485BPOS

                                                      1933 Act File No. 33-11410
                                                      1940 Act File No. 811-4533

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                 X

    Pre-Effective Amendment No.

    Post-Effective Amendment No.  29                                    X

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940         X

    Amendment No.  28                                                   X


               FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE 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
                               1001 Liberty Avenue
                       Pittsburgh, Pennsylvania 15222-3779
                     (Name and Address of Agent for Service)
                (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

    immediately upon filing pursuant to paragraph (b)
 X  on _October 29, 2004__, pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(i)
    on _____________, 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, DC  20037

Federated
World-Class Investment Manager

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Federated Municipal High Yield Advantage Fund, Inc.

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(formerly, Federated Municipal Opportunities Fund, Inc.)

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PROSPECTUS

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October 31, 2004

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Class A Shares
Class b shares
Class c shares
Class f shares

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A mutual fund seeking to provide a high level of current income which is generally exempt from the federal regular income tax by investing primarily in a portfolio of long-term, medium-quality and non-investment grade, tax-exempt securities.

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As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 9

What are the Specific Risks of Investing in the Fund? 14

What Do Shares Cost? 17

How is the Fund Sold? 23

How to Purchase Shares 25

How to Redeem and Exchange Shares 27

Account and Share Information 31

Who Manages the Fund? 32

Legal Proceedings 33

Financial Information 34

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide a high level of current income which is generally exempt from the federal regular income tax. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund pursues its objective by investing its assets so that, normally, distributions of annual interest income are exempt from federal regular income tax (except when investing for "defensive" purposes). Interest income from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations (AMT). The Fund invests primarily in long-term, medium-quality and non-investment grade, tax-exempt securities. The Fund may invest in derivatives contracts to implement its investment strategies as more fully described herein.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund.

The primary factors that may reduce the Fund's returns include:

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• Credit Risks. Issuers of tax-exempt securities may default on the payment of interest or principal when due.

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• Interest Rate Risks. Prices of tax-exempt securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of tax-exempt securities with longer durations.

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• Liquidity Risks. Trading opportunities are more limited for tax-exempt securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. These features may make it more difficult to sell or buy a security at a favorable price or time. Liquidity risks also refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. Over-the-counter derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

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• Call Risks. Issuers of tax-exempt securities may redeem the securities prior to maturity at a price below their current market value.

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• Risks Associated with Non-Investment Grade Securities. The Fund may invest a portion of its assets in securities rated below investment grade, which may be subject to greater credit, interest rate and liquidity risks than investment grade securities.

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• Tax Risks. In order to be tax exempt, tax-exempt securities must meet certain legal requirements. Failure to meet such requirements may cause the interest received and distributed by the Fund to shareholders to be taxable. The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.

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• Leverage Risks. Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.

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• Prepayment Risks. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also, when interest rates fall, the price of municipal mortgage-backed securities may not raise to as great an extent as that of other fixed-income securities.

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• Risks of Investing in Derivative Contracts. Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus, such as interest rate, credit, liquidity and leverage risks.

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Other risk factors associated with an investment in the Fund include sector risk.

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The Fund is non-diversified. Compared to diversified mutual funds, it may invest a higher percentage of its assets among fewer issuers of portfolio securities. This increases the Fund's risk by magnifying the impact (positively or negatively) that any one issuer has on the Fund's Share price and performance.

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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 or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.

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Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class F Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

The total returns shown in the bar chart do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

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The Fund's Class F Shares total return for the nine-month period from January 1, 2004 to September 30, 2004 was 4. 24%.

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Within the period shown in the bar chart, the Fund's Class F Shares highest quarterly return was 6.60% (quarter ended March 31, 1995). Its lowest quarterly return was (5.39)% (quarter ended March 31, 1994).

Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A, Class B, Class C, and Class F Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class F Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown .. The table also shows returns for the Lehman Brothers Municipal Bond Index (LBMB), a broad-based market index, and the Lipper High Yield Municipal Debt Funds Average (LHMDA), an average of funds with similar objectives. The LBMB is a broad market performance benchmark for the tax-exempt bond market. To be included in the LBMB, bonds must have a minimum credit rating of Baa. The LHMDA represents the average of the total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective category. Index returns do not reflect taxes, sales charges, expenses, or other fees that the SEC requires to be reflected in a mutual fund's performance. Indexes are unmanaged , and it is not possible to invest directly in an index or an average.

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(For the periods ended December 31, 2003)

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	1 Year	5 Years	10 Years	Start of Performance 1
Class F Shares:
Return Before Taxes	<R> 5. 47%</R>	<R> 3. 26%</R>	<R>4. 23%</R>	- --
Return After Taxes on Distributions 2	<R> 5. 47%</R>	<R> 3. 26%</R>	<R>4. 23%</R>	- --
Return after Taxes on Distributions and Sale of Fund Shares 2	<R> 5. 64%</R>	<R>3. 57%</R>	<R>4. 40%</R>	- --
Class A Shares:
Return Before Taxes	<R> 2. 77%</R>	<R>2. 51%</R>	- --	<R> 4. 09%</R>
Class B Shares:
Return Before Taxes	<R> 1. 15%</R>	<R> 2. 37%</R>	- --	<R>3. 94%</R>
Class C Shares:
Return Before Taxes	<R>4. 56%</R>	<R>2. 48%</R>	- --	<R>3. 80%</R>
LBMB	<R> 5. 31%</R>	<R> 5. 83%</R>	<R>6. 03%</R>	- --
LHMDA	<R> 6. 39%</R>	<R>3. 38%</R>	<R> 4. 59%</R>	- --

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1 The Fund's Class A, Class B, and Class C Shares start of performance date was August 5, 1996.

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2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after --tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class A, Class B, and Class C Shares will differ from those shown above for Class F Shares. After-tax returns are not relevant to investors holding Shares through tax -deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.

This table describes the fees and expenses that you may pay if you buy and hold Class A, Class B, Class C, and Class F Shares of the Fund.

Shareholder Fees	Class A	Class B	Class C	Class F
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.50%	None	1.00%	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None	None
Exchange Fee	None	None	None	None
Annual Fund Operating Expenses (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee	0.60%	0.60%	0.60%	0.60%
Distribution (12b-1) Fee	0.25% 2	0.75%	0.75%	0.25% 2
Shareholder Services Fee	0.25%	0.25%	0.25%	0.25%
Other Expenses	0.21%	0.21%	0.21%	0.21%
Total Annual Fund Operating Expenses	1.31%	1.81% 3	1.81%	1.31%
1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the distributor waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2004.
Total Waivers of Fund Expenses	0.25%	0.00%	0.00%	0.25%
Total Actual Annual Fund Operating Expenses (after waivers)	1.06%	1.81%	1.81%	1.06%
2 The Fund did not pay or accrue the distribution (12b-1) fee for Class A and Class F Shares during the fiscal year ended August 31, 2004. The Fund has no present intention of paying or accruing the distribution (12b-1) fee for Class A and Class F Shares during the year ended August 31, 2005.
3 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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This Example is intended to help you compare the cost of investing in the Fund's Class A, Class B, Class C, and Class F Shares with the cost of investing in other mutual funds.

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The Example assumes that you invest $10,000 in the Fund's Class A, Class B, Class C, and Class F Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B, Class C, and Class F Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

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Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$ 577</R>	<R>$ 847</R>	<R>$1, 136</R>	<R>$1, 958</R>
Expenses assuming no redemption	<R>$ 577</R>	<R>$ 847</R>	<R>$1, 136</R>	<R>$1, 958</R>
Class B:
Expenses assuming redemption	<R>$ 734</R>	<R>$ 969</R>	<R>$1, 180</R>	<R>$ 1, 996</R>
Expenses assuming no redemption	<R>$ 184</R>	<R>$ 569</R>	<R>$ 980</R>	<R>$ 1, 996</R>
Class C:
Expenses assuming redemption	<R>$ 382</R>	<R>$ 664</R>	<R>$ 1, 070</R>	<R>$2, 205</R>
Expenses assuming no redemption	<R>$ 282</R>	<R>$ 664</R>	<R>$ 1, 070</R>	<R>$2, 205</R>
Class F:
Expenses assuming redemption	<R>$ 332</R>	<R>$ 611</R>	<R>$ 811</R>	<R>$1, 663</R>
Expenses assuming no redemption	<R>$ 232</R>	<R>$ 511</R>	<R>$ 811</R>	<R>$1, 663</R>

What are the Fund's Investment Strategies?

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The Fund invests its assets so that, normally, distributions of annual interest income are exempt from federal regular income tax (except when investing for "defensive" purposes). Interest from the Fund's investments may be subject to AMT. The Fund invests primarily in long- term, tax-exempt securities that are: (1) medium quality (i.e., securities rated in the third or fourth highest rating category by a nationally recognized statistical rating organization (NRSRO) or unrated securities of comparable quality); or (2) non-investment grade or unrated securities of comparable quality. The Fund's investment adviser (Adviser) actively manages the Fund's portfolio, seeking to manage credit risk assumed by the Fund and provide superior levels of income.

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The Adviser manages credit risk by performing a fundamental credit analysis on all tax-exempt securities before the Fund purchases such securities. The Adviser considers various factors, including the economic feasibility of revenue bond financings and general purpose financings; the financial condition of the issuer or guarantor; and political developments that may affect credit quality. The Adviser monitors the credit risks of all tax exempt securities on an ongoing basis by reviewing periodic financial data and ratings of NRSROs.

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The Adviser performs a more intensive credit analysis on non-investment grade, tax-exempt securities. In addition to the review process described above, the Adviser generally visits the site that the issuer is developing with the proceeds of the offering and engages in detailed discussions with the issuer regarding the offering.

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The Adviser attempts to provide superior levels of income by investing in long- term, tax-exempt securities and managing the duration of the Fund. "Duration" measures the sensitivity of a security's price to changes in interest rates. The greater a portfolio's duration, the greater the change in the portfolio's value in response to a change in market interest rates. The Adviser increases or reduces the Fund's portfolio duration based on its interest rate outlook. When the Adviser expects interest rates to fall, it maintains a longer portfolio duration. When the Adviser expects interest rates to increase, it shortens the portfolio duration. The Adviser uses hedging transactions for purposes of duration management. The Adviser considers a variety of factors in formulating its interest rate outlook, including current and expected U.S. economic growth; current and expected interest rates and inflation; the Federal Reserve's monetary policy; and supply and demand factors related to the municipal market and the effect they may have on the returns offered for various bond maturities. Duration management is less important when a greater portion of the Fund is allocated to non-investment grade, tax-exempt securities, because such securities are less sensitive to interest rate changes.

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The Adviser also attempts to provide superior levels of income by investing in non-investment grade, tax-exempt securities, which generally provide higher yields. The percentage that the Adviser allocates to non-investment grade securities will vary depending on the supply of non-investment grade, tax-exempt securities and the credit spread between investment grade, tax-exempt securities and non-investment grade, tax-exempt securities. If the credit spread narrows, the Adviser may increase its allocation to investment grade securities without limitation; if the credit spread broadens, the Adviser may increase its allocation to non-investment grade securities without limitation. The Adviser may invest up to 100% of the Fund's assets in non-investment grade, tax-exempt securities.

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The Fund may enter into derivatives contracts as hedging transactions, as more fully described herein. The Fund also may use derivative contracts to implement its overall investment strategies in a more cost effective or efficient manner. For example, the Fund may purchase derivatives contracts rather than individual securities in order to gain exposure to the municipal bond sector.

The Fund invests its assets so that at least 80% of the income that it distributes will be exempt from federal regular income tax, except when investing for "defensive" purposes.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to distribute taxable income to investors. This may also cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

Hedging

Hedging transactions are intended to reduce specific risks. For example, to protect the Fund against circumstances that would normally cause the Fund's portfolio securities to decline in value, the Fund may buy or sell a derivative contract that would normally increase in value under the same circumstances. The Fund may also attempt to hedge by using combinations of different derivatives contracts, or derivatives contracts and securities. The Fund's ability to hedge may be limited by the costs of the derivatives contracts. The Fund may attempt to lower the cost of hedging by entering into transactions that provide only limited protection, including transactions that: (1) hedge only a portion of its portfolio; (2) use derivatives contracts that cover a narrow range of circumstances; or (3) involve the sale of derivatives contracts with different terms. Consequently, hedging transactions will not eliminate risk even if they work as intended. In addition, hedging strategies are not always successful, and could result in increased expenses and losses to the Fund.

What are the Principal Securities in Which the Fund Invests?

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TAX-EXEMPT SECURITIES

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Tax-exempt securities are fixed-income securities that pay interest that is not subject to federal regular income taxes. Fixed-income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically.

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Typically, states, counties, cities, and other political subdivisions and authorities issue tax-exempt securities. The market categorizes tax-exempt securities by their source of repayment.

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General Obligation Bonds

General obligation bonds are supported by the issuer's power to exact property or other taxes. The issuer must impose and collect taxes sufficient to pay principal and interest on the bonds. However, the issuer's authority to impose additional taxes may be limited by its charter or state law.

Special Revenue Bonds

Special revenue bonds are payable solely from specific revenues received by the issuer such as specific taxes, assessments, tolls or fees. Bondholders may not collect from the municipality's general taxes or revenues. For example, a municipality may issue bonds to build a toll road and pledge the tolls to repay the bonds. Therefore, a shortfall in the tolls normally would result in a default on the bonds.

Private Activity Bonds

Private activity bonds are special revenue bonds used to finance private entities. For example, a municipality may issue bonds to finance a new factory to improve its local economy. The municipality would lend the proceeds from its bonds to the company using the factory, and the company would agree to make loan payments sufficient to repay the bonds. The bonds would be payable solely from the company's loan payments, not from any other revenues of the municipality. Therefore, any default on the loan normally would result in a default on the bonds.

The interest on many types of private activity bonds is subject to AMT. The Fund may invest in bonds subject to AMT.

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Tax Increment Financing Bonds

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Tax increment financing (TIF) bonds are payable from increases in taxes or other revenues attributable to projects financed by the bonds. For example, a municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds would be payable solely from any increase in sales taxes collected from merchants in the area. The bonds could default if merchants' sales, and related tax collections, failed to increase as anticipated.

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Municipal Leases

Municipalities may enter into leases for equipment or facilities. In order to comply with state public financing laws, these leases are typically subject to annual appropriation. In other words, a municipality may end a lease, without penalty, by not providing for the lease payments in its annual budget. After the lease ends, the lessor can resell the equipment or facility but may lose money on the sale.

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The Fund may invest in securities supported by pools of municipal leases. The most common type of lease-backed securities are certificates of participation (COPs). However, the Fund may also invest directly in individual leases.

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Zero Coupon Securities

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Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a coupon payment). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate risks and credit risks of a zero coupon security.

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Inverse Floaters

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An inverse floater has a floating or variable interest rate that moves in the opposite direction of market interest rates. When market interest rates go up, the interest rate paid on the inverse floater goes down; when market interest rates go down, the interest rate paid on the inverse floater goes up. Inverse floaters generally respond more rapidly to market interest rate changes than fixed-rate, tax-exempt securities. Inverse floaters are subject to interest rate risks and leverage risks.

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Municipal Mortgage-Backed Securities

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Municipal mortgage-backed securities are special revenue bonds the proceeds of which may be used to provide mortgage loans for single family homes or to finance multifamily housing. Municipal mortgage-backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Municipal mortgage-backed securities generally have fixed interest rates.

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PACs

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PACs (planned amortization classes) are a sophisticated form of municipal mortgage-backed security issued with a company class. PACs receive principal payments and prepayments at a specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs to control prepayment risks by increasing the risks to their companion classes.

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DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, commodities, financial indices or other assets or instruments. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset or instrument. The other party to a derivative contract is referred to as a counterparty.

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Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses ( or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.

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The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.

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Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument derivative contracts may increase or decrease the Fund's exposure to interest rate risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.

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The Fund may trade in the following types of derivative contracts, as well as combinations of these contracts:

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts.The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts.

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The Fund may buy or sell the following types of futures contracts: interest rate and index financial futures contracts.

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Options

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Options are rights to buy or sell an underlying asset for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts, forward contracts, and swaps.

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Swaps

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Swaps are contracts in which two parties agree to pay each other (swap) the returns derived from underlying assets with differing characteristics. Most swaps do not involve the delivery of the underlying assets by either party, and the parties might not own the assets underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms. Common types of swaps in which the Fund may invest include: interest rate swaps, cap and floors, and total return swaps.

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CREDIT ENHANCEMENT

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Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed-income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed-income security based solely upon its credit enhancement.

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Common types of credit enhancement include guarantees, letters of credit, bond insurance and surety bonds. Credit enhancement also includes arrangements where securities or other liquid assets secure payment of a fixed-income security. If a default occurs, these assets may be sold and the proceeds paid to security's holders. Either form of credit enhancement reduces credit risks by providing another source of payment for a fixed-income security.

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SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transactions when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.

Asset Coverage

In order to secure its obligations in connection with special transactions, the Fund will either own the underlying assets or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets to secure such obligations without terminating the special transactions.

What are the Specific Risks of Investing in the Fund?

CREDIT RISKS

Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.

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Many tax-exempt securities receive credit ratings from NRSROs such as Standard & Poor's and Moody's Investors Service. These NRSROs assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.

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Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.

INTEREST RATE RISKS

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Prices of tax-exempt securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of tax-exempt securities fall. However, market factors, such as the demand for particular tax-exempt securities, may cause the price of certain fixed-income securities to fall while the prices of other securities rise or remain unchanged.

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Interest rate changes have a greater effect on the price of tax-exempt securities with longer durations. Duration measures the price sensitivity of a tax-exempt security to changes in interest rates.

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LIQUIDITY RISKS

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Trading opportunities are more limited for fixed-income securities that have not received any credit ratings or are not widely held.

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These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance. Infrequent trading of securities may also lead to an increase in their price volatility.

Liquidity risk also refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. If this happens, the Fund will be required to continue to hold the security or keep the position open, and the Fund could incur losses. OTC derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

CALL RISKS

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Call risk is the possibility that an issuer may redeem a tax-exempt security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.

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If a tax-exempt security is called, the Fund may have to reinvest the proceeds in other tax-exempt securities with lower interest rates, higher credit risks or other less favorable characteristics.

