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.  28                                 X

                                  and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      X

    Amendment No.  27                                                X

               FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
            (Exact Name of Registrant as Specified in Charter)

                         Federated Investors Funds
                           5800 Corporate Drive
                    Pittsburgh, Pennsylvania 15237-7000
                 (Address of Principal Executive Offices)

                              (412) 288-1900
                      (Registrant's Telephone Number)

                        John W. McGonigle, Esquire
                         Federated Investors Tower
                            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, 2003__, 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 Investors
World-Class Investment Manager

Federated Municipal Opportunities Fund, Inc.

 

 

PROSPECTUS

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October 31, 2003

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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.

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? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 10

What Do Shares Cost? 12

How is the Fund Sold? 15

How to Purchase Shares 16

How to Redeem and Exchange Shares 18

Account and Share Information 21

Who Manages the Fund? 22

Financial Information 22

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 (AMT) for individuals and corporations. The Fund invests primarily in long-term, medium-quality and non-investment grade tax exempt securities.

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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:

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

Risk/Return Bar Chart and Table

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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.

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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, 2003 to September 30, 2003 was 4.93%.

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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).

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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. 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. The LHMDA represents the average of the total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective category.

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(For the periods ended December 31, 2002)

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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 OPPORTUNITIES FUND, INC.

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

 

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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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.

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.

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.

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.

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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

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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.

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What are the Principal Securities in Which the Fund Invests?

TAX EXEMPT SECURITIES

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.

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.

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.

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.

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.

Inverse Floaters

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.

Zero Coupon Securities

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.

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.

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. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty.

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, leverage and tax risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.

CREDIT ENHANCEMENT

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.

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.

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.

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

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.

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.

LIQUIDITY RISKS

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

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

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.

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.

RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES

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.

SECTOR RISKS

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

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

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.

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

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.

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.

 

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1 The minimum subsequent investment amount 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 $250,000 or more will be invested in Class A Shares instead of Class B 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."

SALES CHARGE WHEN YOU PURCHASE

 

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

If your investment qualifies for a reduction or elimination of the sales charge as described below, you or your investment professional should notify the Fund's Distributor at the time of purchase. If the Distributor is not notified, you will receive the reduced sales charge only on additional purchases, and not retroactively on previous purchases.

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The sales charge at purchase of Class A Shares and Class F Shares may be reduced or eliminated by:

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• purchasing Shares in greater quantities to reduce the applicable sales charge;
• combining concurrent purchases of Shares:
  • by you, your spouse, and your children under age 21; or
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  • of the same share class of two or more Federated funds (other than money market funds);
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• accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
• signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)

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The sales charge for Class A Shares will be eliminated when you purchase shares:

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• within 120 days of redeeming Shares of an equal or greater amount;
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• by exchanging shares from the same share class of another Federated fund (other than a money market fund);
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• through wrap accounts or other investment programs where you pay the investment professional directly for services;
• through investment professionals that receive no portion of the sales charge;
• as a Federated Life Member (Class A Shares only) and their immediate family members; or
• as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

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The sales charge for Class F Shares will be eliminated when you purchase Shares:

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• within 120 days of redeeming Shares of an equal or greater amount;
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• when the Fund's Distributor does not advance payment to the investment professional for your purchase;
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• by exchanging shares from the same share class of another Federated fund;
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• for trusts or pension or profit-sharing plans where the third-party administrator has an arrangement with the Fund's Distributor or its affiliates to purchase Shares without a sales charge; or
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• through investment professionals that receive no portion of the sales charge.
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SALES CHARGE WHEN YOU REDEEM

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

 

 

 

If your investment qualifies for a reduction or elimination of the CDSC as described below, you or your investment professional should notify the Distributor at the time of redemption. If the Distributor is not notified, the CDSC will apply.

You will not be charged a CDSC when redeeming Shares:

• purchased with reinvested dividends or capital gains;
• purchased within 120 days of redeeming Shares of an equal or lesser amount;
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• that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
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• purchased through investment professionals who did not receive advanced sales payments;
• if, after you purchase Shares, you become disabled as defined by the IRS;
• if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
• if your redemption is a required retirement plan distribution; or
• upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

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

• 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.

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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.

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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 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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How to Purchase Shares

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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.

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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.

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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.

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 Federated Shareholder Services Company, the Fund's transfer agent.

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

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

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

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

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

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

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.

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

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

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:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

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

Signatures must be guaranteed if:

• your redemption will be sent to an address other than the address of record;
• your redemption will be sent to an address of record that was changed within the last 30 days;
• 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 signature guarantee is designed to protect your account from fraud. Obtain a 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

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

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• 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.

