purchase inverse floaters to assist in duration management and to seek current income. These obligations pay interest rates that vary inversely with changes in the interest rates of specified short-term municipal securities or an index of short-term municipal securities. The interest rates on inverse floaters will typically decline as short-term market interest rates increase and increase as short-term market rates decline. Inverse floaters will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast). As a result, the market values of inverse floaters will generally be more volatile than the market values of fixed-rate municipal securities. Typically, the portion of the portfolio invested in inverse floaters will be subject to additional volatility. Financial Futures The Fund may purchase and sell interest rate and index financial futures contracts. These financial futures contracts may be used to hedge all or a portion of its portfolio against changes in the market value of portfolio securities and interest rates, provide additional liquidity, and accomplish its current strategies in a more expeditious fashion. Financial futures contracts call for the delivery of particular debt instruments at a certain time in the future. The seller of the contract agrees to make delivery of the type of instrument called for in the contract and the buyer agrees to take delivery of the instrument at the specified future time. As a matter of investment policy, which may be changed without shareholder approval, the Fund may not purchase or sell futures contracts if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions would exceed 5% of the market value of the Fund's total assets. When the Fund purchases futures contracts, an amount of municipal securities, cash or cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Fund's custodian (or the broker, if legally permitted) to collateralize the position. Risks When the Fund uses financial futures, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In these events, the Fund may lose money on the futures contract. It is not certain that a secondary market for positions in futures contracts will exist at all times. Although the investment adviser will consider liquidity before entering into futures transactions, there is no assurance that a liquid secondary market on an exchange or otherwise will exist for any particular futures contract at any particular time. The Fund's ability to establish and close out futures positions depends on this secondary market. Temporary Investments The Fund invests its assets so that at least 80% of its annual interest income is exempt from the federal regular income tax, except when investing for "defensive" purposes as described below. This policy cannot be changed without approval of shareholders. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest all of its assets in higher quality tax-exempt or taxable temporary investments. These temporary investments include: fixed or variable rate notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which the organization selling the Fund a bond or temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). There are no rating requirements applicable to temporary investments. However, the investment adviser will limit temporary investments to those it considers to be of good quality. Other Investment Techniques The Fund may purchase a right to sell a security held by it back to the issuer or to another party at an agreed upon price at any time during a stated period or on a certain date. These rights may be referred to as "liquidity puts" or "standby commitments." The Fund may also hedge all or a portion of its investments by entering into futures contracts or options on them. Any gains realized on futures contracts and options thereon are taxable. The Fund will notify shareholders before it engages in these futures transactions. Portfolio Turnover Although the Fund does not intend to invest for the purpose of seeking short-term profits, securities in its portfolio will be sold whenever the Fund's investment adviser believes it is appropriate to do so in light of the Fund's investment objective, without regard to the length of time a particular security may have been held. Municipal Bonds Municipal bonds are generally issued to finance public works such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. Municipal bonds are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Certain types of "private activity" municipal bonds are issued to obtain funding for privately operated facilities. There are two categories of municipal bonds: general obligation and revenue. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility. Payment of principal and interest on such bonds is dependent solely on the revenue generated by the facility financed by the bond or other specified sources of revenue or collateral. Private activity bonds are typically one type of "revenue" bonds. In most cases, lower quality bonds are private activity bonds or other revenue bonds which are not payable from general tax revenues. The Fund may invest more than 25% of the value of its assets in private activity bonds which may result in more than 25% of the Fund's assets being invested in one industry. It is also possible that the Fund may from time to time invest more than 25% of its assets in health care facilities revenue obligations, housing agency revenue obligations or electric utility obligations. Economic, business, political and other developments generally affecting the revenues of issuers in such a market segment (for example, proposed legislation or pending court decisions affecting the financing of projects and market factors affecting the demand for their services or products) may have a general adverse impact on all municipal bonds in the segment. The Fund does not intend to purchase securities if, as a result of such purchase, more than 25% of the value of its total assets would be invested in the securities of governmental subdivisions located in any one state, territory or possession of the United States. Investment Risks The value of Shares will fluctuate. The amount of this fluctuation is dependent upon the quality and maturity of the municipal bonds in the Fund's portfolio as well as on market conditions. Generally speaking, the lower quality, long-term bonds in which the Fund invests have greater fluctuation in value than high quality, shorter-term bonds. Municipal bond prices are interest rate sensitive, which means that their value varies inversely with market interest rates. Thus, if market interest rates have increased from the time a bond was purchased, the bond, if sold, might be sold at a price less than its cost. Similarly, if market interest rates have declined from the time a bond was purchased, the bond, if sold, might be sold at a price greater than its cost. (In either instance, if the bond was held to maturity, no loss or gain normally would be realized as a result of interim market fluctuations.) Prices of lower grade bonds also fluctuate with changes in the perceived quality of the credit of their issuers. Consequently, Shares may not be suitable for persons who cannot assume the somewhat greater risks of capital depreciation associated with higher tax-exempt income yields. In addition, lower grade bonds have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. A large portion of the Fund's portfolio may be invested in bonds whose interest payments are from revenues of similar projects (such as housing or hospitals) or where issuers share the same geographic location. As a result, the Fund may be more susceptible to similar economic, political or regulatory developments than would a portfolio of bonds with a greater geographic and project variety. This susceptibility may result in greater fluctuations in share price. Many issuers of municipal bonds which have characteristics of rated bonds choose to not have their obligations rated. Unrated bonds may carry a greater risk and a higher yield than rated securities. Although unrated bonds are not necessarily of lower quality, the market for them may not be as broad as that for rated bonds since many investors rely solely on the major rating agencies for credit appraisal. High Yield Securities The Fund invests in municipal securities rated Ba or lower by Moody's or rated BB or lower by S&P (commonly known as "junk bonds"). There is no minimal acceptable rating for a security to be purchased or held in the Fund's portfolio, and the Fund may, from time to time, purchase or hold securities rated in the lowest rating category or securities in default. Lower rated securities will usually offer higher yields than higher rated securities. However, there is more risk associated with these investments. This is because of reduced creditworthiness and increased risk of default. Regarding lower rated debt securities: (i) an economic downturn may have a more significant effect on the yield, price and potential for default as compared to debt securities of higher quality, (ii) the secondary market for such securities may at times be less liquid or respond more adversely to negative publicity or investor perceptions, making it more difficult to value or dispose of the securities; (iii) the likelihood that these securities will help the Fund achieve its investment objective is more dependent on the adviser's own credit analysis and (iv) lower rated debt securities may be less sensitive to interest rate changes. The Fund may, from time to time, own zero coupon bonds. A zero coupon bond makes no periodic interest payments and the entire obligation becomes due only upon maturity. The prices of zero coupon bonds are generally more sensitive to fluctuations in interest rates than are conventional bonds. Although these securities pay no interest to holders prior to maturity, interest on these securities is reported as income to the Fund and distributed to shareholders. The table below shows the weighted average of the ratings of the bonds in the Fund's portfolio during the Fund's fiscal year ended August 31, 1998. The credit rating categories are those provided by S&P, which is a nationally recognized statistical rating organization ("NRSRO"). The percentages in the column titled "Rated" reflect the percentage of bonds in the portfolio which received a rating from at least one NRSRO. The percentages in the column titled "Not Rated" reflect the percentage of bonds in the portfolio which are not rated but which the Fund's investment adviser has judged to be comparable in quality to the corresponding rated bonds. As a Percentage of Total Market Value of Bond Holdings Not Credit Rating Rated Rated Total AAA x.x% x.x% x.x% BB & BBB x.x x.x x.x B x.x x.x x.x CCC x.x x.x x.x D x.x x.x x.x x.x% x.x% 100.0% Reducing Risks of Lower Rated Securities The Fund's investment adviser believes that the risks of investing in lower rated securities can be reduced. The professional portfolio management techniques used by the Fund to attempt to reduce these risks include: Credit Research When purchasing bonds, rated or unrated, the Fund's investment adviser performs its own credit analysis in addition to using recognized rating agencies. This credit analysis considers the economic feasibility of revenue bond project financing and general purpose borrowings, the financial condition of the issuer or guarantor with respect to liquidity, cash flow and ability to meet anticipated debt service requirements, and political developments that may affect credit quality. Diversification The Fund invests in securities of many different issuers to reduce portfolio risks. Economic Analysis The Fund's adviser also considers trends in the overall economy, in geographic areas, in various industries, and in the financial markets. The Fund will not: n borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, exclusive of custodian intra-day cash advances and the collateralization of such advances, borrow up to one-third of the value of its total assets and pledge up to 10% of the value of those assets to secure such borrowings; or n invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the directors. The above investment limitations cannot be changed without shareholder approval. The following limitation, however, may be changed by the Directors without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in securities of one issuer (except cash and cash items and U.S. government obligations). The Fund's net asset value ("NAV") per Share fluctuates and is based on the market value of all securities and other assets of the Fund. The NAV for each class of Shares may differ due to the variance in daily net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. All purchases, redemptions and exchanges are processed at the NAV next determined after the request in proper form is received by the Fund. The NAV is determined as of the close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time) every day the New York Stock Exchange is open. This prospectus offers Class F Shares with the characteristics described below. Class F -------------- Minimum and Subsequent Investment Amount $1500/$100 Maximum Sales Charge* 1.00% Maximum Contingent Deferred Sales Charge** 1.00% * This is 1.01% of the net amount invested. There is no sales charge for purchases of $1 million or more. In addition, no sales charge is imposed for Shares purchased through certain entities or programs. Please see the section entitled "Eliminating the Sales Charge." ** Computed on the lesser of the NAV of the redeemed Shares at the time of purchase or the NAV of the redeemed Shares at the time of redemption. The following contingent deferred sales charge schedule applies to Class F Shares: Contingent Deferred Amount of PurchaseShares HeldSales Charge ------------------------ ---------------- ------------ Up to $1,999,999Four Years or less 1.00% $2,000,000 to $4,999,999Two Years or less 0.50% $5,000,000 or moreOne Year or less 0.25% Shares of the Fund are sold on days on which the New York Stock Exchange is open. Shares of the Fund may be purchased as described below, either through a financial intermediary (such as a bank or broker/dealer) or by sending a wire or check directly to the Fund. Financial intermediaries may impose different minimum investment requirements on their customers. An account must be established with a financial intermediary or by completing, signing, and returning the new account form available from the Fund before Shares can be purchased. Shareholders in Class F Shares of certain other funds advised and distributed by affiliates of Federated Investors, Inc. ("Federated Funds") may exchange their Shares for Class F Shares of the Fund. The Fund reserves the right to reject any purchase or exchange request. In connection with any sale, Federated Securities Corp. may, from time to time, offer certain items of nominal value to any shareholder or investor. Purchasing Shares Through a Financial Intermediary Orders placed through a financial intermediary are considered received when the Fund is notified of the purchase order or when payment is converted into federal funds. Purchase orders through a broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that day's price. Purchase orders through other financial intermediaries must be received by the financial intermediary and transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at that day's price. It is the financial intermediary's responsibility to transmit orders promptly. Financial intermediaries may charge fees for their services. The financial intermediary which maintains investor accounts in Class F Shares with the Fund must do so on a fully disclosed basis unless it accounts for share ownership periods used in calculating the contingent deferred sales charge (see "Contingent Deferred Sales Charge"). In addition, advance payments made to financial intermediaries may be subject to reclaim by the distributor for accounts transferred to financial intermediaries which do not maintain investor accounts on a fully disclosed basis and do not account for share ownership periods. Purchasing Shares by Wire Shares may be purchased by Federal Reserve wire by calling the Fund. All information needed will be taken over the telephone, and the order is considered received when State Street Bank receives payment by wire. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the account statement or by contacting the Fund); Account Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Purchasing Shares by Check Shares may be purchased by mailing a check made payable to the name of the Fund (designate class of Shares and account number) to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received). Systematic Investment Program Under this program, funds in a minimum amount of $50 may be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in the Fund. Shareholders should contact their financial intermediary or the Fund to participate in this program. Eliminating the Sales Charge Class F Shares are sold at NAV, plus a sales charge. However: No sales charge is imposed for Class F Shares purchased: n through bank trust departments or investment advisers registered under the Investment Advisers Act of 1940 purchasing on behalf of their clients; n by sales representatives, Directors, and employees of the Fund, Federated Advisers, Federated Securities Corp. or their affiliates and their immediate family members; n by any investment dealer who has a sales agreement with Federated Securities Corp. and their immediate family members, or by any trusts or pension or profit-sharing plans for these persons or retirement plans where the third party administrator has entered into certain arrangements with Federated Securities Corp. or its affiliates. In addition, the sales charge can be eliminated by: n purchasing Class F Shares in quantity; n combining concurrent purchases of Class F Shares nby you, your spouse, and your children under age 21, or; nof two or more Federated Funds (other than money market funds); n accumulating purchases (in calculating the sales charge on an additional purchase of Class A Shares, you may count the current value of previous Class A Share purchases still invested in the Fund); n signing a letter of intent to purchase a specific dollar amount of Class F Shares within 13 months; or n using the reinvestment privilege within 120 days of redeeming Class F Shares of an equal or lesser amount. Consult a financial intermediary or Federated Securities Corp. for details on these programs. In order to eliminate the sales charge or receive sales charge reductions, Federated Securities Corp. must be notified by the shareholder in writing or by a financial intermediary at the time of purchase. Dealer Concession For sales of Shares, a dealer will normally receive up to 100% of the appicable sales charge. Any portion of the sales charge which is not paid to a dealer will be retained by the distributor. However, the distributor may offer to pay dealers up to 100% of the sales charge retained by it. The sales charge for Shares sold other than through registered broker/dealers will be retained by Federated Securities Corp. Federated Securities Corp. may pay fees to banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the bank's customers in connection with the establishment of customer accounts and purchases of Shares. Shares of the Fund may be redeemed for cash or exchanged for Class F Shares of other Federated Funds on days on which the Fund computes its NAV. Shares are redeemed at NAV less any applicable contingent deferred sales charge. Exchanges are made at NAV. Shareholders who desire to automatically exchange Shares, of a like Share class, in a pre-determined amount on a monthly, quarterly, or annual basis may take advantage of a systematic exchange privilege. Information on this privilege is available from the Fund or your financial intermediary. Depending upon the circumstances, a capital gain or loss may be realized when Shares are redeemed or exchanged. Redeeming or Exchanging Shares Through a Financial Intermediary Shares of the Fund may be redeemed or exchanged by contacting your financial intermediary before 4:00 p.m. (Eastern time). In order for these transactions to be processed at that day's NAV, financial intermediaries (other than broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must transmit the request to the Fund before 5:00 p.m. (Eastern time). The financial intermediary is responsible for promptly submitting transaction requests and providing proper written instructions. Customary fees and commissions may be charged by the financial intermediary for this service. Appropriate authorization forms for these transactions must be on file with the Fund. Redeeming or Exchanging Shares by Telephone Shares acquired directly from the Fund may be redeemed in any amount, or exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these transactions must be on file with the Fund. Shares held in certificate form must first be returned to the Fund as described in the instructions under "Redeeming or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the form of a check to the shareholder's address of record or wire-transferred to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions will be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming or Exchanging Shares By Mail" should be considered. The telephone transaction privilege may be modified or terminated at any time. Shareholders would be promptly notified. Redeeming or Exchanging Shares by Mail Shares may be redeemed in any amount, or exchanged, by mailing a written request to: Federated Shareholder Services Company, Fund Name, Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they must accompany the written request. It is recommended that certificates be sent unendorsed by registered or certified mail. All written requests should state: Fund Name and the Share Class name; the account name as registered with the Fund; the account number; and the number of Shares to be redeemed or the dollar amount of the transaction. An exchange request should also state the name of the Fund into which the exchange is to be made. All owners of the account must sign the request exactly as the Shares are registered. A check for redemption proceeds is normally mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption or exchange request is processed. Requirements for Redemption Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. Requirements for Exchange Shareholders must exchange Shares having a NAV equal to the minimum investment requirements of the fund into which the exchange is being made. Contact your financial intermediary directly or the Fund for free information on, and prospectuses for, the Federated Funds into which your Shares may be exchanged. Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. Upon receipt of proper instructions and required supporting documents, Shares submitted for exchange are redeemed and proceeds invested in the same class of shares of the other fund. Signature guarantees will be required to exchange between fund accounts not having identical shareholder registrations. The exchange privilege may be modified or terminated at any time. Shareholders will be notified of the modification or termination of the exchange privilege. Systematic Withdrawal Program Under this program, Shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder of not less than $100. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through his financial intermediary or by calling the Fund. Because participation in this program may reduce, and eventually deplete, the shareholder's investment in the Fund, payments under this program should not be considered as yield or income. It is not advisable for shareholders to continue to purchase Class F Shares subject to a sales charge while participating in this program. A contingent deferred sales charge will be imposed on Shares redeemed through this program within four years of their purchase dates. Contingent Deferred Sales Charge The contingent deferred sales charge will be deducted from the redemption proceeds otherwise payable to the shareholder and will be retained by the distributor. Redemptions will be processed in a manner intended to maximize the amount of redemption which will not be subject to a contingent deferred sales charge. The contingent deferred sales charge will not be imposed with respect to Shares acquired through the reinvestment of dividends or distributions of long-term capital gains. In determining the applicability of the contingent deferred sales charge, the required holding period for your new Shares received through an exchange will include the period for which your original Shares were held. Eliminating the Contingent Deferred Sales Charge Upon written notification to Federated Securities Corp. or the transfer agent, no contingent deferred sales charge will be imposed on redemptions: n following the death or disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last surviving shareholder and any designated beneficiaries; n representing a total or partial distribution from an Individual Retirement Account, Keogh Plan, or a custodial account to a shareholder who has attained the age of 70 1/2; n representing a total or partial distribution from a qualified plan, other than an individual Retirement Account, Keogh Plan, or a custodial account following retirement; n which are involuntary redemptions of shareholder accounts that do not comply with the minimum balance requirements; n which are reinvested in the Fund under the reinvestment privilege; n of Shares held by Directors, employees and sales representatives of the Fund, the distributor, or affiliates of the Fund or distributor, employees of any financial intermediary that sells Shares of the Fund pursuant to a sales agreement with the distributor, and their immediate family members to the extent that no payments were advanced for purchases made by these persons; and n of Shares originally purchased through a bank trust department, an investment adviser registered under the Investment Advisers Act of 1940 or retirement plans where the third party administrator has entered into certain arrangements with Federated Securities Corp. or its affiliates, or any other financial intermediary, to the extent that no payments were advanced for purchases made through such entities. For more information regarding the contingent deferred sales charge or any of the above provisions, contact your financial intermediary or the Fund. The Fund reserves the right to discontinue or modify these provisions. Shareholders will be notified of such action. Confirmations and Account Statements Shareholders will receive detailed confirmations of transactions (except for systematic program transactions). In addition, shareholders will receive periodic statements reporting all account activity, including dividends paid. The Fund will not issue share certificates. Dividends and Distributions Dividends are declared and paid monthly to all shareholders invested in the Fund on the record date. Net long-term capital gains realized by the Fund, if any, will be distributed at least once every twelve months. Dividends and distributions are automatically reinvested in additional Shares of the Fund on payment dates at the ex-dividend date NAV without a sales charge, unless shareholders request cash payments on the new account form or by contacting the transfer agent. Accounts with Low Balances Due to the high cost of maintaining accounts with low balances, the Fund may close an account by redeeming all Shares and paying the proceeds to the shareholder if the account balance falls below the applicable minimum investment amount. Accounts where the balance falls below the minimum due to NAV changes will not be closed in this manner. Before an account is closed, the shareholder will be notified and allowed 30 days to purchase additional Shares to meet the minimum. Management of the Fund Directors The Fund is managed by the Board of Directors. The Directors are responsible for managing the Fund's business affairs and for exercising all the Fund's powers except those reserved for the shareholders. An Executive Committee of the Directors handles the Director's responsibilities between meetings of the Directors. Investment Adviser Investment decisions for the Fund are made by Federated Advisers, the Fund's investment adviser (the "Adviser"), subject to direction by the Directors. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. Advisory Fees The Adviser receives an annual investment advisory fee equal to 0.60% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse the Fund for certain operating expenses. The Adviser can terminate this voluntary waiver of its advisory fee at any time at its sole discretion. Adviser's Background Federated Advisers, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors, Inc. All of the Class A (voting) shares of Federated Investors, Inc. are owned by a trust, the trustees of which are John F. Donahue, Chairman and Director of Federated Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Director of Federated Investors, Inc. Federated Advisers and other subsidiaries of Federated Investors, Inc. serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $120 billion invested across more than 300 funds under management and/or administration by its subsidiaries, as of December 31, 1997, Federated Investors, Inc. is one of the largest mutual fund investment managers in the United States. With more than 2,000 employees, Federated continues to be led by the management who founded the company in 1955. The Federated Funds are presently at work in and through approximately 4,000 financial institutions nationwide. Mary Jo Ochson has been the Fund's portfolio manager since May 1996. Ms. Ochson joined Federated Investors, Inc. or its predecessor in 1982 and has been a Senior Vice President of the Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson served as a Vice President of the Fund's investment adviser. Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh. J. Scott Albrecht has been the Fund's portfolio manager since May 1996. Mr. Albrecht joined Federated Investors, Inc. or its predecessor in 1989 and has been a Vice President of the Fund's investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an Assistant Vice President of the Fund's investment adviser. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University. Both the Fund and the Adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Directors, and could result in severe penalties. Distribution of Class F Shares Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. Distribution Plan and Shareholder Services Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Plan"), the distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers and brokers/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Fund is not currently making payments for Class F Shares under the Distribution Plan, nor does it anticipate doing so in the immediate future. The distributor will pay financial institutions a fee based upon Shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Directors of the Fund provided that for any period the total amount of these fees shall not exceed an annual rate of 0.25% of the average net asset value of shares subject to the Plan held during the period by clients or customers of financial institutions. The current annual rate of such fees is 0.25%. Any fees paid by the distributor under the Plan, will be reimbursed from the assets of the Fund. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and to provide the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. Supplemental Payments to Financial Institutions The distributor will pay brokers and financial institutions, for distribution and/or administrative services, an amount equal to 1% of the offering price of the shares acquired by their clients or customers on purchases up to $1,999,999, 0.50% of the offering price on purchases of $2,000,000 to $4,999,999, and 0.25% of the offering price on purchases of $5,000,000 or more. (This fee is in addition to the 1% sales charge on purchases of less than $1 million.) Any fees paid by the distributor pursuant to these administrative arrangements will be reimbursed by the Adviser. The administrator may elect to receive amounts less than those stated, which would reduce the stated contingent deferred sales charge and/or the holding period used to calculate the fee. Furthermore, in addition to payments made pursuant to the Plan and Shareholder Services Agreement, the distributor may pay a supplemental fee from its own assets to financial institutions as financial assistance for providing substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars at recreational-type facilities for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's Adviser or its affiliates. Administrative Services Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Services Company provides these at an annual rate which relates to the average aggregate daily net assets of all of the Federated Funds as specified below: Maximum Average Aggregate Fee Daily Net Assets - ---------- ------------------------------ 0.150% on the first $250 million 0.125% on the next $250 million 0.100% on the next $250 million 0.075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. Each Share of the Fund gives the shareholder one vote in Director elections and other matters submitted to shareholders for vote. All Shares of each portfolio or class in the Fund have equal voting rights, except that in matters affecting only a particular portfolio or class, only Shares of that portfolio or class are entitled to vote. Directors may be removed by the Directors or by shareholders at a special meeting. A special meeting of shareholders shall be called by the Directors upon the written request of shareholders owning at least 10% of the Fund's outstanding shares of all series entitled to vote. As of November xx, 1998, the following shareholders of record owned 25% or more of the outstanding Shares of the Fund: BHC Securities, Inc., Philadelphia, PA, owned approximately xxx,xxx Class C Shares (xx.xx%); and Merrill Lynch Pierce Fenner & Smith (as record owner holding Class F Shares for its clients), Jacksonville, Florida, owned approximately x,xxx,xxx Class C Shares (xx.xx%) and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Federal Income Tax The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, up to 28% of alternative minimum taxable income for individuals and 20% for corporations, applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternate minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. Information on the tax status of dividends and distributions is provided annually. State and Local Taxes Because interest received by the Fund may not be exempt from all state and local income taxes, shareholders may be required to pay state and local taxes on dividends received from the Fund. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. From time to time, the Fund advertises its total return, yield, and tax-equivalent yield for Class F Shares including Class A Shares, Class B Shares, and Class C Shares as described under "Other Classes of Shares." Total return represents the change, over a specific period of time, in the value of an investment in Shares after reinvesting all income and capital gain distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of Shares is calculated by dividing the net investment income per share (as defined by the SEC) earned by the Fund over a thirty day period by the maximum offering price per share of Shares on the last day of the period. This number is then annualized using semi-annual compounding. The tax-equivalent yield of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Shares would have had to earn to equal its actual yield, assuming a specific tax rate. The yield and the tax-equivalent yield do not necessarily reflect income actually earned by Shares and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales charge and other similar non-recurring charges, such as the contingent deferred sales charge, which, if excluded, would increase the total return, yield, and tax-equivalent yield. Total return, yield and tax-equivalent yield will be calculated separately for Class A Shares, Class B Shares, Class C Shares and Class F Shares. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. The Fund also offers other classes of shares called Class A Shares, Class B Shares and Class C Shares which are all sold primarily to customers of financial institutions subject to certain differences. Class A Shares are sold at net asset value subject to a front-end sales charge, and a shareholder services fee, and are distributed pursuant to a Rule 12b-1 Plan. Investments in Class A Shares are subject to a minimum initial investment of $500. Class B Shares are sold at net asset value subject to a contingent deferred sales charge, a shareholder services fee, and are distributed pursuant to a Rule 12b-1 Plan. Investments in Class B Shares are subject to a minimum initial investment of $1,500. Class C Shares are sold at net asset value subject to a contingent deferred sales charge, a shareholder services fee, and are distributed pursuant to a Rule 12b-1 Plan. Investments in Class C Shares are subject to a minimum investment of $1,500. Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to certain of the same expenses. Expense differences, however, between Class A Shares, Class B Shares, Class C Shares and Class F Shares may affect the performance of each class. To obtain more information and a combined prospectus for Class A Shares, Class B Shares and Class C Shares, investors may call 1-800-341-7400 or contact their financial institution. APPENDIX Municipal Bond Rating Definitions Standard & Poor's AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's("S&P"). Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB--Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB" rating. Moody's Investors Service, Inc. Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds which are rated "Baa" are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Federated Municipal High Income Bond Fund, Inc. Class F Shares Prospectus October 31, 1998 A Diversified, Open-End, Management Investment Company Federated Municipal High Income Bond Fund, Inc. Class F Shares Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-7000 Distributor Federated Securities Corp. Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA 15222-3779 Investment Adviser Federated Advisers Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA 15222-3779 Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 Independent Auditors Deloitte & Touche LLP 2500 One PPG Place Pittsburgh, PA 15222-5401 Cusip 313910101 G00570-02-F (11/98) Federated Municipal High Income Bond Fund, Inc. Class A Shares Class B Shares Class C Shares Class F Shares Statement of Additional Information This Statement of Additional Information should be read with the prospectuses of Federated Municipal High Income Bond Fund, Inc. (the "Fund"), dated November 30, 1998. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. Federated Municipal High Income Bond Fund, Inc. Federated Investors Funds 5800 Corporate Drive Pittsburgh, Pennsylvania 15237-7000 Statement dated November 30, 1998 [GRAPHIC OMITTED] Cusip 313910200 Cusip 313910309 Cusip 313910408 Cusip 313910101 8092709B (10/98) The Fund was incorporated under the laws of the State of Maryland on November 26, 1986. It is qualified to do business as a foreign corporation in Pennsylvania. On March 31, 1996, the Fund changed its name from Fortress Municipal Income Fund, Inc. to Federated Municipal Opportunities Fund, Inc. As of November xx, 1998, the Fund changed its name from Federated Municipal Opportunities Fund, Inc. to Federated Municipal High Income Bond Fund, Inc. Shares of the Fund are offered in four classes, known as Class A Shares, Class B Shares, Class C Shares and Class F Shares (individually and collectively referred to as "Shares" as the context may require.) This Statement of Additional Information relates to all four of the above-mentioned classes of Shares. The Fund's investment objective is to provide a high level of current income which is generally exempt from federal regular income tax. The objective cannot be changed without approval of shareholders. Acceptable Investments Characteristics The municipal bonds in which the Fund invests have the characteristics set forth in the prospectus. If a bond loses its rating after the Fund has purchased it, the Fund is not required to drop the bond from the portfolio, but may consider doing so. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectus. When-Issued and Delayed Delivery Transactions These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. Futures Transactions A futures contract is a firm commitment by two parties: the seller who agrees to make delivery of the specific type of security called for in the contract ("going short") and the buyer who agrees to take delivery of the security ("going long") at a certain time in the future. In the fixed income securities market, price moves inversely to interest rates. A rise in rates means a drop in price. Conversely, a drop in rates means a rise in price. In order to hedge its holdings of fixed income securities against a rise in market interest rates, the Fund could enter into contracts to deliver securities at a predetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. The Fund would agree to purchase securities in the future at a predetermined price (i.e., "go long") to hedge against a decline in market interest rates. "Margin" in Futures Transactions Unlike the purchase or sale of a security, the Fund does not pay or receive money upon the purchase or sale of a futures contract. Rather, the Fund is required to deposit an amount of "initial margin" in municipal securities, cash or cash equivalents with its custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contract initial margin does not involve the borrowing of funds by the Fund to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, the Fund will mark-to-market its open futures positions. Temporary Investments The Fund may also invest in temporary investments from time to time for defensive purposes. The Fund does not presently intend to invest in temporary investments other than repurchase agreements. The Fund might invest in temporary investments: o as a reaction to market conditions; o while waiting to invest proceeds of sales of shares or portfolio securities, although generally proceeds from sales of shares will be invested in municipal bonds as quickly as possible; or o in anticipation of redemption requests. The Fund will not purchase temporary investments (other than securities of the U.S. government, its agencies or instrumentalities) if, as a result of the purchase, 25% or more of the value of its total assets would be invested in any one industry. However, the Fund may, for temporary defensive purposes, invest 25% or more of the value of its assets in cash or cash items, U.S. Treasury bills or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. Repurchase Agreements Repurchase agreements are arrangements in which banks, broker/dealers and other recognized financial institutions sell U.S. government securities or certificates of deposit to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked-to-market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund may only enter into repurchase agreements with banks and other recognized financial institutions such as broker/dealers which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Board of Directors. From time to time, such as when suitable municipal bonds are not available, the Fund may retain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in municipal bonds and thereby reduce the Fund's yield. Reverse Repurchase Agreements The Fund may also enter into reverse repurchase agreements. This transaction is similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction is settled. Portfolio Turnover The Fund will not attempt to set or meet a portfolio turnover rate since any turnover would be incidental to transactions undertaken in an attempt to achieve the Fund's investment objective. For the fiscal years ended August 31, 1997, and August 31, 1996, the portfolio turnover rates were 20% and 22%, respectively. Buying on Margin The Fund will not purchase any securities on margin, but may obtain such short-term credits as are necessary for clearance of transactions. The deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. Issuing Senior Securities and Borrowing Money The Fund will not issue senior securities except that the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings are outstanding. During the period any reverse repurchase agreements are outstanding, but only to the extent necessary to assure completion of the reverse repurchase agreements, the Fund will restrict the purchase of portfolio instruments to money market instruments maturing on or before the expiration date of the reverse repurchase agreements. Pledging Assets The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 10% of the value of total assets at the time of the borrowing. Neither the deposit of underlying securities and other assets in escrow in connection with the writing of put or call options on municipal bonds nor margin deposits for the purchase and sale of financial futures contracts and related options are deemed to be a pledge. The preceding limitations regarding buying on margin, borrowing money, and pledging assets do not apply to intra-day cash advances made by the Fund's custodian, or the grant of a security interest in securities by the Fund to its custodian to collateralize such intra-day cash advances, in order to enable the Fund to settle securities purchases or to redeem shares of the Fund. Investing in Real Estate The Fund will not buy or sell real estate, although it may invest in securities of companies whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. Investing in Commodities The Fund will not purchase or sell commodities, except that the Fund may purchase and sell financial futures contracts and related options. Underwriting The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of restricted securities which the Fund may purchase pursuant to its investment objective, policies, and limitations. Lending Cash or Securities The Fund will not lend any of its assets except portfolio securities up to one-third of the value of its total assets. This shall not prevent the purchase or holding of municipal bonds, repurchase agreements, or other transactions which are permitted by the Fund's investment objective and policies. Selling Short The Fund will not sell securities short. Restricted Securities The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the Directors. Investing in Securities of Other Investment Companies The Fund will not purchase securities of other investment companies except as part of a merger, consolidation, or other acquisition. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Directors without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. Diversification of Investments The Fund will not invest more than 5% of its total assets in the securities of any one issuer (except cash and cash instruments, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities or instruments secured by money market instruments such as repurchase agreements). Under this limitation, each governmental subdivision, including states and the District of Columbia, territories, possessions of the United States or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non-governmental user are considered to be issued solely by that user. Private activity bonds backed only by the assets and revenues of a non-governmental user are considered to be issued solely by that user. If, in the case of a private activity bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. Criteria for Liquidity of Restricted Securities The ability of the Directors to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for resale under the Rule. The Fund believes that the Staff of the SEC has left the question of determining the liquidity of all restricted securities to the Directors. The Directors may consider the following criteria in determining the liquidity of certain restricted securities: o the frequency of trades and quotes for the security; o the number of dealers willing to purchase or sell the security and the number of other potential buyers; o dealer undertakings to make a market in the security; and o the nature of the security and the nature of the marketplace trades. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of the investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. During the past fiscal year, the Fund did not (1) purchase or sell options on securities, as permitted by the investment limitations, without first notifying shareholders; (2) purchase "liquidity puts" or "standby commitments" as described in the prospectus, engage in reverse repurchase agreements, or borrow money in excess of 5% of the value of its total assets; or (3) lend portfolio securities. The Fund does not expect to engage in any of the above activities during the coming fiscal year. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Officers and Directors are listed with their addresses, birthdates, present positions with Federated Municipal High Income Bond Fund, Inc., and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Director Chief Executive Officer and Director or Trustee of the Funds; Chairman and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Company. Thomas G. Bigley 15 Old Timber Trail Pittsburgh, PA Birthdate: February 3, 1934 Director Director or Trustee of the Funds; Director, Member of Executive Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive Committee, University of Pittsburgh. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Director Director or Trustee of the Funds; President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Director Director or Trustee of the Funds; Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Pittsburgh Civic Light Opera. James E. Dowd, Esq. 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Director Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional Administrator, United States Securities and Exchange Commission. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Director Director or Trustee of the Funds; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia Society of America. Edward L. Flaherty, Jr., Esq. @ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Director Director or Trustee of the Funds; Attorney, Of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Director Director or Trustee of the Funds; formerly, Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation; Director, VISA USA and VISA International; Chairman and Director, Massachusetts Banker Association; Director, Depository Trust Corporation. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Director Director or Trustee of the Funds; President, Law Professor, Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Director Director or Trustee of the Funds; President, World Society for Ekistics, Athens; Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University and U.S. Space Foundation; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center, Prague; formerly, Professor, United States Military Academy; Professor, United States Air Force Academy. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Director Director or Trustee of the Funds; Public relations/Marketing/Conference Planning; formerly, National Spokesperson, Aluminum Company of America; business owner. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President or Executive Vice President of the Funds; President and Director, Federated Investors, Inc.; President and Trustee, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds; Executive Vice President, Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp. * This Director is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Directors handles the responsibilities of the Board between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal High Income Bond Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Regions Funds; Riggs Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; WesMark Funds; WCT Funds; and World Investment Series, Inc. Fund Ownership Officers and Directors own less than 1% of the Fund's outstanding shares. As of November xx, 1998, there were no Class A shareholders owning 5% or more of the Fund. As of November xx, 1998, the following shareholders of record owned 5% or more of the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers, owned approximately xx,xxx shares (x.xx%). As of November xx, 1998, the following shareholders of record owned 5% or more of the outstanding Class C Shares of the Fund: BHC Securities, Inc. owned approximately xxx,xxx shares (xx.xx%), Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers, owned approximately xx,xxx shares (x.xx%). As of November xx, 1998, the following shareholders of record owned 5% or more of the outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers, owned approximately x,xxx,xxx shares (xx.xx%). Directors' Compensation
AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID Corporation Corporation*# FROM FUND COMPLEX John F. Donahue $ -0- $-0- for the Corporation and Chairman and Director 56 other investment companies in the Fund Complex Thomas G. Bigley $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex John T. Conroy, Jr. $1,460.66 $122,362 for the Corporation and Director 56 other investment companies in the Fund Complex William J. Copeland $1,460.66 $122,362 for the Corporation and Director 56 other investment companies in the Fund Complex James E. Dowd, Esq. $1,460.66 $122,362 for the Corporation and Director 56 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex Richard B. Fisher $-0- $-0- for the Corporation and President and Director 6 other investment companies in the Fund Complex Edward L. Flaherty, Jr., Esq. $1,460.66 $122,362 for the Corporation and Director 56 other investment companies in the Fund Complex Peter E. Madden $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex John E. Murray, Jr., J.D., S.J.D. $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex Wesley W. Posvar $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex Marjorie P. Smuts $1,327.69 $111,222 for the Corporation and Director 56 other investment companies in the Fund Complex