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SECTOR RISKS

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A substantial part of the Fund's portfolio may be comprised of securities credit enhanced by banks, insurance companies or companies with similar characteristics. As a result, the Fund will be more susceptible to any economic, business, political or other developments which generally affect these entities.

TAX RISKS

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In order to be tax exempt, tax-exempt securities must meet certain legal requirements. Failure to meet such requirements may cause the interest received and distributed by the Fund to shareholders to be taxable.

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Changes or proposed changes in federal tax laws may cause the prices of tax-exempt securities to fall.

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The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Additionally, the Fund may not be able to close out certain derivative contracts when it wants to. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.

LEVERAGE RISKS

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Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain. Investments can have these same results if their returns are based on a multiple of a specified index, security, or other benchmark.

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PREPAYMENT RISKS

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Unlike traditional fixed-income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on municipal mortgage-backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding municipal mortgage-backed securities.

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For example, when interest rates decline, the values of municipal mortgage-backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on municipal mortgage-backed securities.

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Conversely, when interest rates rise, the values of municipal mortgage-backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of municipal mortgage-backed securities, and cause their value to decline more than traditional fixed-income securities.

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES

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Securities rated below investment grade, also known as junk bonds, generally entail greater credit, interest rate and liquidity risks than investment grade securities. For example, their prices are more volatile, economic downturns and financial setbacks may affect their prices more negatively, and their trading market may be more limited. The Adviser may invest up to 100% of the Fund's assets in non-investment grade, tax-exempt securities.

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What Do Shares Cost?

You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price).

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NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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The Fund generally values fixed-income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost. Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. Options traded in the over-the-counter market are generally valued according to the mean between the last bid and the last asked price for the option as provided by an investment dealer or other financial institution that deals in the option.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

Shares Offered	Minimum Initial/Subsequent Investment Amounts 1	Maximum Sale Charges
		Front-End Sales Charge 2	Contingent Deferred Sales Charge 3
Class A	$1,500/$100	4.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	1.00%	1.00%
Class F	$1,500/$100	1.00%	1.00%

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1 The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $ 100,000 or more of Class B Shares or $1 million or more of Class C Shares will be invested in Class A Shares instead of Class B Shares or Class C Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

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As shown in the table above, each class of Shares has a different sales charge structure. In addition, the ongoing annual operating expenses ("expense ratios"), as well as the compensation payable to investment professionals, also vary among the classes. Before you decide which class to purchase, you should review the different charges and expenses of each class carefully, in light of your personal circumstances, and consult with your investment professional.

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Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class B Shares do not have front-end sales charges, but the deferred sales charges imposed on redemptions of Class B Shares do not vary at all in relation to the amounts invested. Rather, these charges decrease with the passage of time (ultimately going to zero after seven years). Class C Shares bear a relatively low front-end sales charge and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares and comparable to those charged to Class B Shares. Finally, Class F Shares also bear a relatively low front-end sales charge and contingent deferred sales charge; however, the breakpoints and expenses for Class F Shares may vary from the other classes of Shares.

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You should also consider that the expense ratio for Class A Shares and Class F Shares will be lower than that for Class B (or Class C) Shares. Thus, the fact that no front-end charges are ever imposed on purchases of Class B Shares (or that a relatively low front-end charge is imposed on purchases of Class C Shares) does not always make them preferable to Class A Shares or Class F Shares.

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SALES CHARGE WHEN YOU PURCHASE

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The following tables list the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the tables and described below.

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Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater 1	0.00%	0.00%
Class C Shares:
All Purchases	1.00%	1.01%
Class F Shares:
Less than $1 million	1.00%	1.01%
$1 million or greater	0.00%	0.00%

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1 A contingent deferred sales charge of 0.75% of the redemption amount applies to Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.

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REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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Your investment may qualify for a reduction or elimination of the sales charge, also known as a breakpoint discount. The breakpoint discounts offered by the Fund are indicated in the tables above. You or your investment professional must notify the Fund's Transfer Agent of any applicable breakpoint discount at the time of purchase.

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In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your investment professional or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint ("Qualifying Accounts") Qualifying Accounts mean those Class A and Class F Share accounts in the Federated funds held directly or through an investment professional or a through a single-participant retirement account by you, your spouse, and/or your children under age 21, which can be linked using tax identification numbers (TINs) or social security numbers (SSNs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs or SSNs, are not Qualifying Accounts.

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In order to verify your eligibility for a breakpoint discount, you will be required to provide to your investment professional or the Transfer Agent certain information on your New Account Form and may be required to provide account statements regarding Qualifying Accounts. If you purchase through an investment professional, you may be asked to provide additional information and records as required by the investment professional. Failure to provide proper notification or verification of eligibility for a breakpoint discount may result in your not receiving a breakpoint discount to which you are otherwise entitled. Breakpoint discounts apply only to your current purchase and do not apply retroactively to previous purchases. The sales charges applicable to the Shares offered in this Prospectus, and the breakpoint discounts offered with respect to such Shares, are described in full in this Prospectus. Because the Prospectus is available on Federated's website free of charge, Federated does not disclose this information separately on the website.

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Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares and Class F Shares only, may be reduced or eliminated by:

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Larger Purchases

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• purchasing Class A/Class F Shares in greater quantities to reduce the applicable sales charge;

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Concurrent Purchases

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• combining concurrent purchases of Class A/Class F Shares of the Fund made by a trustee or fiduciary for a single trust estate or single fiduciary account; or made by a Qualifying Account in the same share class of two or more Federated funds (other than money market funds);

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Accumulated Purchases

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• achieving accumulated purchase discounts by including previous Class A Share/Class F Share purchases in determining the applicable sales charge on any additional Class A Shares/Class F Shares purchased; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A/Class F Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

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Letter of Intent

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• signing a letter of intent to purchase a qualifying amount of Class A/Class F Shares within 13 months. (Call your investment professional or the Fund for more information.) The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If you complete the Letter of Intent, the Custodian will release the Shares in escrow to your account. If you do not fulfill the Letter of Intent, the Custodian will redeem the appropriate amount from the Shares held in escrow to pay the sales charges that were not applied to your purchases.

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ELIMINATING THE SALES CHARGE

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Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

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• through a financial intermediary that did not receive a dealer reallowance on the purchase;

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• with reinvested dividends or capital gains;

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• as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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• as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) ( Class A Shares only ) or

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• as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any investment professional that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or

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• pursuant to the exchange privilege.

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SALES CHARGE WHEN YOU REDEEM

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Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

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To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

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• Shares that are not subject to a CDSC; and

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• Shares held the longest ( to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).

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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

<R>Class A Shares:</R>
<R>If you make a purchase of Class A Shares in the amount of $1 million or more and your investment professional received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.</R>
<R>Class B Shares:</R>
<R>Shares Held Up To:</R>		<R>CDSC</R>
<R>1 Year</R>		<R>5.50%</R>
<R>2 Years</R>		<R>4.75%</R>
<R>3 Years</R>		<R>4.00%</R>
<R>4 Years</R>		<R>3.00%</R>
<R>5 Years</R>		<R>2.00%</R>
<R>6 Years</R>		<R>1.00%</R>
<R>7 Years or More</R>		<R>0.00%</R>
<R>Class C Shares:</R>
<R>You will pay a 1% CDSC if you redeem Shares within 12 months of the purchase date.</R>
<R>Class F Shares:</R>
<R>Purchase Amount</R>	<R>Shares Held</R>	<R>CDSC</R>
<R>Up to $2 million</R>	<R>4 years or less</R>	<R>1.00%</R>
<R>$2 but less than $5 million</R>	<R>2 years or less</R>	<R>0.50%</R>
<R>$5 million or more</R>	<R>1 year or less</R>	<R>0.25%</R>

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If your investment qualifies for a reduction or elimination of the CDSC, you or your investment professional must notify the Transfer Agent at the time of redemption. If the Transfer Agent is not notified, the CDSC will apply.

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Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

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• representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;

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• purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;

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• purchased by Directors and employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of an investment professional that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;

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• purchased through an investment professional that did not receive an advance commission on the purchase;

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• purchased with reinvested dividends or capital gains;

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• redeemed by the Fund when it closes an account for not meeting the minimum balance requirements;

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• purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period (the holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange);

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• which are qualifying redemptions of Class B Shares under a Systematic Withdrawal Program ( Class B Shares only) ; and

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• representing a total or partial distribution from a qualified plan, which does not include account transfers, rollovers, or redemptions for the purpose of reinvestment. For these purposes, qualified plan does not include an Individual Retirement Account, Keogh Plan or custodial account following retirement. ( Class F Shares only).

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How is the Fund Sold?

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The Fund offers four Share classes: Class A, Class B, Class C, and Class F Shares, each representing interests in a single portfolio of securities.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to individuals, directly or through investment professionals. The Fund may not be a suitable investment for retirement plans.

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When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution, administration and customer servicing of the Fund's Class A, Class B, Class C, and Class F Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

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SERVICE FEES

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The Fund may pay fees ("Service Fees") to financial institutions or to Federated Shareholder Services Company ("FSSC"), a subsidiary of Federated Investors, Inc., for providing services to shareholders and maintaining shareholder accounts. Under certain agreements, rather than paying financial institutions directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial institutions.

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ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

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The Distributor may pay out of its own resources amounts (including items of material value) to certain financial institutions that support the sale of Shares or provide services to Fund shareholders. The amounts of these payments could be significant, and may create an incentive for the financial institution or its employees or associated persons to recommend or sell Shares of the Fund to you. In some cases, such payments may be made by or funded from the resources of companies affiliated with the Distributor (including the Adviser). These payments are not reflected in the fees and expenses listed in the fee table section of the Fund's prospectus because they are not paid by the Fund.

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These payments are negotiated and may be based on such factors as the number or value of Shares that the financial institution sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial institution. These payments may be in addition to payments made by the Fund to the financial institution under the Rule 12b-1 Plan and/or Service Fees arrangement. You can ask your financial institution for information about any payments it receives from the Distributor or the Fund and any services provided.

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How to Purchase Shares

You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares.

Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

• Establish an account with the investment professional; and
• Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

• Establish your account with the Fund by submitting a completed New Account Form; and
• Send your payment to the Fund by Federal Reserve wire or check.

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You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or State Street Bank and Trust Company, the Fund's transfer agent.

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An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

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Make your check payable to The Federated Funds , note your account number on the check, and send it to:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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The Federated Funds
66 Brooks Drive
Braintree, MA 02184

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Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

THROUGH AN EXCHANGE

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You may purchase Shares through an exchange from the same share class of another Federated fund. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.

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BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

• through an investment professional if you purchased Shares through an investment professional; or
• directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

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You may redeem or exchange Shares by sending a written request to the Fund.

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You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.

Send requests by mail to:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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Send requests by private courier or overnight delivery service to:

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The Federated Funds
66 Brooks Drive
Braintree, MA 02184

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All requests must include:

• Fund Name and Share Class, account number and account registration;
• amount to be redeemed or exchanged;
• signatures of all shareholders exactly as registered; and
• if exchanging , the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

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Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

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• your redemption will be sent to an address other than the address of record;

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• your redemption will be sent to an address of record that was changed within the last 30 days ; or

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• a redemption is payable to someone other than the shareholder(s) of record; or
• if exchanging (transferring) into another fund with a different shareholder registration.

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A Medallion signature guarantee is designed to protect your account from fraud. Obtain a Medallion signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.

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PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

• an electronic transfer to your account at a financial institution that is an ACH member; or
• wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

• to allow your purchase to clear;
• during periods of market volatility; or
• when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGE

You may exchange Shares of the Fund into shares of the same class of another Federated fund. To do this, you must:

• ensure that the account registrations are identical;
• meet any minimum initial investment requirements; and
• receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

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The Fund may modify or terminate the exchange privilege at any time. The Fund's management or Adviser may determine from the amount, frequency, and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated funds.

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

Generally, it is not advisable to continue to purchase Class A, Class C, or Class F Shares subject to a sales charge while redeeming Shares using this program.

Systematic Withdrawal Program (SWP) on Class B Shares

You will not be charged a CDSC on SWP redemptions if:

• you redeem 12% or less of your account value in a single year;
• you reinvest all dividends and capital gains distributions; and
• your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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You will be subject to a CDSC on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, your account is valued when you establish the SWP and then annually at calendar year-end. You can redeem monthly, quarterly, or semi-annually.

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ADDITIONAL CONDITIONS

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Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption or exchange request. For your protection, send your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends, and capital gains paid.

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DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends monthly to shareholders. Dividends are paid to all shareholders invested in the Fund on the record date. The record date is the date on which a shareholder must officially own Shares in order to earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

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If you purchase Shares just before the record date for a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the record date for a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

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ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

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The Fund sends an annual statement of your account activity to assist you in completing your federal, state, and local tax returns. It is anticipated that Fund distributions will be primarily dividends that are exempt from federal regular income tax, although a portion of the Fund's dividends may not be exempt. Dividends may be subject to state and local taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.

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Who Manages the Fund?

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The Board of Directors (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $ 198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1, 650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Mary Jo Ochson

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Mary Jo Ochson has been the Fund's Portfolio Manager since May 1996. Ms. Ochson was named Chief Investment Officer of tax-exempt fixed-income products in 2004 and is Vice President of the Fund. She joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996 . Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

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J. Scott Albrecht

J. Scott Albrecht has been the Fund's Portfolio Manager since May 1996. Mr. Albrecht joined Federated in 1989. He has been a Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

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Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ("Funds") from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website at www.federatedinvestors.com , and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders.

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Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts.

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The Board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

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Financial Information

FINANCIAL HIGHLIGHTS

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The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per Share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

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This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights-Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.55		$9.73		$9.91		$9.78		$10.22
Income From Investment Operations:
Net investment income	0.55		0.56		0.55	1	0.55		0.56
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.17		(0.18	)	(0.19	) 1	0.15		(0.44	)
TOTAL FROM INVESTMENT OPERATIONS	0.72		0.38		0.36		0.70		0.12
Less Distributions:
Distributions from net investment income	(0.56	)	(0.56	)	(0.54	)	(0.57	)	(0.56	)
Net Asset Value, End of Period	$9.71		$9.55		$9.73		$9.91		$ 9.78
Total Return 2	7.77	%	4.06	%	3.79	%	7.48	%	1.37	%
Ratios to Average Net Assets:
Expenses	1.06	%	1.07	%	1.08	%	1.09	%	1.09	%
Net investment income	5.71	%	5.87	%	5.68	% 1	5.69	%	5.74	%
Expense waiver/reimbursement 3	0.00	% 4	- --		- --		0.01	%	- --
Supplemental Data:
Net assets, end of period (000 omitted)	$136,812		$117,435		$111,642		$106,555		$92,883
Portfolio turnover	22	%	25	%	35	%	30	%	18	%

1 Effective September 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share, or the net realized and unrealized gain (loss) on investments per share, but increased the ratio of net investment income to average net assets from 5.67% to 5.68%. Per share, ratios and supplemental data for the periods prior to August 31, 2002 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

Financial Highlights-Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.54		$9.73		$9.90		$9.77		$10.22
Income From Investment Operations:
Net investment income	0.48		0.49		0.47	1	0.47		0.49
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.18		(0.19	)	(0.17	) 1	0.16		(0.45	)
TOTAL FROM INVESTMENT OPERATIONS	0.66		0.30		0.30		0.63		0.04
Less Distributions:
Total distributions from net realized gain on investments	(0.49	)	(0.49	)	(0.47	)	(0.50	)	(0.49	)
Net Asset Value, End of Period	$9.71		$9.54		$9.73		$9.90		$ 9.77
Total Return 2	7.07	%	3.18	%	3.11	%	6.67	%	0.51	%
Ratios to Average Net Assets:
Expenses	1.81	%	1.82	%	1.83	%	1.84	%	1.84	%
Net investment income	4.96	%	5.12	%	4.94	% 1	4.94	%	4.99	%
Expense waiver/reimbursement 3	0.00	% 4	- --		- --		0.01	%	- --
Supplemental Data:
Net assets, end of period (000 omitted)	$120,205		$124,736		$107,348		$91,074		$71,512
Portfolio turnover	22	%	25	%	35	%	30	%	18	%

1 Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share, or the net realized and unrealized gain (loss) on investments per share, but increased the ratio of net investment income to average net assets from 4.93% to 4.94%. Per share, ratios and supplemental data for the periods prior to August 31, 2002 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

Financial Highlights - Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.54		$9.73		$9.90		$9.77		$10.22
Income From Investment Operations:
Net investment income	0.47		0.48		0.48	1	0.47		0.48
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.19		(0.18	)	(0.18	) 1	0.16		(0.44	)
TOTAL FROM INVESTMENT OPERATIONS	0.66		0.30		0.30		0.63		0.04
Less Distributions:
Distributions from net investment income	(0.49	)	(0.49	)	(0.47	)	(0.50	)	(0.49	)
Net Asset Value, End of Period	$9.71		$9.54		$9.73		$9.90		$ 9.77
Total Return 2	7.07	%	3.17	%	3.13	%	6.66	%	0.51	%
Ratios to Average Net Assets:
Expenses	1.81	%	1.82	%	1.83	%	1.84	%	1.84	%
Net investment income	4.96	%	5.12	%	4.93	% 1	4.94	%	4.99	%
Expense waiver/reimbursement 3	0.00	% 4	- --		- --		0.01	%	- --
Supplemental Data:
Net assets, end of period (000 omitted)	$25,646		$14,083		$10,220		$10,953		$8,858
Portfolio turnover	22	%	25	%	35	%	30	%	18	%

1 Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share, or the net realized and unrealized gain (loss) on investments per share, but increased the ratio of net investment income to average net assets from 4.92% to 4.93%. Per share, ratios and supplemental data for the periods prior to August 31, 2002 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

Financial Highlights - Class F Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004			2003			2002			2001			2000
Net Asset Value, Beginning of Period	$9.55			$9.73			$9.91			$9.78			$10.22
Income From Investment Operations:
Net investment income	0.55			0.57			0.55	1		0.55			0.56
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.17			(0.19	)		(0.19	) 1		0.15			(0.44	)
TOTAL FROM INVESTMENT OPERATIONS	0.72			0.38			0.36			0.70			0.12
Less Distributions:
Distributions from net investment income	(0.56	)		(0.56	)		(0.54	)		(0.57	)		(0.56	)
Net Asset Value, End of Period	$9.71			$9.55			$9.73			$9.91			$ 9.78
Total Return 2	7.77	%		4.06	%		3.79	%		7.48	%		1.37	%
Ratios to Average Net Assets:
Expenses	1.06	%		1.07	%		1.08	%		1.09	%		1.09	%
Net investment income	5.71	%		5.87	%		5.68	% 1		5.69	%		5.73	%
Expense waiver/reimbursement 3	0.00	% 4		- --			- --			0.01	%		- --
Supplemental Data:
Net assets, end of period (000 omitted)	$160,088		$167,097			$183,467			$197,154			$214,913
Portfolio turnover	22	%		25	%		35	%		30	%		18	%

1 Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share, or the net realized and unrealized gain (loss) on investments per share, but increased the ratio of net investment income to average net assets from 5.67% to 5.68%. Per share, ratios and supplemental data for the periods prior to August 31, 2002 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated October 31, 2004, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's website at www.federatedinvestors.com.