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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.

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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.)

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.

For SWP accounts established before April 1, 1999, your account must be at least one year old in order to be eligible for the waiver of the CDSC.

ADDITIONAL CONDITIONS

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

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.

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.

If you purchase Shares just before a Fund declares 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 Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

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

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.

Who Manages the Fund?

The Board of Directors 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. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 138 mutual funds and a variety of separate accounts, which totaled approximately $195 billion in assets as of December 31, 2002. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,700 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

Mary Jo Ochson has been the Fund's Portfolio Manager since May 1996. She is Vice President of the Fund. Ms. Ochson joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996. From 1988 through 1995, Ms. Ochson served as a Portfolio Manager and a Vice President of the Fund's Adviser. Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

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.

Financial Information

FINANCIAL HIGHLIGHTS

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.

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)

 

1 Beginning with the year ended August 31, 2000, the fund was audited by Ernst & Young LLP. The previous year was audited by other auditors.

2 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, 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.

3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

 

1 Beginning with the year ended August 31, 2000, the fund was audited by Ernst & Young LLP. The previous year was audited by other auditors.

2 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, 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.

3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

 

1 Beginning with the year ended August 31, 2000, the fund was audited by Ernst & Young LLP. The previous year was audited by other auditors.

2 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, 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.

3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

 

1 Beginning with the year ended August 31, 2000, the fund was audited by Ernst & Young LLP. The previous year was audited by other auditors.

2 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, 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.

3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2003, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated October 31, 2003, 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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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.

Federated Investors
World-Class Investment Manager

Federated Municipal Opportunities 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

Investment Company Act File No. 811-4533

Federated is a registered mark of Federated Investors, Inc. 2003 ©Federated Investors, Inc.

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Cusip 313910200
Cusip 313910309
Cusip 313910408
Cusip 313910101

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G00570-03 (10/03)

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FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.


Statement of Additional Information

October 31, 2003

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  Opportunities
Fund, Inc. (Fund), dated October 31, 2003.

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?
                                    Securities in Which the Fund Invests
                                    What do Shares Cost?
                                    How is the Fund Sold?
                                    Subaccounting Services
                                    Redemption in Kind
                                    Account and Share Information
                                    Tax Information
                                    Who Manages and Provides Services
                                    to the Fund?
                                    How Does the Fund Measure
                                    Performance?
                                    Who is Federated Investors, Inc.?
                                    Financial Information
                                    Investment Ratings
                                    Addresses
8092709B (10/03)

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

SECURITIES IN WHICH THE FUND INVESTS

In  pursuing  its  investment  strategy,  the Fund may  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.

Tax Exempt Securities

Tax exempt  securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. 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.

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.

Tax Increment Financing Bonds

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.

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,  currencies,
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.

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 or
instrument, derivative contracts may increase or decrease the Fund's exposure to
interest rate risks, and may also expose the Fund to liquidity, leverage and tax
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 or instrument 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.  Futures contracts
traded OTC are frequently referred to as forward contracts.

The Fund may buy or sell the  following  types of  futures  (including  forward)
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.  A call option gives the holder  (buyer) the right to buy the underlying
asset or instrument from the seller  (writer) of the option.  A put option gives
the holder the right to sell the underlying asset or instrument to the writer of
the option.  The 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. If the Fund writes options on futures contracts,  it will
be subject to margin requirements similar to those applied to futures contracts.

SWAPS

Swaps are  contracts  in which two  parties  agree to pay each other  (swap) the
returns   derived  from   underlying   assets  or  instruments   with  differing
characteristics. Most swaps do not involve the delivery of the underlying assets
or  instruments  by either  party,  and the parties  might not own the assets or
instruments 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,  notional
principal amount of fixed income  securities,  in return for payments equal to a
different fixed or floating rate times the same notional principal amount, for a
specific period.  For example,  a $10 million LIBOR swap would require one party
to pay the  equivalent  of the London  Interbank  Offer Rate of interest  (which
fluctuates) on $10 million  notional  principal amount in exchange for the right
to receive  the  equivalent  of a stated  fixed rate of  interest on $10 million
notional principal amount.

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.

TOTAL RETURN SWAPS

Total return swaps are  contracts in which one party agrees to make  payments of
the total return from the  underlying  asset or instrument  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 or instrument.

TEMPORARY DEFENSIVE INVESTMENTS

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

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.

Treasury Securities

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

Agency Securities

Agency  securities  are  issued  or  guaranteed  by a  federal  agency  or other
government  sponsored entity acting under federal  authority (a GSE). The United
States  supports  some GSEs with its full faith and credit.  Other GSEs  receive
support through federal subsidies,  loans or other benefits.  A few GSEs have no
explicit financial  support,  but are regarded as having implied support because
the federal government sponsors their activities.

