N14EL24/A

   
Reg. No.  333-13527
     811-4533
    
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
   
PRE-EFFECTIVE AMENDMENT NO.1 TO FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
    
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
(FORMERLY, FORTRESS MUNICIPAL INCOME FUND, INC.)
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

(412) 288-1900
(AREA CODE AND TELEPHONE NUMBER)

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

JOHN W. MCGONIGLE, ESQUIRE
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPIES TO:

Byron F. Bowman, Esquire              Matthew G. Maloney, Esquire
Senior Corporate Counsel              Dickstein Shapiro Morin & Oshinsky LLP
Federated Investors                   2101 L Street, N.W.
Federated Investors Tower             Washington, D.C.  20037
Pittsburgh, PA 15222
   
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
that it elects to register an indefinite amount of securities under the
Securities Act of 1933, as amended, and filed the Notice required by that Rule
for Registrant's fiscal year ended August 31, 1995 on October 16, 1995 and filed
the Notice required by Rule 24e-2 for its fiscal year ended August 31, 1996 on
October 15, 1996. Accordingly, no filing fee is submitted herewith.
    
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.


CROSS REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14


Item of Part A of Form N-14 and    Caption or Location in
Caption   Prospectus

1.   Beginning of Registration
     Statement and Outside Front   Cross Reference Sheet;
     Cover Page of Prospectus Cover Page

2.   Beginning and Outside Back
     Cover Page of Prospectus      Table of Contents
3.   Fee Table, Synopsis Information         Summary of Expenses; Summary;
     and Risk Factors         Risk Factors

4.   Information About the         Information About the
     Transaction         Reorganization

5.   Information About the    Information About the Federated
     Registrant     Fund and the State Bond Fund

6.   Information About the         Information About the Federated Fund
     Company Being Acquired        and the State Bond Fund

7.   Voting Information       Voting Information

8.   Interest of Certain Persons
     and Experts         Not Applicable

9.   Additional Information
     Required for Reoffering by
     Persons Deemed to be
     Underwriters        Not Applicable





STATE BOND TAX EXEMPT FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota  56073-0069

Dear Shareholder:
   
The Board of Directors and management of State Bond Tax Exempt Fund (the `State
Bond Fund') are pleased to submit for your vote a proposal to transfer all of
the net assets of the State Bond Fund to Federated Municipal Opportunities Fund,
Inc. (the "Federated Fund"), a mutual fund advised by Federated Advisers.  The
Federated Fund has an investment objective similar to that of the State Bond
Fund in that it seeks a high level of current income exempt from the federal
regular income tax by investing primarily in a professionally managed,
diversified portfolio of municipal bonds.  As part of the transaction, holders
of shares in the State Bond Fund would receive Class A Shares of the Federated
Fund equal in value to their shares in the State Bond Fund and the State Bond
Fund would be liquidated.  Shareholders receiving Class A Shares of the
Federated Fund as a result of the proposed reorganization would not have to pay
a sales load upon receiving such Shares, nor would they be subject to any
contingent deferred sales charges in connection with the exercise of exchange
rights or redemptions of such Shares.
The Board of Directors of the State Bond Fund, as well as ARM Capital Advisors,
Inc., the State Bond Fund's manager, and SBM Financial Services, Inc., the State
Bond Fund's distributor, believe the proposed agreement and plan of
reorganization is in the best interests of State Bond Fund shareholders for the
following reasons:
    
- --  The reorganization of the State Bond Fund into the Federated Fund may
ultimately provide operating efficiencies as a result of the size of the
Federated Fund which were not available to State Bond Fund shareholders due to
the smaller size of the State Bond Fund.

- --  The Federated Fund has an investment objective similar to that of the State
Bond Fund and offers an investment portfolio which invests in municipal bonds to
achieve a high level of current income exempt from the federal regular income
tax.
The Federated Fund is managed by Federated Advisers, a subsidiary of Federated
Investors.  Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania.  Federated Advisers and other subsidiaries of
Federated Investors serve as investment advisers to a number of investment
companies and private accounts.  With over $90 billion invested across more than
250 funds under management and/or administration by its subsidiaries, Federated
Investors is one of the largest mutual fund investment managers in the United
States.  With more than 2,000 employees, Federated continues to be led by the
management who founded the company in 1955.  Federated funds are presently at
work in and through 4,000 financial institutions nationwide.  More than 100,000
investment professionals have selected Federated funds for their clients.
Federated Investors also has an excellent reputation for customer servicing,
having received a #1 rating for five years in a row by Dalbar, Inc.  The
shareholder services for the Federated funds include advanced technological
systems that result in quick shareholder access to a broad spectrum of
information.
We believe the transfer of the State Bond Fund's assets in this transaction
presents an exciting investment opportunity for our shareholders.  Your vote on
the transaction is critical to its success.  The transfer will be effected only
if approved by a majority of all of the State Bond Fund's outstanding shares on
the record date voted in person or represented by proxy.  We hope you share our
enthusiasm and will participate by casting your vote in person, or by proxy if
you are unable to attend the meeting.  Please read the enclosed prospectus/proxy
statement carefully before you vote.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST INTEREST OF
THE STATE BOND FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,