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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Investment Company Act File No. 811-4533

Federated
World-Class Investment Manager

Federated Municipal High Yield Advantage Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101

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G00570-03 (10/ 04)

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Federated is a registered mark of Federated Investors, Inc. 2004 (c)Federated Investors, Inc.

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FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.
(Formerly, Federated Municipal Opportunities Fund, Inc.)

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Statement of Additional Information

October 31, 2004

Class A Shares
Class B Shares
Class C Shares
Class F Shares

This Statement of Additional  Information  (SAI) is not a prospectus.  Read this
SAI in  conjunction  with the  prospectus  for  Federated  Municipal  High Yield
Advantage Fund, Inc. (Fund), dated October 31, 2004.

This SAI  incorporates  by  reference  the  Fund's  Annual  Report.  Obtain  the
prospectus or the Annual Report without charge by calling 1-800-341-7400.



Contents
How is the Fund Organized?.............................1
Securities in Which the Fund Invests...................1
What Do Shares Cost?...................................8
How is the Fund Sold?..................................9
Subaccounting Services................................11
Redemption in Kind....................................11
Account and Share Information.........................12
Tax Information.......................................12
Who Manages and Provides Services to the Fund?........12
How Does the Fund Measure Performance?................22
Who is Federated Investors, Inc.?.....................25
Financial Information.................................27
Investment Ratings....................................27
Addresses.............................................29


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HOW IS THE FUND ORGANIZED?

The Fund is a non-diversified  open-end,  management investment company that was
established  under the laws of the State of Maryland on November 26,  1986.  The
Fund  changed its name from  Federated  Municipal  Opportunities  Fund,  Inc. to
Federated Municipal High Yield Advantage Fund, Inc. on August 1, 2004.

The Board of Directors (the "Board") has  established  four classes of shares of
the Fund, known as Class A, Class B, Class C and Class F Shares  (Shares).  This
SAI relates to all classes of Shares. The Fund's investment adviser is Federated
Investment Management Company (Adviser).

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SECURITIES IN WHICH THE FUND INVESTS

The  principal  securities in which the Fund invests are described it the Fund's
prospectus. In pursuing its investment strategy, the Fund may also invest in the
following  securities  for any purpose that is  consistent  with its  investment
objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED-INCOME SECURITIES

Fixed-income securities pay interest,  dividends or distributions at a specified
rate.  The  rate  may  be a  fixed  percentage  of  the  principal  or  adjusted
periodically.  In addition, the issuer of a fixed-income security must repay the
principal amount of the security, normally within a specified time. Fixed-income
securities  provide more regular  income than equity  securities.  However,  the
returns on fixed-income securities are limited and normally do not increase with
the issuer's  earnings.  This limits the potential  appreciation of fixed-income
securities as compared to equity securities.

A  security's  yield  measures  the  annual  income  earned on a  security  as a
percentage of its price. A security's yield will increase or decrease  depending
upon whether it costs less (a discount) or more (a premium)  than the  principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount  or  premium  security  may change  based upon the
probability of an early redemption.  Securities with higher risks generally have
higher yields.

The following  describes the types of  fixed-income  securities,  in addition to
those listed in the prospectus, in which the Fund may invest:

Variable Rate Demand Instruments

Variable  rate demand  instruments  are tax exempt  securities  that require the
issuer or a third party,  such as a dealer or bank, to  repurchase  the security
for its face value upon demand.  The securities  also pay interest at a variable
rate  intended to cause the  securities  to trade at their face value.  The Fund
treats demand  instruments  as  short-term  securities,  because their  variable
interest rate adjusts in response to changes in market rates,  even though their
stated maturity may extend beyond 13 months.

Municipal Notes

Municipal notes are short-term tax exempt securities.  Many municipalities issue
such notes to fund their current  operations  before  collecting  taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long- term bonds. The issuers  typically repay the notes at the
end of their fiscal year,  either with taxes,  other  revenues or proceeds  from
newly issued notes or bonds.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest  its assets in  securities  of other  investment  companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

Derivative Contracts

Derivative contracts are financial  instruments that require payments based upon
changes in the values of designated  (or  underlying)  securities,  commodities,
currencies,  financial indices or other assets. Some derivative  contracts (such
as futures,  forwards and options) require  payments  relating to a future trade
involving the  underlying  asset.  Other  derivative  contracts  (such as swaps)
require  payments  relating to the income or returns from the underlying  asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges.  In
this case, the exchange sets all the terms of the contract except for the price.
Investors  make payments due under their  contracts  through the exchange.  Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange.  Parties to the contract make
(or collect) daily payments to the margin  accounts to reflect losses (or gains)
in the value of their  contracts.  This  protects  investors  against  potential
defaults by the  counterparty.  Trading  contracts  on an  exchange  also allows
investors to close out their contracts by entering into offsetting contracts.

For  example,  the Fund could  close out an open  contract  to buy an asset at a
future date by entering  into an  offsetting  contract to sell the same asset on
the same date. If the offsetting  sale price is more than the original  purchase
price,  the Fund  realizes  a gain;  if it is less,  the Fund  realizes  a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position.  If this  happens,  the
Fund will be required to keep the  contract  open (even if it is losing money on
the contract),  and to make any payments required under the contract (even if it
has to sell portfolio  securities at unfavorable  prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading  any assets it has been  using to secure  its  obligations  under the
contract.

The  Fund  may  also  trade  derivative  contracts   over-the-counter  (OTC)  in
transactions  negotiated  directly  between the Fund and the  counterparty.  OTC
contracts do not  necessarily  have standard  terms,  so they cannot be directly
offset  with  other  OTC  contracts.   In  addition,  OTC  contracts  with  more
specialized terms may be more difficult to price than exchange traded contracts.

Depending  upon how the Fund uses  derivative  contracts  and the  relationships
between the market value of a  derivative  contract  and the  underlying  asset,
derivative  contracts  may increase or decrease the Fund's  exposure to interest
rate risks,  and may also expose the Fund to liquidity and leverage  risks.  OTC
contracts  also expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

The Fund may trade in the following  types of derivative  contracts,  as well as
combinations  of these  contracts,  including,  but not limited  to,  options on
futures contracts, options on forward contracts and options on swaps.

Futures Contracts

Futures  contracts  provide  for the future  sale by one party and  purchase  by
another party of a specified amount of an underlying asset at a specified price,
date and time.  Entering into a contract to buy an underlying  asset is commonly
referred  to as buying a  contract  or  holding a long  position  in the  asset.
Entering into a contract to sell an underlying asset is commonly  referred to as
selling a contract or holding a short position in the asset.  Futures  contracts
are considered to be commodity contracts. The Fund has claimed an exclusion from
the  definition  of the term  "commodity  pool  operator"  under  the  Commodity
Exchange Act and,  therefore,  is not subject to registration or regulation as a
commodity  pool  operator  under  that Act.  Futures  contracts  traded  OTC are
frequently  referred  to as  forward  contracts.  The  Fund  may buy or sell the
following  types  of  contracts:  interest  rate  and  index  financial  futures
contracts.

Options

Options  are  rights  to buy or sell an  underlying  asset or  instrument  for a
specified  price (the  exercise  price)  during,  or at the end of, a  specified
period.  The seller (or  writer) of the option  receives a payment,  or premium,
from the buyer,  which the writer keeps regardless of whether the buyer uses (or
exercises)  the option.  Options can trade on exchanges or in the OTC market and
may be bought or sold on a wide  variety of  underlying  assets or  instruments,
including  financial  indices,   individual  securities,  and  other  derivative
instruments,  such as futures  contracts.  Options  that are  written on futures
contracts  will be subject to margin  requirements  similar to those  applied to
futures contracts.

Call Options

A call option  gives the holder  (buyer) the right to buy the  underlying  asset
from the seller  (writer)  of the option.  The Fund may use call  options in the
following ways:

o    Buy call  options on  indices,  individual  securities,  index  futures and
     financial  futures  in  anticipation  of an  increase  in the  value of the
     underlying asset or instrument; and

o    Write call  options on indices,  portfolio  securities,  index  futures and
     financial futures to generate income from premiums,  and in anticipation of
     a decrease or only limited  increase in the value of the underlying  asset.
     If a call written by the Fund is exercised,  the Fund foregoes any possible
     profit from an increase in the market  price of the  underlying  asset over
     the exercise price plus the premium received.

Put Options

A put  option  gives the holder  the right to sell the  underlying  asset to the
writer of the option. The Fund may use put options in the following ways:

o    Buy put  options on  indices,  individual  securities,  index  futures  and
     financial  futures  in  anticipation  of a  decrease  in the  value  of the
     underlying asset; and

o    Write put  options on  indices,  portfolio  securities,  index  futures and
     financial futures to generate income from premiums,  and in anticipation of
     an increase or only limited decrease in the value of the underlying  asset.
     In  writing  puts,  there is a risk that the Fund may be  required  to take
     delivery of the  underlying  asset when its current  market  price is lower
     than the exercise price.

o    The Fund may also buy or write  options,  as needed,  to close out existing
     option positions.

Swaps

Swaps are  contracts  in which two  parties  agree to pay each other  (swap) the
returns  derived from  underlying  assets with differing  characteristics.  Most
swaps do not involve the delivery of the underlying  assets by either party, and
the parties  might not own the assets  underlying  the swap.  The  payments  are
usually made on a net basis so that,  on any given day,  the Fund would  receive
(or pay) only the amount by which its  payment  under the  contract is less than
(or  exceeds)  the amount of the other  party's  payment.  Swap  agreements  are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors and collars. Common swap agreements that
the Fund may use include:

Interest Rate Swaps

Interest  rate swaps are  contracts  in which one party  agrees to make  regular
payments  equal to a fixed or floating  interest  rate times a stated  principal
amount of fixed income  securities,  in return for payments equal to a different
fixed or floating rate times the same principal  amount,  for a specific period.
For  example,  a $10 million  London  Interbank  Offer Rate  (LIBOR)  swap would
require one party to pay the  equivalent  of the LIBOR rate of  interest  (which
fluctuates) on $10 million principal amount in exchange for the right to receive
the  equivalent  of a stated  fixed rate of interest  on $10  million  principal
amount.

Total Rate of Return Swaps

Total  rate of return  swaps  are  contracts  in which one party  agrees to make
payments of the total  return from the  underlying  asset  during the  specified
period,  in return for payments equal to a fixed or floating rate of interest or
the total return from another underlying asset.

Caps And Floors

Caps and Floors are contracts in which one party agrees to make payments only if
an interest  rate or index goes above (Cap) or below  (Floor) a certain level in
return for a fee from the other party.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may make  temporary  defensive  investments  in the  following  taxable
securities:

Repurchase Agreements

Repurchase  agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the  security  back at a mutually  agreed-upon
time and price.  The  repurchase  price exceeds the sale price,  reflecting  the
Fund's return on the transaction.  This return is unrelated to the interest rate
on the underlying security.  The Fund will enter into repurchase agreements only
with  banks and other  recognized  financial  institutions,  such as  securities
dealers, deemed creditworthy by the Adviser.

The Fund's  custodian or  subcustodian  will take  possession of the  securities
subject to repurchase  agreements.  The Adviser or subcustodian will monitor the
value of the  underlying  security  each  day to  ensure  that the  value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities,  and agrees to repurchase them
at an agreed-upon time and price. A reverse  repurchase  agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition,  reverse repurchase  agreements create leverage risks
because the Fund must  repurchase  the  underlying  security at a higher  price,
regardless of the market value of the security at the time of repurchase.

Treasury Securities

Treasury  securities  are direct  obligations  of the federal  government of the
United States.

Bank Instruments

Bank  instruments  are unsecured  interest  bearing  deposits  with banks.  Bank
instruments  include bank accounts,  time deposits,  certificates of deposit and
banker's acceptances.

Agency Securities

Agency  securities  are  issued  or  guaranteed  by a  federal  agency  or other
government  sponsored  entity  (GSE) acting under  federal  authority.  Some GSE
securities  are  supported  by the full faith and  credit of the United  States.
These include the  Government  National  Mortgage  Association,  Small  Business
Administration,  Farm Credit System Financial Assistance  Corporation,  Farmer's
Home  Administration,  Federal Financing Bank, General Services  Administration,
Department  of  Housing  and Urban  Development,  Export-Import  Bank,  Overseas
Private  Investment  Corporation,   and  Washington  Metropolitan  Area  Transit
Authority Bonds.

Other GSE securities receive support through federal  subsidies,  loans or other
benefits.  For example,  the U.S.  Treasury is authorized to purchase  specified
amounts of  securities  issued by (or  otherwise  make funds  available  to) the
Federal Home Loan Bank System,  Federal Home Loan Mortgage Corporation,  Federal
National Mortgage Association, Student Loan Marketing Association, and Tennessee
Valley Authority in support of such obligations.

A few GSE securities  have no explicit  financial  support,  but are regarded as
having implied support because the federal government sponsors their activities.
These include the Farm Credit  System,  Financing  Corporation,  and  Resolution
Funding Corporation.

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities.

A Fund treats  mortgage-backed  securities  guaranteed  by a GSE as if issued or
guaranteed  by a federal  agency.  Although  such a guarantee  protects  against
credit risks, it does not reduce market and prepayment risks.

Corporate Debt Securities

Corporate debt  securities  are  fixed-income  securities  issued by businesses.
Notes,  bonds,  debentures and commercial  paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies.

Commercial Paper

Commercial  paper is an  issuer's  obligation  with a maturity of less than nine
months.   Companies   typically  issue  commercial  paper  to  pay  for  current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing  paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.

SPECIAL TRANSACTIONS

Inter-Fund Borrowing and Lending Arrangements

The  Securities  and Exchange  Commission  (SEC) has granted an  exemption  that
permits  the Fund and all other  funds  advised  by  subsidiaries  of  Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain temporary
purposes  directly  to and from other  Federated  funds.  Participation  in this
inter-fund lending program is voluntary for both borrowing and lending Federated
funds,  and an inter-fund  loan is only made if it benefits  each  participating
Federated fund.  Federated Investors,  Inc. (Federated)  administers the program
according to procedures approved by the Fund's Board, and the Board monitors the
operation  of  the  program.  Any  inter-fund  loan  must  comply  with  certain
conditions set out in the exemption,  which are designed to assure  fairness and
protect all participating Federated funds.

For  example,  inter-fund  lending  is  permitted  only (a) to meet  shareholder
redemption  requests,  and (b) to meet commitments arising from "failed" trades.
All  inter-fund  loans  must be  repaid  in  seven  days  or  less.  The  Fund's
participation  in this program must be consistent  with its investment  policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of  interest  to be  charged is more  attractive  to the
lending  Federated fund than  market-competitive  rates on overnight  repurchase
agreements (Repo Rate) and more attractive to the borrowing  Federated fund than
the  rate of  interest  that  would  be  charged  by an  unaffiliated  bank  for
short-term borrowings (Bank Loan Rate), as determined by the Board. The interest
rate  imposed on  inter-fund  loans is the average of the Repo Rate and the Bank
Loan Rate.

Asset Coverage

In order to secure its obligations in connection with  derivatives  contracts or
special  transactions,  including delayed delivery  transactions,  the Fund will
either own the underlying  assets,  enter into an offsetting  transaction or set
aside  readily  marketable  securities  with a value that  equals or exceeds the
Fund's  obligations.  Unless the Fund has other readily marketable assets to set
aside, it cannot trade assets used to secure such  obligations  without entering
into an offsetting  derivatives  contract or terminating a special  transaction.
This may cause the Fund to miss favorable  trading  opportunities  or to realize
losses on derivatives contracts or special transactions.

</R>

Investment Ratings

Investment Ratings for Investment Grade Securities

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more  nationally  recognized  statistical  rating
service (NRSRO).  For example,  Standard & Poor's, an NRSRO, assigns ratings
to investment  grade  securities (AAA, AA, A, and BBB) based on their assessment
of the  likelihood  of the  issuer's  inability  to pay  interest  or  principal
(default) when due on each security.  Lower credit ratings  correspond to higher
credit  risk.  If a  security  has not  received  a  rating,  the Fund must rely
entirely upon the Adviser's credit assessment that the security is comparable to
investment grade.

INVESTMENT RISKS

There are many factors which may affect an  investment  in the Fund.  The Fund's
principal  risks are described in its  prospectus.  Additional  risk factors are
outlined below.

Credit Risks

Fixed-income  securities  generally compensate for greater credit risk by paying
interest at a higher rate.  The  difference  between the yield of a security and
the yield of a AAA-rated general obligation  security or index with a comparable
maturity (the spread)  measures the additional  interest paid for risk.  Spreads
may increase generally in response to adverse economic or market  conditions.  A
security's spread may also increase if the security's rating is lowered,  or the
security is  perceived  to have an  increased  credit  risk.  An increase in the
spread will cause the price of the security to decline.

Credit risk includes the possibility that a party to a transaction involving the
Fund  will  fail to meet its  obligations.  This  could  cause  the Fund to lose
benefit of the  transaction  or prevent  the Fund from  selling or buying  other
securities to implement its investment strategy.

Tax Risks

In  order  to be  tax-exempt,  municipal  securities  must  meet  certain  legal
requirements.  Failure to meet such requirements may cause the interest received
and distributed by the Fund to  shareholders to be taxable.  Changes or proposed
changes in  federal  tax laws may cause the prices of  municipal  securities  to
fall.

The federal  income tax  treatment of payments in respect of certain  derivative
contracts  is  unclear.  Additionally,  the Fund  may not be able to  close  out
certain  derivative  contracts  when it  wants  to.  Consequently,  the Fund may
receive  payments  that are  treated as ordinary  income for federal  income tax
purposes.