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.

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.

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 funds,
and an  inter-fund  loan is only made if it benefits  each  participating  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 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 fund than  market-competitive  rates on overnight repurchase  agreements
(Repo Rate) and more  attractive to the borrowing 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.

Delayed Delivery Transactions

The Fund does not intend to engage in delayed delivery transactions to an extent
that  would  cause the  segregation  of more than 20% of the total  value of its
assets.

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.

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 rating services.  For
example,  Standard &  Poor's,  a nationally  recognized  statistical  rating
organization  (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

The Fund may invest up to 100% of its assets in fixed  income  securities  rated
BBB or in unrated but comparable  securities.  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.

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 good faith by 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.

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>

REDUCING OR eliminating THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts (Class A Shares and Class F Shares)

Larger  purchases of the same Share class  reduce or eliminate  the sales charge
you pay. You can combine  purchases of Shares made on the same day by you,  your
spouse and your children  under age 21. In addition,  purchases made at one time
by a trustee  or  fiduciary  for a single  trust  estate  or a single  fiduciary
account can be combined.

Accumulated Purchases  (Class A Shares and Class F Shares)

If you make an  additional  purchase  of Shares,  you can count  previous  Share
purchases still invested in the Fund in calculating the applicable  sales charge
on the additional purchase.

Concurrent Purchases (Class A Shares and Class F Shares)

You can  combine  concurrent  purchases  of the same share  class of two or more
Federated funds in calculating the applicable sales charge.

Letter of Intent (Class A Shares and Class F Shares)

You can sign a Letter of Intent  committing to purchase a certain  amount of the
same class of Shares  within a  13-month  period to combine  such  purchases  in
calculating  the sales charge.  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.

Reinvestment Privilege

You may reinvest,  within 120 days, your Share  redemption  proceeds at the next
determined NAV without any sales charge.

Purchases by Affiliates of the Fund

The following  individuals and their immediate  family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts  associated
with their purchases:

o    the  Directors,  employees  and  sales  representatives  of the  Fund,  the
     Adviser, the Distributor and their affiliates;

o    any  associated  person of an investment  dealer who has a sales  agreement
     with the Distributor; and

o    trusts, pension or profit-sharing plans for these individuals.

Purchases Through Omnibus Accounts (Class C Shares Only)

Class C Shares may be purchased  without an initial sales charge by any investor
who  buys  Class  C  Shares   through  an  omnibus   account  with  a  financial
intermediary,  such as a broker or a bank,  that does not  accept or charge  the
initial sales charge.

</R>

Federated Life Members

Shareholders  of the Fund known as  "Federated  Life  Members"  are exempt  from
paying  any  front-end  sales  charge.   These  shareholders   joined  the  Fund
originally:

o    through the  "Liberty  Account,"  an account  for  Liberty  Family of Funds
     shareholders  on February 28, 1987 (the Liberty  Account and Liberty Family
     of Funds are no longer marketed); or

o    as Liberty  Account  shareholders  by investing  through an affinity  group
     prior to August 1, 1987.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

These reductions or eliminations are offered because:  no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon  notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

o    following  the death or  post-purchase  disability,  as  defined in Section
     72(m)(7)  of the  Internal  Revenue  Code of 1986,  of the  last  surviving
     shareholder;

o    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;

o    of Shares  that  represent  a  reinvestment  within  120 days of a previous
     redemption;

o    of Shares held by the Directors,  employees,  and sales  representatives of
     the Fund, the Adviser,  the Distributor and their affiliates;  employees of
     any  investment  professional  that  sells  Shares  according  to  a  sales
     agreement  with the  Distributor;  and the immediate  family members of the
     above persons;

o    of  Shares  originally  purchased  through  a  bank  trust  department,   a
     registered  investment  adviser or  retirement  plans where the third party
     administrator has entered into certain arrangements with the Distributor or
     its affiliates, or any other investment professional, to the extent that no
     payments were advanced for purchases made through these entities;

o    which  are  involuntary  redemptions  processed  by the  Fund  because  the
     accounts do not meet the minimum balance requirements;

Class B Shares Only

o    which  are  qualifying  redemptions  of Class B Shares  under a  Systematic
     Withdrawal Program; and

<R>

Class F Shares Only

o    representing a total or partial distribution from a qualified plan. A total
     or partial  distribution does not include an account transfer,  rollover or
     other redemption made for purposes of  reinvestment.  A qualified plan does
     not include an Individual  Retirement  Account,  Keogh Plan, or a custodial
     account, following retirement.