* Information is furnished for the fiscal year ended August 31, 1998. # The aggregate compensation is provided for the Corporation which is comprised of one portfolio. The information is provided for the last calendar year. Director Liability The Articles of Incorporation provide that the Directors will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. Adviser to the Fund The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a subsidiary of Federated Investors, Inc. All of the voting securities of Federated Investors, Inc. are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The Adviser shall not be liable to the Fund or any shareholder for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Fund. Advisory Fees For its advisory services, Federated Advisers receives an annual investment advisory fee as described in the prospectus. During the fiscal years ended August 31, 1998, 1997, and 1996, the Fund's Adviser earned $x,xxx,xxx, $2,610,540, and $2,475,132, respectively. When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Directors. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the Adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. For the fiscal years ended August 31, 1998, 1997, and 1996, the Fund paid no brokerage commissions on brokerage transactions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the Adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the Adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the Adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. Fund Administration Federated Services Company, a subsidiary of Federated Investors, Inc. provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors, Inc. For purposes of this Statement of Additional Information, Federated Services Company and Federated Administrative Services may hereinafter collectively be referred to as the "Administrators." For the fiscal years ended August 31, 1998, 1997, and 1996, the Administrators earned $xxx,xxx, $328,575, and $311,976. Custodian and Portfolio Accountant State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of-pocket expenses. Transfer Agent Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. Independent Auditors The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh, Pennsylvania. Except under certain circumstances described in the respective prospectuses, Shares are sold at their net asset value (plus a sales charge, if applicable) on days the New York Stock Exchange is open for business. The procedure for purchasing Shares is explained in the respective prospectuses under "Investing in the Fund" and "Purchasing Shares." Quantity Discounts and Accumulated Purchases As described in the prospectuses, larger purchases of the same Share class reduce or eliminate the sales charge paid. For example, the Fund will combine all Class A Share purchases made on the same day by the investor, the investor's spouse, and the investor's children under age 21 when it calculates the sales charge. This combined purchase option is available within Class F Shares as well. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase into the same Share class is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns Class A Shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 3.75%, not 4.50%. In addition, the Fund will also combine purchases for the purpose of reducing the contingent deferred sales charge imposed on Class F Share redemptions. For example, if a shareholder already owns Class F Shares having current value at the public offering price of $1 million and purchases an additional $1 million at the current public offering price, the applicable contingent deferred sales charge would be reduced to 0.50% of those additional Class F Shares. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by his financial intermediary at the time the purchase is made that Class A Shares or Class F Shares are already owned or that purchases are being combined. The Fund will reduce or eliminate the sales charge after it confirms the purchases. Concurrent Purchases Shareholders have the privilege of combining concurrent purchases of the same Share class of two or more funds in the Federated Complex in calculating the applicable sales charge. To receive a sales charge reduction or elimination, Federated Securities Corp. must be notified by the shareholder in writing or by his financial intermediary at the time the concurrent purchases are made. The Fund will reduce or eliminate the sales charge after it confirms the purchases. Letter of Intent A shareholder can sign a letter of intent committing to purchase a certain amount of the same Share class within a 13-month period in order to combine such purchases in calculating the applicable sales charge. The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If the shareholder completes the commitment, the escrowed Shares will be released to their account. If the commitment is not completed within 13 months, the custodian will redeem an appropriate number of escrowed Shares to pay for the applicable sales charge. The letter of intent for Class F Shares also includes a provision for reductions in the contingent deferred sales charge and holding period depending on the amount actually purchased within the 13-month period. While this letter of intent will not obligate the shareholder to purchase Class A Shares or Class F Shares, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. At the time a letter of intent is established, current balances in accounts in any Class A Shares or Class F Shares of any Federated Funds, excluding money market accounts, will be aggregated to provide a purchase credit towards fulfillment of the letter of intent. The letter may be dated as of a prior date to include any purchase made within the past 90 days. Prior trade prices will not be adjusted. Reinvestment Privilege The reinvestment privilege is available for all Shares of the Fund within the same Share class. Class A and Class F shareholders who redeem from the Fund may reinvest the redemption proceeds back into the same Share class at the next determined net asset value without any sales charge. The original Shares must have been subject to a sales charge and the reinvestment must be within 120 days. Similarly, Class C and Class F shareholders who redeem may reinvest their redemption proceeds in the same Share class within 120 days. Class B Shares also may be reinvested within 120 days of redemption, although such reinvestment will be made into Class A Shares. Shareholders would not be entitled to a reimbursement of the contingent deferred sales charge if paid at the time of redemption on any Share class. However, reinvested Shares would not be subject to a contingent deferred sales charge, if otherwise applicable, upon later redemption. In addition, if Shares were reinvested through a financial intermediary, the financial intermediary would not be entitled to an advanced payment from Federated Securities Corp. on the reinvested Shares, if otherwise applicable. Federated Securities Corp. must be notified by the shareholder in writing or by his financial intermediary of the reinvestment in order to eliminate a sales charge or a contingent deferred sales charge. If the shareholder redeems Shares in the Fund, there may be tax consequences. Conversion of Class B Shares Class B Shares will automatically convert into Class A Shares on or around the 15th of the month eight full years from the purchase date and will no longer be subject to a fee under the distribution plan. For purposes of conversion to Class A Shares, Shares purchased through the reinvestment of dividends and distributions paid on Class B Shares will be considered to be held in a separate sub-account. Each time any Class B Shares in the shareholder's account (other than those in the sub-account) convert to Class A Shares, an equal pro rata portion of the Class B Shares in the sub-account will also convert to Class A Shares. The conversion of Class B Shares to Class A Shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that such conversions will not constitute taxable events for federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B Shares to Class A Shares will not occur if such a ruling or opinion is not available. In such event, Class B Shares would continue to be subject to higher expenses than Class A Shares for an indefinite period. Distribution Plan and Shareholder Services These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to, marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Distribution Plan, the Directors expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in pursuing its investment objectives. By identifying potential investors whose needs are served by the Fund's objectives, and properly servicing these accounts, it may be possible to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ending August 31, 1998, the Fund paid distribution fees on behalf of Class B and Class C Shares in the amounts of $xx,xxx and $xx,xxx, respectively. In addition, for this period, the Fund paid shareholder services fees on behalf of Class A Shares, Class B Shares, Class C Shares, and Class F Shares in the amounts of $xxx,xxx, $xx,xxx, $x,xxx, and $xxx,xxx, respectively. The Fund waived shareholder services fees in the amount of $xx,xxx for Class F Shares. Conversion to Federal Funds It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds before shareholders begin to earn dividends. Federated Shareholders Services acts as the shareholder's agent in depositing checks and converting them to federal funds. Purchases by Sales Representatives, Fund Directors, and Employees The following individuals and their immediate family members may buy Class A Shares and Class F Shares at net asset value without a sales charge: o Directors, employees, and sales representatives of the Fund, Federated Advisers, and Federated Securities Corp. and its affiliates; o Federated Life Members (Class A Shares only); o any associated person of an investment dealer who has a sales agreement with Federated Securities Corp.; and o trusts, pensions, or profit-sharing plans for these individuals. These sales are made with the purchaser's written assurance that the purchase is for investment purposes and that the securities will not be resold except through redemption by the Fund. The Fund's net asset value per Share fluctuates and is based on the market value of all securities and other assets of the Fund. The net asset value for each class of Shares may differ due to the variance in daily net income realized by each class. Net asset value is not determined on (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Valuing Municipal Bonds The Directors use an independent pricing service to value municipal bonds. The independent pricing service takes into consideration yield, stability, risk, quality, coupon rate, maturity, type of issuer, trading characteristics, special circumstances of a security or trading market, and any other factors or market data it considers relevant in determining valuations for normal institutional size trading units of debt securities and does not rely exclusively on quoted prices. Use of Amortized Cost The Directors have decided that the fair value of debt securities authorized to be purchased by the Fund with remaining maturities of 60 days or less at the time of purchase shall be their amortized cost value, unless the particular circumstances of the security indicate otherwise. Under this method, portfolio instruments and assets are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. The Executive Committee continually assesses this method of valuation and recommends changes where necessary to assure that the Fund's portfolio instruments are valued at their fair value as determined in good faith by the Directors. The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Shareholder redemptions may be subject to a contingent deferred sales charge. Redemption procedures are explained in the respective prospectuses under "Redeeming and Exchanging Shares." Although the transfer agent does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. Redemption in Kind Although the Fund intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable SEC rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Directors determine to be fair and equitable. The Corporation has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Corporation is obligated to redeem Shares for any shareholder in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. Contingent Deferred Sales Charge In computing the amount of the applicable Contingent Deferred Sales Charge, redemptions are deemed to have occurred in the following order: (1) Shares acquired through the reinvestment of dividends and long-term capital gains; (2) Shares held for more than six full years from the date of purchase with respect to Class B Shares and one full year from the date of purchase with respect to Class C Shares; (3) Shares held for fewer than six years with respect to Class B Shares and for less than one full year from the date of purchase with respect to Class C Shares on a first-in, first-out basis. Elimination of the Contingent Deferred Sales Charge -- Class B Shares To qualify for elimination of the contingent deferred sales charge through a Systematic Withdrawal Program, the redemptions of Class B Shares must be from an account that is at least 12 months old, has all Fund distributions reinvested in Fund Shares, and has an account value of at least $10,000 when the Systematic Withdrawal Program is established. Qualifying redemptions may not exceed 1.00% monthly of the account value as periodically determined by the Fund. The amounts that a shareholder may withdraw under a Systematic Withdrawal Program that qualify for elimination of the contingent deferred sales charge may not exceed 12% annually with reference initially to the value of the Class B Shares upon establishment of the Systematic Withdrawal Program and then as calculated at the annual valuation date. Redemptions on a qualifying Systematic Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually with reference to the applicable account valuation amount. Amounts that exceed the 12.00% annual limit for redemption, as described, may be subject to the contingent deferred sales charge. To the extent that a shareholder exchanges Shares for Class B Shares of other Federated Funds, the time for which the exchanged-for Shares are to be held will be added to the time for which exchanged-from Shares were held for purposes of satisfying the 12-month holding requirement. However, for purposes of meeting the $10,000 minimum account value requirement, Class B Share accounts will be not be aggregated. Any Shares purchased prior to the termination of this program would have the contingent deferred sales charge eliminated as provided in the Fund's prospectus at the time of the purchase of the Shares. The Fund's Tax Status The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: o derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; o invest in securities within certain statutory limits; and o distribute to its shareholders at least 90% of its net income earned during the year. Shareholders' Tax Status No portion of any income dividend paid by the Fund is eligible for the dividends received deduction available to corporations. Capital Gains Capital gains or losses may be realized on the sale of portfolio securities and as a result of discounts from par value on securities held to maturity. Sales would generally be made because of: o the availability of higher relative yields; o differentials in market values; o new investment opportunities; o changes in creditworthiness of an issuer; or o an attempt to preserve gains or limit losses. Distribution of long-term capital gains are taxed as such, whether they are taken in cash or reinvested and regardless of the length of time the shareholder has owned the shares. Any loss by a shareholder on Shares held for less than six months and sold after a capital gains distribution will be treated as a long-term capital loss to the extent of the capital gains distribution. The Fund's average annual total returns based on offering price for the following periods ended August 31, 1998 were: Date of Initial Public Share Class Investment One-Year Five-YearsTen-Years Since Inception Class A 8/5/96 x.xx% -- -- x.xx% Class B 8/5/96 x.xx% -- -- x.xx% Class C 8/5/96 x.xx% -- -- x.xx% Class F 4/10/87 x.xx% x.xx% x.xx% x.xx% The average annual total return for all classes of Shares of the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of Shares owned at the end of the period by the offering price per Share at the end of the period. The number of Shares owned at the end of the period is based on the number of Shares purchased at the beginning of the period with $1,000, less any applicable sales charge, adjusted over the period by any additional Shares, assuming a quarterly reinvestment of all dividends and distributions. Any applicable contingent deferred sales charge is deducted from the ending value of the investments based on the lesser of the original purchase price or the offering price of Shares redeemed. The Fund's yields for the thirty-day period ended August 31, 1998, were: Share Class Yield Class A x.xx% Class B x.xx% Class C x.xx% Class F x.xx% The yield for all classes of Shares of the Fund is determined by dividing the net investment income per Share (as defined by the SEC) earned by any class of Shares over a thirty-day period by the maximum offering price per Share of any class of Shares on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a twelve-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by any class of Shares because of certain adjustments required by the SEC and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in any class of Shares, the performance will be reduced for those shareholders paying those fees. The Fund's tax-equivalent yields for the thirty-day period ended August 31, 1998, were: Share Class Yield Class A x.xx% Class B x.xx% Class C x.xx% Class F x.xx% The tax-equivalent yield of the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 28% tax and assuming that income is 100% tax-exempt. Tax-Equivalency Table The Fund may also use a tax-equivalency table in advertising and sales literature. The interest earned by the municipal bonds in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-exempt" investment is an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1998 MULTISTATE MUNICIPAL FUND FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% JOINT $1- $42,351- $102,301- $155,951- OVER RETURN 42,350 102,300 155,950 278,450 $278,450 SINGLE $1- $25,351- $61,401- $128,101- OVER RETURN 25,350 61,400 128,100 278,450 $278,450 Tax-Exempt Yield Taxable Yield Equivalent 1.00% 1.18% 1.39% 1.45% 1.56% 1.66% 1.50% 1.76% 2.08% 2.17% 2.34% 2.48% 2.00% 2.35% 2.78% 2.90% 3.13% 3.31% 2.50% 2.94% 3.47% 3.62% 3.91% 4.14% 3.00% 3.53% 4.17% 4.35% 4.69% 4.97% 3.50% 4.12% 4.86% 5.07% 5.47% 5.79% 4.00% 4.71% 5.56% 5.80% 6.25% 6.62% 4.50% 5.29% 6.25% 6.52% 7.03% 7.45% 5.00% 5.88% 6.94% 7.25% 7.81% 8.28% 5.50% 6.47% 7.64% 7.97% 8.59% 9.11% 6.00% 7.06% 8.33% 8.70% 9.38% 9.93% 6.50% 7.65% 9.03% 9.42% 10.16% 10.76% 7.00% 8.24% 9.72% 10.14% 10.94% 11.59% 7.50% 8.82% 10.42% 10.87% 11.72% 12.42% 8.00% 9.41% 11.11% 11.59% 12.50% 13.25% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. The Fund's performance depends upon such variables as: o portfolio quality; o average portfolio maturity; o type of instruments in which the portfolio is invested; o changes in interest rates and market value of portfolio securities; o changes in Fund expenses; and o various other factors. The Fund's performance fluctuates on a daily basis largely because net earnings and offering price per share fluctuate daily. Both net earnings and offering price per share are factors in the computation of yield and total return. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: o Lipper Analytical Services, Inc. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all capital gains distributions and income dividends and takes into account any change in net asset value over a specific period of time. From time to time, the Fund will quote its Lipper ranking in the high yield municipal bond funds category in advertising and sales literature. o Lehman Brothers Revenue Bond Index is a total return performance benchmark for the long-term, investment grade, revenue bond market. Returns and attributes for the index are calculated semi-monthly. o Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars, and ratings are effective for two weeks. Advertisements and other sales literature for the Fund may quote total returns which are calculated on non-standardized base periods. These total returns represent the historic change in the value of an investment in the Fund based on monthly reinvestment of dividends over a specified period of time. Advertisements may quote performance information which does not reflect the effect of the sales charge. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund's returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. Economic and Market Information Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by Fund portfolio managers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including the growth of the industry, from sources such as the Investment Company Institute. Federated Investors, Inc. is dedicated to meeting investor needs which is reflected in its investment decision making -- structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the municipal sector, as of December 31, 1997, Federated Investors, Inc. managed 11 bond funds with approximately $2.1 billion in assets and 22 money market funds with approximately $10.9 billion in total assets. In 1976, Federated introduced one of the first municipal bond mutual funds in the industry and is now one of the largest institutional buyers of municipal securities. The Funds may quote statistics from organizations including The Tax Foundation and the National Taxpayers Union regarding the tax obligations of Americans. The Chief Investment Officers responsible for oversight of the various investment sectors within Federated Investors, Inc. are: U.S. equity and high yield - J. Thomas Madden; U.S. fixed income - William D. Dawson, III; and global equities and fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice Presidents of the Federated advisory companies. Mutual Fund Market Thirty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $4.4 trillion to the more than 6,700 funds available.* Federated Investors, Inc., through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: Institutional Clients Federated Investors, Inc. meets the needs of approximately 900 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. * Source: Investment Company Institute Bank Marketing Other institutional clients include close relationships with more than 1,600 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales. Broker/Dealers and Bank Broker/Dealer Subsidiaries Federated funds are available to consumers through major brokerage firms nationwide--we have over 2,200 broker/dealer and bank broker/dealer relationships across the country--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high rankings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Federated Securities Corp. To be filed by amendment. PART C. OTHER INFORMATION. Item 24. Financial Statements and Exhibits: (a) Financial Statements: To be filed by Amendment; (b) Exhibits: (1) (i) Conformed copy of Articles of Incorporation of the Registrant (1); (ii) Conformed copy of Amendment to Articles of Incorporation (6); (iii) Conformed copy of Amended and Restated Articles of Incorporation of Federated Municipal Opportunities Fund, Inc. (10); (iv) Conformed copy of Federated Municipal Opportunities Fund, Inc. Certificate of Correction (10); (2) (i) Copy of Amended and Restated By-Laws of the Registrant (10); (ii) Copy of Amendment #6 to the By-Laws of the Registrant (+); (iii) Copy of Amendment #7 to the By-Laws of the Registrant (+); (iv) Copy of Amendment #8 to the By-Laws of the Registrant (+); (3) Not applicable; (4) (i) Copy of Specimen Certificate for Class A Shares (10); (ii) Copy of Specimen Certificate for Class B Shares (10); (iii) Copy of Specimen Certificate for Class C Shares (10); (iv) Copy of Specimen Certificate for Class F Shares (10); (5) Conformed copy of the Investment Advisory Contract of the Registrant (4); (6) (i) Conformed copy of Distributor's Contract of the Registrant (10); (ii) Conformed copy of Exhibits A and C to the Distributor's Contract (10); (iii) Conformed copy of Exhibit D to the Distributor's Contract (+); (iv) Conformed copy of Distributor's Contract for Class B Shares of the Registrant, and Schedule A thereto (+); - ------------------------ + All exhibits have been filed electronically. 1. Response is incorporated by reference to Registrant's Initial Registration Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533) 4. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 4 filed August 25, 1989. (File Nos. 33-11410 and 811-4533) 6. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 6 filed October 24, 1990. (File Nos. 33-11410 and 811-4533) 10. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 16 filed October 25, 1996. (File Nos. 33-11410 and 811-4533) (v) The Registrant hereby incorporates the conformed copy of the specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust Series II Registration Statement on Form N-1A, filed with the Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269); (7) Not applicable; (8) (i) Conformed copy of Custodian Agreement of the Registrant (8); (ii) Conformed copy of Custodian Fee Schedule(12); (9) (i) Conformed copy of Amended and Restated Agreement for Fund Accounting Services, Administrative Services, Transfer Agency Services, and Custody Services Procurement (+); (ii) Conformed copy of Amended and Restated Shareholder Services Agreement (12); (iii) Conformed copy of Principal Shareholder Servicer's Agreement (+); (iv) Conformed copy of Exhibit 1 to the Principal Shareholder Servicer's Agreement and Schedule A thereto (+); (v) Conformed copy of Shareholder Services Agreement for Class B Shares (+); (vi) Conformed copy of Exhibit 1 to the Shareholder Services Agreement for Class B Shares, and Schedule A thereto (+); (vii) The responses described in Item 24(b)(6)(iii)are hereby incorporated by reference; (10) Conformed copy of Opinion and Consent of Counsel as to legality of shares being registered (8); (11) Conformed copy of Consent of Independent Auditors (12); (12) Not applicable; (13) Conformed copy of Initial Capital Understanding (8); (14) Not applicable; (15) (i) Conformed copy of Distribution Plan as amended (10); (ii) Conformed copy of Exhibit 1 (Amendment to the Distribution Plan) and Schedule A thereto (+); (iii) The responses described in Item 24(b)(6)(iii)are hereby incorporated by reference; (16) Copy of Schedule for Computation of Yield Calculation (8); (17) Copy of Financial Data Schedules (+); - ------------------------ + All exhibits have been filed electronically. 8. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 12 filed October 25, 1995. (File Nos. 33-11410 and 811-4533) 10. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 16 filed October 25, 1996. (File Nos. 33-11410 and 811-4533) 12. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 18 filed October 31, 1997. (File Nos. 33-11410 and 811-4533) (18) The Registrant hereby incorporates the conformed copy of the specimen Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc. Registration Statement on Form N-1A, filed with the Commission on January 26, 1996.(File Nos. 33-52149 and 811-07141); and (19) Conformed copy of Power of Attorney (11). Item 25. Persons Controlled by or Under Common Control with Registrant: None Item 26. Number of Holders of Securities: Number of Record Holders Title of Class as of August 7, 1998 -------------- --------------------- Shares of Capital Stock ($0.001 per Share par value) Class A Shares 3,053 Class B Shares 1,218 Class C Shares 388 Class F Shares 9,302 Item 27. Indemnification: (1) Item 28. Business and Other Connections of Investment Adviser: (a) For a description of the other business of the investment adviser, see the section entitled "Fund Information -- Management of the Fund" in Part A. The affiliations with the Registrant of four of the Trustees and one of the Officers of the investment adviser are included in Part B of this Registration Statement under "Federated Municipal High Income Bond Fund, Inc. Management." The remaining Trustee of the investment adviser, his position with the investment adviser, and, in parentheses, his principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown, Delaware 19947. The remaining Officers of the investment adviser are: Executive Vice Presidents: William D. Dawson, III Henry A. Frantzen J. Thomas Madden - ------------------------ + All exhibits have been filed electronically. 1. Response is incorporated by reference to Registrant's Initial Registration Amendment No. 1 filed January 21, 1987. (File Nos. 33-11410 and 811-4533) 11. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 17 filed September 10, 1997. (File Nos. 33-11410 and 811-4533) Senior Vice Presidents: Joseph M. Balestrino Drew J. Collins Jonathan C. Conley Deborah A. Cunningham Mark E. Durbiano Sandra L. McInerney J. Alan Minteer Susan M. Nason Mary Jo Ochson Robert J. Ostrowski Vice Presidents: Todd A. Abraham J. Scott Albrecht Arthur J. Barry Randall S. Bauer David A. Briggs Micheal W. Casey Kenneth J. Cody Alexandre de Bethmann Michael P. Donnelly Linda A. Duessel Donald T. Ellenberger Kathleen M. Foody-Malus Thomas M. Franks Edward C. Gonzales James E. Grefenstette Susan R. Hill Stephen A. Keen Robert K. Kinsey Robert M. Kowit Jeff A. Kozemchak Richard J. Lazarchic Steven Lehman Marian R. Marinack Charles A. Ritter Keith J. Sabol Scott B. Schermerhorn Frank Semack Aash M. Shah Christopher Smith Tracy P. Stouffer Edward J. Tiedge Paige M. Wilhelm Jolanta M. Wysocka Assistant Vice Presidents: Nancy J. Belz Robert E. Cauley Lee R. Cunningham, II B. Anthony Delserone, Jr. Paul S. Drotch Salvatore A. Esposito Donna M. Fabiano John T. Gentry William R. Jamison Constantine Kartsonsas John C. Kerber Grant K. McKay Natalie F. Metz Joseph M. Natoli John Sheehy Michael W. Sirianni Leonardo A. Vila Lori A. Wolff Secretary: Stephen A. Keen Treasurer: Thomas R. Donahue Assistant Secretaries: Thomas R. Donahue Richard B. Fisher Christine I. McGonigle Assistant Treasurer: Richard B. Fisher The business address of each of the Officers of the investment adviser is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779. These individuals are also officers of a majority of the investment advisers to the Funds listed in Part B of this Registration Statement. Item 29. Principal Underwriters: (a) Federated Securities Corp. the Distributor for shares of the Registrant, acts as principal underwriter for the following open-end investment companies, including the Registrant: Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Master Trust; Federated Municipal High Income Bond Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions Funds; Riggs Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; and World Investment Series, Inc. Federated Securities Corp. also acts as principal underwriter for the following closed-end investment company: Liberty Term Trust, Inc.- 1999. (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant Richard B. Fisher Director, Chairman, Chief President and Federated Investors Tower Executive Officer, Chief Director Pittsburgh, PA 15222-3779 Operating Officer, Asst. Secretary and Asst. Treasurer, Federated Securities Corp. Edward C. Gonzales Director, Executive Vice Executive Vice Federated Investors Tower President, Federated, President Pittsburgh, PA 15222-3779 Securities Corp. Thomas R. Donahue Director, Assistant Secretary -- Federated Investors Tower and Assistant Treasurer Pittsburgh, PA 15222-3779 Federated Securities Corp. James F. Getz President-Broker/Dealer, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John B. Fisher President-Institutional Sales, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 David M. Taylor Executive Vice President -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Mark W. Bloss Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard W. Boyd Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Laura M. Deger Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Theodore Fadool, Jr. Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Bryant R. Fisher Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Christopher T. Fives Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James S. Hamilton Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant James M. Heaton Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Keith Nixon Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Solon A. Person, IV Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Timothy C. Pillion Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Thomas E. Territ Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Ernest G. Anderson Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Teresa M. Antoszyk Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John B. Bohnet Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Jane E. Broeren-Lambesis Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 David J. Callahan Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Mary J. Combs Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 R. Edmond Connell, Jr. Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 R. Leonard Corton, Jr. Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Kevin J. Crenny Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant Daniel T. Culbertson Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 G. Michael Cullen Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Marc C. Danile Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 William C. Doyle Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Jill Ehrenfeld Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Mark D. Fisher Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Joseph D. Gibbons Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John K. Goettlicher Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Craig S. Gonzales Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Raymond Hanley Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Bruce E. Hastings Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Beth A. Hetzel Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James E. Hickey Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Charlene H. Jennings Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 H. Joseph Kennedy Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant Michael W. Koenig Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Michael R. Manning Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Mark J. Miehl Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard C. Mihm Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 J. Michael Miller Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Alec H. Neilly Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Thomas A. Peters III Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Robert F. Phillips Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard A. Recker Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Eugene B. Reed Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Paul V. Riordan Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John Rogers Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Brian S. Ronayne Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Thomas S. Schinabeck Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant Edward L. Smith Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 David W. Spears Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John A. Staley Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Colin B. Starks Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Jeffrey A. Stewart Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 William C. Tustin Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Paul A. Uhlman Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Miles J. Wallace Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 John F. Wallin Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard B. Watts Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Edward J. Wojnarowski Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Michael P. Wolff Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Edward R. Bozek Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Terri E. Bush Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Beth C. Dell Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Distributor With Registrant David L. Immonen Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Renee L. Martin Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Robert M. Rossi Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Denis McAuley Treasurer, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Leslie K. Platt Assistant Secretary, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (c) Not applicable. Item 30. Location of Accounts and Records: All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at one of the following locations: Registrant.................... Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Shareholder Services Company............ Federated Investors Tower ("Transfer Agent and Dividend Pittsburgh, PA 15222-3779 Disbursing Agent") Federated Services............ Federated Investors Tower Company Pittsburgh, PA 15222-3779 ("Administrator") Federated Advisers............ Federated Investors Tower ("Adviser") Pittsburgh, PA 15222-3779 State Street Bank and Trust... P.O. Box 8600 Company Boston, MA 02266-8600 ("Custodian") Item 31. Management Services: Not applicable. Item 32. Undertakings: Registrant hereby undertakes to comply with the provisions of Section 16(c) of the 1940 Act with respect to the removal of Directors and the calling of special shareholder meetings by shareholders. Registrant hereby undertakes to furnish each person to whom a prospectus is delivered, a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC., has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 1st day of October, 1998. FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. BY: /s/ Matthew S. Hardin Matthew S. Hardin, Assistant Secretary Attorney in Fact for John F. Donahue October 1, 1998 Pursuant to the requirements of the Securities Act of 1933, this Amendment to its Registration Statement has been signed below by the following person in the capacity and on the date indicated: NAME TITLE DATE By: /s/ Matthew S. Hardin Attorney In Fact October 1, 1998 Matthew S. Hardin For the Persons ASSISTANT SECRETARY Listed Below NAME TITLE John F. Donahue* Chairman and Director (Chief Executive Officer) Richard B. Fisher* President and Director John W. McGonigle* Executive Vice President, Treasurer and Secretary Thomas G. Bigley* Director 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 John E. Murray, Jr.* Director Wesley W. Posvar* Director Marjorie P. Smuts* Director * By Power of Attorney EX-99.BYLAWSA1 2 Exhibit 2(ii) under Form N-1A Exhibit 3(ii) under Item 601/Reg. S-K FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (formerly: Fortress Municipal Income Fund, Inc.) Amendment #6 to the By-Laws (effective February 23, 1998) Delete Sections 1, 2, 3, 4 & 5 from Article IV, OFFICERS, and replace with the following: 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, in its discretion, may elect or appoint a Chairman of the Board of Directors and other Officers or agents, including one or more Assistant Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. A Vice President, the Secretary or the Treasurer may appoint an Assistant Vice President, an Assistant Secretary or an Assistant Treasurer, respectively, to serve until the next election of Officers. Two or more offices may be held by a single person except the offices of President and Vice President may not be held by the same person concurrently. It shall not be necessary for any Director or any Officer to be a holder of shares in any Series or Class of the Corporation. 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, or until earlier resignation or removal. The Chairman of the Board of Directors, if there is one, shall be elected annually by and from the Directors, and serve until a successor is so elected and qualified, or until earlier resignation or removal. Section 3. REMOVAL. Any Officer elected by the Board of Directors or whose appointment has been ratified by the Board of Directors may be removed with or without cause at any time by a majority vote of all of the 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 , the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. Any vacancy in any of the offices, whether by resignation, removal or otherwise, may be filled for the unexpired portion of the term by the President. A vacancy in the office of Assistant Vice President may be filled by a Vice President; in the office of by the Secretary; or in the office of Assistant Treasurer by the Treasurer. Any appointment to fill any vacancy shall serve subject to ratification by the Board of Directors at its next Regular Meeting. EX-99.BYLAWSA2 3 Exhibit 2(iii) under Form N-1A Exhibit 3(ii) under Item 601/Reg. S-K Federated Municipal Opportunities Fund, Inc. Amendment #7 to the By-Laws (effective February 27, 1998) Delete Section 8 Proxies of Article I, Meetings of Shareholders, and replace with the following: 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 unless otherwise provided in the proxy. Every proxy shall be in writing and signed by the Shareholder or his duly authorized agent or be in such other form as may be permitted by the Maryland General Corporation Law, including electronic transmissions from the shareholder or his authorized agent. Authorization may be given orally, in writing, by telephone, or by other means of communication. A copy, facsimile transmission or other reproduction of the writing or transmission may be substituted for the original writing or transmission for any purpose for which the original transmission could be used. Every proxy shall be dated, but need not be sealed, witnessed or acknowledged. Where Shares are held of record by more than one person, any co-owner or co-fiduciary may appoint a proxy holder, unless the Secretary of the Corporation is notified in writing by any co-owner or co-fiduciary that the joinder of more than one is to be required. All proxies shall be filed with and verified by the Secretary or an Assistant Secretary of the Corporation, or the person acting as Secretary of the Meeting. Unless otherwise specifically limited by their term, all proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. EX-99.BYLAWSA3 4 Exhibit 2(iv) under Form N-1A Exhibit 3(ii) under Item 601/Reg. S-K Federated Municipal Opportunities Fund, Inc. Amendment #8 to the By-Laws (effective May 12, 1998) Strike Section 3 - Place of Meetings from Article I - Meeting of Shareholder and replace it with the following: Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the Corporation or a particular Series or Class, shall be held at such place within or without the State of Maryland as may be fixed by the Board of Directors. EX-99.DISTRIBKEX1 5 Exhibit 6(iii) under Form N-1A Exhibit 1 under Item 601/Reg. S-K Exhibit D to the Distributor's Contract FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. Class F Shares The following provisions are hereby incorporated and made part of the Distributor's Contract dated July 17, 1996, between Federated Municipal Opportunities Fund, Inc. and Federated Securities Corp. with respect to the Class of the Fund set forth above: 1. The Trust hereby appoints FSC to select a group of financial institutions ("Financial Institutions") to sell shares of the above-listed series and Class ("Shares"), at the current offering price thereof as described and set forth in the prospectuses of the Trust. 2. FSC will enter into separate written agreements with various firms to provide the services set forth in Paragraph 1 herein. During the term of this Agreement, the Trust will reimburse FSC for payments made by FSC to obtain services pursuant to this Agreement, a monthly fee computed at the annual rate of up to .25 of 1% of the average aggregate net asset value of the Shares held during the month. For the month in which this Agreement becomes effective or terminates, there shall be an appropriate proration of any fee payable on the basis of the number of days that the Agreement is in effect during the month. The fees paid hereunder shall be in an amount equal to the aggregate amount of periodic fees paid by FSC to Financial Institutions pursuant to Paragraph 3 herein. 3. FSC, in its sole discretion, may pay Financial Institutions a periodic fee in respect of Shares owned from time to time by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid shall be determined from time to time by the Trust's Board of Trustees. 4. FSC may from time-to-time and for such periods as it deems appropriate reduce its compensation to the extent any Class' expenses exceed such lower expense limitation as FSC may, by notice to the Corporation, voluntarily declare to be effective. 5. FSC will prepare reports to the Board of Trustees of the Trust on a quarterly basis showing amounts paid to the various firms and the purpose for such payments. 6. In the event any amendment to this Agreement materially increases the fees set forth in Paragraph 2, such amendment must be approved by a vote of a majority of the outstanding voting securities of the appropriate Fund or Class. In consideration of the mutual covenants set forth in the Distributor's Contract dated July 17, 1996 between Federated Municipal Opportunities Fund, Inc. and Federated Securities Corp., Federated Municipal Opportunities Fund, Inc. executes and delivers this Exhibit on behalf of the Funds, and with respect to the Class F Shares first set forth in this Exhibit. Witness the due execution hereof this 17th day of July, 1996. ATTEST: Federated Municipal Opportunities Fund, Inc. /s/ John W. McGonigle By: /s/ Richard B. Fisher Secretary President (SEAL) ATTEST: FEDERATED SECURITIES CORP. /s/ Byron f. Bowman By: /s/ Edward C. Gonzales Secretary Executive Vice President (SEAL) EX-99.DISTRIBK 6 Exhibit 6(iv) under Form N-1A Exhibit 1 under Item 601/Reg. S-K DISTRIBUTOR'S CONTRACT AGREEMENT made this 24th day of October, 1997, by and between those Investment Companies on behalf of the Portfolios and Classes of Shares listed on Schedule A to Exhibit 1, as may be amended from time to time, having their principal place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of Agreement, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania Corporation. Each of the Exhibits hereto is incorporated herein in its entirety and made a part hereof. In the event of any inconsistency between the terms of this Agreement and the terms of any applicable Exhibit, the terms of the applicable Exhibit shall govern. In consideration of the mutual covenants hereinafter contained, it is hereby agreed by and between the parties hereto as follows: 1. Each of the Investment Companies hereby appoint FSC as agent to sell and distribute shares of the Investment Companies which may be offered in one or more series (the "Funds") consisting of one or more classes (the "Classes") of shares (the "Shares"), as described and set forth on one or more exhibits to this Agreement, at the current offering price thereof as described and set forth in the current Prospectuses of the Funds. FSC hereby accepts such appointment and agrees to provide such other services for the Investment Companies, if any, and accept such compensation from the Investment Companies, if any, as set forth in the applicable exhibits to this Agreement. 2. The sale of any Shares may be suspended without prior notice whenever in the judgment of the applicable Investment Company it is in its best interest to do so. 3. Neither FSC nor any other person is authorized by the Investment Companies to give any information or to make any representation relative to any Shares other than those contained in the Registration Statement, Prospectuses, or Statements of Additional Information ("SAIs") filed with the Securities and Exchange Commission, as the same may be amended from time to time, or in any supplemental information to said Prospectuses or SAIs approved by the Investment Companies. FSC agrees that any other information or representations other than those specified above which it or any dealer or other person who purchases Shares through FSC may make in connection with the offer or sale of Shares, shall be made entirely without liability on the part of the Investment Companies. No person or dealer, other than FSC, is authorized to act as agent for the Investment Companies for any purpose. FSC agrees that in offering or selling Shares as agent of the Investment Companies, it will, in all respects, duly conform to all applicable state and federal laws and the rules and regulations of the National Association of Securities Dealers, Inc., including its Rules of Fair Practice. FSC will submit to the Investment Companies copies of all sales literature before using the same and will not use such sales literature if disapproved by the Investment Companies. 4. This Agreement is effective with respect to each Class as of the date of execution of the applicable exhibit and shall continue in effect with respect to each Class presently set forth on an exhibit and any subsequent Classes added pursuant to an exhibit during the initial term of this Agreement for one year from the date set forth above, and thereafter for successive periods of one year if such continuance is approved at least annually by the Trustees/Directors of the Investment Companies including a majority of the members of the Board of Trustees/Directors of the Investment Companies who are not interested persons of the Investment Companies and have no direct or indirect financial interest in the operation of any Distribution Plan relating to the Investment Companies or in any related documents to such Plan ("Disinterested Trustees/Directors") cast in person at a meeting called for that purpose. If a Class is added after the first annual approval by the Trustees/Directors as described above, this Agreement will be effective as to that Class upon execution of the applicable exhibit and will continue in effect until the next annual approval of this Agreement by the Trustees/Directors and thereafter for successive periods of one year, subject to approval as described above. 5. This Agreement may be terminated with regard to a particular Fund or Class at any time, without the payment of any penalty, by the vote of a majority of the Disinterested Trustees/Directors or by a majority of the outstanding voting securities of the particular Fund or Class on not more than sixty (60) days' written notice to any other party to this Agreement. 6. This Agreement may not be assigned by FSC and shall automatically terminate in the event of an assignment by FSC as defined in the Investment Company Act of 1940, as amended, provided, however, that FSC may employ such other person, persons, corporation or corporations as it shall determine in order to assist it in carrying out its duties under this Agreement. 7. FSC shall not be liable to the Investment Companies for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed by this Agreement. 8. This Agreement may be amended at any time by mutual agreement in writing of all the parties hereto, provided that such amendment is approved by the Trustees/Directors of the Investment Companies including a majority of the Disinterested Trustees/Directors of the Investment Companies cast in person at a meeting called for that purpose. 9. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 10. (a) Subject to the conditions set forth below, the Investment Companies agree to indemnify and hold harmless FSC and each person, if any, who controls FSC within the meaning of Section 15 of the Securities Act of 1933 and Section 20 of the Securities Act of 1934, as amended, against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectuses or SAIs (as from time to time amended and supplemented) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Investment Companies about FSC by or on behalf of FSC expressly for use in the Registration Statement, any Prospectuses and SAIs or any amendment or supplement thereof. If any action is brought against FSC or any controlling person thereof with respect to which indemnity may be sought against any Investment Company pursuant to the foregoing paragraph, FSC shall promptly notify the Investment Company in writing of the institution of such action and the Investment Company shall assume the defense of such action, including the employment of counsel selected by the Investment Company and payment of expenses. FSC or any such controlling person thereof shall have the right to employ separate counsel in any such case, but the fees and expenses of such counsel shall be at the expense of FSC or such controlling person unless the employment of such counsel shall have been authorized in writing by the Investment Company in connection with the defense of such action or the Investment Company shall not have employed counsel to have charge of the defense of such action, in any of which events such fees and expenses shall be borne by the Investment Company. Anything in this paragraph to the contrary notwithstanding, the Investment Companies shall not be liable for any settlement of any such claim of action effected without their written consent. The Investment Companies agree promptly to notify FSC of the commencement of any litigation or proceedings against the Investment Companies or any of their officers or Trustees/Directors or controlling persons in connection with the issue and sale of Shares or in connection with the Registration Statement, Prospectuses, or SAIs. (b) FSC agrees to indemnify and hold harmless the Investment Companies, each of its Trustees/Directors, each of its officers who have signed the Registration Statement and each other person, if any, who controls the Investment Companies within the meaning of Section 15 of the Securities Act of 1933, but only with respect to statements or omissions, if any, made in the Registration Statement or any Prospectus, SAI, or any amendment or supplement thereof in reliance upon, and in conformity with, information furnished to the Investment Companies about FSC by or on behalf of FSC expressly for use in the Registration Statement or any Prospectus, SAI, or any amendment or supplement thereof. In case any action shall be brought against any Investment Company or any other person so indemnified based on the Registration Statement or any Prospectus, SAI, or any amendment or supplement thereof, and with respect to which indemnity may be sought against FSC, FSC shall have the rights and duties given to the Investment Companies, and the Investment Companies and each other person so indemnified shall have the rights and duties given to FSC by the provisions of subsection (a) above. (c) Nothing herein contained shall be deemed to protect any person against liability to the Investment Companies or their shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the duties of such person or by reason of the reckless disregard by such person of the obligations and duties of such person under this Agreement. (d) Insofar as indemnification for liabilities may be permitted pursuant to Section 17 of the Investment Company Act of 1940, as amended, for Trustees/Directors, officers, FSC and controlling persons of the Investment Companies by the Trustees/Directors pursuant to this Agreement, the Investment Companies are aware of the position of the Securities and Exchange Commission as set forth in the Investment Company Act Release No. IC-11330. Therefore, the Investment Companies undertakes that in addition to complying with the applicable provisions of this Agreement, 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 Disinterested Trustees/Directors, 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 Investment Companies 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, Trustees/Directors, FSC or controlling person of the Investment Companies 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 Investment Companies is insured against losses arising by reason of any lawful advances; or (iii) a majority of a quorum of non-party Disinterested Trustees/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. FSC is hereby expressly put on notice of the limitation of liability as set forth in the Declaration of Trust and agrees that the obligations assumed by the Trust pursuant to this Agreement shall be limited " 11. If at any time the Shares of any Fund are offered in two or more Classes, FSC agrees to adopt compliance standards as to when a class of shares may be sold to particular investors. 12. This Agreement will become binding on the parties hereto upon the execution of the attached exhibits to the Agreement. Exhibit 1 to the Distributor's Contract The following provisions are hereby incorporated and made part of the Distributor's Contract (the "Distributor's Contract") dated October 24, 1997, between the Investment Companies and Federated Securities Corp. as principal distributor (the "Principal Distributor") with respect to the Class B Shares of the portfolios (the "Funds") set forth on the attached Schedule A. References herein to this Distributor's Contract refer to the Distributor's Contract as supplemented hereby and made applicable hereby to the Class B Shares of the Funds. In the event of any inconsistency between the terms of this Exhibit and the terms of the Distributor's Contract, the terms of this Exhibit will govern. Once effective in respect of the Class of Shares of any Fund set forth above, the Distributors Contract as amended by this Exhibit shall be effective in respect of all shares of such class outstanding whether issued prior to or after such effectiveness. 1. The Investment Companies hereby appoints the Principal Distributor to engage in activities principally intended to result in the sale of Class B Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the Principal Distributor is authorized to select a group of financial institutions ("Financial Institutions") to sell Class B Shares of a Fund at the current offering price thereof as described and set forth in the respective prospectuses of the Fund. 2. (a) In consideration of the Principal Distributor's services under this Distributor's Contract in respect of each Fund the Investment Companies on behalf of the Fund agree: (I) to pay the Principal Distributor or at its direction its "Allocable Portion" (as hereinafter defined) of a fee (the "Distribution Fee") equal to 0.75 of 1% per annum of the average daily net asset value of the Class B Shares of the Fund outstanding from time to time, and (II) to withhold from redemption proceeds in respect of Class B Shares of the Fund such Principal Distributor's Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs") payable in respect of such redemption as provided in the Prospectus for the Fund and to pay the same over to such Principal Distributor or at its direction at the time the redemption proceeds in respect of such redemption are payable to the holder of the Class B Shares redeemed. (b)The Principal Distributor will be deemed to have performed all services required to be performed in order to be entitled to receive its Allocable Portion of the Distribution Fee payable in respect of the Class B Shares of a Fund upon the settlement of each sale of a "Commission Share" (as defined in the Allocation Schedule attached hereto as Schedule B) of the Fund taken into account in determining such Principal Distributor's Allocable Portion of such Distribution Fees. (c)Notwithstanding anything to the contrary set forth in this Exhibit, the Distributor's Contract or (to the extent waiver thereof is permitted thereby) applicable law, the Investment Companies' obligation to pay the Principal Distributor's Allocable Portion of the Distribution Fees payable in respect of the Class B Shares of a Fund shall not be terminated or modified for any reason (including a termination of this Distributor's Contract as it relates to Class B Shares of a Fund) except to the extent required by a change in the Investment Company Act of 1940 (the "Act") or the Conduct Rules of the National Association of Securities Dealers, Inc., in either case enacted or promulgated after May 1, 1997, or in connection with a "Complete Termination" (as hereinafter defined) of the Distribution Plan in respect of the Class B Shares of a Fund. (d)The Investment Companies will not take any action to waive or change any CDSC in respect of the Class B Shares of a Fund, except as provided in the Investment Companies' prospectus or statement of additional information as in effect as of the date hereof without the consent of the Principal Distributor and the permitted assigns of all or any portion of its right to its Allocable Portion of the CDSCs. (e)Notwithstanding anything to the contrary set forth in this Exhibit, the Distributor's Contract, or (to the extent waiver thereof is permitted thereby) applicable law, neither the termination of the Principal Distributor's role as principal distributor of the Class B Shares of a Fund, nor the termination of this Distributor's Contract nor the termination of the Distribution Plan will terminate such Principal Distributor's right to its Allocable Portion of the CDSCs in respect of the Class B Shares of a Fund. (f)Notwithstanding anything to the contrary in this Exhibit, the Distributor's Contract, or (to the extent waiver thereof is permitted thereby) applicable law, the Principal Distributor may assign, sell or pledge (collectively, a "Transfer") its rights to its Allocable Portion of the Distribution Fees and CDSCs earned by it (but not its obligations to the Investment Companies under this Distributor's Contract) in respect of the Class B Shares of a Fund to raise funds to make the expenditures related to the distribution of Class B Shares of the Fund and in connection therewith upon receipt of notice of such Transfer, the Investment Companies shall pay, or cause to be paid to the assignee, purchaser or pledgee (collectively with their subsequent transferees, "Transferees") such portion of the Principal Distributor's Allocable Portion of the Distribution Fees and CDSCs in respect of the Class B Shares of the Fund so Transferred. Except as provided in (c) above and notwithstanding anything to the contrary set forth elsewhere in this Exhibit, the Distributor's Contract, or (to the extent waiver thereof is permitted thereby) applicable law, to the extent the Principal Distributor has Transferred its rights thereto to raise funds as aforesaid, the Investment Companies' obligation to pay to the Principal Distributor's Transferees the Principal Distributor's Allocable Portion of the Distribution Fees payable in respect of the Class B Shares of each Fund shall be absolute and unconditional and shall not be subject to dispute, offset, counterclaim or any defense whatsoever, including without limitation, any of the foregoing based on the insolvency or bankruptcy of the Principal Distributor (it being understood that such provision is not a waiver of the Investment Companies' right to pursue such Principal Distributor and enforce such claims against the assets of such Principal Distributor other than the Distributor's right to the Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of any Fund which have been so transferred in connection with such Transfer). The Fund agrees that each such Transferee is a third party beneficiary of the provisions of this clause (f) but only insofar as those provisions relate to Distribution Fees and CDSCs transferred to such Transferee. (g)For purposes of this Distributor's Contract, the term Allocable Portion of Distribution Fees payable in respect of the Class B Shares of any Fund shall mean the portion of such Distribution Fees allocated to such Principal Distributor in accordance with the Allocation Schedule attached hereto as Schedule B. (h)For purposes of this Distributor's Contract, the term "Complete Termination" of the Plan in respect of any Fund means a termination of the Plan involving the complete cessation of the payment of Distribution Fees in respect of all Class B Shares of such Fund, and the termination of the distribution plans and the complete cessation of the payment of distribution fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the Investment Companies in respect of such Fund and any successor Fund or any Fund acquiring a substantial portion of the assets of such Fund and for every future class of shares which has substantially similar characteristics to the Class B Shares of such Fund including the manner of payment and amount of sales charge, contingent deferred sales charge or other similar charges borne directly or indirectly by the holders of such shares. 3. The Principal Distributor may enter into separate written agreements with various firms to provide certain of the services set forth in Paragraph 1 herein. The Principal Distributor, in its sole discretion, may pay Financial Institutions a lump sum fee on the settlement date for the sale of each Class B Share of the Fund to their clients or customers for distribution of such share. The schedules of fees to be paid such firms or Financial Institutions and the basis upon which such fees will be paid shall be determined from time to time by the Principal Distributor in its sole discretion. 4. The Principal Distributor will prepare reports to the Board of Trustees/Directors of the Investment Companies on a quarterly basis showing amounts expended hereunder including amounts paid to Financial Institutions and the purpose for such expenditures. In consideration of the mutual covenants set forth in the Distributor's Contract between the Investment Companies and the Principal Distributor, the Principal Distributor and the Investment Companies hereby execute and deliver this Exhibit with respect to the Class B Shares of the Fund. Witness the due execution hereof this 24th day of October, 1997. ATTEST: INVESTMENT COMPANIES (listed on Schedule A) By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle Title: Assistant Secretary` Title: Executive Vice President ATTEST: FEDERATED SECURITIES CORP. By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President Schedule A Date: 10/24/97 DISTRIBUTOR'S CONTRACT As revised: 9/1/98 Federated American Leaders Fund, Inc. Class B Shares Federated Equity Funds Federated Aggressive Growth Fund Class B Shares Federated Growth Strategies Fund Class B Shares Federated Small Cap Strategies Fund Class B Shares Federated Capital Appreciation Fund Class B Shares Federated Equity Income Fund, Inc. Class B Shares Federated Fund for U.S. Government Securities, Inc. Class B Shares Federated Government Income Securities, Inc. Class B Shares Federated High Income Bond Fund, Inc. Class B Shares Federated Municipal Opportunities Fund, Inc. Class B Shares Federated Municipal Securities Fund, Inc. Class B Shares Federated Stock and Bond Fund, Inc. Class B Shares Federated Utility Fund, Inc. Class B Shares Fixed Income Securities, Inc. Federated Strategic Income Fund Class B Shares International Series, Inc. Federated International Equity Fund Class B Shares Federated International Income Fund Class B Shares Investment Series Funds, Inc. Federated Bond Fund Class B Shares Liberty U.S. Government Money Market Trust Class B Shares Municipal Securities Income Trust Federated Pennsylvania Municipal Income Fund Class B Shares World Investment Series, Inc. Federated World Utility Fund Class B Shares Federated Asia Pacific Growth Fund Class B Shares Federated Emerging Markets Fund Class B Shares Federated European Growth Fund Class B Shares Federated International Small Company Fund Class B Shares Federated Latin American Growth Fund Class B Shares Federated International High Income Fund Class B Shares Federated International Growth Fund Class B Shares The following Funds were added as of December 1, 1997: Municipal Securities Income Trust Federated California Municipal Income Fund Class B Shares World Investment Series, Inc. Federated Global Equity Income Fund Class B Shares The following Funds were added as of March 1, 1998 (and rescinded on September 1, 1998): Federated Stock Trust Class B Shares The following Funds were added as of June 1, 1998: World Investment Series, Inc. Federated Global Financial Services Fund Class B Shares The following Funds were rescinded as of September 1, 1998: Federated Stock Trust Class B Shares EX-99.ADMINOMNI 7 Exhibit 9(i) under Form N-1A Exhibit 10 under Item 601/Reg. S-K AMENDED & RESTATED AGREEMENT for FUND ACCOUNTING SERVICES, ADMINISTRATIVE SERVICES, TRANSFER AGENCY SERVICES and CUSTODY SERVICES PROCUREMENT AGREEMENT made as of March 1, 1996, and amended and restated as of September 1, 1997, by and between those investment companies listed on Exhibit 1 as may be amended from time to time, having their principal office and place of business at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the portfolios (individually referred to herein as a "Fund" and collectively as "Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a Pennsylvania corporation, having its principal office and place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf of itself and its subsidiaries (the "Company"). WHEREAS, the Investment Company is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), with authorized and issued shares of capital stock or beneficial interest ("Shares"); WHEREAS, the Investment Company may desire to retain the Company as fund accountant to provide fund accounting services (as herein defined) including certain pricing, accounting and recordkeeping services for each of the Funds, including any classes of shares issued by any Fund ("Classes") if so indicated on Exhibit 1, and the Company desires to accept such appointment; WHEREAS, the Investment Company may desire to appoint the Company as its administrator to provide it with administrative services (as herein defined), if so indicated on Exhibit, and the Company desires to accept such appointment; WHEREAS, the Investment Company may desire to appoint the Company as its transfer agent and dividend disbursing agent to provide it with transfer agency services (as herein defined) if so indicated on Exhibit 1, and agent in connection with certain other activities, and the Company desires to accept such appointment; and WHEREAS, the Investment Company may desire to appoint the Company as its agent to select, negotiate and subcontract for custodian services from an approved list of qualified banks if so indicated on Exhibit 1, and the Company desires to accept such appointment; and NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION ONE: Fund Accounting. Article 1. Appointment. The Investment Company hereby appoints the Company to provide certain pricing and accounting services to the Funds, and/or the Classes, for the period and on the terms set forth in this Agreement. The Company accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Article 3 of this Section. Article 2. The Company's Duties. Subject to the supervision and control of the Investment Company's Board of Trustees or Directors ("Board"), the Company will assist the Investment Company with regard to fund accounting for the Investment Company, and/or the Funds, and/or the Classes, and in connection therewith undertakes to perform the following specific services; A. Value the assets of the Funds using: primarily, market quotations, including the use of matrix pricing, supplied by the independent pricing services selected by the Company in consultation with the adviser, or sources selected by the adviser, and reviewed by the board; secondarily, if a designated pricing service does not provide a price for a security which the Company believes should be available by market quotation, the Company may obtain a price by calling brokers designated by the investment adviser of the fund holding the security, or if the adviser does not supply the names of such brokers, the Company will attempt on its own to find brokers to price those securities; thirdly, for securities for which no market price is available, the Pricing Committee of the Board will determine a fair value in good faith. Consistent with Rule 2a-4 of the 40 Act, estimates may be used where necessary or appropriate. The Company's obligations with regard to the prices received from outside pricing services and designated brokers or other outside sources, is to exercise reasonable care in the supervision of the pricing agent. The Company is not the guarantor of the securities prices received from such agents and the Company is not liable to the Fund for potential errors in valuing a Fund's assets or calculating the net asset value per share of such Fund or Class when the calculations are based upon such prices. All of the above sources of prices used as described are deemed by the Company to be authorized sources of security prices. The Company provides daily to the adviser the securities prices used in calculating the net asset value of the fund, for its use in preparing exception reports for those prices on which the adviser has comment. Further, upon receipt of the exception reports generated by the adviser, the Company diligently pursues communication regarding exception reports with the designated pricing agents; B. Determine the net asset value per share of each Fund and/or Class, at the time and in the manner from time to time determined by the Board and as set forth in the Prospectus and Statement of Additional Information ("Prospectus") of each Fund; C. Calculate the net income of each of the Funds, if any; D. Calculate realized capital gains or losses of each of the Funds resulting from sale or disposition of assets, if any; E. Maintain the general ledger and other accounts, books and financial records of the Investment Company, including for each Fund, and/or Class, as required under Section 31(a) of the 1940 Act and the Rules thereunder in connection with the services provided by the Company; F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records to be maintained by Rule 31a-1 under the 1940 Act in connection with the services provided by the Company. The Company further agrees that all such records it maintains for the Investment Company are the property of the Investment Company and further agrees to surrender promptly to the Investment Company such records upon the Investment Company's request; G. At the request of the Investment Company, prepare various reports or other financial documents in accordance with generally accepted accounting principles as required by federal, state and other applicable laws and regulations; and H. Such other similar services as may be reasonably requested by the Investment Company. The foregoing, along with any additional services that the Company shall agree in writing to perform for the Investment Company under this Section One, shall hereafter be referred to as "Fund Accounting Services." Article 3. Compensation and Allocation of Expenses. A. The Funds will compensate the Company for Fund Accounting Services in accordance with the fees agreed upon from time to time between the parties hereto. Such fees do not include out-of-pocket disbursements of the Company for which the Funds shall reimburse the Company. Out-of-pocket disbursements shall include, but shall not be limited to, the items agreed upon between the parties from time to time. B. The Fund and/or the Class, and not the Company, shall bear the cost of: custodial expenses; membership dues in the Investment Company Institute or any similar organization; transfer agency expenses; investment advisory expenses; Prospectuses, reports and notices; administrative expenses; interest on borrowed money; brokerage commissions; taxes and fees payable to federal, state and other governmental agencies; fees of Trustees or Directors of the Investment Company; independent auditors expenses; legal and audit department expenses billed to the Company for work performed related to the Investment Company, the Funds, or the Classes; law firm expenses; organizational expenses; or other expenses not specified in this Article 3 which may be properly payable by the Funds and/or Classes. C. The compensation and out-of-pocket expenses attributable to the Fund shall be accrued by the Fund and shall be paid to the Company no less frequently than monthly, and shall be paid daily upon request of the Company. The Company will maintain detailed information about the compensation and out-of-pocket expenses by Fund and Class. D. Any schedule of compensation agreed to hereunder, as may be adjusted from time to time, shall be dated and signed by a duly authorized officer of the Investment Company and/or the Funds and a duly authorized officer of the Company. E. The fee for the period from the effective date of this Agreement with respect to a Fund or a Class to the end of the initial month shall be prorated according to the proportion that such period bears to the full month period. Upon any termination of this Agreement before the end of any month, the fee for such period shall be prorated according to the proportion which such period bears to the full month period. For purposes of determining fees payable to the Company, the value of the Fund's net assets shall be computed at the time and in the manner specified in the Fund's Prospectus. F. The Company, in its sole discretion, may from time to time subcontract to, employ or associate with itself such person or persons as the Company may believe to be particularly suited to assist it in performing Fund Accounting Services. Such person or persons may be affiliates of the Company, third-party service providers, or they may be officers and employees who are employed by both the Company and the Investment Company; provided, however, that the Company shall be as fully responsible to each Fund for the acts and omissions of any such subcontractor as it is for its own acts and omissions. The compensation of such person or persons shall be paid by the Company and no obligation shall be incurred on behalf of the Investment Company, the Funds, or the Classes in such respect. SECTION TWO: ADMINISTRATIVE SERVICES. Article 4. Appointment. The Investment Company hereby appoints the Company as Administrator for the period on the terms and conditions set forth in this Agreement. The Company hereby accepts such appointment and agrees to furnish the services set forth in Article 5 of this Agreement in return for the compensation set forth in Article 9 of this Agreement. Article 5. The Company's Duties. As Administrator, and subject to the supervision and control of the Board and in accordance with Proper Instructions (as defined hereafter) from the Investment Company, the Company will provide facilities, equipment, and personnel to carry out the following administrative services for operation of the business and affairs of the Investment Company and each of its portfolios: A. prepare, file, and maintain the Investment Company's governing documents and any amendments thereto, including the Charter (which has already been prepared and filed), the By-laws and minutes of meetings of the Board and Shareholders; B. prepare and file with the Securities and Exchange Commission and the appropriate state securities authorities the registration statements for the Investment Company and the Investment Company's shares and all amendments thereto, reports to regulatory authorities and shareholders, prospectuses, proxy statements, and such other documents all as may be necessary to enable the Investment Company to make a continuous offering of its shares; C. prepare, negotiate, and administer contracts (if any) on behalf of the Investment Company with, among others, the Investment Company's investment advisers and distributors, subject to any applicable restrictions of the Board or the 1940 Act; D. calculate performance data of the Investment Company for dissemination to information services covering the investment company industry; E. prepare and file the Investment Company's tax returns; F. coordinate the layout and printing of publicly disseminated prospectuses and reports; G. perform internal audit examinations in accordance with a charter to be adopted by the Company and the Investment Company; H. assist with the design, development, and operation of the Investment Company and the Funds; I. provide individuals reasonably acceptable to the Board for nomination, appointment, or election as officers of the Investment Company, who will be responsible for the management of certain of the Investment Company's affairs as determined by the Investment Company's Board; and J. consult with the Investment Company and its Board on matters