Liquidity Risks

Liquidity risk also refers to the  possibility  that the Fund may not be able to
sell a security or close out a  derivatives  contract  when it wants to. If this
happens,  the Fund will be required to continue to hold the security or keep the
position  open,  and the Fund  could  incur  losses.  OTC  derivative  contracts
generally carry greater liquidity risk than exchange-traded contracts.

Leverage Risks

Leverage risk is created when an investment  exposes the Fund to a level of risk
that  exceeds the amount  invested.  Changes in the value of such an  investment
magnify the Fund's risk of loss and potential for gain.

Investments can have these same results if their returns are based on a multiple
of a specified index, security, or other benchmark.

<R>

Risks of Investing in Derivative Contracts

The Fund's  use of  derivative  contracts  involves  risks  different  from,  or
possibly  greater  than,  the  risks  associated  with  investing   directly  in
securities and other traditional investments. First, changes in the value of the
derivative  contracts  in which  the Fund  invests  may not be  correlated  with
changes in the value of the underlying asset or if they are correlated, may move
in the  opposite  direction  than  originally  anticipated.  Second,  while some
strategies  involving  derivatives  may reduce  the risk of loss,  they may also
reduce  potential  gains or,  in some  cases,  result  in  losses by  offsetting
favorable price  movements in portfolio  holdings.  Third,  there is a risk that
derivatives  contracts may be mispriced or  improperly  valued and, as a result,
the Fund may need to make increased cash payments to the counterparty.  Finally,
derivative  contracts may cause the Fund to realize increased ordinary income or
short-term  capital  gains  (which are  treated as  ordinary  income for Federal
income tax purposes) and, as a result,  may increase  taxable  distributions  to
shareholders.  Derivative  contracts may also involve  other risks  described in
this SAI, such as interest rate, credit, liquidity and leverage risks.

</R>

Fundamental Investment Objective and Policies

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.

The Fund will  invest  its  assets so that at least  80% of the  income  that it
distributes  will be  exempt  from  federal  regular  income  tax,  except  when
investing for "defensive" purposes.

The  investment  objective  and policy  may not be  changed by the Fund's  Board
without shareholder approval.

INVESTMENT LIMITATIONS

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.  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.

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

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.

The above  limitations  cannot be changed unless  authorized by the Board and by
the "vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act of 1940 (1940 Act). The following  limitations,  however,
may be changed by the Board without shareholder  approval.  Shareholders will be
notified before any material change in these limitations becomes effective.

Restricted Illiquid Securities

The Fund may invest in  restricted  securities.  Restricted  securities  are any
securities that are subject to  restrictions on resale under federal  securities
law. Under criteria established by the Directors,  certain restricted securities
are determined to be liquid.  To the extent that  restricted  securities are not
determined to be liquid, the Fund will limit their purchase, together with other
illiquid securities, to 15% of its net assets.

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."

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 limitation.

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.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

o    futures  contracts  and  options  are  generally  valued at  market  values
     established  by the  exchanges  on which  they are  traded  at the close of
     trading on such exchanges.  Options traded in the  over-the-counter  market
     are  generally  valued  according  to the mean between the last bid and the
     last asked  price for the option as  provided  by an  investment  dealer or
     other  financial  institution  that  deals in the  option.  The  Board  may
     determine in good faith that another method of valuing such  investments is
     necessary to appraise their fair market value;

o    for  fixed-income  securities,  according to the mean between bid and asked
     prices  as  furnished  by  an  independent  pricing  service,  except  that
     fixed-income  securities with remaining  maturities of less than 60 days at
     the time of purchase may be valued at amortized cost; and

o    for all other  securities at fair value as  determined  in accordance  with
     procedures established by and under the general supervision of the Board.

Prices  provided by  independent  pricing  services  may be  determined  without
relying exclusively on quoted prices and may consider  institutional  trading in
similar groups of securities,  yield,  quality,  stability,  risk,  coupon rate,
maturity,  type of issue,  trading  characteristics,  and other  market  data or
factors.  From time to time,  when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

<R>

WHAT DO SHARES COST?

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.

</R>

<R>

HOW IS THE FUND SOLD?

Under the  Distributor's  Contract  with the Fund,  the  Distributor  (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES

The Distributor  receives a front-end  sales charge on certain Share sales.  The
Distributor pays a portion of this charge to investment  professionals  that are
eligible to receive it (the  "Dealer  Reallowance")  and  retains any  remaining
portion of the front-end sales charge.

When an investment  professional's  customer  purchases  Shares,  the investment
professional may receive a Dealer Reallowance as follows:


- -------------------------------------------------------------------------

Class A Shares
                                        Dealer
                                     Reallowance
Purchase Amount                    as a Percentage
                                  of Public Offering
                                        Price
Less than $100,000                      4.00%
$100,000 but less than $250,000         3.25%
$250,000 but less than $500,000         2.25%
$500,000 but less than $1 million       1.80%
$1 million or greater                   0.00%



- -------------------------------------------------------------------------


Class C Shares
                                  Dealer Reallowance
                                  as a Percentage of
                                    Public Offering
                                         Price
All Purchase Amounts                     1.00%


- -------------------------------------------------------------------------

Class F Shares
                                         Dealer
                                      Reallowance
Purchase Amount                     as a Percentage
                                  of Public Offering
                                        Price
Less than $1 million                     1.00%
$1 million or greater                    0.00%


- -------------------------------------------------------------------------

ADVANCE COMMISSIONS

When an investment  professional's  customer  purchases  Shares,  the investment
professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)

                              Advance Commission
                              as a Percentage of
Purchase Amount                Public Offering
                                    Price

First $1 million - $5 million       0.75%
Next $5 million - $20 million       0.50%
Over $20 million                    0.25%

Advance  commissions  are  calculated  on a year by year basis  based on amounts
invested  during that year.  Accordingly,  with respect to  additional  purchase
amounts,  the  advance  commission  breakpoint  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 advance commission will be paid only
on those purchases that were not previously  subject to a front-end sales charge
or dealer advance  commission.  Certain retirement  accounts may not be eligible
for this program.

                                                  Advance Commission
                                                  as a Percentage of
Class B Shares                                     Public Offering
                                                        Price

All Purchase Amounts                                 Up to 5.50%
                                                  Advance Commission
                                                  as a Percentage of


- -------------------------------------------------------------------------


Class C Shares                                     Public Offering
                                                        Price

All Purchase Amounts                                    1.00%


- -------------------------------------------------------------------------


Class F Shares
                                                  Advance Commission
                                                  as a Percentage of
Purchase Amount                                    Public Offering
                                                        Price

Less than $2 million                                    1.00%
$2million -but less than $5 million                     0.50%
$5 million or greater                                   0.25%


- -------------------------------------------------------------------------

RULE 12B-1 PLAN

As a  compensation-type  plan,  the  Rule  12b-1  Plan  is  designed  to pay the
Distributor for activities  principally intended to result in the sale of Shares
such as advertising and marketing of Shares (including printing and distributing
prospectuses  and sales  literature to  prospective  shareholders  and financial
institutions)  and  providing  incentives to  investment  professionals  to sell
Shares.  The Plan is also designed to cover the cost of administrative  services
performed in conjunction with the sale of Shares, including, but not limited to,
shareholder services,  recordkeeping  services and educational services, as well
as the costs of implementing  and operating the Plan. The Rule 12b-1 Plan allows
the Distributor to contract with investment  professionals to perform activities
covered by the Plan.  The Rule 12b-1 Plan is  expected  to benefit the Fund in a
number of ways. For example,  it is anticipated that the Plan will help the Fund
attract and retain assets, thus providing cash for orderly portfolio  management
and Share  redemptions  and  possibly  helping  to  stabilize  or  reduce  other
operating expenses.

In addition,  the Plan is integral to the multiple class  structure of the Fund,
which  promotes the sale of Shares by providing a range of options to investors.
The Fund's  service  providers that receive  asset-based  fees also benefit from
stable or increasing Fund assets.

The Fund may compensate the Distributor  more or less than its actual  marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares,  the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the  marketing-related  expenses the
Distributor  has incurred.  Therefore,  it may take the  Distributor a number of
years to recoup these expenses.

Federated  and its  subsidiaries  may benefit from  arrangements  where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third  parties who have
provided  the  funds  to  make  advance   commission   payments  to   investment
professionals.

Additional Payments to Financial Institutions

The Distributor  may pay out of its own resources  amounts  (including  items of
material value) to certain financial institutions.  In some cases, such payments
may be made by, or funded from the resources of,  companies  affiliated with the
Distributor  (including  the Adviser).  While NASD  regulations  limit the sales
charges  that you may bear,  there are no limits with regard to the amounts that
the  Distributor  may pay out of its own resources.  In addition to the payments
which are  generally  described  herein  and in the  prospectus,  the  financial
institution  also may receive  payments under the Rule 12b-1 Plan and/or Service
Fees.

You can ask your financial  institution  for  information  about any payments it
receives from the Distributor or the Federated funds and any services provided.

The  following  examples   illustrate  the  types  of  instances  in  which  the
Distributor may make additional payments to financial institutions.

Supplemental Payments

The Distributor may make supplemental payments to certain financial institutions
that are  holders  or  dealers  of  record  for  accounts  in one or more of the
Federated  funds.  These  payments may be based on such factors as the number or
value of Shares the financial institution sells or may sell; the value of client
assets invested;  or the type and nature of services or support furnished by the
financial institution.

Processing Support Payments

The Distributor may make payments to financial  institutions that sell Federated
fund  shares  to  help  offset  their  costs   associated  with  client  account
maintenance support,  statement processing and transaction processing. The types
of payments that the Distributor may make under this category include payment of
ticket  charges on a per  transaction  basis;  payment of networking  fees;  and
payment  for  ancillary  services  such as  setting  up funds  on the  financial
institution's mutual fund trading system.

Retirement Plan Program Servicing Payments

The Distributor  may make payments to certain  financial  institutions  who sell
Federated fund shares through retirement plan programs. A financial  institution
may perform  retirement plan program services itself or may arrange with a third
party to perform  retirement plan program  services.  In addition to participant
recordkeeping,  reporting,  or transaction  processing,  retirement plan program
services  may  include   services   rendered  to  a  plan  in  connection   with
fund/investment  selection and  monitoring;  employee  enrollment and education;
plan balance rollover or separation, or other similar services.

Other Benefits to Financial Institutions

From time to time,  the  Distributor,  at its  expense,  may provide  additional
compensation  to  financial  institutions  that sell or arrange  for the sale of
Shares.  Such  compensation  may  include  financial   assistance  to  financial
institutions  that  enable  the  Distributor  to  participate  in or  present at
conferences  or  seminars,  sales or training  programs  for invited  employees,
client and investor events and other financial institution-sponsored events.

The  Distributor  also  may  hold or  sponsor,  at its  expense,  sales  events,
conferences  and  programs  for  employees  or  associated  persons of financial
institutions  and may pay the travel and  lodging  expenses  of  attendees.  The
Distributor  also may  provide,  at its  expense,  meals  and  entertainment  in
conjunction with meetings with financial institutions. Other compensation may be
offered to the extent not  prohibited by  applicable  laws,  regulations  or the
rules of any self-regulatory agency, such as the NASD.

</R>

SUBACCOUNTING SERVICES

Certain   investment   professionals  may  wish  to  use  the  transfer  agent's
subaccounting system to minimize their internal recordkeeping requirements.  The
transfer  agent may  charge a fee based on the level of  subaccounting  services
rendered.  Investment  professionals  holding  Shares  in a  fiduciary,  agency,
custodial or similar capacity may charge or pass through  subaccounting  fees as
part of or in addition to normal  trust or agency  account  fees.  They may also
charge fees for other  services  that may be related to the ownership of Shares.
This information should,  therefore, be read together with any agreement between
the customer and the investment  professional about the services  provided,  the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although  the Fund  intends to pay Share  redemptions  in cash,  it reserves the
right, as described  below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because  the Fund has  elected to be  governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share  redemptions  to any one  shareholder in cash
only up to the lesser of  $250,000 or 1% of the net assets  represented  by such
Share class during any 90-day period.

Any Share  redemption  payment  greater  than this  amount  will also be in cash
unless the Fund's Board  determines  that payment  should be in kind.  In such a
case,  the Fund will pay all or a portion of the remainder of the  redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio  securities  will be selected in a manner that the Fund's  Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption.  If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity  could receive less than the  redemption  value of the securities
and could incur certain transaction costs.

<R>

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director  elections and
other matters submitted to shareholders for vote.

All  Shares  of the Fund  have  equal  voting  rights,  except  that in  matters
affecting  only a  particular  class,  only Shares of that class are entitled to
vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special  meeting of  shareholders  will be called by the Board upon the  written
request of shareholders who own at least 10% of the Fund's outstanding Shares

As of October 1, 2004, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class A Shares:  Edward  Jones &  Co.,
Maryland Heights, MO, owned approximately 4,550,856 Shares (32.07%).

As of October 1, 2004, the following shareholders owned of record, beneficially,
or both, 5% or more of  outstanding  Class B Shares:  Citigroup  Global  Markets
Inc., New York, NY, owned approximately  1,017,643 Shares (8.20%);  Edward Jones
& Co., Maryland Heights, MO, owned approximately 1,066,715 Shares (8.59%).

As of October 1, 2004, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class C Shares:  Edward  Jones &  Co.,
Maryland Heights, MO, owned approximately  314,158 Shares (11.62%);  MLPF&S,
Jacksonville,  FL, owned approximately 315,442 Shares (11.67%); Citigroup Global
Markets Inc., New York, NY, owned approximately 408,862 Shares (15.12%).

As of October 1, 2004, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class F Shares:  Edward  Jones &  Co.,
Maryland Heights, MO, owned approximately 1,036,700 Shares (6.28%);  MLFP&S,
Jacksonville, FL, owned approximately 3,534,947 Shares (21.40%).

Shareholders  owning 25% or more of outstanding  Shares may be in control and be
able  to  affect  the  outcome  of  certain  matters  presented  for a  vote  of
shareholders.

Edward Jones & Co. is organized in the state of Missouri and is a subsidiary
of Edward D. Jones & Co., LP organized in the state of Missouri.

</R>

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet  requirements  of Subchapter M of the Internal  Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive  special tax  treatment  and will be subject to federal
corporate income tax.

The Fund is  entitled  to a loss  carry-forward,  which may reduce  the  taxable
income or gain that the Fund would realize,  and to which the shareholder  would
be subject, in the future.

<R>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is  responsible  for  managing  the Fund's  business  affairs  and for
exercising all the Fund's powers except those reserved for the shareholders. The
following  tables  give  information  about  each  Board  member  and the senior
officers of the Fund. Where required,  the tables  separately list Board members
who are "interested persons" of the Fund (i.e.,  "Interested" Board members) and
those who are not (i.e.,  "Independent" Board members).  Unless otherwise noted,
the address of each person  listed is Federated  Investors  Tower,  1001 Liberty
Avenue,  Pittsburgh,  PA. The Federated  Fund Complex  consists of 44 investment
companies  (comprising 136 portfolios).  Unless otherwise noted, each Officer is
elected  annually.  Unless  otherwise  noted,  each Board  member  oversees  all
portfolios in the Federated Fund Complex and serves for an indefinite term.

As of October 1, 2004,  the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B, C, F Shares.

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION


        Name                                              Aggregate
     Birth Date                                          Compensation       Total
      Address         Principal Occupation(s) for Past    From Fund     Compensation
Positions Held with    Five Years, Other Directorships      (past       From Fund and
        Fund            Held and Previous Position(s)    fiscal year)  Federated Fund
 Date Service Began                                                        Complex
                                                                       (past calendar
                                                                            year)

                      Principal Occupations: Chairman         $0             $0
John F. Donahue*      and Director or Trustee of the
Birth Date: July      Federated Fund Complex; Chairman
28, 1924              and Director, Federated
CHAIRMAN AND          Investors, Inc.
DIRECTOR
Began serving:        Previous Positions: Trustee,
November 1986         Federated Investment Management
                      Company and Chairman and
                      Director, Federated Investment
                      Counseling.

                      Principal Occupations: Principal        $0             $0
J. Christopher        Executive Officer and President
Donahue*              of the Federated Fund Complex;
Birth Date: April     Director or Trustee of some of
11, 1949              the Funds in the Federated Fund
PRESIDENT AND         Complex; President, Chief
DIRECTOR              Executive Officer and Director,
Began serving:        Federated Investors, Inc.;
November 1998         Chairman and Trustee, Federated
                      Investment Management Company;
                      Trustee, Federated Investment
                      Counseling; Chairman and
                      Director, Federated Global
                      Investment Management Corp.;
                      Chairman, Federated Equity
                      Management Company of
                      Pennsylvania, Passport Research,
                      Ltd. and Passport Research II,
                      Ltd.; Trustee, Federated
                      Shareholder Services Company;
                      Director, Federated Services
                      Company.

                      Previous Positions: President,
                      Federated Investment Counseling;
                      President and Chief Executive
                      Officer, Federated Investment
                      Management Company, Federated
                      Global Investment Management
                      Corp. and Passport Research, Ltd.

                      Principal Occupations: Director     $1,254.31       $148,500
Lawrence D. Ellis,    or Trustee of the Federated Fund
M.D.*                 Complex; Professor of Medicine,
Birth Date: October   University of Pittsburgh;
11, 1932              Medical Director, University of
3471 Fifth Avenue     Pittsburgh Medical Center
Suite 1111            Downtown; Hematologist,
Pittsburgh, PA        Oncologist and Internist,
DIRECTOR              University of Pittsburgh Medical
Began serving:        Center.
August 1987
                      Other Directorships Held:
                      Member, National Board of
                      Trustees, Leukemia Society of
                      America.

                      Previous Positions: Trustee,
                      University of Pittsburgh;
                      Director, University of
                      Pittsburgh Medical Center.

*    Family  relationships and reasons for "interested"  status: John F. Donahue
     is the father of J. Christopher  Donahue;  both are "interested" due to the
     positions they hold with Federated and its subsidiaries. Lawrence D. Ellis,
     M.D.  is  "interested"  because  his  son-in-law  is employed by the Fund's
     principal underwriter, Federated Securities Corp.


INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION


        Name
     Birth Date                                           Aggregate         Total
      Address         Principal Occupation(s) for Past   Compensation   Compensation
Positions Held with    Five Years, Other Directorships    From Fund     From Fund and
        Fund            Held and Previous Position(s)       (past      Federated Fund
 Date Service Began                                      fiscal year)      Complex
                                                                       (past calendar
                                                                            year)
                      Principal Occupation: Director      $1,379.73       $163,350
Thomas G. Bigley      or Trustee of the Federated Fund
Birth Date:           Complex.
February 3, 1934
15 Old Timber Trail   Other Directorships Held:
Pittsburgh, PA        Director, Member of Executive
DIRECTOR              Committee, Children's Hospital
Began serving:        of Pittsburgh; Director,
November 1994         University of Pittsburgh.

                      Previous Position: Senior
                      Partner, Ernst & Young LLP.

                      Principal Occupations: Director     $1,379.73       $163,350
John T. Conroy, Jr.   or Trustee of the Federated Fund
Birth Date: June      Complex; Chairman of the Board,
23, 1937              Investment Properties
Grubb &           Corporation; Partner or Trustee
Ellis/Investment      in private real estate ventures
Properties            in Southwest Florida.
Corporation
3838 North Tamiami    Previous Positions: President,
Trail                 Investment Properties
Suite 402             Corporation; Senior Vice
Naples, FL            President, John R. Wood and
DIRECTOR              Associates, Inc., Realtors;
Began serving:        President, Naples Property
August 1991           Management, Inc. and Northgate
                      Village Development Corporation.

                      Principal Occupation: Director      $1,379.73       $163,350
Nicholas P.           or Trustee of the Federated Fund
Constantakis          Complex.
Birth Date:
September 3, 1939     Other Directorships Held:
175 Woodshire Drive   Director and Member of the Audit
Pittsburgh, PA        Committee, Michael Baker
DIRECTOR              Corporation (engineering and
Began serving:        energy services worldwide).
November 1998
                      Previous Position: Partner,
                      Anderson Worldwide SC.

                      Principal Occupation: Director      $1,254.31       $148,500
John F. Cunningham    or Trustee of the Federated Fund
Birth Date: March     Complex.
5, 1943
353 El Brillo Way     Other Directorships Held:
Palm Beach, FL        Chairman, President and Chief
DIRECTOR              Executive Officer, Cunningham
Began serving:        & Co., Inc. (strategic
November 1998         business consulting); Trustee
                      Associate, Boston College.

                      Previous Positions: Director,
                      Redgate Communications and EMC
                      Corporation (computer storage
                      systems); Chairman of the Board
                      and Chief Executive Officer,
                      Computer Consoles, Inc.;
                      President and Chief Operating
                      Officer, Wang Laboratories;
                      Director, First National Bank of
                      Boston; Director, Apollo
                      Computer, Inc.

                      Principal Occupation: Director      $1,254.31       $148,500
Peter E. Madden       or Trustee of the Federated Fund
Birth Date: March     Complex; Management Consultant.
16, 1942
One Royal Palm Way    Other Directorships Held: Board
100 Royal Palm Way    of Overseers, Babson College.
Palm Beach, FL
DIRECTOR              Previous Positions:
Began serving:        Representative, Commonwealth of
August 1991           Massachusetts General Court;
                      President, State Street Bank and
                      Trust Company and State Street
                      Corporation (retired); Director,
                      VISA USA and VISA International;
                      Chairman and Director,
                      Massachusetts Bankers
                      Association; Director,
                      Depository Trust Corporation;
                      Director, The Boston Stock
                      Exchange.

                      Principal Occupations: Director     $1,379.73       $163,350
Charles F.            or Trustee of the Federated Fund
Mansfield, Jr.        Complex; Management Consultant;
Birth Date: April     Executive Vice President, DVC
10, 1945              Group, Inc. (marketing,
80 South Road         communications and technology)
Westhampton Beach,    (prior to 9/1/00).
NY
DIRECTOR              Previous Positions: Chief
Began serving:        Executive Officer, PBTC
November 1998         International Bank; Partner,
                      Arthur Young & Company (now
                      Ernst & Young LLP); Chief
                      Financial Officer of Retail
                      Banking Sector, Chase Manhattan
                      Bank; Senior Vice President,
                      HSBC Bank USA (formerly, Marine
                      Midland Bank); Vice President,
                      Citibank; Assistant Professor of
                      Banking and Finance, Frank G.
                      Zarb School of Business, Hofstra
                      University.

                      Principal Occupations: Director     $1,505.15       $178,200
John E. Murray,       or Trustee of the Federated Fund
Jr., J.D., S.J.D.     Complex; Chancellor and Law
Birth Date:           Professor, Duquesne University;
December 20, 1932     Partner, Murray, Hogue &
Chancellor,           Lannis.
Duquesne University
Pittsburgh, PA        Other Directorships Held:
DIRECTOR              Director, Michael Baker Corp.
Began serving:        (engineering, construction,
February 1995         operations and technical
                      services).

                      Previous Positions: President,
                      Duquesne University; Dean and
                      Professor of Law, University of
                      Pittsburgh School of Law; Dean
                      and Professor of Law, Villanova
                      University School of Law.

                      Principal Occupations:  Director    $1,254.31       $148,500
Marjorie P. Smuts     or Trustee of the Federated Fund
Birth Date: June      Complex; Public
21, 1935              Relations/Marketing
4905 Bayard Street    Consultant/Conference
Pittsburgh, PA        Coordinator.
DIRECTOR
Began serving:        Previous Positions: National
November 1986         Spokesperson, Aluminum Company
                      of America; television producer;
                      President, Marj Palmer Assoc.;
                      Owner, Scandia Bord.

                      Principal Occupations:  Director    $1,257.31       $148,500
John S. Walsh         or Trustee of the Federated Fund
Birth Date:           Complex; President and Director,
November 28, 1957     Heat Wagon, Inc. (manufacturer
2604 William Drive    of construction temporary
Valparaiso, IN        heaters); President and
DIRECTOR              Director, Manufacturers
Began serving:        Products, Inc. (distributor of
November 1998         portable construction heaters);
                      President, Portable Heater
                      Parts, a division of
                      Manufacturers Products, Inc.

                      Previous Position: Vice
                      President, Walsh & Kelly,
                      Inc.


OFFICERS**

Name
Birth Date
Address
Positions Held with Fund
Date Service Began            Principal Occupation(s) and Previous Position(s)

                              Principal Occupations: Executive Vice President and
John W. McGonigle             Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938  President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND  Inc.
SECRETARY
Began serving: January 1987   Previous Positions: Trustee, Federated Investment
                              Management Company and Federated Investment Counseling;
                              Director, Federated Global Investment Management Corp.,
                              Federated Services Company and Federated Securities
                              Corp.

                              Principal Occupations: Principal Financial Officer and
Richard J. Thomas             Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954     President, Federated Administrative Services.
TREASURER
Began serving: November 1998  Previous Positions: Vice President, Federated
                              Administrative Services; held various management
                              positions within Funds Financial Services Division of
                              Federated Investors, Inc.

                              Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher             of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923      Vice Chairman, Federated Investors, Inc.; Chairman,
VICE CHAIRMAN                 Federated Securities Corp.
Began serving: August 2002
                              Previous Positions: President and Director or Trustee
                              of some of the Funds in the Federated Fund Complex;
                              Executive Vice President, Federated Investors, Inc. and
                              Director and Chief Executive Officer, Federated
                              Securities Corp.


Mary Jo Ochson                --------------------------------------------------------
Birth Date: September 12,     Principal Occupations:  Mary Jo Ochson has been the
1953                          Fund's Portfolio Manager since May 1996.  Ms. Ochson
CHIEF INVESTMENT OFFICER AND  was named Chief Investment Officer of tax-exempt
VICE PRESIDENT                fixed-income products in 2004 and is  a Vice President
Began serving: November 1998  of the Fund. She joined Federated in 1982 and has been
                              a Senior Portfolio Manager and a Senior Vice President
                              of the Fund's Adviser since 1996.  Ms. Ochson is a
                              Chartered Financial Analyst and received her M.B.A. in
                              Finance from the University of Pittsburgh.

**   Officers do not receive any compensation  from the Fund. Thomas R. Donahue,
     Chief Financial Officer, Vice President,  Treasurer and Assistant Secretary
     of  Federated  and an  officer of its  various  advisory  and  underwriting
     subsidiaries,  has  served as a Term  Member on the Board of  Directors  of
     Duquesne University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John
     E. Murray, Jr., an Independent Director of the Fund, served as President of
     Duquesne from 1988 until his  retirement  from that  position in 2001,  and
     became  Chancellor  of Duquesne on August 15, 2001. It should be noted that
     Mr. Donahue abstains on any matter that comes before  Duquesne's Board that
     affects Mr. Murray personally.


COMMITTEES OF THE BOARD
                                                                           Meetings
Board     Committee                                                        Held
Committee Members             Committee Functions                          During
                                                                           Last
                                                                           Fiscal
                                                                           Year

Executive                     In between meetings of the full Board,         Seven
          John F. Donahue     the Executive Committee generally may
          John E. Murray,     exercise all the powers of the full Board
          Jr., J.D., S.J.D.   in the management and direction of the
                              business and conduct of the affairs of
                              the Corporation in such manner as the
                              Executive Committee shall deem to be in
                              the best interests of the Corporation.
                              However, the Executive Committee cannot
                              elect or remove Board members, increase
                              or decrease the number of Directors,
                              elect or remove any Officer, declare
                              dividends, issue shares or recommend to
                              shareholders any action requiring
                              shareholder approval.

Audit                         The purposes of the Audit Committee are         Six
          Thomas G. Bigley    to oversee the accounting and financial
          John T. Conroy,     reporting process of the Fund, the Fund`s
          Jr.                 internal control over financial
          Nicholas P.         reporting, and the quality, integrity and
          Constantakis        independent audit of the Fund `s
          Charles F.          financial statements.  The Committee also
          Mansfield, Jr.      oversees or assists the Board with the
                              oversight of compliance with legal
                              requirements relating to those matters,
                              approves the engagement and reviews the
                              qualifications, independence and
                              performance of the Fund`s independent
                              registered public accounting firm, acts
                              as a liaison between the independent
                              registered public accounting firm and the
                              Board and reviews the Fund`s internal
                              audit function.

Nominating                                                                    One
          Thomas G. Bigley    The Nominating Committee, whose members
          John T. Conroy, Jr. consist of all Independent  Directors,
                              selects and nominates persons for
          Nicholas P.         election to the Fund`s Board when
          Constantakis        vacancies occur. The Committee will
          John F.             consider candidates recommended by
          Cunningham          shareholders, Independent Directors,
          Peter E. Madden     officers or employees of any of the
          Charles F.          Fund`s agents or service providers and
          Mansfield, Jr.      counsel to the Fund. Any shareholder who
          John E. Murray,     desires to have an individual considered
          Jr.                 for nomination by the Committee must
          Marjorie P. Smuts   submit a recommendation in writing to the
          John S. Walsh       Secretary of the Fund, at the Fund's
                              address appearing on the back cover of
                              this Statement of Additional Information.
                              The recommendation should include the
                              name and address of both the shareholder
                              and the candidate and detailed
                              information concerning the candidate's
                              qualifications and experience. In
                              identifying and evaluating candidates for
                              consideration, the Committee shall
                              consider such factors as it deems
                              appropriate.  Those factors will
                              ordinarily include:  integrity,
                              intelligence, collegiality, judgment,
                              diversity, skill, business and other
                              experience, qualification as an
                              "Independent Director," the existence of
                              material relationships which may create
                              the appearance of a lack of independence,
                              financial or accounting knowledge and
                              experience, and dedication and
                              willingness to devote the time and
                              attention necessary to fulfill Board
                              responsibilities.


Board ownership of shares in the fund and in the federated family of
Investment companies AS OF DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------
                                                                                    Aggregate
                                                                              Dollar Range of
                                               Dollar Range of                Shares Owned in
Interested                                        Shares Owned            Federated Family of
Board Member Name                                      in Fund           Investment Companies
John F. Donahue                                           None                  Over $100,000
J. Christopher Donahue                                    None                  Over $100,000
Lawrence D. Ellis, M.D.                           $1 - $10,000                  Over $100,000

Independent
Board Member Name

Thomas G. Bigley                                          None                  Over $100,000
John T. Conroy, Jr.                                       None                  Over $100,000
Nicholas P. Constantakis                                  None                  Over $100,000
John F. Cunningham                                        None                  Over $100,000
Peter E. Madden                                           None                  Over $100,000
Charles F. Mansfield, Jr.                                 None             $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D.                         None                  Over $100,000
Marjorie P. Smuts                                         None                  Over $100,000
John S. Walsh                                     $1 - $10,000                  Over $100,000

</R>
- ---------------------------------------------------------------------------------------------

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment  decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The  Adviser  shall not be liable  to the Fund or any Fund  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.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's investment
advisory  contract.  The Board's  decision to approve the contract  reflects the
exercise  of  its  business   judgment  on  whether  to  continue  the  existing
arrangements.  During  its  review of the  contract,  the Board  considers  many
factors,  among the most material of which are: the Fund's investment objectives
and long term performance;  the Adviser's management  philosophy,  personnel and
processes;  the preferences  and  expectations  of Fund  shareholders  and their
relative sophistication;  the continuing state of competition in the mutual fund
industry;  comparable fees in the mutual fund industry; the range and quality of
services provided to the Fund and its shareholders by the Federated organization
in addition to investment advisory services;  and the Fund's relationship to the
Federated funds.

In  assessing  the  Adviser's  performance  of its  obligations,  the Board also
considers  whether  there  has  occurred  a  circumstance  or event  that  would
constitute  a reason for it to not renew an advisory  contract.  In this regard,
the Board is mindful of the potential  disruptions of the Fund's  operations and
various risks, uncertainties and other effects that could occur as a result of a
decision to  terminate or not renew an advisory  contract.  In  particular,  the
Board  recognizes  that  most  shareholders  have  invested  in the  Fund on the
strength  of  the  Adviser's   industry  standing  and  reputation  and  in  the
expectation  that the Adviser will have a continuing role in providing  advisory
services to the Fund.

The Board also considers the compensation and benefits  received by the Adviser.
This includes fees received for services  provided to the Fund by other entities
in the Federated organization and research services received by the Adviser from
brokers that execute fund trades, as well as advisory fees. In this regard,  the
Board is aware that various courts have  interpreted  provisions of the 1940 Act
and have indicated in their decisions that the following factors may be relevant
to an Adviser's compensation: the nature and quality of the services provided by
the Adviser,  including  the  performance  of the Fund;  the  Adviser's  cost of
providing the services;  the extent to which the Adviser may realize  "economies
of scale" as the Fund grows larger; any indirect benefits that may accrue to the
Adviser and its  affiliates as a result of the Adviser's  relationship  with the
Fund;  performance and expenses of comparable funds; and the extent to which the
independent  Board  members are fully  informed  about all facts  bearing on the
Adviser's  service and fee. The Fund's Board is aware of these factors and takes
them into account in its review of the Fund's advisory contract.

The Board considers and weighs these  circumstances  in light of its substantial
accumulated  experience  in  governing  the Fund and working  with  Federated on
matters relating to the Federated funds, and is assisted in its deliberations by
the advice of independent legal counsel.  In this regard, the Board requests and
receives a significant  amount of  information  about the Fund and the Federated
organization.  Federated  provides  much of  this  information  at each  regular
meeting of the Board,  and furnishes  additional  reports in connection with the
particular  meeting at which the Board's formal review of the advisory contracts
occurs.  In  between  regularly  scheduled  meetings,   the  Board  may  receive
information  on  particular  matters  as the  need  arises.  Thus,  the  Board's
evaluation of an advisory  contract is informed by reports covering such matters
as: the Adviser's investment philosophy,  personnel,  and processes;  the Fund's
short- and long-term  performance  (in absolute terms as well as in relationship
to its  particular  investment  program and certain  competitor  or "peer group"
funds),  and  comments  on the  reasons  for  performance;  the Fund's  expenses
(including  the  advisory  fee itself and the overall  expense  structure of the
Fund,  both in absolute  terms and relative to similar and/or  competing  funds,
with due regard for contractual or voluntary expense  limitations);  the use and
allocation of brokerage  commissions  derived from trading the Fund's  portfolio
securities; the nature and extent of the advisory and other services provided to
the  Fund by the  Adviser  and its  affiliates;  compliance  and  audit  reports
concerning  the Federated  funds and the Federated  companies that service them;
and relevant  developments  in the mutual fund  industry  and how the  Federated
funds and/or Federated are responding to them.

The Board also receives financial information about Federated, including reports
on the compensation and benefits  Federated derives from its relationships  with
the  Federated  funds.  These reports cover not only the fees under the advisory
contracts,  but also fees  received by  Federated's  subsidiaries  for providing
other  services to the  Federated  funds under  separate  contracts  (e.g.,  for
serving as the  Federated  funds'  administrator).  The reports also discuss any
indirect benefit Federated may derive from its receipt of research services from
brokers who execute Federated fund trades.

The Board bases its decision to approve an advisory  contract on the totality of
the  circumstances  and  relevant  factors,  and with a view to past and  future
long-term  considerations.  Not all of the factors and considerations identified
above are relevant to every  Federated fund, nor does the Board consider any one
of them to be  determinative.  Because the  totality of  circumstances  includes
considering the relationship of each Federated fund, the Board does not approach
consideration  of every Federated  fund's advisory  contract as if that were the
only Federated fund.

Services Agreement

Federated  Advisory  Services  Company,  an affiliate  of the Adviser,  provides
certain support  services to the Adviser.  The fee for these services is paid by
the Adviser and not by the Fund.

Other Related Services

Affiliates of the Adviser may,  from time to time,  provide  certain  electronic
equipment and software to  institutional  customers in order to  facilitate  the
purchase of Fund Shares offered by the Distributor.

Code of Ethics Restrictions on Personal Trading

As  required by SEC rules,  the Fund,  its  Adviser,  and its  Distributor  have
adopted codes of ethics.  These codes govern  securities  trading  activities of
investment personnel, Fund Directors, and certain other employees. Although they
do permit these  people to trade in  securities,  including  those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its  shareholders  from abuses in this area,  such as requirements to obtain
prior approval for, and to report, particular transactions.