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

o    Shares that are not subject to a CDSC; and

o    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).

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

</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:

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

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

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


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

                                   Dealer
                                   Reallowance
                                   as a Percentage
                                   of
Purchase Amount (Class F           Public Offering
Shares)                            Price
Less than $1 million               1.00%
$1 million or greater1             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
                             Public Offering
Purchase Amount              Price
First $1 million - $5        0.75%
million
Next $5 million - $20        0.50%
million
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.


Class B Shares
                             Advance Commission
                             as a Percentage of
                             Public Offering Price
All Purchase Amounts         Up to 5.50%


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

 Class C Shares
                             Advance Commission
                             as a Percentage of
                             Public Offering Price
All Purchase Amounts         1.00%


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

Class F Shares
Purchase Amount              Advance Commission
                             as a Percentage of
                             Public Offering Price
Less than $2 million         1.00%
$2million -but less than     0.50%
$5 million
$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 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.

SERVICE FEES

The Fund may pay fees not to exceed 0.25% of average  daily net assets  (Service
Fees) to investment  professionals or to Federated  Shareholder Services Company
(FSSC),  a subsidiary of Federated,  for providing  services to shareholders and
maintaining shareholder accounts. . Under certain agreements, rather than paying
investment  professionals  directly,  the Fund may pay Service  Fees to FSSC and
FSSC will use the fees to compensate investment professionals.

SUPPLEMENTAL PAYMENTS

Investment  professionals may be paid fees, in significant  amounts,  out of the
assets  of the  Distributor.  These  fees do not  come out of Fund  assets.  The
Distributor may be reimbursed by the Adviser or its affiliates.

These  supplemental  payments  may be based  upon such  factors as the number or
value of Shares  the  investment  professional  sells or may sell;  the value of
client assets invested; and/or the type and nature of services, sales support or
marketing support furnished by the investment professional. In addition to these
supplemental  payments,  an investment  professional  may also receive  payments
under the Rule 12b-1 Plan and/or Service Fees.

</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 2, 2003, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class A Shares:  Edward  Jones &  Co.,
Maryland Hts., MO, owned approximately 3,697,861 Shares (29.68%).

As of October 2, 2003, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class B Shares:  Edward  Jones &  Co.,
Maryland Hts., MO, owned  approximately  896,668 Shares  (6.85%),  and CitiGroup
Global  Markets,  Inc.,  New York,  NY,  owned  approximately  1,489,905  Shares
(11.39%).

As of October 2, 2003, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class C Shares:  Edward  Jones &  Co.,
Maryland Hts., MO, owned approximately 237,705 Shares (16.00%),  and MLPF&S,
Jacksonville, FL, owned approximately 277,696 Shares (18.69%).

As of October 2, 2003, the following shareholders owned of record, beneficially,
or both,  5% or more of  outstanding  Class F Shares:  Edward  Jones &  Co.,
Maryland Hts., MO, owned approximately  955,054 Shares (5.47%),  and MLPF&S,
Jacksonville, FL, owned approximately 3,792,190 Shares (21.71%).

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.

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?

<R>

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 138 portfolios).  Unless otherwise noted, each Officer is
elected  annually.  Unless  otherwise  noted,  each Board  member  oversees  all
portfolios in the Federated  Fund Complex;  serves for an indefinite  term;  and
also serves as a Board member of the  following  investment  company  complexes:
Banknorth Funds-four portfolios; Golden Oak(R) Family of Funds-seven portfolios;
and WesMark Funds-five portfolios.

As of October 2, 2003,  the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B, C and F Shares.


INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

                      Principal Occupation(s) for Past   Aggregate     Total
Name                  Five Years, Other Directorships    Compensation  Compensation
Birth Date            Held and Previous Position(s)      From Fund     From Fund and
Address                                                  past          Federated Fund
Positions Held with                                     (fiscal        Complex
Fund                                                    year)          (past calendar
Date Service Began                                                     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:
November 1986         Previous Positions: Trustee,
                      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, Passport Research,
                      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       $1,236.87   $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,
VICE PRESIDENT and    University of Pittsburgh Medical
DIRECTOR              Center.
Began serving:
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

                      Principal Occupation(s) for Past   Aggregate     Total
Name                  Five Years, Other Directorships    Compensation  Compensation
Birth Date            Held and Previous Position(s)      From Fund     From Fund and
Address                                                  past          Federated Fund
Positions Held with                                     (Fiscal year)  Complex
Fund                                                                   (past calendar
Date Service Began                                                      year)
                      Principal Occupation: Director     $1,360.54         $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       $1,360.54         $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        $1,360.54         $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        $1,236.87         $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        $1,236.87         $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       $1,360.54         $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.