concerning the Investment Company and its affairs. The foregoing, along with any additional services that the Company shall agree in writing to perform for the Investment Company under this Section Two, shall hereafter be referred to as "Administrative Services." Article 6. Records. The Company shall create and maintain all necessary books and records in accordance with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the Investment Company act of 1940 and the rules thereunder, as the same may be amended from time to time, pertaining to the Administrative Services performed by it and not otherwise created and maintained by another party pursuant to contract with the Investment Company. Where applicable, such records shall be maintained by the Company for the periods and in the places required by Rule 31a-2 under the 1940 Act. The books and records pertaining to the Investment Company which are in the possession of the Company shall be the property of the Investment Company. The Investment Company, or the Investment Company's authorized representatives, shall have access to such books and records at all times during the Company's normal business hours. Upon the reasonable request of the Investment Company, copies of any such books and records shall be provided promptly by the Company to the Investment Company or the Investment Company's authorized representatives. Article 7. Duties of the Fund. The Fund assumes full responsibility for the preparation, contents and distribution of its own offering document and for complying with all applicable requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules and regulations of government authorities having jurisdiction. Article 8. Expenses. The Company shall be responsible for expenses incurred in providing office space, equipment, and personnel as may be necessary or convenient to provide the Administrative Services to the Investment Company, including the compensation of the Company employees who serve as trustees or directors or officers of the Investment Company. The Investment Company shall be responsible for all other expenses incurred by the Company on behalf of the Investment Company, including without limitation postage and courier expenses, printing expenses, travel expenses, registration fees, filing fees, fees of outside counsel and independent auditors, or other professional services, organizational expenses, insurance premiums, fees payable to persons who are not the Company's employees, trade association dues, and other expenses properly payable by the Funds and/or the Classes. Article 9. Compensation. For the Administrative Services provided, the Investment Company hereby agrees to pay and the Company hereby agrees to accept as full compensation for its services rendered hereunder an administrative fee at an annual rate per Fund, as specified below. The compensation and out of pocket expenses attributable to the Fund shall be accrued by the Fund and paid to the Company no less frequently than monthly, and shall be paid daily upon request of the Company. The Company will maintain detailed information about the compensation and out of pocket expenses by the Fund. Max. Admin. Average Daily Net Assets Fee of the Funds .150% on the first $250 million .125% on the next $250 million .100% on the next $250 million .075% on assets in excess of $750 million (Average Daily Net Asset break-points are on a complex-wide basis) However, in no event shall the administrative fee received during any year of the Agreement be less than, or be paid at a rate less than would aggregate $125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this Article 9 may increase annually upon each March 1 anniversary of this Agreement over the minimum fee during the prior 12 months, as calculated under this agreement, in an amount equal to the increase in Pennsylvania Consumer Price Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor Statistics for the twelve months immediately preceding such anniversary. Article 10. Responsibility of Administrator. A. The Company shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Investment Company in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. The Company shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Investment Company) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Any person, even though also an officer, director, trustee, partner, employee or agent of the Company, who may be or become an officer, director, trustee, partner, employee or agent of the Investment Company, shall be deemed, when rendering services to the Investment Company or acting on any business of the Investment Company (other than services or business in connection with the duties of the Company hereunder) to be rendering such services to or acting solely for the Investment Company and not as an officer, director, trustee, partner, employee or agent or one under the control or direction of the Company even though paid by the Company. B. The Company shall be kept indemnified by the Investment Company and be without liability for any action taken or thing done by it in performing the Administrative Services in accordance with the above standards. In order that the indemnification provisions contained in this Article 10 shall apply, however, it is understood that if in any case the Investment Company may be asked to indemnify or hold the Company harmless, the Investment Company shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Company will use all reasonable care to identify and notify the Investment Company promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Investment Company. The Investment Company shall have the option to defend the Company against any claim which may be the subject of this indemnification. In the event that the Investment Company so elects, it will so notify the Company and thereupon the Investment Company shall take over complete defense of the claim, and the Company shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this Article. The Company shall in no case confess any claim or make any compromise in any case in which the Investment Company will be asked to indemnify the Company except with the Investment Company's written consent. SECTION THREE: Transfer Agency Services. Article 11. Terms of Appointment. Subject to the terms and conditions set forth in this Agreement, the Investment Company hereby appoints the Company to act as, and the Company agrees to act as, transfer agent and dividend disbursing agent for each Fund's Shares, and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of any Fund ("Shareholder(s)"), including without limitation any periodic investment plan or periodic withdrawal program. Article 12. Duties of the Company. The Company shall perform the following services in accordance with Proper Instructions as may be provided from time to time by the Investment Company as to any Fund: A. Purchases (1) The Company shall receive orders and payment for the purchase of shares and promptly deliver payment and appropriate documentation therefore to the custodian of the relevant Fund, (the "Custodian"). The Company shall notify the Fund and the Custodian on a daily basis of the total amount of orders and payments so delivered. (2) Pursuant to purchase orders and in accordance with the Fund's current Prospectus, the Company shall compute and issue the appropriate number of Shares of each Fund and/or Class and hold such Shares in the appropriate Shareholder accounts. (3) In the event that any check or other order for the purchase of Shares of the Fund and/or Class is returned unpaid for any reason, the Company shall debit the Share account of the Shareholder by the number of Shares that had been credited to its account upon receipt of the check or other order, promptly mail a debit advice to the Shareholder, and notify the Fund and/or Class of its action. In the event that the amount paid for such Shares exceeds proceeds of the redemption of such Shares plus the amount of any dividends paid with respect to such Shares, the Fund and/the Class or its distributor will reimburse the Company on the amount of such excess. B. Distribution (1) Upon notification by the Funds of the declaration of any distribution to Shareholders, the Company shall act as Dividend Disbursing Agent for the Funds in accordance with the provisions of its governing document and the then-current Prospectus of the Fund. The Company shall prepare and mail or credit income, capital gain, or any other payments to Shareholders. As the Dividend Disbursing Agent, the Company shall, on or before the payment date of any such distribution, notify the Custodian of the estimated amount required to pay any portion of said distribution which is payable in cash and request the Custodian to make available sufficient funds for the cash amount to be paid out. The Company shall reconcile the amounts so requested and the amounts actually received with the Custodian on a daily basis. If a Shareholder is entitled to receive additional Shares by virtue of any such distribution or dividend, appropriate credits shall be made to the Shareholder's account; and (2) The Company shall maintain records of account for each Fund and Class and advise the Investment Company, each Fund and Class and its Shareholders as to the foregoing. C. Redemptions and Transfers (1) The Company shall receive redemption requests and redemption directions and, if such redemption requests comply with the procedures as may be described in the Fund Prospectus or set forth in Proper Instructions, deliver the appropriate instructions therefor to the Custodian. The Company shall notify the Funds on a daily basis of the total amount of redemption requests processed and monies paid to the Company by the Custodian for redemptions. (2) At the appropriate time upon receiving redemption proceeds from the Custodian with respect to any redemption, the Company shall pay or cause to be paid the redemption proceeds in the manner instructed by the redeeming Shareholders, pursuant to procedures described in the then-current Prospectus of the Fund. (3) If any certificate returned for redemption or other request for redemption does not comply with the procedures for redemption approved by the Fund, the Company shall promptly notify the Shareholder of such fact, together with the reason therefor, and shall effect such redemption at the price applicable to the date and time of receipt of documents complying with said procedures. (4) The Company shall effect transfers of Shares by the registered owners thereof. (5) The Company shall identify and process abandoned accounts and uncashed checks for state escheat requirements on an annual basis and report such actions to the Fund. D. Recordkeeping (1) The Company shall record the issuance of Shares of each Fund, and/or Class, and maintain pursuant to applicable rules of the Securities and Exchange Commission ("SEC") a record of the total number of Shares of the Fund and/or Class which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Company shall also provide the Fund on a regular basis or upon reasonable request with the total number of Shares which are authorized and issued and outstanding, but shall have no obligation when recording the issuance of Shares, except as otherwise set forth herein, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Funds. (2) The Company shall establish and maintain records pursuant to applicable rules of the SEC relating to the services to be performed hereunder in the form and manner as agreed to by the Investment Company or the Fund to include a record for each Shareholder's account of the following: (a) Name, address and tax identification number (and whether such number has been certified); (b) Number of Shares held; (c) Historical information regarding the account, including dividends paid and date and price for all transactions; (d) Any stop or restraining order placed against the account; (e) Information with respect to withholding in the case of a foreign account or an account for which withholding is required by the Internal Revenue Code; (f) Any dividend reinvestment order, plan application, dividend address and correspondence relating to the current maintenance of the account; (g) Certificate numbers and denominations for any Shareholder holding certificates; (h) Any information required in order for the Company to perform the calculations contemplated or required by this Agreement. (3) The Company shall preserve any such records required to be maintained pursuant to the rules of the SEC for the periods prescribed in said rules as specifically noted below. Such record retention shall be at the expense of the Company, and such records may be inspected by the Fund at reasonable times. The Company may, at its option at any time, and shall forthwith upon the Fund's demand, turn over to the Fund and cease to retain in the Company's files, records and documents created and maintained by the Company pursuant to this Agreement, which are no longer needed by the Company in performance of its services or for its protection. If not so turned over to the Fund, such records and documents will be retained by the Company for six years from the year of creation, during the first two of which such documents will be in readily accessible form. At the end of the six year period, such records and documents will either be turned over to the Fund or destroyed in accordance with Proper Instructions. E. Confirmations/Reports (1) The Company shall furnish to the Fund periodically the following information: (a) A copy of the transaction register; (b) Dividend and reinvestment blotters; (c) The total number of Shares issued and outstanding in each state for "blue sky" purposes as determined according to Proper Instructions delivered from time to time by the Fund to the Company; (d) Shareholder lists and statistical information; (e) Payments to third parties relating to distribution agreements, allocations of sales loads, redemption fees, or other transaction- or sales-related payments; (f) Such other information as may be agreed upon from time to time. (2) The Company shall prepare in the appropriate form, file with the Internal Revenue Service and appropriate state agencies, and, if required, mail to Shareholders, such notices for reporting dividends and distributions paid as are required to be so filed and mailed and shall withhold such sums as are required to be withheld under applicable federal and state income tax laws, rules and regulations. (3) In addition to and not in lieu of the services set forth above, the Company shall: (a) Perform all of the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, mailing Shareholder reports and Prospectuses to current Shareholders, withholding taxes on accounts subject to back-up or other withholding (including non-resident alien accounts), preparing and filing reports on U.S. Treasury Department Form 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other conformable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information; and (b) provide a system which will enable the Fund to monitor the total number of Shares of each Fund (and/or Class) sold in each state ("blue sky reporting"). The Fund shall by Proper Instructions (i) identify to the Company those transactions and assets to be treated as exempt from the blue sky reporting for each state and (ii) verify the classification of transactions for each state on the system prior to activation and thereafter monitor the daily activity for each state. The responsibility of the Company for each Fund's (and/or Class's) state blue sky registration status is limited solely to the recording of the initial classification of transactions or accounts with regard to blue sky compliance and the reporting of such transactions and accounts to the Fund as provided above. F. Other Duties (1) The Company shall answer correspondence from Shareholders relating to their Share accounts and such other correspondence as may from time to time be addressed to the Company; (2) The Company shall prepare Shareholder meeting lists, mail proxy cards and other material supplied to it by the Fund in connection with Shareholder meetings of each Fund; receive, examine and tabulate returned proxies, and certify the vote of the Shareholders; (3) The Company shall establish and maintain faclities and procedures for safekeeping of check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such forms and devices. The foregoing, along with any additional services that the Company shall agree in writing to perform for the Investment Company under this Section Three, shall hereafter be referred to as "Transfer Agency Services." Article 13. Duties of the Investment Company. A. Compliance The Investment Company or Fund assume full responsibility for the preparation, contents and distribution of their own and/or their classes' Prospectus and for complying with all applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and any laws, rules and regulations of government authorities having jurisdiction. Distributions The Fund shall promptly inform the Company of the declaration of any dividend or distribution on account of any Fund's shares. Article 14. Compensation and Expenses. A. Annual Fee For performance by the Company pursuant to Section Three of this Agreement, the Investment Company and/or the Fund agree to pay the Company an annual maintenance fee for each Shareholder account as agreed upon between the parties and as may be added to or amended from time to time. Such fees may be changed from time to time subject to written agreement between the Investment Company and the Company. Pursuant to information in the Fund Prospectus or other information or instructions from the Fund, the Company may sub-divide any Fund into Classes or other sub-components for recordkeeping purposes. The Company will charge the Fund the same fees for each such Class or sub-component the same as if each were a Fund. B. Reimbursements In addition to the fee paid under Article 7A above, the Investment Company and/or Fund agree to reimburse the Company for out-of-pocket expenses or advances incurred by the Company for the items agreed upon between the parties, as may be added to or amended from time to time. In addition, any other expenses incurred by the Company at the request or with the consent of the Investment Company and/or the Fund, will be reimbursed by the appropriate Fund. C. Payment The compensation and out-of-pocket expenses shall be accrued by the Fund and shall be paid to the Company no less frequently than monthly, and shall be paid daily upon request of the Company. The Company will maintain detailed information about the compensation and out-of-pocket expenses by Fund and Class. D. Any schedule of compensation agreed to hereunder, as may be adjusted from time to time, shall be dated and signed by a duly authorized officer of the Investment Company and/or the Funds and a duly authorized officer of the Company. SECTION FOUR: Custody Services Procurement. Article 15. Appointment. The Investment Company hereby appoints Company as its agent to evaluate and obtain custody services from a financial institution that (i) meets the criteria established in Section 17(f) of the 1940 Act and (ii) has been approved by the Board as eligible for selection by the Company as a custodian (the "Eligible Custodian"). The Company accepts such appointment. Article 16. The Company and Its Duties. Subject to the review, supervision and control of the Board, the Company shall: A. evaluate and obtain custody services from a financial institution that meets the criteria established in Section 17(f) of the 1940 Act and has been approved by the Board as being eligible for selection by the Company as an Eligible Custodian; B. negotiate and enter into agreements with Eligible Custodians for the benefit of the Investment Company, with the Investment Company as a party to each such agreement. The Company may, as paying agent, be a party to any agreement with any such Eligible Custodian; C. establish procedures to monitor the nature and the quality of the services provided by Eligible Custodians; D. monitor and evaluate the nature and the quality of services provided by Eligible Custodians; E. periodically provide to the Investment Company (i) written reports on the activities and services of Eligible Custodians; (ii) the nature and amount of disbursements made on account of the each Fund with respect to each custodial agreement; and (iii) such other information as the Board shall reasonably request to enable it to fulfill its duties and obligations under Sections 17(f) and 36(b) of the 1940 Act and other duties and obligations thereof; F. periodically provide recommendations to the Board to enhance Eligible Custodian's customer services capabilities and improve upon fees being charged to the Fund by Eligible Custodian; and The foregoing, along with any additional services that Company shall agree in writing to perform for the Fund under this Section Four, shall hereafter be referred to as "Custody Services Procurement." Article 17. Fees and Expenses. A. Annual Fee For the performance of Custody Services Procurement by the Company pursuant to Section Four of this Agreement, the Investment Company and/or the Fund agree to compensate the Company in accordance with the fees agreed upon from time to time. B. Reimbursements In addition to the fee paid under Section 11A above, the Investment Company and/or Fund agree to reimburse the Company for out-of-pocket expenses or advances incurred by the Company for the items agreed upon between the parties, as may be added to or amended from time to time. In addition, any other expenses incurred by the Company at the request or with the consent of the Investment Company and/or the Fund, will be reimbursed by the appropriate Fund. C. Payment The compensation and out-of-pocket expenses shall be accrued by the Fund and shall be paid to the Company no less frequently than monthly, and shall be paid daily upon request of the Company. The Company will maintain detailed information about the compensation and out-of-pocket expenses by Fund. D. Any schedule of compensation agreed to hereunder, as may be adjusted from time to time, shall be dated and signed by a duly authorized officer of the Investment Company and/or the Funds and a duly authorized officer of the Company. Article 18. Representations. The Company represents and warrants that it has obtained all required approvals from all government or regulatory authorities necessary to enter into this arrangement and to provide the services contemplated in Section Four of this Agreement. SECTION FIVE: General Provisions. Article 19. Proper Instructions. As used throughout this Agreement, a "Proper Instruction" means a writing signed or initialed by one or more person or persons as the Board shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved. Oral instructions will be deemed to be Proper Instructions if (a) the Company reasonably believes them to have been given by a person previously authorized in Proper Instructions to give such instructions with respect to the transaction involved, and (b) the Investment Company, or the Fund, and the Company promptly cause such oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Investment Company, or the Fund, and the Company are satisfied that such procedures afford adequate safeguards for the Fund's assets. Proper Instructions may only be amended in writing. Article 20. Assignment. Except as provided below, neither this Agreement nor any of the rights or obligations under this Agreement may be assigned by either party without the written consent of the other party. A. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. B. With regard to Transfer Agency Services, the Company may without further consent on the part of the Investment Company subcontract for the performance of Transfer Agency Services with (1) its subsidiary, Federated Shareholder Service Company, a Delaware business trust, which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended, or any succeeding statute ("Section 17A(c)(1)"); or (2) such other provider of services duly registered as a transfer agent under Section 17A(c)(1) as Company shall select. The Company shall be as fully responsible to the Investment Company for the acts and omissions of any subcontractor as it is for its own acts and omissions. C. With regard to Fund Accounting Services, Administrative Services and Custody Procurement Services, the Company may without further consent on the part of the Investment Company subcontract for the performance of such services with Federated Administrative Services, a wholly-owned subsidiary of the Company. D. The Company shall upon instruction from the Investment Company subcontract for the performance of services under this Agreement with an Agent selected by the Investment Company, other than as described in B. and C. above; provided, however, that the Company shall in no way be responsible to the Investment Company for the acts and omissions of the Agent. Article 21. Documents. A. In connection with the appointment of the Company under this Agreement, the Investment Company shall file with the Company the following documents: (1) A copy of the Charter and By-Laws of the Investment Company and all amendments thereto; (2) A copy of the resolution of the Board of the Investment Company authorizing this Agreement; (3) Printed documentation from the recordkeeping system representing outstanding Share certificates of the Investment Company or the Funds; (4) All account application forms and other documents relating to Shareholders accounts; and (5) A copy of the current Prospectus for each Fund. B. The Fund will also furnish from time to time the following documents: (1) Each resolution of the Board of the Investment Company authorizing the original issuance of each Fund's, and/or Class's Shares; (2) Each Registration Statement filed with the SEC and amendments thereof and orders relating thereto in effect with respect to the sale of Shares of any Fund, and/or Class; (3) A certified copy of each amendment to the governing document and the By-Laws of the Investment Company; (4) Certified copies of each vote of the Board authorizing officers to give Proper Instructions to the Custodian and agents for fund accountant, custody services procurement, and shareholder recordkeeping or transfer agency services; (5) Such other certifications, documents or opinions which the Company may, in its discretion, deem necessary or appropriate in the proper performance of its duties; and (6) Revisions to the Prospectus of each Fund. Article 22. Representations and Warranties. A. Representations and Warranties of the Company The Company represents and warrants to the Fund that: (1) it is a corporation duly organized and existing and in good standing under the laws of the Commonwealth of Pennsylvania; (2) It is duly qualified to carry on its business in each jurisdiction where the nature of its business requires such qualification, and in the Commonwealth of Pennsylvania; (3) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (4) all requisite corporate proceedings have been taken to authorize it to enter into and perform its obligations under this Agreement; (5) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement; (6) it is in compliance with federal securities law requirements and in good standing as an administrator and fund accountant; and B. Representations and Warranties of the Investment Company The Investment Company represents and warrants to the Company that: (1) It is an investment company duly organized and existing and in good standing under the laws of its state of organization; (2) It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform its obligations under this Agreement; (3) All corporate proceedings required by said Charter and By-Laws have been taken to authorize it to enter into and perform its obligations under this Agreement; (4) The Investment Company is an open-end investment company registered under the 1940 Act; and (5) A registration statement under the 1933 Act will be effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of each Fund being offered for sale. Article 23. Standard of Care and Indemnification. A. Standard of Care With regard to Sections One, Three and Four, the Company shall be held to a standard of reasonable care in carrying out the provisions of this Contract. The Company shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Investment Company) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice, provided that such action is not in violation of applicable federal or state laws or regulations, and is in good faith and without negligence. B. Indemnification by Investment Company The Company shall not be responsible for and the Investment Company or Fund shall indemnify and hold the Company, including its officers, directors, shareholders and their agents, employees and affiliates, harmless against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising out of or attributable to: (1) The acts or omissions of any Custodian, Adviser, Sub-adviser or other party contracted by or approved by the Investment Company or Fund, (2) The reliance on or use by the Company or its agents or subcontractors of information, records and documents in proper form which (a) are received by the Company or its agents or subcontractors and furnished to it by or on behalf of the Fund, its Shareholders or investors regarding the purchase, redemption or transfer of Shares and Shareholder account information; (b) are received by the Company from independent pricing services or sources for use in valuing the assets of the Funds; or (c) are received by the Company or its agents or subcontractors from Advisers, Sub-advisers or other third parties contracted by or approved by the Investment Company of Fund for use in the performance of services under this Agreement; (d) have been prepared and/or maintained by the Fund or its affiliates or any other person or firm on behalf of the Investment Company. (3) The reliance on, or the carrying out by the Company or its agents or subcontractors of Proper Instructions of the Investment Company or the Fund. (4) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. Provided, however, that the Company shall not be protected by this Article 23.B. from liability for any act or omission resulting from the Company's willful misfeasance, bad faith, negligence or reckless disregard of its duties or failure to meet the standard of care set forth in 23.A. above. C. Reliance At any time the Company may apply to any officer of the Investment Company or Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Company under this Agreement, and the Company and its agents or subcontractors shall not be liable and shall be indemnified by the Investment Company or the appropriate Fund for any action reasonably taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel provided such action is not in violation of applicable federal or state laws or regulations. The Company, its agents and subcontractors shall be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Investment Company or the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co-registrar. D. Notification In order that the indemnification provisions contained in this Article 23 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 24. Term and Termination of Agreement. This Agreement shall be effective from September 1, 1997, and shall continue until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18 month terms. The Agreement can be terminated by either party upon 18 months notice to be effective as of the end of such 18 month period. In the event, however, of willful misfeasance, bad faith, negligence or reckless disregard of its duties by the Company, the Investment Company has the right to terminate the Agreement upon 60 days written notice, if Company has not cured such willful misfeasance, bad faith, negligence or reckless disregard of its duties within 60 days. The termination date for all original or after-added Investment companies which are, or become, a party to this Agreement. shall be coterminous. Investment Companies that merge or dissolve during the Term, shall cease to be a party on the effective date of such merger or dissolution. Should the Investment Company exercise its rights to terminate, all out-of-pocket expenses associated with the movement of records and materials will be borne by the Investment Company or the appropriate Fund. Additionally, the Company reserves the right to charge for any other reasonable expenses associated with such termination. The provisions of Articles 10 and 23 shall survive the termination of this Agreement. Article 25. Amendment. This Agreement may be amended or modified by a written agreement executed by both parties. Article 26. Interpretive and Additional Provisions. In connection with the operation of this Agreement, the Company and the Investment Company may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Charter. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. Article 27. Governing Law. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts Article 28. Notices. Except as otherwise specifically provided herein, Notices and other writings delivered or mailed postage prepaid to the Investment Company at , , or to the Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such other address as the Investment Company or the Company may hereafter specify, shall be deemed to have been properly delivered or given hereunder to the respective address. Article 29. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. Article 30. Limitations of Liability of Trustees and Shareholders of the Company. The execution and delivery of this Agreement have been authorized by the Trustees of the Company and signed by an authorized officer of the Company, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, and the obligations of this Agreement are not binding upon any of the Trustees or Shareholders of the Company, but bind only the appropriate property of the Fund, or Class, as provided in the Declaration of Trust. Article 31. Merger of Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject hereof whether oral or written. Article 32. Successor Agent. If a successor agent for the Investment Company shall be appointed by the Investment Company, the Company shall upon termination of this Agreement deliver to such successor agent at the office of the Company all properties of the Investment Company held by it hereunder. If no such successor agent shall be appointed, the Company shall at its office upon receipt of Proper Instructions deliver such properties in accordance with such instructions. In the event that no written order designating a successor agent or Proper Instructions shall have been delivered to the Company on or before the date when such termination shall become effective, then the Company shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $2,000,000, all properties held by the Company under this Agreement. Thereafter, such bank or trust company shall be the successor of the Company under this Agreement. Article 33. Force Majeure. The Company shall have no liability for cessation of services hereunder or any damages resulting therefrom to the Fund as a result of work stoppage, power or other mechanical failure, natural disaster, governmental action, communication disruption or other impossibility of performance. Article 34. Assignment; Successors. This Agreement shall not be assigned by either party without the prior written consent of the other party, except that either party may assign all of or a substantial portion of its business to a successor, or to a party controlling, controlled by, or under common control with such party. Nothing in this Article 34 shall prevent the Company from delegating its responsibilities to another entity to the extent provided herein. Article 35. Severability. In the event any provision of this Agreement is held illegal, void or unenforceable, the balance shall remain in effect. Article 36. Limitations of Liability of Trustees and Shareholders of the Investment Company. The execution and delivery of this Agreement have been authorized by the Trustees of the Investment Company and signed by an authorized officer of the Investment Company, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, and the obligations of this Agreement are not binding upon any of the Trustees or Shareholders of the Investment Company, but bind only the property of the Fund, or Class, as provided in the Declaration of Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers, as of the day and year first above written. INVESTMENT COMPANIES (listed on Exhibit 1) By: /s/ S. Elliott Cohan Name: S. Elliott Cohan Title: Assistant Secretary FEDERATED SERVICES COMPANY By: /s/ Thomas J. Ward Name: Thomas J. Ward Title: Secretary EXHIBIT 1 CONTRACT DATE INVESTMENT COMPANY Portfolios Classes March 1, 1996 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. CLASS A CLASS B CLASS C CLASS F EX-99.SHSERVAGREE1 8 Exhibit 9(iii) under Form N-1A Exhibit 10 under Item 601/Reg. S-K PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between those Investment Companies on behalf of the Portfolios (individually referred to herein as a "Fund" and collectively as "Funds") and Classes of Shares ("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to time, having their principal office and place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of Agreement and Federated Securities Corp. as the principal shareholder servicer (the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein in its entirety and made a part hereof. In the event of any inconsistency between the terms of this Agreement and the terms of any applicable Exhibit, the terms of the applicable Exhibit shall govern. In consideration of the mutual covenants hereinafter contained it is hereby agreed by and between the parties hereto as follows. 1. The Investment Companies hereby appoint the Principal Servicer as their agent to select, negotiate and contract for the performance of and arrange for the rendition of personal services to shareholders and/or the maintenance of accounts of shareholders of each Class of the Funds as to which this Agreement is made applicable (The Principal Servicer's duties hereunder are referred to as "Services"). The Principal Servicer hereby accepts such appointment and agrees to perform or cause to be performed the Services in respect of the Classes of the Funds to which this Agreement has been made applicable by an Exhibit. The Principal Servicer agrees to cause to be provided shareholder services which, in its best judgment (subject to supervision and control of the Investment Companies' Boards of Trustees or Directors, as applicable), are necessary or desirable for shareholders of the Funds. The Principal Servicer further agrees to provide the Investment Companies, upon request, a written description of the shareholder services for which the Principal Servicer is arranging hereunder. 2. During the term of this Agreement, each Investment Company will pay the Principal Servicer and the Principal Servicer agrees to accept as full compensation for its services rendered hereunder a fee as set forth on the Exhibit applicable to the Class of each Fund subject to this Agreement. For the payment period in which this Agreement becomes effective or terminates with respect to any Class of a Fund, there shall be an appropriate proration of the monthly fee on the basis of the number of days that this Agreement is in effect with respect to such Class of the Fund during the month. 3. This Agreement is effective with respect to each Class of a Fund as of the date of execution of the applicable Exhibit and shall continue in effect for one year from the date of its execution, and thereafter for successive periods of one year only if the form of this Agreement is approved at least annually by the Board of each Investment Company, including a majority of the members of the Board of the Investment Company who are not interested persons of the Investment Company ("Independent Board Members") cast in person at a meeting called for that purpose. 4. Notwithstanding paragraph 3, this Agreement may be terminated with regard to a particular Class of a Fund as follows: (a) at any time, without the payment of any penalty, by the vote of a majority of the Independent Board Members of any Investment Company or by a vote of a majority of the outstanding voting securities of any Fund as defined in the Investment Company Act of 1940 on sixty (60) days' written notice to the parties to this Agreement; (b) automatically in the event of the Agreement's assignment as defined in the Investment Company Act of 1940; and 5. The Principal Servicer agrees to arrange to obtain any taxpayer identification number certification from each shareholder of the Funds to which it provides Services that is required under Section 3406 of the Internal Revenue Code, and any applicable Treasury regulations, and to provide each Fund or its designee with timely written notice of any failure to obtain such taxpayer identification number certification in order to enable the implementation of any required backup withholding. 6. The Principal Servicer shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Investment Company in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. the Principal Servicer shall be entitled to rely on and may act upon advice of counsel (who may be counsel for such Investment Company) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Any person, even though also an officer, trustee, partner, employee or agent of the Principal Servicer, who may be or become a member of such Investment Company's Board, officer, employee or agent of any Fund, shall be deemed, when rendering services to such Fund or acting on any business of such Fund (other than services or business in connection with the duties of the Principal Servicer hereunder) to be rendering such services to or acting solely for such Fund and not as an officer, trustee, partner, employee or agent or one under the control or direction of the Principal Servicer even though paid by the Principal Servicer. This Section 6 shall survive termination of this Agreement. 7. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 8. The Principal Servicer is expressly put on notice of the limitation of liability as set forth in the Declaration of Trust of each Investment Company that is a Massachusetts business trust and agrees that the obligations assumed by each such Investment Company pursuant to this Agreement shall be limited in any case to such Investment Company and its assets and that the Principal Servicer shall not seek satisfaction of any such obligations from the shareholders of such Investment Company, the Trustees, Officers, Employees or Agents of such Investment Company, or any of them. 9. The execution and delivery of this Agreement have been authorized by the Directors of the Principal Servicer and signed by an authorized officer of the Principal Servicer, acting as such, and neither such authorization by such Directors nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, and the obligations of this Agreement are not binding upon any of the Directors or shareholders of the Principal Servicer, but bind only the property of the Principal Servicer as provided in the Articles of Incorporation of the Principal Servicer. 10. Notices of any kind to be given hereunder shall be in writing (including facsimile communication) and shall be duly given if delivered to any Investment Company at the following address: Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered to the Principal Servicer at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President. 11. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject hereof whether oral or written. If any provision of this Agreement shall be held or made invalid by a court or regulatory agency decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Subject to the provisions of Sections 3 and 4, hereof, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by Pennsylvania law; provided, however, that nothing herein shall be construed in a manner inconsistent with the Investment Company Act of 1940 or any rule or regulation promulgated by the Securities and Exchange Commission thereunder. 12. This Agreement may be executed by different parties on separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 13. This Agreement shall not be assigned by any party without the prior written consent of the Principal Servicer in the case of assignment by any Investment Company, or of the Investment Companies in the case of assignment by the Principal Servicer, except that any party may assign to a successor all of or a substantial portion of its business to a party controlling, controlled by, or under common control with such party. Nothing in this Section 13 shall prevent the Principal Servicer from delegating its responsibilities to another entity to the extent provided herein. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. Investment Companies (listed on Schedule A) Attest: /s/ S. Elliott Cohan By:/s/ John W. McGonigle Title: Assistant Secretary Title: Executive Vice President Federated Securities Corp. Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President EX-99.SHSERVAGREE2 9 Exhibit 9(iv) under Form N-1A Exhibit 10 under Item 601/Reg. S-K Exhibit 1 to the Principal Shareholder Servicer's Agreement Related to Class B Shares of the Funds The following provisions are hereby incorporated and made part of the Principal Shareholder Servicer's Agreement (the "Principal Shareholder Servicer's Agreement") as of the 24th day of October, 1997, by and between those Investment Companies on behalf of the Portfolios (individually referred to herein as a "Fund" and collectively as "Funds") and Classes of Shares ("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to time, having their principal office and place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of Agreement and Federated Securities Corp. as the principal shareholder servicer (the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein in its entirety and made a part hereof. In the event of any inconsistency between the terms of this Exhibit and the terms of the Principal Shareholder Servicer's Agreement, the terms of this Exhibit shall govern. 1. Each Investment Company hereby appoints the Principal Servicer to arrange for the rendition of the shareholder services in respect of Class B Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the Principal Servicer is authorized to select various companies including but not limited to Federated Shareholder Services ("Companies or a Company ") to provide such services. 2. (a) In consideration of the Principal Servicer's Services under this Agreement in respect of the Class B Shares each Fund agrees to pay the Principal Servicer or at its direction its "Allocable Portion" (as hereinafter defined) of a fee (the "Servicing Fee") equal to 0.25 of 1% per annum of the average daily net asset value of the Class B Shares of the Fund outstanding from time to time, provided however, that in the event the Fund operates as a fund of funds (a "FOF Fund") by investing the proceeds of the issuance of its Class B Shares in Class A Shares of another fund (the "Other Fund") and the Principal Shareholder Servicer receives a servicing fee in respect of the Class A Shares of the Other Fund so acquired by the FOF Fund, the Servicing Fee payable in respect of such Class B Shares of the FOF Fund will be reduced by the amount of the servicing fee actually received by the Principal Shareholder Servicer or its assign from the Other Fund in respect of the Class A Shares of the Other Fund acquired with the proceeds of such Class B Shares of the FOF Fund. (b)(i) The Principal Servicer will be deemed to have fully earned its Allocable Portion (computed as of any date) of the Servicing Fee payable in respect of the Class B Shares of a Fund (and to have satisfied its obligation to arrange for shareholder services in respect of such Class B Shares) on the date it has arranged for shareholder services to be performed by Federated Shareholder Services by payment of the lump sum contemplated by Alternative A to Exhibit 1 to the Shareholder Services Agreement among the Principal Servicer, Federated Shareholder Services and the Fund dated as of the date hereof (the "Shareholder Services Agreement") to Federated Shareholder Services (whose obligations are fully supported by its parent company) in respect of each "Commission Share" (as defined in the Allocation Schedule attached hereto in Schedule B) of the Fund, taken into account in determining such Principal Servicer's Allocable Portion of such Servicing Fees as of such date. The Principal Servicer shall not be deemed to have any other duties in respect of the Shares and its Allocable Portion of the Servicing Fees to which the preceding sentence applies and such arrangements shall be deemed a separate and distinct contractual arrangement from that described in clause (ii). (ii) The Principal Servicer will be deemed to have fully earned any Servicing Fees not included in its Allocable Portion (i.e., those attributable to Shares in respect of which Alternative A under Exhibit 1 to the Shareholder Services Agreement is not applicable) as such services are performed in respect of such Shares. (c)Notwithstanding anything to the contrary set forth in this Exhibit, the Principal Shareholder Agreement, or (to the extent waiver thereof is permitted thereby) applicable law, each Investment Company's obligation to pay the Principal Servicer's Allocable Portion of the Servicing Fees payable in respect of the Class B Shares of a Fund shall not be terminated or modified for any reason (including a termination of this Principal Shareholder Servicer's Agreement as it relates to the Fund) except to the extent required by a change in the Investment Company Act of 1940 (the "Act") or the Conduct Rules of the National Association of Securities Dealers, Inc., in either case enacted or promulgated after May 1, 1997, or in connection with a "Complete Termination" (as hereinafter defined) in respect of the Class B Shares of such Fund. (d)Notwithstanding anything to the contrary in this Exhibit, the Principal Shareholder Agreement, or (to the extent waiver thereof is permitted thereby) applicable law, the Principal Servicer may assign, sell or pledge (collectively, "Transfer") its rights to its Allocable Portion of the Servicing Fees (but not its obligations to the Investment Companies under this Principal Shareholder Servicer's Agreement) in respect of the Class B Shares of a Fund to raise funds to make the expenditures related to the Services and in connection therewith upon receipt of notice of such Transfer, the Investment Company shall pay to the assignee, purchaser or pledgee (collectively with their subsequent transferees, "Transferees") such portion of the Principal Servicer's Allocable Portion of the Servicing Fees in respect of the Class B Shares of the Fund so Transferred. Except as provided in (c) above and notwithstanding anything to the contrary set forth elsewhere in this Exhibit, the Principal Shareholder Agreement, or (to the extent waiver thereof is permitted thereby) applicable law, to the extent the Principal Servicer has Transferred its rights thereto to raise funds as aforesaid, the Investment Companies' obligation to pay to the Principal Servicer's Transferees the Principal Servicer's Allocable Portion of the Servicing Fees payable in respect of the Class B Shares of each Fund shall be absolute and unconditional and shall not be subject to dispute, offset, counterclaim or any defense whatsoever, including without limitation, any of the foregoing based on the insolvency or bankruptcy of the Principal Servicer, Federated Shareholder Services (or its parent) or the failure of Federated Shareholder Services (or its parent) to perform its Irrevocable Service Commitment (it being understood that such provision is not a waiver of the Investment Companies' right to pursue such Principal Servicer and enforce such claims against the assets of such Principal Servicer other than the Principal Servicer's right to the Distribution Fees, Servicing Fees and CDSCs in respect of the Class B Shares of the Fund which have been so transferred in connection with such Transfer). The Fund agrees that each such Transferee is a third party beneficiary of the provisions of this clause (d) but only insofar as those provisions relate to Servicing Fees transferred to such Transferee. (e)For purposes of this Principal Shareholder Servicer's Agreement, the term Allocable Portion of Servicing Fees payable in respect of the Class B Shares of any Fund shall mean the portion of such Servicing Fees allocated to such Principal Servicer in accordance with the Allocation Schedule attached hereto as Schedule B. (f)For purposes of this Principal Shareholder Servicer's Contract, the term "Complete Termination" of shareholder servicing arrangements in respect of Class B Shares of a Fund means a termination of shareholder servicing arrangements involving the complete cessation of payments of Servicing Fees in respect of all Class B Shares, and the complete cessation of payments of servicing fees for every existing and future class of shares of the Fund and any successor Fund or any Fund acquiring a substantial portion of the assets of the Fund ,which has substantially similar characteristics to the Class B Shares taking into account the manner and amount of sales charge, servicing fee, contingent deferred sales charge or other similar charge borne directly or indirectly by the holders of such shares. 3. The Principal Servicer may enter into separate written agreements with Companies to provide the services set forth in Paragraph 1 herein. The schedules of fees to be paid such Companies and the basis upon which such fees will be paid shall be determined from time to time by the Principal Servicer in its sole discretion. 