<R>

Voting Proxies on Fund Portfolio Securities

The  Board  has  delegated  to the  Adviser  authority  to vote  proxies  on the
securities  held in the  Fund's  portfolio.  The  Board  has also  approved  the
Adviser's  policies and procedures  for voting the proxies,  which are described
below.

Proxy Voting Policies

The Adviser's  general  policy is to cast proxy votes in favor of proposals that
the Adviser anticipates will enhance the long-term value of the securities being
voted. Generally,  this will mean voting for proposals that the Adviser believes
will: improve the management of a company; increase the rights or preferences of
the voted  securities;  and/or increase the chance that a premium offer would be
made for the company or for the voted securities.

The  following  examples  illustrate  how these  general  policies  may apply to
proposals  submitted by a company's  board of  directors.  However,  whether the
Adviser  supports  or  opposes a proposal  will  always  depend on the  specific
circumstances described in the proxy statement and other available information.

On  matters  of  corporate  governance,  generally  the  Adviser  will  vote for
proposals to:  require  independent  tabulation of proxies  and/or  confidential
voting by  shareholders;  reorganize  in another  jurisdiction  (unless it would
reduce the rights or preferences of the  securities  being voted);  and repeal a
shareholder  rights  plan (also  known as a "poison  pill").  The  Adviser  will
generally  vote against the adoption of such a plan (unless the plan is designed
to facilitate, rather than prevent, unsolicited offers for the company).

On  matters of capital  structure,  generally  the  Adviser  will vote:  against
proposals  to  authorize  or issue  shares that are senior in priority or voting
rights to the securities being voted;  for proposals to grant preemptive  rights
to  the  securities  being  voted;  and  against  proposals  to  eliminate  such
preemptive rights.

On matters relating to management compensation, generally the Adviser will vote:
for  stock  incentive  plans  that  align  the  recipients'  interests  with the
interests of shareholders without creating undue dilution; and against proposals
that would permit the amendment or replacement of outstanding  stock  incentives
with new stock incentives having more favorable terms.

On matters  relating to  corporate  transactions,  the Adviser will vote proxies
relating to proposed mergers, capital reorganizations,  and similar transactions
in accordance with the general  policy,  based upon its analysis of the proposed
transaction.  The Adviser will vote proxies in contested  elections of directors
in accordance with the general  policy,  based upon its analysis of the opposing
slates and their respective proposed business strategies.  Some transactions may
also involve proposed  changes to the company's  corporate  governance,  capital
structure  or  management  compensation.  The Adviser  will vote on such changes
based on its evaluation of the proposed  transaction or contested  election.  In
these  circumstances,  the Adviser may vote in a manner  contrary to the general
practice  for  similar  proposals  made  outside  the context of such a proposed
transaction or change in the board. For example,  if the Adviser decides to vote
against  a  proposed  transaction,   it  may  vote  for  anti-takeover  measures
reasonably  designed  to  prevent  the  transaction,  even  though  the  Adviser
typically votes against such measures in other contexts.

The Adviser generally votes against proposals submitted by shareholders  without
the favorable  recommendation  of a company's board. The Adviser believes that a
company's board should manage its business and policies,  and that  shareholders
who seek specific changes should strive to convince the board of their merits or
seek direct representation on the board.

In addition, the Adviser will not vote if it determines that the consequences or
costs outweigh the potential benefit of voting. For example, if a foreign market
requires  shareholders  casting  proxies  to retain the voted  shares  until the
meeting date (thereby  rendering the shares "illiquid" for some period of time),
the Adviser will not vote proxies for such shares.

Proxy Voting Procedures

The Adviser has  established  a Proxy Voting  Committee  (Proxy  Committee),  to
exercise all voting discretion granted to the Adviser by the Board in accordance
with the proxy voting  policies.  The Adviser has hired Investor  Responsibility
Research  Center (IRRC) to obtain,  vote, and record proxies in accordance  with
the Proxy Committee's  directions.  The Proxy Committee directs IRRC by means of
Proxy  Voting  Guidelines,  and IRRC may vote any proxy as directed in the Proxy
Voting  Guidelines  without further  direction from the Proxy Committee (and may
make any  determinations  required to implement  the Proxy  Voting  Guidelines).
However,  if the Proxy Voting Guidelines  require  case-by-case  direction for a
proposal, IRRC will provide the Proxy Committee with all information that it has
obtained  regarding the proposal and the Proxy  Committee will provide  specific
direction to IRRC. The Adviser's proxy voting  procedures  generally  permit the
Proxy Committee to amend the Proxy Voting Guidelines, or override the directions
provided in such Guidelines,  whenever necessary to comply with the proxy voting
policies.

Conflicts of Interest

The Adviser has adopted procedures to address situations where a matter on which
a proxy is sought may present a potential  conflict between the interests of the
Fund (and its  shareholders)  and those of the Adviser or Distributor.  This may
occur where a significant  business  relationship exists between the Adviser (or
its  affiliates)  and a company  involved with a proxy vote. A company that is a
proponent,  opponent, or the subject of a proxy vote, and which to the knowledge
of the Proxy Committee has this type of significant  business  relationship,  is
referred to as an "Interested Company."

The Adviser has implemented the following  procedures in order to avoid concerns
that the conflicting  interests of the Adviser have influenced  proxy votes. Any
employee of the Adviser who is  contacted  by an  Interested  Company  regarding
proxies to be voted by the Adviser must refer the Interested Company to a member
of the Proxy  Committee,  and must inform the Interested  Company that the Proxy
Committee  has exclusive  authority to determine how the Adviser will vote.  Any
Proxy Committee member contacted by an Interested  Company must report it to the
full Proxy Committee and provide a written summary of the  communication.  Under
no  circumstances  will the Proxy Committee or any member of the Proxy Committee
make a commitment  to an Interested  Company  regarding the voting of proxies or
disclose to an  Interested  Company how the Proxy  Committee  has directed  such
proxies to be voted. If the Proxy Voting  Guidelines  already  provide  specific
direction on the proposal in question,  the Proxy  Committee  shall not alter or
amend  such  directions.  If the  Proxy  Voting  Guidelines  require  the  Proxy
Committee  to provide  further  direction,  the Proxy  Committee  shall do so in
accordance with the proxy voting  policies,  without regard for the interests of
the Adviser  with  respect to the  Interested  Company.  If the Proxy  Committee
provides  any  direction  as to the  voting of  proxies  relating  to a proposal
affecting  an  Interested   Company,  it  must  disclose  to  the  Fund's  Board
information  regarding:  the  significant  business  relationship;  any material
communication with the Interested Company;  the matter(s) voted on; and how, and
why, the Adviser voted as it did.

If the Fund holds shares of another investment company for which the Adviser (or
an affiliate) acts as an investment  adviser,  the Proxy Committee will vote the
Fund's proxies in the same proportion as the votes cast by shareholders  who are
not  clients  of the  Adviser  at  any  shareholders'  meeting  called  by  such
investment company, unless otherwise directed by the Board.

Proxy Voting Report

A report on "Form N-PX" of how the Fund voted any proxies during the most recent
12-month period ended June 30 is available through Federated's Internet site. Go
to www.federatedinvestors.com;  select "Products;" select the Fund; then use the
link to "Prospectuses and Regulatory Reports" to access the link to Form N-PX.

</R>

BROKERAGE TRANSACTIONS

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.  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 review by the Fund's
Board.

Investment  decisions  for the Fund are made  independently  from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests  in,  or  disposes  of,  the same  security,  available  investments  or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner  believed  by the Adviser to be  equitable.  While the  coordination  and
ability to  participate  in volume  transactions  may  benefit  the Fund,  it is
possible that this procedure could  adversely  impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated  Administrative  Services  (FAS), a subsidiary of Federated,  provides
administrative  personnel  and services  (including  certain legal and financial
reporting  services)  necessary to operate the Fund.  FAS provides  these at the
following annual rate of the average aggregate daily net assets of all Federated
funds as specified below:

                                     Average Aggregate Daily
Maximum Administrative Fee         Net Assets of the Federated
                                              Funds
        0.150 of 1%                  on the first $5 billion
        0.125 of 1%                  on the next $5 billion
        0.100 of 1%                  on the next $10 billion
        0.075 of 1%                on assets over $20 billion

The  administrative  fee  received  during  any  fiscal  year  shall be at least
$150,000 per portfolio and $40,000 per each additional class of Shares.  FAS may
voluntarily waive a portion of its fee and may reimburse the Fund for expenses.

FAS also provides certain accounting and recordkeeping  services with respect to
the  Fund's  portfolio   investments  for  a  fee  based  on  Fund  assets  plus
out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

State  Street Bank and Trust  Company,  the Fund's  registered  transfer  agent,
maintains all necessary shareholder records.

<R>

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The independent  registered  public  accounting  firm for the Fund,  Ernst &
Young LLP,  conducts its audits in  accordance  with the standards of the Public
Company Accounting Oversight Board (United States), which require it to plan and
perform  its audits to provide  reasonable  assurance  about  whether the Fund's
financial statements and financial highlights are free of material misstatement.

</R>

<R>

FEES PAID BY THE FUND FOR SERVICES
For the Year Ended August
31                                     2004                 2003               2002
Advisory Fee Earned                 $2,630,005           $2,522,111         $2,421,823
Advisory Fee Reduction                  0                     0                 0
Administrative Fee                   333,300               316,105           303,603
12b-1 Fee:
 Class A Shares                                              --                 --
 Class B Shares                      941,114                 --                 --
 Class C Shares                      151,410                 --                 --
 Class F Shares                         0                    --                 --
Shareholder Services Fee:
  Class A Shares                     319,695                 --                 --
  Class B Shares                     313,705                 --                 --
  Class C Shares                      50,470                 --                 --
  Class F Shares                     411,966                 --                 --

Fees are  allocated  among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder  services fees, which are
borne only by the applicable class of Shares.

</R>

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard methods for
calculating  performance  applicable to all mutual  funds.  The SEC also permits
this  standard  performance   information  to  be  accompanied  by  non-standard
performance information.

Share performance reflects the effect of non-recurring  charges, such as maximum
sales charges,  which,  if excluded,  would increase the total return and yield.
The  performance of Shares depends upon such  variables as:  portfolio  quality;
average portfolio maturity;  type and value of portfolio securities;  changes in
interest  rates;  changes or  differences  in the Fund's or any class of Shares'
expenses; and various other factors.

Share  performance  fluctuates  on a daily basis  largely  because net  earnings
and/or the value of portfolio  holdings  fluctuate daily.  Both net earnings and
offering  price per  Share are  factors  in the  computation  of yield and total
return.

<R>

Average Annual Total Returns and Yield

Total  returns are given for the  one-year,  five-year  and ten-year or Start of
Performance periods ended August 31, 2004.

Yield and Tax-Equivalent  Yield are given for the 30-day period ended August 31,
2004.

                                                                                Start of
                                                                             Performance on
                         30-Day Period         1 Year        5 Years            8/5/1996
Class A Shares:
Total Return
  Before Taxes                N/A               2.92%         3.91%              4.15%
  After Taxes on              N/A               2.92%         3.91%              4.15%
  Distributions
  After Taxes on
  Distributions and           N/A               3.92%         4.14%              4.33%
  Sale of Shares
Yield                        4.83%               N/A           N/A                N/A
Tax-Equivalent Yield         7.43%               N/A           N/A                N/A
- ----------------------------------------------------------------------------------------------


                                                                                Start of
                                                                             Performance on
                         30-Day Period         1 Year         5 Years           8/5/1996
Class B Shares:
Total Return
  Before Taxes                N/A              1.57%           3.76%             3.97%
  After Taxes on              N/A              1.57%           3.76%             3.97%
  Distributions
  After Taxes on
  Distributions and           N/A              2.87%           3.93%             4.09%
  Sale of Shares
Yield                        4.31%              N/A             N/A               N/A
Tax-Equivalent Yield         6.63%              N/A             N/A               N/A
- ----------------------------------------------------------------------------------------------


                                                                                Start of
                                                                             Performance on
                         30-Day Period         1 Year         5 Years           8/5/1996
Class C Shares:
Total Return
  Before Taxes                N/A               4.97%          3.88%             3.83%
  After Taxes on              N/A               4.97%          3.88%             3.83%
  Distributions
  After Taxes on
  Distributions and           N/A               5.06%          4.03%             3.97%
  Sale of Shares
Yield                        4.27%               N/A            N/A               N/A
Tax-Equivalent Yield         6.57%               N/A            N/A               N/A
- ----------------------------------------------------------------------------------------------


                          30-Day            1 Year         5 Years        10 Years
                          Period
Class F Shares:
Total Return
  Before Taxes             N/A              5.66%           4.66%           4.83%
  After Taxes on           N./A             5.66%           4.66%           4.83%
  Distributions
  After Taxes on
  Distributions and        N/A              5.78%           4.81%           4.95%
  Sale of Shares
Yield                     5.01%              N/A             N/A             N/A
Tax-Equivalent Yield      7.71%              N/A             N/A             N/A
- -------------------------------------------------------------------------------------

</R>

TOTAL RETURN

Total return  represents the change  (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average  annual  total return for Shares is the average  compounded  rate of
return for a given period that would equate a $10,000 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 NAV 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 $10,000,  less any  applicable  sales charge,  adjusted over the
period  by any  additional  Shares,  assuming  the  annual  reinvestment  of all
dividends and distributions.

Total  returns  after  taxes are  calculated  in a similar  manner,  but reflect
additional standard assumptions required by the SEC.

YIELD AND TAX-EQUIVALENT YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day  period;  by (ii) the maximum  offering
price per Share on the last day of the period.  This  number is then  annualized
using  semi-annual  compounding.  This means that the amount of income generated
during the 30-day  period is assumed to be generated  each month over a 12-month
period and is reinvested every six months. 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 the  actual  yield,  assuming  the
maximum combined federal and state tax rate. The yield and tax-equivalent  yield
do not  necessarily  reflect income actually earned by 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  investment  professionals  and  broker/dealers  charge  fees  in
connection with services  provided in conjunction  with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

<R>

TAX EQUIVALENCY TABLE

Set  forth  below is a sample  of a  tax-equivalency  table  that may be used in
advertising and sales literature.  This table is for illustrative  purposes only
and is not  representative  of past  or  future  performance  of the  Fund.  The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from  federal  regular  income  tax and is often  free from state and local
taxes as well. However,  some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.

Taxable Yield Equivalent for 2004 Multistate Municipal Fund
Tax Bracket:

Federal             10.00%      15.00%      25.00%      28.00%      33.00%      35.00%
Joint Return:           $0-    $14,001-    $56,801-   $114,651-   $174,701-       Over
                   $14,000     $56,800    $114,650    $174,700    $311,950    $311,950

Single Return:          $0-     $7,001-    $28,401-    $68,801-   $143,501-       Over
                    $7,000     $28,400     $68,800    $143,500    $311,950    $311,950

Tax-Exempt                             Taxable Yield Equivalent
Yield

0.50%                0.56%       0.59%       0.67%       0.69%       0.75%       0.77%
1.00%                1.11%       1.18%       1.33%       1.39%       1.49%       1.54%
1.50%                1.67%       1.76%       2.00%       2.08%       2.24%       2.31%
2.00%                2.22%       2.35%       2.67%       2.78%       2.99%       3.08%
2.50%                2.78%       2.94%       3.33%       3.47%       3.73%       3.85%
3.00%                3.33%       3.53%       4.00%       4.17%       4.48%       4.62%
3.50%                3.89%       4.12%       4.67%       4.86%       5.22%       5.38%
4.00%                4.44%       4.71%       5.33%       5.56%       5.97%       6.15%
4.50%                5.00%       5.29%       6.00%       6.25%       6.72%       6.92%
5.00%                5.56%       5.88%       6.67%       6.94%       7.46%       7.69%
5.50%                6.11%       6.47%       7.33%       7.64%       8.21%       8.46%
6.00%                6.67%       7.06%       8.00%       8.33%       8.96%       9.23%
6.50%                7.22%       7.65%       8.67%       9.03%       9.70%      10.00%
7.00%                7.78%       8.24%       9.33%       9.72%      10.45%      10.77%
7.50%                8.33%       8.82%      10.00%      10.42%      11.19%      11.54%
8.00%                8.89%       9.41%      10.67%      11.11%      11.94%      12.31%
8.50%                9.44%      10.00%      11.33%      11.81%      12.69%      13.08%
9.00%               10.00%      10.59%      12.00%      12.50%      13.43%      13.85%
9.50%               10.56%      11.18%      12.67%      13.19%      14.18%      14.62%
10.00%              11.11%      11.76%      13.33%      13.89%      14.93%      15.38%
10.50%              11.67%      12.35%      14.00%      14.58%      15.67%      16.15%
11.00%              12.22%      12.94%      14.67%      15.28%      16.42%      16.92%

Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent.

</R>

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o    references  to  ratings,   rankings,   and  financial  publications  and/or
     performance comparisons of Shares to certain indices;

o    charts,  graphs and illustrations  using the Fund's returns,  or returns in
     general,   that  demonstrate   investment  concepts  such  as  tax-deferred
     compounding, dollar-cost averaging and systematic investment;

o    discussions  of economic,  financial and political  developments  and their
     impact on the securities market, including the portfolio manager's views on
     how such developments could impact the Fund; and

o    information  about  the  mutual  fund  industry  from  sources  such as the
     Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it  invests,  to a variety of other  investments,  including  federally
insured bank products such as bank savings accounts, certificates of deposit and
Treasury bills.

The Fund may  quote  information  from  reliable  sources  regarding  individual
countries  and regions,  world stock  exchanges,  and  economic and  demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share  performance.  When  comparing  performance,  you should  consider  all
relevant  factors such as the composition of the 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:

Lipper, Inc.
Lipper,  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.

Lehman Brothers Municipal Bond Index
Lehman  Brothers  Municipal  Bond  Index  is a  broad-based  market  performance
benchmark for the tax-exempt bond market.

Morningstar, Inc.
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.

WHO IS FEDERATED INVESTORS, INC.?

Federated  is  dedicated  to  meeting  investor  needs  by  making   structured,
straightforward  and  consistent  investment  decisions.   Federated  investment
products  have  a  history  of  competitive  performance  and  have  gained  the
confidence of thousands of financial institutions and individual investors.