John E. Murray,       Principal Occupations: Director       $1,484.22         $178,200
Jr., J.D., S.J.D.     or Trustee of the Federated Fund
Birth Date:           Complex; Chancellor and Law
December 20, 1932     Professor, Duquesne University;
Chancellor,           Consulting Partner, Mollica
Duquesne University   & Murray.
Pittsburgh, PA
DIRECTOR              Other Directorships Held:
Began serving:        Director, Michael Baker Corp.
February 1995         (engineering, construction,
                      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      $1,236.87         $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      $1,236.87         $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                          Principal Occupation(s) and Previous Position(s)
Birth Date
Address
Positions Held with Fund
                              Principal Occupations: Executive Vice President of some
Edward C. Gonzales            of the Funds in the Federated Fund Complex; Vice
Birth Date: October 22, 1930  Chairman, Federated Investors, Inc.; Trustee, Federated
EXECUTIVE VICE PRESIDENT      Administrative Services.
Began serving: June 1995
                              Previous Positions: President and Trustee or Director
                              of some of the Funds in the Federated Fund Complex; CEO
                              and Chairman, Federated Administrative Services; Vice
                              President, Federated Investment Management Company,
                              Federated Investment Counseling, Federated Global
                              Investment Management Corp. and Passport Research,
                              Ltd.; Director and Executive Vice President, Federated
                              Securities Corp.; Director, Federated Services Company;
                              Trustee, Federated Shareholder Services Company.

                              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: June 1995      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.

                              Principal Occupations: Chief Investment Officer of this
William D. Dawson, III        Fund and various other Funds in the Federated Fund
Birth Date: March 3, 1949     Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT OFFICER      Counseling, Federated Global Investment Management
Began serving: November 1998  Corp., Federated Investment Management Company and
                              Passport Research, Ltd.

                              Previous Positions: Executive Vice President and Senior
                              Vice President, Federated Investment Counseling
                              Institutional Portfolio Management Services Division;
                              Senior Vice President, Federated Investment Management
                              Company and Passport Research, Ltd.


                              Mary Jo Ochson has been the Fund's Portfolio Manager
Mary Jo Ochson                since May 1996. She is Vice President of the Fund. Ms.
Birth Date: September 12,     Ochson joined Federated in 1982 and has been a Senior
1953                          Portfolio Manager and a Senior Vice President of the
                              Fund's Adviser since 1996. From 1988 through 1995, Ms.
                              Ochson served as a Portfolio Manager and a Vice
VICE PRESIDENT                President of the Fund's Adviser. Ms. Ochson is a
Began serving: May 1996       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
                              Committee Functions                          Meetings
                                                                           Held
                                                                           During
                                                                           Last
Board     Committee                                                        Fiscal
Committee Members                                                          Year
Executive                     In between meetings of the full Board,       2
          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 Audit Committee reviews and              4
          Thomas G. Bigley    recommends to the full Board the
          John T. Conroy,     independent auditors to be selected to
          Jr.                 audit the Fund`s financial statements;
          Nicholas P.         meets with the independent auditors
          Constantakis        periodically to review the results of the
          Charles F.          audits and reports the results to the
          Mansfield, Jr.      full Board; evaluates the independence of
                              the auditors, reviews legal and
                              regulatory matters that may have a
                              material effect on the financial
                              statements, related compliance policies
                              and programs, and the related reports
                              received from regulators; reviews the
                              Fund`s internal audit function; reviews
                              compliance with the Fund`s code of
                              conduct/ethics; reviews valuation issues;
                              monitors inter-fund lending transactions;
                              reviews custody services and issues and
                              investigates any matters brought to the
                              Committee's attention that are within the
                              scope of its duties.



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

</R>

Board ownership of shares in the fund and in the Federated family of
Investment companies AS OF DECEMBER 31, 2002
                   Dollar Range of    Aggregate
                   Shares Owned       Dollar Range of
                   in Fund            Shares Owned in
                                      Federated
                                      Family of
Interested                            Investment
Board Member Name                     Companies
John F. Donahue               None    Over $100,000
J. Christopher                None    Over $100,000
Donahue
Lawrence D. Ellis,         $1.00 -    Over $100,000
M.D.                    $10,000.00

Independent
Board Member Name
Thomas G. Bigley              None    Over $100,000
John T. Conroy, Jr.           None    Over $100,000
Nicholas P.                   None    Over $100,000
Constantakis
John F. Cunningham            None    Over $100,000
Peter E. Madden               None    Over $100,000
Charles F.                    None        $50,001 -
Mansfield, Jr.                             $100,000
John E. Murray,               None    Over $100,000
Jr., J.D., S.J.D.
Marjorie P. Smuts             None    Over $100,000
John S. Walsh         $10,001.00 -    Over $100,000
                        $50,000.00

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 and transfer agent).  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 offered by Federated.