4. The Principal Servicer will prepare reports to the Board of Trustees/Directors of the Investment Companies on a quarterly basis showing amounts expended hereunder including amounts paid to Companies and the purpose for such expenditures. In consideration of the mutual covenants set forth in the Principal Shareholder Servicer's Contract, the Principal Servicer and the Investment Companies hereby execute and deliver this Exhibit with respect to the Class B Shares of each Fund. Witness the due execution hereof this 24th day of October, 1997. ATTEST: INVESTMENT COMPANIES (listed on Schedule A) By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle Title: Assistant Secretary Title: Executive Vice President ATTEST: FEDERATED SECURITIES CORP. By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President Schedule A Date: 10/24/97 PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT Revised: 9/1/98 Federated American Leaders Fund, Inc. Class B Shares Federated Equity Funds Federated Aggressive Growth Fund Class B Shares Federated Growth Strategies Fund Class B Shares Federated Small Cap Strategies Fund Class B Shares Federated Capital Appreciation Fund Class B Shares Federated Equity Income Fund, Inc. Class B Shares Federated Fund for U.S. Government Securities, Inc. Class B Shares Federated Government Income Securities, Inc. Class B Shares Federated High Income Bond Fund, Inc. Class B Shares Federated Municipal Opportunities Fund, Inc. Class B Shares Federated Municipal Securities Fund, Inc. Class B Shares Federated Stock and Bond Fund, Inc. Class B Shares Federated Utility Fund, Inc. Class B Shares Fixed Income Securities, Inc. Federated Strategic Income Fund Class B Shares International Series, Inc. Federated International Equity Fund Class B Shares Federated International Income Fund Class B Shares Investment Series Funds, Inc. Federated Bond Fund Class B Shares Liberty U.S. Government Money Market Trust Class B Shares Municipal Securities Income Trust Federated Pennsylvania Municipal Income Fund Class B Shares World Investment Series, Inc. Federated World Utility Fund Class B Shares Federated Asia Pacific Growth Fund Class B Shares Federated Emerging Markets Fund Class B Shares Federated European Growth Fund Class B Shares Federated International Small Company Fund Class B Shares Federated Latin American Growth Fund Class B Shares Federated International High Income Fund Class B Shares Federated International Growth Fund Class B Shares The following Funds were added as of December 1, 1997: Municipal Securities Income Trust Federated California Municipal Income Fund Class B Shares World Investment Series, Inc. Federated Global Equity Income Fund Class B Shares The following Funds were added as of March 1, 1998 (and rescinded on September 1, 1998): Federated Stock Trust Class B Shares The following Funds were added as of June 1, 1998: World Investment Series, Inc. Federated Global Financial Services Fund Class B Shares The following Funds were rescinded as of September 1, 1998: Federated Stock Trust Class B Shares EX-99.SHSERVAGREE3 10 Exhibit 9(v) under From N-1A Exhibit 10 under Item 601/Reg. S-K SHAREHOLDER SERVICES AGREEMENT THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between those Investment Companies on behalf of the Portfolios (individually referred to herein as a "Fund" and collectively as "Funds") and Classes of Shares ("Classes") listed on Schedule A to Exhibit 1, as it may be amended from time to time, having their principal office and place of business at Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this form of Agreement and Federated Securities Corp.("FSC"), a Pennsylvania Corporation, having its principal office and place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 and Federated Shareholder Services, a Delaware business trust, having its principal office and place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS"). Each of the Exhibits hereto is incorporated herein in its entirety and made a part hereof. In the event of any inconsistency between the terms of this Agreement and the terms of any applicable Exhibit, the terms of the applicable Exhibit shall govern. 1. FSC as Principal Servicer (Principal Servicer") hereby contracts with FSS to render or cause to be rendered personal services to shareholders and/or the maintenance of accounts of shareholders of each Class of the Funds to which this Agreement is made applicable by an Exhibit hereto ("Services"). In addition to providing Services directly to shareholders of the Funds, FSS is hereby appointed the Investment Companies' agent to select, negotiate and subcontract for the performance of Services. FSS hereby accepts such appointment. FSS agrees to provide or cause to be provided Services which, in its best judgment (subject to supervision and control of the Investment Companies' Boards of Trustees or Directors, as applicable), are necessary or desirable for shareholders of the Funds. FSS further agrees to provide the Investment Companies, upon request, a written description of the Services which FSS is providing hereunder. The Investment Companies, on behalf of the Funds and each Class subject hereto consents to the appointment of FSS to act in its capacity as described herein and agrees to look solely to FSS for performance of the Services. 2. The term of the undertaking of FSS to render services hereunder in respect of any Class of any Fund and the manner and amount of compensation to be paid in respect thereof shall be specified in respect of each Class of the Funds to which this Agreement is made applicable by an Exhibit hereto. FSS agrees to look solely to the Principal Servicer for its compensation hereunder. 3. This Agreement shall become effective in respect of any Class of Shares of a Fund upon execution of an Exhibit relating to such Class of the Fund. Once effective in respect of any Class of shares, this Agreement shall continue in effect for one year from the date of its execution, and thereafter for successive periods of one year only if the form of this Agreement is approved at least annually by the Board of each Investment Company, including a majority of the members of the Board of the Investment Company who are not interested persons of the Investment Company ("Independent Board Members") cast in person at a meeting called for that purpose. 4. Notwithstanding paragraph 3, this Agreement may be terminated as follows: (a) By any Investment Company as to any Fund at any time, without the payment of any penalty, by the vote of a majority of the Independent Board Members of any Investment Company or by a vote of a majority of the outstanding voting securities of any Fund as defined in the Investment Company Act of 1940 on sixty (60) days' written notice to the parties to this Agreement; (b) automatically in the event of the Agreement's assignment as defined in the Investment Company Act of 1940; and 5. FSS agrees to obtain any taxpayer identification number certification from each shareholder of the Funds to which it provides Services that is required under Section 3406 of the Internal Revenue Code, and any applicable Treasury regulations, and to provide each Investment Company or its designee with timely written notice of any failure to obtain such taxpayer identification number certification in order to enable the implementation of any required backup withholding. 6. FSS shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Investment Company in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. FSS shall be entitled to rely on and may act upon advice of counsel (who may be counsel for such Investment Company) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Any person, even though also an officer, trustee, partner, employee or agent of FSS, who may be or become a member of such Investment Company's Board, officer, employee or agent of any Investment Company, shall be deemed, when rendering services to such Investment Company or acting on any business of such Investment Company (other than services or business in connection with the duties of FSS hereunder) to be rendering such services to or acting solely for such Investment Company and not as an officer, trustee, partner, employee or agent or one under the control or direction of FSS even though paid by FSS. This Section 6 shall survive termination of this Agreement. 7. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 8. FSS is expressly put on notice of the limitation of liability as set forth in the Declaration of Trust of each Investment Company that is a Massachusetts business trust and agrees that the obligations assumed by each such Investment Company pursuant to this Agreement shall be limited in any case to such Investment Company and its assets and that FSS shall not seek satisfaction of any such obligations from the shareholders of such Investment Company, the Trustees, Officers, Employees or Agents of such Investment Company, or any of them. 9. The execution and delivery of this Agreement have been authorized by the Trustees of FSS and signed by an authorized officer of FSS, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of FSS, but bind only the trust property of FSS as provided in the Declaration of Trust of FSS. 10. Notices of any kind to be given hereunder shall be in writing (including facsimile communication) and shall be duly given if delivered to any Investment Company at the following address: Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President. 11. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject hereof whether oral or written. If any provision of this Agreement shall be held or made invalid by a court or regulatory agency decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Subject to the provisions of Sections 3 and 4, hereof, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by Pennsylvania law; provided, however, that nothing herein shall be construed in a manner inconsistent with the Investment Company Act of 1940 or any rule or regulation promulgated by the Securities and Exchange Commission thereunder. 12. This Agreement may be executed by different parties on separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 13. This Agreement shall not be assigned by any party without the prior written consent of the parties hereto. Nothing in this Section 13 shall prevent FSS from delegating its responsibilities to another entity to the extent provided herein. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. Investment Companies (listed on Schedule A) Attest: /s/ S. Elliott Cohan By: /s/ John W. McGonigle Title: Assistant Secretary Title: Executive Vice President Federated Shareholder Services Attest:/s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President Federated Securities Corp. Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President EX-99.SHSERVAGREE4 11 Exhibit 9(vi) under From N-1A Exhibit 10 under Item 601/Reg. S-K EXHIBIT 1 TO SHAREHOLDER SERVICES AGREEMENT FOR CLASS B SHARES OF THE INVESTMENT COMPANIES 1. The Shareholder Services Agreement for Shares of the Investment Companies on behalf of the portfolios (individually referred to as a "Fund" and collectively as "Funds") and the classes of shares ("Classes") listed on the attached Schedule A dated October 24, 1997 among Federated Securities Corp. ("Principal Servicer"), Federated Shareholder Services ("Class Servicer") and the Investment Companies is hereby made applicable on the terms set forth herein to the Class B Shares of the above-referenced Funds. In the event of any inconsistency between the terms of this Exhibit and the Shareholder Services Agreement, the terms of this Exhibit shall govern. 2. In connection with the Services to be rendered to holders of Class B Shares of each Fund, the Principal Servicer and Class Servicer agree that the Principal Servicer shall retain and compensate the Class Servicer for its Services in respect of the Class B Shares of the Fund on one of the following alternative basis as the Principal Servicer shall elect: ALTERNATIVE A3: The Principal Servicer shall pay the Class Servicer a dollar amount as set forth on Schedule A per Class B Commission Share (as defined in the Principal Shareholder Servicer's Agreement) of the Fund. Class Servicer agrees that upon receipt of such payment (which shall be deemed to be full and adequate consideration for an irrevocable service commitment (the "Irrevocable Service Commitment") of Class Servicer hereunder), Class Servicer shall be unconditionally bound and obligated to either: (1) provide the Services in respect of such Commission Share and all other Shares derived therefrom via reinvestment of dividends, free exchanges or otherwise for so long as the same is outstanding or (2) in the event the Class Servicer for the Class B Shares is terminated by the Investment Company, to arrange for a replacement Class Servicer satisfactory to the Investment Company to perform such services, at no additional cost to the Fund. ALTERNATIVE B4: If Alternative A is not elected, the Principal Servicer shall pay the Class Servicer twenty five basis points (0.25%) per annum on the average daily net asset value of each Class B Share of the Fund monthly in arrears. The Class Servicer agrees that such payment is full and adequate consideration for the Services to be rendered by it to the holder of such Class B Share. 3. In the event pursuant to paragraph 2 above, Alternative A has been elected and the Class Servicer is terminated as Class Servicer for the Class B Shares of the Fund, the Class Servicer agrees to pay to any successor Class Servicer for the Class B Shares of the Fund any portion of the excess, if any, of (A) the Servicing Fees received by it hereunder in respect of Class B Shares of the Fund plus interest thereon at the percent as set forth on Schedule A per annum minus (B) the costs it incurred hereunder in respect of the Class B Shares of the Fund prior to such termination. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. Attest: FEDERATED SECURITIES CORP. By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President Attest: FEDERATED SHAREHOLDER SERVICES By:/s/ Leslie K. Platt By: /s/ Byron F. Bowman Title: Assistant Secretary Title: Vice President Attest: INVESTMENT COMPANIES (listed on Schedule A) By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle Title: Assistant Secretary Title: Executive Vice President Schedule A Date: 10/24/97 SHAREHOLDER SERVICES AGREEMENT Revised: 9/1/98 Federated American Leaders Fund, Inc. Class B Shares Federated Equity Funds Federated Aggressive Growth Fund Class B Shares Federated Growth Strategies Fund Class B Shares Federated Small Cap Strategies Fund Class B Shares Federated Capital Appreciation Fund Class B Shares Federated Equity Income Fund, Inc. Class B Shares Federated Fund for U.S. Government Securities, Inc. Class B Shares Federated Government Income Securities, Inc. Class B Shares Federated High Income Bond Fund, Inc. Class B Shares Federated Municipal Opportunities Fund, Inc. Class B Shares Federated Municipal Securities Fund, Inc. Class B Shares Federated Stock and Bond Fund, Inc. Class B Shares Federated Utility Fund, Inc. Class B Shares Fixed Income Securities, Inc. Federated Strategic Income Fund Class B Shares International Series, Inc. Federated International Equity Fund Class B Shares Federated International Income Fund Class B Shares Investment Series Funds, Inc. Federated Bond Fund Class B Shares Liberty U.S. Government Money Market Trust Class B Shares Municipal Securities Income Trust Federated Pennsylvania Municipal Income Fund Class B Shares World Investment Series, Inc. Federated World Utility Fund Class B Shares Federated Asia Pacific Growth Fund Class B Shares Federated Emerging Markets Fund Class B Shares Federated European Growth Fund Class B Shares Federated International Small Company Fund Class B Shares Federated Latin American Growth Fund Class B Shares Federated International High Income Fund Class B Shares Federated International Growth Fund Class B Shares The following Funds were added as of December 1, 1997: Municipal Securities Income Trust Federated California Municipal Income Fund Class B Shares World Investment Series, Inc. Federated Global Equity Income Fund Class B Shares The following Funds were added as of March 1, 1998 (and rescinded on September 1, 1998): Federated Stock Trust Class B Shares The following Funds were added as of June 1, 1998: World Investment Series, Inc. Federated Global Financial Services Fund Class B Shares The following Funds were rescinded as of September 1, 1998: Federated Stock Trust Class B Shares EX-99.12B1PLAN 12 Exhibit 15(ii) under Form N-1A Exhibit 1 under Item 601/Reg. S-K Exhibit 1 Amendment to the Distribution Plan for the Investment Companies Class B Shares 1. This amendment to the Distribution Plan, ("Plan") is adopted by the Board of Trustees/Directors of the Investment Companies with respect to the Class of Shares of the portfolios ("Funds") of the Investment Companies set forth on the attached Schedule A as to which the Plan has been adopted. This Exhibit is hereby incorporated into the Plan in its entirety and made a part thereof. In the event of any inconsistency between the terms of this Exhibit and the terms of the Plan, the terms of this Exhibit shall govern. References herein to the Plan shall mean the Plan as amended by this Exhibit. The terms of the Plan as amended when effective in respect of the Class of Shares set forth above shall apply to all amounts payable to the Principal Distributor in respect of such Class of Shares whether arising out of sales of such Class of Shares before or after such effective date. 2. In compensation for the services provided pursuant to this Plan, the Investment Companies on behalf of the Fund shall pay the Principal Distributor its "Allocable Portion" (as defined in its Distributor's Contract as it relates to the Class B Shares of the Fund) of a fee (the "Distribution Fee") computed at the annual rate of 0.75 of 1% per annum on the average daily aggregate net asset value of the Class B Shares of those Funds listed on Schedule A outstanding, which fee shall be paid monthly in arrears. 3. The Distributor's Contract in respect of the Class B Shares of each Fund set forth above shall provide that: (I) the Principal Distributor in respect of such Distributor's Contract will be deemed to have performed all services required to be performed in order to be entitled to receive its Allocable Portion of the Distribution Fees payable in respect of the Class B Shares of such Fund upon the settlement date of each sale of a "Commission Share" (as defined below) of such Fund taken into account in determining such Principal Distributor's Allocable Portion of such Distribution Fees; (II) the Investment Companies' obligation to pay such Principal Distributor its Allocable Portion of the Distribution Fees payable in respect of the Class B Shares of such Fund shall not be terminated or modified for any reason (including a termination of the Distributor's Contract between such Principal Distributor and such Fund) except to the extent required by a change in the Act or the Conduct Rules of the National Association of Securities Dealers, Inc., in each case enacted or promulgated after May 1, 1997, or in connection with a "Complete Termination" (as hereinafter defined) of this Plan in respect of the Class B Shares of such Fund; (III) the Investment Companies will not take any action to waive or change any CDSC in respect of the Class B Shares of such Fund, except as provided in the Funds' prospectus or statement of additional information without the consent of the Principal Distributor and its assigns; (IV) neither the termination of such Principal Distributor's role as Principal Distributor of the Class B Shares of such Fund, nor the termination of such Distributor's Contract nor the termination of this Plan will terminate such Principal Distributor's right to its Allocable Portion of the CDSCs; and (V) such Principal Distributor may assign, sell or pledge (collectively, "Transfer") its rights to its Allocable Portion of the Distribution Fees and CDSCs (but not such Principal Distributor's obligations to the Investment Companies under the Distributor's Contract) to raise funds to make the expenditures related to the distribution of Class B Shares of such Fund and in connection therewith, upon receipt of notice of such Transfer, the Investment Companies shall pay to the assignee, purchaser or pledgee (collectively with their subsequent transferees, "Transferees") or third party beneficiaries such portion of the Principal Distributor's Allocable Portion of the Distribution Fees or CDSCs in respect of the Class B Shares of such Fund so sold or pledged and except as provided in (II) above and notwithstanding anything of the contrary set forth in this Exhibit or the Plan or in the Distributor's Contract, to the extent the Principal Distributor has Transferred its right thereto as aforesaid, the Investment Companies' obligation to pay to the Principal Distributor's Transferee such Principal Distributor's Allocable Portion of the Distribution Fees and CDSCs payable in respect of the Class B Shares of such Fund shall be absolute and unconditional and shall not be subject to dispute, offset, counterclaim or any defense whatsoever, including without limitation, any of the foregoing based on the insolvency or bankruptcy of the Principal Distributor (it being understood that such provision is not a waiver of the Investment Companies' right to pursue such Principal Distributor and enforce such claims against the assets of such Principal Distributor other than its right to the Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of any Fund transferred in connection with such Transfer. For purposes of this Plan, the term Allocable Portion of Distribution Fees or CDSCs payable in respect of the Class B Shares of any Fund as applied to any Principal Distributor shall mean the portion of such Distribution Fees or CDSCs payable in respect of such Fund allocated to such Principal Underwriter in accordance with the Allocation Schedule (as defined in the Distributor's Contract as it relates to the Class B Shares of the Fund)). For purposes of this Plan, the term "Complete Termination" of this Plan in respect of any Fund means a termination of this Plan involving the complete cessation of the payment of Distribution Fees in respect of all Class B Shares of such Fund, and the termination of the distribution plans and the complete cessation of the payment of distribution fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the Investment Companies in respect of such Fund and any successor Fund or any Fund acquiring a substantial portion of the assets of such Fund and for every future class of shares which has substantially similar characteristics to the Class B Shares of such Fund taking into account the manner of payment and amount of sales charge, contingent deferred sales charge or other similar charges borne directly or indirectly by the holders of such shares. Witness the due execution hereof this execution date. Investment Companies (listed on Schedule A) By: /s/ John W. McGonigle Title: Executive Vice President Date: October 24,1997 Schedule A Date: 10/24/97 DISTRIBUTION PLAN Revised: 9/1/98 Federated American Leaders Fund, Inc. Class B Shares Federated Equity Funds Federated Aggressive Growth Fund Class B Shares Federated Growth Strategies Fund Class B Shares Federated Small Cap Strategies Fund Class B Shares Federated Capital Appreciation Fund Class B Shares Federated Equity Income Fund, Inc. Class B Shares Federated Fund for U.S. Government Securities, Inc. Class B Shares Federated Government Income Securities, Inc. Class B Shares Federated High Income Bond Fund, Inc. Class B Shares Federated Municipal Opportunities Fund, Inc. Class B Shares Federated Municipal Securities Fund, Inc. Class B Shares Federated Stock and Bond Fund, Inc. Class B Shares Federated Utility Fund, Inc. Class B Shares Fixed Income Securities, Inc. Federated Strategic Income Fund Class B Shares International Series, Inc. Federated International Equity Fund Class B Shares Federated International Income Fund Class B Shares Investment Series Funds, Inc. Federated Bond Fund Class B Shares Liberty U.S. Government Money Market Trust Class B Shares Municipal Securities Income Trust Federated Pennsylvania Municipal Income Fund Class B Shares World Investment Series, Inc. Federated World Utility Fund Class B Shares Federated Asia Pacific Growth Fund Class B Shares Federated Emerging Markets Fund Class B Shares Federated European Growth Fund Class B Shares Federated International Small Company Fund Class B Shares Federated Latin American Growth Fund Class B Shares Federated International High Income Fund Class B Shares Federated International Growth Fund Class B Shares The following Funds were added as of December 1, 1997: Municipal Securities Income Trust Federated California Municipal Income Fund Class B Shares World Investment Series, Inc. Federated Global Equity Income Fund Class B Shares The following Funds were added as of March 1, 1998 (and rescinded on September 1, 1998): Federated Stock Trust Class B Shares The following Funds were added as of June 1, 1998: World Investment Series, Inc. Federated Global Financial Services Fund Class B Shares The following Funds were rescinded as of September 1, 1998: Federated Stock Trust Class B Shares EX-27.FINDATSCH 13
6 001 Federated Municipal Opportunities Fund, Inc. Class A 6-mos Aug-31-1998 Feb-28-1998 429,279,629 451,296,271 9,481,518 99,477 0 460,877,266 2,978,629 0 496,424 3,475,053 0 442,612,637 9,065,138 8,898,734 0 689,233 (6,537,833) 0 22,016,642 99,272,410 0 13,497,012 0 2,493,939 11,003,073 3,107,460 9,045,244 23,155,777 0 2,501,367 0 0 694,695 689,207 160,916 12,592,816 0 (9,645,293) 205,035 0 1,331,692 0 2,493,939 448,386,888 10.670 0.270 0.290 0.280 0.000 0.000 10.950 1.08 0 0.000
EX-27.FINDATSCH 14
6 002 Federated Municipal Opportunities Fund, Inc. Class B 6-mos Aug-31-1998 Feb-28-1998 429,279,629 451,296,271 9,481,518 99,477 0 460,877,266 2,978,629 0 496,424 3,475,053 0 442,612,637 2,721,804 1,406,348 0 689,233 (6,537,833) 0 22,016,642 29,796,243 0 13,497,012 0 2,493,939 11,003,073 3,107,460 9,045,244 23,155,777 0 449,871 0 0 1,342,747 46,829 19,538 12,592,816 0 (9,645,293) 205,035 0 1,331,692 0 2,493,939 448,386,888 10.660 0.230 0.300 0.240 0.000 0.000 10.950 1.84 0 0.000
EX-27.FINDATSCH 15
6 003 Federated Municipal Opportunities Fund, Inc. Class C 6-mos Aug-31-1998 Feb-28-1998 429,279,629 451,296,271 9,481,518 99,477 0 460,877,266 2,978,629 0 496,424 3,475,053 0 442,612,637 263,891 182,884 0 689,233 (6,537,833) 0 22,016,642 2,888,893 0 13,497,012 0 2,493,939 11,003,073 3,107,460 9,045,244 23,155,777 0 52,528 0 0 114,584 37,541 3,964 12,592,816 0 (9,645,293) 205,035 0 1,331,692 0 2,493,939 448,386,888 10.660 0.220 0.310 0.240 0.000 0.000 10.950 1.84 0 0.000
EX-27.FINDATSCH 16
6 004 Federated Municipal Opportunities Fund, Inc. Class F 6-mos Aug-31-1998 Feb-28-1998 429,279,629 451,296,271 9,481,518 99,477 0 460,877,266 2,978,629 0 496,424 3,475,053 0 442,612,637 29,717,599 31,079,263 0 689,233 (6,537,833) 0 22,016,642 325,444,667 0 13,497,012 0 2,493,939 11,003,073 3,107,460 9,045,244 23,155,777 0 8,502,434 0 0 429,323 2,256,741 465,754 12,592,816 0 (9,645,293) 205,035 0 1,331,692 0 2,493,939 448,386,888 10.670 0.270 0.290 0.280 0.000 0.000 10.950 1.08 0 0.000
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