Federated's   disciplined  investment  selection  process  is  rooted  in  sound
methodologies  backed by  fundamental  and  technical  research.  At  Federated,
success in investment management does not depend solely on the skill of a single
portfolio  manager.  It is a fusion of individual  talents and  state-of-the-art
industry tools and resources.  Federated's  investment process involves teams of
portfolio  managers  and  analysts,  and  investment  decisions  are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

Federated Funds overview

Municipal Funds
In the  municipal  sector,  as of December 31, 2003,  Federated  managed 14 bond
funds with  approximately  $3.8 billion in assets and 22 money market funds with
approximately $23.0 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.

Equity Funds
In the  equity  sector,  Federated  has more  than 32 years'  experience.  As of
December 31, 2003,  Federated  managed 36 equity  funds  totaling  approximately
$25.6 billion in assets across  growth,  value,  equity  income,  international,
index and sector (i.e. utility) styles.  Federated's  value-oriented  management
style combines  quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

Corporate Bond Funds
In the  corporate  bond sector,  as of December 31, 2003,  Federated  managed 11
money market funds and 4 bond funds with assets  approximating $61.7 billion and
$3.4 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 30 years of experience in
the  corporate  bond  sector.  In 1972,  Federated  introduced  one of the first
high-yield bond funds in the industry.  In 1983,  Federated was one of the first
fund managers to participate  in the asset backed  securities  market,  a market
totaling more than $209 billion.

Government Funds
In the government sector, as of December 31, 2003,  Federated managed 7 mortgage
backed, 3 multi-sector  government funds, 4 government/agency  and 19 government
money market mutual funds, with assets approximating $4.9 billion, $0.9 billion,
$2.9 billion and $56.2 billion,  respectively.  Federated  trades  approximately
$90.4 billion in U.S. government and mortgage backed securities daily and places
approximately  $35  billion  in  repurchase   agreements  each  day.   Federated
introduced  the first U.S.  government  fund to invest in U.S.  government  bond
securities  in  1969.  Federated  has  been a  major  force  in the  short-  and
intermediate-term   government   markets  since  1982  and   currently   manages
approximately $50 billion in government funds within these maturity ranges.

Money Market Funds
In the money  market  sector,  Federated  gained  prominence  in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously,  the company  pioneered the use of the amortized  cost method of
accounting for valuing  shares of money market funds, a principal  means used by
money  managers  today to value money  market  fund  shares.  Other  innovations
include the first  institutional  tax-free money market fund. As of December 31,
2003,  Federated  managed $136.2 billion in assets across 52 money market funds,
including 19  government,  10 prime,  22 municipal and 1  euro-denominated  with
assets  approximating  $56.2 billion,  $59.4  billion,  $20.6 billion and $173.9
million, respectively.

The  Chief  Investment  Officers   responsible  for  oversight  of  the  various
investment  sectors  within  Federated  are:  Global Equity - Stephen F. Auth is
responsible   for  overseeing   the  management  of  Federated's   domestic  and
international  equity products;  Global Fixed-income - Mary Jo Ochson and Robert
J.  Ostrowski are  responsible  for  overseeing  the  management of  Federated's
domestic  and  international  fixed-income  and high yield  products;  and Money
Markets - Deborah A.  Cunningham is responsible for overseeing the management of
Federated's money market fund products.

Mutual Fund Market
Forty-nine  percent of American  households are pursuing their  financial  goals
through mutual funds.  These investors,  as well as businesses and institutions,
have entrusted over $6.2 trillion to the  approximately  8,300 funds  available,
according to the Investment Company Institute.

Federated Clients Overview
Federated  distributes  mutual funds through its  subsidiaries  for a variety of
investment purposes. Specific markets include:

Institutional Clients
Federated  meets  the  needs  of  approximately  3,035   institutional   clients
nationwide  by managing and servicing  separate  accounts and mutual funds for a
variety  of  purposes,   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
advisers.

Bank Marketing
Other   institutional   clients   include   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.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated  funds are  available  to  consumers  through  major  brokerage  firms
nationwide--Federated  has  over  2,000  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 ratings in several surveys  performed by DALBAR,
Inc.  DALBAR  is  recognized  as the  industry  benchmark  for  service  quality
measurement.

FINANCIAL INFORMATION

The Financial  Statements for the Fund for the fiscal year ended August 31, 2004
are  incorporated  herein by reference to the Annual Report to  Shareholders  of
Federated  Municipal  High  Yield  Advantage  Fund,  Inc.  (Formerly,  Federated
Municipal Opportunities Fund, Inc.) dated August 31, 2004.

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions

AAA--Highest  credit  quality.  'AAA' ratings  denote the lowest  expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments.  This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA--Very high credit  quality.  'AA' ratings  denote a very low  expectation  of
credit risk.  They indicate very strong capacity for timely payment of financial
commitments.  This  capacity  is not  significantly  vulnerable  to  foreseeable
events.

A--High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial  commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB--Good  credit quality.  'BBB' ratings indicate that there is currently a low
expectation  of credit  risk.  The  capacity  for timely  payment  of  financial
commitments is considered adequate,  but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity.  This is the lowest
investment-grade category.

BB--Speculative.  'BB' ratings  indicate that there is a  possibility  of credit
risk  developing,  particularly  as the result of adverse  economic  change over
time;  however,  business or  financial  alternatives  may be available to allow
financial  commitments  to be met.  Securities  rated in this  category  are not
investment grade.

B--Highly  speculative.  'B' ratings  indicate that  significant  credit risk is
present,  but a limited  margin of safety  remains.  Financial  commitments  are
currently being met; however,  capacity for continued payment is contingent upon
a sustained, favourable business and economic environment.

CCC, CC,  C--High  default  risk.  Default is a real  possibility.  Capacity for
meeting  financial  commitments  is solely  reliant upon  sustained,  favourable
business or economic developments.  A 'CC' rating indicates that default of some
kind appears probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings

Prime-1--Issuers  rated  Prime-1 (or  supporting  institutions)  have a superior
ability for repayment of senior short-term debt  obligations.  Prime-1 repayment
ability  will  often  be  evidenced  by many of the  following  characteristics:
leading market positions in well established industries, high rates of return on
funds employed,  conservative capitalization structure with moderate reliance on
debt and ample  asset  protection,  broad  margins in earning  coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.

Prime-2--Issuers  rated  Prime-2  (or  supporting  institutions)  have a  strong
ability for repayment of senior short-term debt obligations.  This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings  trends and  coverage  ratios,  while  sound,  will be more  subject to
variation. Capitalization characteristics,  while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Standard and Poor's Commercial Paper Ratings

A-1-- A short-term  obligation  rated 'A-1' is rated in the highest  category by
Standard & Poor's.  The obligor's capacity to meet its financial  commitment
on the  obligation is strong.  Within this  category,  certain  obligations  are
designated  with a plus sign (+). This indicates that the obligor's  capacity to
meet its financial commitment on these obligations is extremely strong.

A-2-- A short-term  obligation  rated 'A-2' is somewhat more  susceptible to the
adverse  effects  of changes  in  circumstances  and  economic  conditions  than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

Fitch Ratings Commercial Paper Rating Definitions

F-1--Indicates   the  strongest   capacity  for  timely   payment  of  financial
commitments relative to other issuers or issues in the same country. Under their
national  rating  scale,  this  rating is  assigned  to the "best"  credit  risk
relative  to all others in the same  country  and is  normally  assigned  to all
financial  commitments  issued or guaranteed by the sovereign  state.  Where the
credit risk is particularly strong, a "+" is added to the assigned rating.

F-2--  Indicates  a  satisfactory  capacity  for  timely  payment  of  financial
commitments  relative to other issuers or issues in the same  country.  However,
the margin of safety is not as great as in the case of the higher ratings.


Last Updated:  August 2004

<R>

ADDRESSES

Federated Municipal High Yield Advantage Fund, Inc.

Class A Shares
Class B Shares
Class C Shares
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 Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


Custodian, Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600


Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

</R>

PART C.     OTHER INFORMATION.

Item 22.    Exhibits:
            --------

            (a)   (i)   Conformed copy of Amended and Restated Articles of
                        Incorporation of the Registrant; (10)
                  (ii)  Conformed copy of Certificate of Correction dated
                        October 21, 1996; (10)
                  (iii) Conformed copy of Certificate of Correction dated
                        April 11, 1997; (15)
                  (iv)  Conformed Copy of Articles of Amendment; +
            (b)   (i)   Copy of Amended and Restated By-Laws of the
                        Registrant; (10)
                  (ii)  Copy of Amendment #6 to the By-Laws of the Registrant;
                        (13)
                  (iii) Copy of Amendment #7 to the By-Laws of the Registrant; (13)
                  (iv)  Copy of Amendment #8 to the By-Laws of the Registrant; (13)
                  (v)   Copy of Amendment #9 to the By-Laws of the Registrant; (20)
                  (vi)  Copy of Amendment #10 to the By-Laws of the Registrant; (20)
                  (vii) Copy of Amendment #11 to the By-Laws of the Registrant; +
            (c)   (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)
            (d)   (i)   Conformed copy of Investment Advisory Contract of the
                        Registrant; (4)
                  (ii)  Conformed copy of Amendment to Investment Advisory
                        Contract of the Registrant; (18)
            (e)   (i)   Conformed copy of Distributor's Contract of the
                        Registrant; (10)
                  (ii)  Conformed copy of Exhibit A to the Distributor's
                        Contract of the Registrant; (10)
                  (iii) Conformed copy of Exhibit C to the Distributor's
                        Contract of the Registrant; (10)
                  (iv)  Conformed copy of Exhibit D to the Distributor's
                        Contract of the Registrant; (13)
                  (v)   Conformed copy of Distributor's Contract (Class B
                        Shares) of the Registrant, and Schedule A thereto; (13)
                  (vi)  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).
                  (vii) Conformed Copy of Amendment dated June 1, 2001 to
                        Distributor's Contract (Class B Shares) of the
                        Registrant; (18)
                  (viii)Conformed Copy of Amendment dated June 1, 2001 to
                        Distributor's contract (Class B Shares) of the
                        Registrant; (18)
                  (ix)  Conformed copy of Amendment dated October 1, 2003 to
                        Distributors contract of the Registrant; (20)
                  (x)   Conformed coy of Distribution Plan; +
            (f)         Not applicable;
            (g)   (i)   Conformed copy of Custodian Agreement of the
                        Registrant; (8)
                  (ii)  Conformed copy of Custodian Fee Schedule; (12)
            (h)   (i)   Conformed copy of Amended and Restated Agreement for
                        Fund Accounting Services, Administrative Services,
                        Transfer Agency Services, and Custody Services
                        Procurement; (13)
                  (ii)  The Registrant hereby incorporates the conformed copy
                        of Amendment No. 2 to the Amended and Restated
                        Agreement for Fund Accounting Services, Administrative
                        Services, Transfer Agency Services and Custody
                        Services Procurement form Item 23 (h) (v) of the
                        Federated U.S. Government Securities: 2-5 Years.
                        Registration Statement on Form N-1A, filed with the
                        Commission on March 30, 2004 (File Nos. 2-75769 and
                        811-3387).
                  (iii) The Registrant hereby incorporates the conformed copy
                        of Amendment No. 3 to the Amended & Restated Agreement
                        for Fund Accounting Services, Administrative Services,
                        Transfer Agency Services and Custody Services
                        Procurement form Item 23 (h)(v) of the Federated U.S.
                        Government Securities: 2-5 Years Registration
                        Statement on form N-1A, filed with the commission on
                        March 30, 2004. (File Nos. 2-75769 and 811-3387).
                  (iv)  Conformed copy of Principal Shareholder Servicer's
                        Agreement (Class B Shares); (13)
                  (v)   Conformed copy of Exhibit 1 to the Principal
                        Shareholder Servicer's Agreement (Class B Shares) and
                        Schedule A thereto; (13)
                  (vi)  Conformed copy of Shareholder Services Agreement
                        (Class B Shares); (13)
                  (vii) Conformed copy of Exhibit 1 to the Shareholder
                        Services Agreement (Class B Shares) and Schedule A
                        thereto; (13)
                  (viii)The responses described in Item 23(e)(vi) are hereby
                        incorporated by reference.
                  (ix)Conformed copy of the Amendment to Agreement for Fund
                        Accounting Services, Administrative Services, Transfer
                        Agency Services, and Custody Services Procurement
                        between Federated Investment Companies and Federated
                        Services Company (18)
                  (x)   The Registrant hereby incorporates by reference the
                        conformed copy of the Agreement for Administrative
                        Services from Item 23 (h)(vix) of the Federated Index
                        Trust Registration Statement on Form N-1A, filed with
                        the Commission on December 30, 2003.  (File Nos.
                        33-33852 and 811-6061).
                  (xi)  The Registrant hereby incorporates the conformed copy
                        of the second Amended and Restated Services Agreement,
                        with attached Schedule 1 revised 6/30/04, from Item
                        (h)(vii) of the Cash Trust Series, Inc. Registration
                        Statement on Form N-1A, filed wit the Commission on
                        July 29, 2004. (File Nos. 33-29838 and 811-5843).
                  (xii) The Registrant hereby incorporates the conformed copy
                        of the Financial Administration and Accounting
                        Services Agreement, with attached Exhibit A revised
                        6/30/04, from Item (h)(viii) of the Cash Trust Series,
                        Inc. Registration Statement on Form N-1A, filed with
                        the commission on July 29, 2004.  (File Nos. 33-29838
                        and 811-5843).
            (i)         Conformed copy of Opinion and Consent of Counsel as to
                        legality of shares being registered; (8)
            (j)         Conformed copy of Consent of Independent Auditors; (+)
            (k)         Not applicable;
            (l)         Conformed copy of Initial Capital Understanding;(8)
            (m)   (i)   Conformed copy of Distribution Plan of the Registrant
                        (Class B Shares); (10)
                  (ii)  Conformed copy of Exhibit 1 Amendment to Distribution
                        Plan of the Registrant; (13)
                  (iii) The responses described in Item 23(e)(vi) are hereby
                        incorporated by reference;
             (n)        The Registrant hereby incorporates the conformed copy
                        of the specimen Multiple Class Plan from Item (n) of
                        the Federated GNMA Trust Registration Statement on
                        Form N-1A, filed with the Commission on March 29,
                        2004.  (File Nos. 2-75670 and 811-3375).
            (o)   (i)   Conformed copy of Power of Attorney of the Registrant;
                        (17)
                  (ii)  Conformed copy of Power of Attorney of the Chief
                        Investment Officer of the Registrant; (17)
                  (iii) Conformed copy of Power of Attorney of the President
                        and Director of the Registrant; (19)
            (p)         The Registrant hereby incorporates the conformed copy
                        of the Code of Ethics for Access Persons from Item
                        23(p) of the Money Market Obligations Trust
                        Registration Statement on Form N-1A filed with the
                        Commission on February 26, 2004.  (File Nos. 33-31602
                        and 811-5950).


- --------------------------------------------------------------------------------

+     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)

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)

13.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 20 filed October 1, 1998. (File Nos. 33-11410 and 811-4533)

15.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 23 filed August 30, 1999. (File Nos. 33-11410 and 811-4533)

17.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 25 filed October 24, 2000. (File Nos. 33-11410 and 811-4533)

18.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 26 filed October 25, 2001. (File Nos. 33-11410 and 811-4533)

19.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 27 filed October 28, 2002. (File Nos. 33-11410 and 811-4533)

20.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 28 filed October 28, 2003. (File Nos. 33-11410 and 811-4533)


Item 23.    Persons Controlled by or Under Common Control with the Fund:
            -----------------------------------------------------------

            None.

Item 24.    Indemnification:  (1)
            ---------------


Item 25.    Business and Other Connections of Investment Adviser:
            ----------------------------------------------------

          For a description of the other business of the investment adviser, see
          the  section   entitled  "Who  Manages  the  Fund?"  in  Part  A.  The
          affiliations with the Registrant of two of the Trustees and two of the
          Officers  of the  investment  adviser  are  included in Part B of this
          Registration Statement under "Who Manages and Provides Services to the
          Fund?" The  remaining  Trustees  of the  investment  adviser  and,  in
          parentheses,  their  principal  occupations  are:  Thomas R.  Donahue,
          (Chief Financial  Officer,  Federated  Investors,  Inc.), 1001 Liberty
          Avenue,  Pittsburgh,  PA, 15222-3779 and Mark D. Olson (a principal of
          the  firm,  Mark D.  Olson &  Company,  L.L.C.  and  Partner,  Wilson,
          Halbrook  &  Bayard,  P.A.),  800  Delaware  Avenue,  P.O.  Box  2305,
          Wilmington, DE 19899-2305.

The remaining Officers of the investment adviser are:


President/ Chief Executive Officer
and Trustee:                                    Keith M. Schappert


Vice Chairman:                                  William D. Dawson, III


Senior Vice Presidents:                         Joseph M. Balestrino
                                                Jonathan C. Conley
                                                Deborah A. Cunningham
                                                Mark E. Durbiano
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Richard Tito


Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                Lee R. Cunningham, II
                                                B. Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                William R. Jamison
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Marian R. Marinack
                                                Kevin McCloskey
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Timothy G. Trebilcock
                                                Paolo H. Valle
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Hanan Callas
                                                Jerome Conner
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                Richard Cumberledge
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                James Grant
                                                Tracey L. Lusk
                                                Ann Manley
                                                Karl Mocharko
                                                Bob Nolte
                                                Rae Ann Rice
                                                Brian Ruffner
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes
                                                Mark Weiss


Secretary:                                      G. Andrew Bonnewell


Treasurer:                                      Thomas R. Donahue


Assistant Secretary:                            Jay S. Neuman


Assistant Treasurer:                            Denis McAuley, III


          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 investment companies in the
          Federated  Fund  Complex  described  in  Part B of  this  Registration
          Statement.