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.

</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. In selecting among firms believed to meet these
criteria,  the Adviser may give  consideration to those firms which have sold or
are selling Shares of the Fund and other funds  distributed  by the  Distributor
and its affiliates.  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 Services Company, a subsidiary of Federated,  provides  administrative
personnel  and  services   (including  certain  legal  and  financial  reporting
services)  necessary to operate the Fund.  Federated  Services  Company 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                   Net Assets of the
Administrative Fee        Federated Funds
0.150 of 1%               on the first $250 million
0.125 of 1%               on the next $250 million
0.100 of 1%               on the next $250 million
                          on assets in excess of
0.075 of 1%               $750 million

The  administrative  fee  received  during  any  fiscal  year  shall be at least
$125,000  per  portfolio  and  $30,000  per each  additional  class  of  Shares.
Federated  Services  Company may voluntarily  waive a portion of its fee and may
reimburse the Fund for expenses.

Federated  Services Company 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

Federated  Services Company,  through its registered  transfer agent subsidiary,
Federated  Shareholder  Services  Company,  maintains all necessary  shareholder
records.  The Fund pays the  transfer  agent a fee  based on the size,  type and
number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, conducts its audits
in accordance with auditing standards generally accepted in the United States of
America,  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>


FEES PAID BY THE FUND FOR SERVICES


For the Year Ended August 31     2003                 2002           2001

Advisory Fee Earned             $2,522,111           $2,421,823     $2,309,007
Advisory Fee Reduction          $0                   $0             $30,897
Administrative Fee              $316,105             $303,603       $289,781
12b-1 Fee:
 (Class A Shares)               $--                  --             --
 (Class B Shares)               $884,366             --             --
 (Class C Shares)               $85,931              --             --
 (Class F Shares)               $--                  --             --
Shareholder Services Fee:
 (Class A Shares)               $291,257             --             --
 (Class B Shares)               $294,788             --             --
 (Class C Shares)               $28,644              --             --
 (Class F Shares)               $436,190             --             --

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.

If the  Fund's  expenses  are  capped at a  particular  level,  the cap does not
include  reimbursement to the Fund of any expenses  incurred by shareholders who
use the transfer agent's subaccounting facilities.

</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, 2003.

Yield and Tax-Equivalent  Yield are given for the 30-day period ended
August 31, 2003.

                       30-Day         1 Year    5 Years  Start of
                       Period                            Performance on
                                                         August 05, 1996
Class A Shares:
Total Return
  Before Taxes         N/A            (0.64)%   1.83%    3.65%
  After Taxes on       N/A            (0.64)%   1.83%    3.65%
  Distributions
  After Taxes on       N/A            1.58%     2.33%    3.91%
  Distributions
  and Sale of Shares
Yield                  5.33%          N/A       N/A      N/A
Tax-Equivalent Yield   8.20%          N/A       N/A      N/A
----------------------------------------------------------------------------
                       30-Day         1 Year    5 Years  Start of
                       Period                            Performance on
                                                         August 05, 1996
Class B Shares:
Total Return
  Before Taxes         N/A            (2.21)%   1.68%    3.54%
  After Taxes on       N/A            (2.21)%   1.68%    3.54%
  Distributions
  After Taxes on       N/A            0.37%     2.12%    3.72%
  Distributions
  and Sale of Shares
Yield                  4.83%          N/A       N/A      N/A
Tax-Equivalent Yield   7.43%          N/A       N/A      N/A
-------------------------------------------------------------------------------

                       30-Day         1 Year    5 Years  Start of
                       Period                            Performance on
                                                         August 05, 1996
Class C Shares:
Total Return
  Before Taxes         N/A            1.15%     1.79%    3.38%
  After Taxes on       N/A            1.15%     1.79%    3.38%
  Distributions
  After Taxes on       N/A            2.54%     2.21%    3.59%
  Distributions
  and Sale of Shares
Yield                  4.83%          N/A       N/A      N/A
Tax-Equivalent Yield   7.43%          N/A       N/A      N/A
-------------------------------------------------------------------------------

                       30-Day         1 Year    5 Years  10
                       Period                            Years
Class F Shares:
Total Return
  Before Taxes         N/A            2.03%     2.57%    3.95%
  After Taxes on       N/A            2.03%     2.57%    3.95%
  Distributions
  After Taxes on       N/A            3.38%     2.98%    4.16%
  Distributions
  and Sale of Shares
Yield                  5.52%          N/A       N/A      N/A
Tax-Equivalent Yield   8.49%          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 municipal  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 2003
                        MULTISTATE MUNICIPAL FUND

------------  ----------- ---------  ---------- -----------  -----------  -----------
    TAX
 BRACKET:
  FEDERAL         10.00%    15.00%      25.00%      28.00%       33.00%       35.00%

------------  ----------- ---------  ---------- -----------  -----------  -----------
------------  ----------- ---------  ---------- -----------  -----------  -----------
   JOINT              $0-  $14,001 -   $56,801-   $114.651 -   $174,701 -       OVER
  RETURN:        $14,000   $56,800    $114,650    $174,700     $311,950     $311,950

  SINGLE              $0-   $7,001 -   $28,401-    $68,801 -   $143,501 -       OVER
  RETURN:         $7,000   $28,400     $68,800    $143,500     $311,950     $311,950

------------  ----------- ---------  ---------- -----------  -----------  -----------
------------
TAX-EXEMPT
   YIELD                           TAXABLE YIELD EQUIVALENT

------------  ----------- ---------  ---------- ------------ -----------  -----------
------------  ----------- ---------  ---------- ------------ -----------  -----------
      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.

------------  ----------- ---------  ---------- -----------  -----------  -----------
TAX RATES:
  FEDERAL          10.0%     15.0%       25.0%       28.0%        33.0%        35.0%
   STATE           0.00%     0.00%       0.00%       0.00%        0.00%        0.00%

 COMBINED         10.00%    15.00%      25.00%      28.00%       33.00%       35.00%

  FACTOR         1.11111   1.17647     1.33333     1.38889      1.49254      1.53846

                                                              06/26/03

</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.

<R>

Federated Funds overview

Municipal Funds

In the  municipal  sector,  as of December 31, 2002,  Federated  managed 14 bond
funds with  approximately  $3.2 billion in assets and 22 money market funds with
approximately $20.6 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 31 years'  experience.  As of
December 31, 2002,  Federated  managed 37 equity  funds  totaling  approximately
$16.2 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, 2002,  Federated  managed 10
money market funds and 9 bond funds with assets  approximating $59.4 billion and
$6.0 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 29 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, 2002,  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,
2002,  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 - William D. Dawson III is
responsible   for  overseeing   the  management  of  Federated's   domestic  and
international fixed income and high yield 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.

</R>

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.  The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.

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. The marketing effort
to trust clients is headed by Timothy C. Pillion,  Senior Vice  President,  Bank
Marketing & Sales Division, Federated Securities Corp.

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.  The  marketing  effort to these  firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.

FINANCIAL INFORMATION

The Financial  Statements for the Fund for the fiscal year ended August 31, 2003
are  incorporated  herein by reference to the Annual Report to  Shareholders  of
Federated Municipal Opportunities Fund, Inc. dated August 31, 2003.

<R>

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, favorable 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,  favorable
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  seniorshort-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.

</R>


Addresses

Federated Municipal Opportunities 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
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600


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


Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PART C.     OTHER INFORMATION.

Item 23.    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)
            (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; (+)
                  (vi)  Copy of Amendment #10 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; (+)
            (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 the Second Amended and Restated Services Agreement
                        from Item (h) (v) of the Investment Series Funds, Inc.
                        Registration Statement on Form N-1A, filed with the
                        Commission on January 23, 2002 (File Nos. 33-48847 and
                        811-07021).
                  (iii) Conformed copy of Principal Shareholder Servicer's
                        Agreement (Class B Shares); (13)
                  (iv)  Conformed copy of Exhibit 1 to the Principal
                        Shareholder Servicer's Agreement (Class B Shares) and
                        Schedule A thereto; (13)
                  (v)   Conformed copy of Shareholder Services Agreement
                        (Class B Shares); (13)
                  (vi)  Conformed copy of Exhibit 1 to the Shareholder
                        Services Agreement (Class B Shares) and Schedule A
                        thereto; (13)
                  (vii) The responses described in Item 23(e)(vi) are hereby
                        incorporated by reference.
                  (viii)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)
            (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 Income Securities Trust Registration
                        Statement on Form N-1A, filed with the Commission on
                        June 30, 2003.  (File Nos. 33-3164 and 811-4577).
            (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 Federated Institutional Trust
                        Registration Statement on Form N-1A filed with the
                        Commission on September 30, 2003.  (File Nos. 33-54445
                        and 811-7193).