Item 26.    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:


          Cash Trust Series,  Inc.; Cash Trust Series II;  Federated  Adjustable
          Rate Securities Fund; Federated American Leaders Fund, Inc.; Federated
          Core Trust;  Federated  Core Trust II, L.P.;  Federated  Equity Funds;
          Federated Equity Income Fund, Inc.; Federated Fixed Income Securities,
          Inc.;  Federated GNMA Trust;  Federated  Government Income Securities,
          Inc.;  Federated  High Income Bond Fund,  Inc.;  Federated  High Yield
          Municipal  Income Fund;  Federated High Yield Trust;  Federated Income
          Securities  Trust;  Federated  Income  Trust;  Federated  Index Trust;
          Federated  Institutional Trust; Federated Insurance Series;  Federated
          International  Series,  Inc.; Federated Investment Series Funds, Inc.;
          Federated  Limited Duration  Government Fund, Inc.;  Federated Managed
          Allocation Portfolios;  Federated Municipal High Yield Advantage Fund,
          Inc.;  Federated Municipal  Securities Fund, Inc.; Federated Municipal
          Securities  Income Trust;  Federated  Premier  Intermediate  Municipal
          Income  Fund;  Federated  Premier  Municipal  Income  Fund;  Federated
          Short-Term  Municipal  Trust;  Federated  Stock and Bond  Fund,  Inc.;
          Federated Stock Trust;  Federated  Total Return  Government Bond Fund;
          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 World Investment
          Series, Inc.;  Intermediate Municipal Trust; Edward Jones Money Market
          Fund;  Money Market  Obligations  Trust;  Regions Morgan Keegan Select
          Funds and SouthTrust Funds.





         (b)


         (1)                        (2)                        (3)
Positions and Offices                                 Positions and Offices
  With Distributor                  Name                 With Registrant
- ---------------------         -----------------       ----------------------

Chairman:                     Richard B. Fisher       Vice Chairman



President-Institutional

Sales and Director:           John B. Fisher



Executive Vice

Vice President, Assistant

Secretary and Director:       Thomas R. Donahue



President-Broker/Dealer

And Director:                 James F. Getz



Vice President, Assistant

Secretary and Director:       Peter J. Germain



Treasurer and Director:       Denis McAuley III



Senior Vice Presidents:       Mark W. Bloss
                              Richard W. Boyd
                              Laura M. Deger
                              Peter W. Eisenbrandt
                              Theodore Fadool, Jr.
                              Christopher Fives
                              James S. Hamilton
                              James M. Heaton
                              H. Joseph Kennedy
                              Amy Michaliszyn
                              Keith Nixon
                              Solon A. Person, IV
                              Ronald M. Petnuch
                              Thomas E. Territ
                              Robert F. Tousignant
                              Paul Uhlman


Vice Presidents:              Irving Anderson
                              Dan Berry
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Brian Burke
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              James Conely
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              G. Michael Cullen
                              Beth C. Dell
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Jamie Getz
                              Joseph D. Gibbons
                              J. Todd Glickson
                              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              William Kastrol
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Theodore J. Kravits, Jr.
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Richard C. Mihm
                              Chris Milliken
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Josh Rasmussen
                              Richard A. Recker
                              Christopher Renwick
                              Diane M. Robinson
                              Brian S. Ronayne
                              Timothy A. Rosewicz
                              Thomas S. Schinabeck
                              Edward J. Segura
                              Peter Siconolfi
                              Edward L. Smith
                              John A. Staley
                              Colin B. Starks
                              Jeffrey A. Stewart
                              Kevin Stutz
                              William C. Tustin
                              G. Walter Whalen
                              Stephen White
                              Patrick M. Wiethorn
                              Edward J. Wojnarowski
                              Michael P. Wolff


Assistant Vice Presidents:    Lisa A. Toma
                              Robert W. Bauman
                              Charles L. Davis, Jr.
                              Brian F. Palusa
                              William Rose


Secretary:                    Stephen A. Keen


Assistant Secretary:          Thomas R. Donahue
                              Peter J. Germain


The business  address of each of the Officers of Federated  Securities  Corp. is
Federated  Investors  Tower,  1001  Liberty  Avenue,  Pittsburgh,   Pennsylvania
15222-3779.



         (c)     Not applicable


Item 27.    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                           Reed Smith LLP
                                     Investment Management Group (IMG)
                                     Federated Investors Tower
                                     12th Floor
                                     1001 Liberty Avenue
                                     Pittsburgh, PA  15222-3779

(Notices should be sent to the Agent for Service at the above address)

                                     Federated Investors Funds
                                     5800 Corporate Drive
                                     Pittsburgh, PA  15237-7000

Federated Shareholder                P.O. Box 8600
Services Company                     Boston, MA  02266-8600
(Transfer Agent and Dividend
Disbursing Agent)

Federated Services Company           Federated Investors Tower
(Administrator)                      1001 Liberty Avenue
                                     Pittsburgh, PA  15222-3779

Federated Investment                 Federated Investors Tower
Management Company                   1001 Liberty Avenue
(Adviser)                            Pittsburgh, PA  15222-3779

State Street Bank and Trust          P.O. Box 8600
Company                              Boston, MA  02266-8600
(Custodian)


Item 28.    Management Services:  Not applicable.
            -------------------

Item 29.    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.

                                   SIGNATURES

     Pursuant  to  the  requirements  of the  Securities  Act of  1933  and  the
Investment Company Act of 1940, the Registrant,  FEDERATED  MUNICIPAL HIGH YIELD
ADVANTAGE  FUND,  INC.  certifies  that it  meets  all of the  requirements  for
effectiveness of this Amendment to its Registration  Statement  pursuant to Rule
485(b) under the  Securities  Act of 1933 and has duly caused this  Amendment to
its Registration  Statement to be signed on its behalf by the undersigned,  duly
authorized,  in the City of Pittsburgh and Commonwealth of Pennsylvania,  on the
29th day of October, 2004.

              FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.

                  BY: /s/ George F. Magera
                  George F. Magera, Assistant Secretary

     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/ George F. Magera                 Attorney In Fact      October 29, 2004
    George F. Magera                    For the Persons
    ASSISTANT SECRETARY                 Listed Below

            NAME                             TITLE

John F. Donahue*                        Chairman and Director

J. Christopher Donahue*                  President and Director
                                        (Principal Executive Officer)

Richard B. Fisher*                      Vice Chairman

William D. Dawson, III*                 Chief Investment Officer

Richard J. Thomas*                      Treasurer
                                        (Principal Financial Officer)

Thomas G. Bigley*                       Director

John T. Conroy, Jr.*                    Director

Nicholas P. Constantakis*               Director

John F. Cunningham*                     Director

Lawrence D. Ellis, M.D.*                Director

Peter E. Madden*                        Director

Charles F. Mansfield, Jr.*              Director

John E. Murray, Jr., J.D.,S.J.D.*       Director

Marjorie P. Smuts*                      Director

John S. Walsh*                          Director

*  By Power of Attorney

EX-99.AOI

                                                  Exhibit a(iv ) under Form N-1A
                                            Exhibit 3(i) under Item 601/Reg. S-K

                  FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.

                              ARTICLES OF AMENDMENT


     FEDERATED  MUNICIPAL  OPPORTUNITIES  FUND,  INC.,  a  Maryland  corporation
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation that:

     FIRST:  The Articles of Incorporation of the Corporation are hereby amended
by striking Article FIRST and inserting the following in its place:

          "FIRST: The name of the Corporation is Federated  Municipal High Yield
          Advantage Fund, Inc."

          SECOND: The foregoing  amendment to the charter of the Corporation was
          approved  by a  majority  of the  entire  Board  of  Directors  of the
          Corporation;  the charter  amendment is limited to a change  expressly
          permitted by Section 2-605 of the Maryland General  Corporation Law to
          be  made  without  action  by  stockholders;  and the  Corporation  is
          registered as an open-end company under the Investment  Company Act of
          1940, as amended.

          THIRD: These Articles of Amendment shall become effective as of August
          1, 2004.

     IN WITNESS WHEREOF, Federated Municipal Opportunities Fund, Inc. has caused
these  Articles  of  Amendment  to be signed in its name and on its behalf as of
July 26, 2004, by its President and Assistant  Secretary,  who acknowledge  that
these Articles of Amendment are the act of the Corporation,  that to the best of
their knowledge, information and belief, all matters and facts set forth therein
relating to the  authorization  and  approval of these  Articles are true in all
material  respects,  and that this  statement  is made  under the  penalties  of
perjury.


Witness:


/s/  Andrew P. Cross                By:  /s/ J. Christopher Donahue
- ------------------------------         ---------------------------------
Name:  Andrew P. Cross              Name:  J. Christopher Donahue
Title:  Assistant Secretary         Title:  President

EX-99.BYLAWS

                                                Exhibit b (vii ) under Form N-1A
                                           Exhibit 3(ii) under Item 601/Reg. S-K



                                  AMENDMENT #11
                                 TO THE BY-LAWS
                                       OF
               FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND, INC.

                          Effective September 21, 2004



Insert the  following  into  Article IV,  Officers  and  renumber  Section 15 as
Section 16:

     Section 15. Chief Compliance Officer. The Chief Compliance Officer shall be
     responsible for administering the Trust's policies and procedures  approved
     by the Board under Rule 38a-1 of the  Investment  Company  Act of 1940,  as
     amended.   Notwithstanding  any  other  provision  of  these  By-Laws,  the
     designation,  removal  and  compensation  of Chief  Compliance  Officer are
     subject to Rule 38a-1 under the Investment Company Act of 1940, as amended.

EX-99.DIST PLAN

                                                    Exhibit e(x) under Form N-1A
                                               Exhibit 1 under Item 601/Reg. S-K


                  FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
                                DISTRIBUTION PLAN

     This  Distribution Plan ("Plan") is adopted as of the 12th day of February,
2004, by the Board of Directors of Federated Municipal  Opportunities Fund, Inc.
(the  "Corporation"),  a Maryland Corporation with respect to certain classes of
shares  ("Classes") of the portfolios of the Corporation (the "Funds") set forth
in exhibits hereto.

     1.   This Plan is  adopted  pursuant  to Rule  12b-1  under the  Investment
          Company  Act  of  1940,  as  amended  ("Act"),  so  as  to  allow  the
          Corporation to make payments as  contemplated  herein,  in conjunction
          with the  distribution of Classes of the Funds ("Shares") and pursuant
          to the  "Distributor's  Contract"  entered into by the Corporation and
          FSC.

     2.   This Plan is designed to finance  activities  of Federated  Securities
          Corp. ("FSC") principally  intended to result in the sale of Shares to
          include:   (a)   providing   incentives   to  financial   institutions
          ("Financial  Institutions")  to sell Shares and; (b)  advertising  and
          marketing of Shares to include  preparing,  printing and  distributing
          prospectuses and sales literature to prospective shareholders and with
          Financial  Institutions.  The Plan is also designed to cover the costs
          of  administrative  services  performed in connection with the sale of
          Shares,  but are not limited to  shareholder  services,  recordkeeping
          services  and   educational   services,   as  well  as  the  costs  of
          implementing and operating the Plan.

     3.   As compensation for services  provided pursuant to this Plan, FSC will
          be paid a fee in respect  of the  following  Classes  set forth on the
          exhibits  to  this  Agreement.  FSC  may  use  all or any of the  fees
          received  pursuant to the Plan to pay any of the  expenses  associated
          with  the  activities   under  Paragraph  2  hereof  whether  incurred
          directly, or through Financial Institutions.

     4.   Any payments by FSC to Financial  Institutions  with funds received as
          compensation  under this Plan will be made  pursuant  to an  agreement
          entered  into  by  FSC  and  the  Financial  Institution   ("Financial
          Institution Agreement").  FSC has the right (i) to select, in its sole
          discretion,  the Financial Institutions to participate in the Plan and
          (ii)  to  terminate  without  cause  and in its  sole  discretion  any
          Financial Institution Agreement.

     5.   Quarterly  in each year that this Plan  remains in  effect,  FSC shall
          prepare and furnish to the Board of Directors of the Corporation,  and
          the Board of Directors  shall review,  a written report of the amounts
          expended  under the Plan and the purpose  for which such  expenditures
          were made.

     6.   This Plan shall become  effective with respect to each Class (i) after
          approval  as  required by Rule 12b-1 under the Act as in effect on the
          date of the execution  hereof;  and (ii) upon  execution of an exhibit
          adopting this Plan with respect to such Class.

     7.   This Plan shall remain 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 year of this Plan for the period of one
          year from the date set forth above and may be continued  thereafter if
          this Plan is approved with respect to each Class at least  annually by
          a majority of the  Corporation's  Board of Directors and a majority of
          the  Disinterested  Directors,  cast in person at a meeting called for
          the  purpose  of voting on such  Plan.  If this Plan is  adopted  with
          respect to a Class after the first annual approval by the Directors as
          described  above,  this Plan will be  effective  as to that Class upon
          execution of the  applicable  exhibit  pursuant to the  provisions  of
          paragraph  6(ii)  above and will  continue  in  effect  until the next
          annual  approval  of this Plan by the  Directors  and  thereafter  for
          successive periods of one year subject to approval as described above.

     8.   All material amendments to this Plan must be approved by a vote of the
          Board  of  Directors  of the  Corporation  and  of  the  Disinterested
          Directors,  cast in person  at a meeting  called  for the  purpose  of
          voting on it.

     9.   This Plan may not be amended in order to increase materially the costs
          which  the  Classes  may bear for  distribution  pursuant  to the Plan
          without being  approved by a majority vote of the  outstanding  voting
          securities of the Classes as defined in Section 2(a)(42) of the Act.

     10.  This Plan may be terminated with respect to a particular  Class at any
          time by: (a) a majority vote of the Disinterested  Directors; or (b) a
          vote  of a  majority  of  the  outstanding  voting  securities  of the
          particular  Class as defined in Section 2(a)(42) of the Act; or (c) by
          FSC on 60 days' notice to the Corporation.

     11.  While this Plan shall be in effect,  the selection  and  nomination of
          Disinterested  Directors of the Corporation  shall be committed to the
          discretion of the Disinterested Directors then in office.

     12.  All agreements with any person relating to the  implementation of this
          Plan, including,  but not limited to Financial Institution Agreements,
          shall be in writing  and any  agreement  related to this Plan shall be
          subject to termination, without penalty, pursuant to the provisions of
          Paragraph 10 herein.

     13.  This Plan shall be  construed in  accordance  with and governed by the
          laws of the Commonwealth of Pennsylvania.


                                    EXHIBIT A
                                     to the
                                Distribution Plan

                  FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
                                 Class A Shares

     This Distribution Plan is adopted as of the 12th day of February,  2004, by
Federated Municipal  Opportunities Fund, Inc. with respect to the Class A Shares
of the Corporation set forth above.

     As compensation for the services  provided  pursuant to this Plan, FSC will
be paid a monthly  fee  computed at the annual rate of 0.25 of 1% of the average
aggregate  net  asset  value  of the  Class  A  Shares  of  Federated  Municipal
Opportunities Fund, Inc. held during the month.

     Witness the due execution hereof this 1st day of March, 2004.



                                FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.


                                By:  /s/ J. Christopher Donahue
                                --------------------------------
                                Name:  J. Christopher Donahue
                                Title:  President



                                    EXHIBIT B
                                     to the
                                Distribution Plan

                  FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
                                 Class C Shares

     This Distribution Plan is adopted as of the 12th day of February,  2004, by
Federated Municipal  Opportunities Fund, Inc. with respect to the Class C Shares
of the Corporation set forth above.

     As compensation for the services  provided  pursuant to this Plan, FSC will
be paid a monthly  fee  computed at the annual rate of 0.75 of 1% of the average
aggregate  net  asset  value  of the  Class  C  Shares  of  Federated  Municipal
Opportunities Fund, Inc. held during the month.

     Witness the due execution hereof this 1st day of March, 2004.



                                 FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.


                                 By:  /s/ J. Christopher Donahue
                                 --------------------------------
                                 Name:  J. Christopher Donahue
                                 Title:  President





                                    EXHIBIT C
                                     to the
                                Distribution Plan

                  FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
                                 Class F Shares

     This Distribution Plan is adopted as of the 12th day of February,  2004, by
Federated Municipal  Opportunities Fund, Inc. with respect to the Class F Shares
of the Corporation set forth above.

         As compensation for the services provided pursuant to this Plan,
      FSC will be paid a monthly fee computed at the annual rate of 0.25 of
      1% of the average aggregate net asset value of the Class F Shares of
     Federated Municipal Opportunities Fund, Inc. held during the month.

     Witness the due execution hereof this 1st day of March, 2004.



                                FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.


                                By:  /s/ J. Christopher Donahue
                                --------------------------------
                                Name:  J. Christopher Donahue
                                Title:  President

EX-99.AUDIT CONSENT

                                                       Exhibit j under Form N-1A
                                              Exhibit 23 under Item 601/Reg. S-K

   Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
Federated Municipal High Yield Advantage Fund, Inc.

In planning and  performing  our audit of the financial  statements of Federated
Municipal High Yield Advantage Fund, Inc. for the year ended August 31, 2004, we
considered its internal control,  including control  activities for safeguarding
securities,  in order to determine  our auditing  procedures  for the purpose of
expressing  our  opinion  on the  financial  statements  and to comply  with the
requirements of Form N-SAR, not to provide assurance on internal control.

The  management  of  Federated  Municipal  High Yield  Advantage  Fund,  Inc. is
responsible for establishing  and maintaining  internal  control.  In fulfilling
this  responsibility,  estimates  and  judgments by  management  are required to
assess the expected benefits and related costs of controls.  Generally, controls
that are  relevant to an audit  pertain to the  entity's  objective of preparing
financial  statements  for  external  purposes  that  are  fairly  presented  in
conformity with U.S. generally accepted  accounting  principles.  Those controls
include the  safeguarding of assets against  unauthorized  acquisition,  use, or
disposition.

Because of inherent  limitations in internal  control,  error or fraud may occur
and not be detected.  Also,  projection of any evaluation of internal control to
future periods is subject to the risk that it may become  inadequate  because of
changes in conditions or that the  effectiveness of the design and operation may
deteriorate.

Our  consideration  of internal  control  would not  necessarily  disclose all
matters in internal control that might be material  weaknesses under standards
of the Public Company  Accounting  Oversight Board (United States). A material
weakness is a  condition  in which the design or  operation  of one or more of
the internal control  components does not reduce to a relatively low level the
risk that  misstatements  caused by error or fraud in  amounts  that  would be
material in relation to the financial  statements  being audited may occur and
not be detected  within a timely  period by employees in the normal  course of
performing their assigned  functions.  However,  we noted no matters involving
internal  control  and its  operation,  including  controls  for  safeguarding
securities,  that we consider to be material weaknesses as defined above as of
August 31, 2004.

This report is intended solely for the information and use of management and the
Board of Directors of Federated  Municipal High Yield  Advantage  Fund, Inc. and
the Securities and Exchange  Commission and is not intended to be and should not
be used by anyone other than these specified parties.

                                                               Ernst & Young LLP

Boston, Massachusetts
October 28, 2004