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

+     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)


Item 24.    Persons Controlled by or Under Common Control with the Fund:

            None.

Item 25.    Indemnification:  (1)

Item 26.    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 four of the Trustees and one 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:



Vice Chairman:                                  J. Thomas Madden



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

Executive Vice Presidents:                      Stephen F. Auth
                                                William D. Dawson, III

Senior Vice Presidents:                         Joseph M. Balestrino
                                                David A. Briggs
                                                Jonathan C. Conley
                                                Christopher F. Corapi
                                                Deborah A. Cunningham
                                                Linda A. Duessel
                                                Mark E. Durbiano
                                                James E. Grefenstette
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Frank Semack
                                                Richard Tito
                                                Peter Vutz

Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                David M. Bruns
                                                Robert E. Cauley
                                                Regina Chi
                                                Ross M. Cohen
                                                David W. Cook
                                                Fred B. Crutchfield
                                                Lee R. Cunningham, II
                                                Alexandre de Bethmann
                                                Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                David P. Gilmore
                                                Curtis R. Gross
                                                Marc Halperin
                                                John W. Harris
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                Nikola A. Ivanov
                                                William R. Jamison
                                                Constantine J. Kartsonas
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Steven Lehman
                                                Marian R. Marinack
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                John L. Nichol
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                David R. Powers
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                Aash M. Shah
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Diane R. Startari
                                                Timothy G. Trebilcock
                                                Leonardo A. Vila
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                Richard M. Winkowski, Jr.
                                                Lori A. Wolff
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Catherine A. Arendas
                                                Nicholas P. Besh
                                                Hanan Callas
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                David Dao
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                Igor Golalic
                                                James Grant
                                                Anthony Han
                                                Carol B. Kayworth
                                                Angela A. Kohler
                                                Robert P. Kozlowski
                                                Ted T. Lietz, Sr.
                                                Monica Lugani
                                                Tracey L. Lusk
                                                Ann Manley
                                                Dana Meissner
                                                Theresa K. Miller
                                                Karl Mocharko
                                                Bob Nolte
                                                Daniel Peris
                                                Rae Ann Rice
                                                Jennifer G. Setzenfand
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes
                                                Michael R. Tucker
                                                Mark Weiss

Secretary:                                      G. Andrew Bonnewell


Treasurer:                                      Thomas R. Donahue


Assistant Secretaries:                          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 27.    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;  Edward Jones Money
          Market Fund;  Edward  Jones  Tax-Free  Money  Market  Fund;  Federated
          American  Leaders Fund,  Inc.;  Federated  Adjustable  Rate Securities
          Fund;  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  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  Opportunities Fund, Inc.;  Federated
          Municipal Securities Fund, Inc.; Federated Municipal Securities Income
          Trust;   Federated  Short-Term  Municipal  Trust;   Federated  Premier
          Intermediate Municipal Income Fund; Federated Premier Municipal Income
          Fund;  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;  Money Market  Obligations  Trust; and
          SouthTrust Funds.





         (b)


         (1)                        (2)                        (3)
Positions and Offices                                 Positions and Offices
  With Distributor                  Name                 With Registrant
_____________________         _________________       ______________________

Chairman:                     Richard B. Fisher       Vice Chairman



Director:                     Arthur L. Cherry



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

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

Vice Presidents:              Irving Anderson
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              Daniel T. Culbertson
                              G. Michael Cullen
                              Marc C. Danile
                              Rick A. DiBernardo
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Renee Gebben
                              Peter J. Germain
                              Joseph D. Gibbons
                              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              H. Joseph Kennedy
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Mark J. Miehl
                              Richard C. Mihm
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Richard A. Recker
                              Christopher Renwick
                              Brian S. Ronayne
                              Thomas S. Schinabeck
                              Edward J. Segura
                              Peter Siconolfi
                              Edward L. Smith
                              David W. Spears
                              John A. Staley
                              Colin B. Starks
                              Jeffrey A. Stewart
                              Kevin Stutz
                              Timothy A. Rosewicz
                              Greg Spralding
                              William C. Tustin
                              Paul A. Uhlman
                              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.
                              Beth C. Dell
                              Jennifer Fetteroff
                              John T. Glickson
                              William Rose
                              Lynn Sherwood-Long

Treasurer:                    Denis McAuley, III


Secretary:                    Stephen A. Keen


Assistant Secretaries:        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 28.    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 29.    Management Services:  Not applicable.

Item 30.    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
OPPORTUNITIES  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
28th day of October, 2003.

                  FEDERATED MUNICIPAL OPPORTUNITIES 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 28, 2003
    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