Dale C. Bauman
President
STATE BOND TAX EXEMPT FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota  56073-0069

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS



TO SHAREHOLDERS OF STATE BOND TAX EXEMPT FUND:
   
A Special Meeting of Shareholders of State Bond Tax Exempt Fund, a portfolio of
State Bond Municipal Funds, Inc. (the `State Bond Fund'') will be held at
3:40 p.m. on December 9, 1996 at:  100 North Minnesota Street, New Ulm,
Minnesota  56073-0069, for the following purposes:
    
1.   To approve or disapprove a proposed Agreement and Plan of Reorganization
between State Bond Fund and Federated Municipal Opportunities Fund, Inc. (the
"Federated Fund"), whereby the Federated Fund would acquire all of the net
assets of the State Bond Fund in exchange for the Federated Fund's Class A
Shares to be distributed pro rata by the State Bond Fund to the holders of its
shares in complete liquidation of the State Bond Fund; and
2.   To transact such other business as may properly come before the meeting or
any adjournment thereof.

By Order of the Board of Directors,

   

Dated:  November 1, 1996 Kevin L. Howard
     Secretary
    


Shareholders of record at the close of business on October 11, 1996, are
entitled to vote at the meeting.  Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card.  Your vote is important.

TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.  YOU MAY
REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU
ATTEND THE MEETING.


PROSPECTUS/PROXY STATEMENT
   
NOVEMBER 1, 1996
    
ACQUISITION OF THE ASSETS OF
STATE BOND TAX EXEMPT FUND,
A PORTFOLIO OF
STATE BOND MUNICIPAL FUNDS, INC.
100 NORTH MINNESOTA STREET
P.O. BOX 69
NEW ULM, MINNESOTA  56073-0069
TELEPHONE NUMBER:  1-800-328-4735
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA  15222-3779
   
TELEPHONE NUMBER:  1-800-245-5051, OPTION ONE
    

This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Federated Municipal Opportunities Fund,
Inc., a Maryland corporation (the "Federated Fund"), would acquire all of the
net assets of State Bond Tax Exempt Fund, a portfolio of State Bond Municipal
Funds, Inc., a Maryland corporation (the `State Bond Fund''), in exchange for
the Federated Fund's Class A Shares to be distributed pro rata by the State Bond
Fund to the holders of its shares, in complete liquidation of the State Bond
Fund.  As a result of the Plan, each shareholder of the State Bond Fund will
become the owner of the Federated Fund's Class A Shares having a total net asset
value equal to the total net asset value of his or her holdings in the State
Bond Fund.
THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL OF
THE PLAN.
The Shares of each of the Federated Fund and the State Bond Fund represent
interests of separate open-end, diversified management investment companies.
The Federated Fund's investment objective is to provide a high level of current
income which is generally exempt from the federal regular income tax, which it
pursues by investing primarily in a diversified portfolio of municipal bonds.
The State Bond Fund's investment objective is to maximize current income exempt
from federal income taxes to the extent consistent with preservation of capital,
with consideration given to the opportunity for capital gain, by investing
primarily in tax exempt securities.  For a comparison of the investment policies
of the Federated Fund and the State Bond Fund, see "Summary-Investment
Objectives, Policies and Limitations."
   
This Prospectus/Proxy Statement should be retained for future reference.  It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing.  This Prospectus/Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated October 31, 1996,
which is incorporated herein by reference.  Statements of Additional Information
for the Federated Fund dated October 31, 1996 (relating to the Federated Fund's
prospectus of the same date) and November 1, 1996 (relating to this
Prospectus/Proxy Statement) and the Annual Report to Shareholders dated August
31, 1996, all containing additional information, have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
Copies of the Statements of Additional Information and the Annual Report may be
obtained without charge by writing or calling the Federated Fund at the address
and telephone number shown above.
    
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.  INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT.  ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS

                                                         Page No.
Summary of Expenses
Summary
About the Proposed Reorganization
Investment Objectives, Policies and Limitations
Advisory and Other Fees
Distribution Arrangements
Purchase, Exchange and Redemption Procedures
Dividends
Tax Consequences
Risk Factors
Information About the Reorganization
Background and Reasons for the Proposed Reorganization
Agreement Among ARM, ARM Capital and Federated
Description of the Plan of Reorganization
Description of Federated Fund Shares
Federal Income Tax Consequences
Comparative Information on Shareholder Rights and Obligations
Capitalization
Information About the Federated Fund and the State Bond Fund
Federated Municipal Opportunities Fund, Inc.
State Bond Tax Exempt Fund
Voting Information
Outstanding Shares and Voting Requirements
Dissenter's Right of Appraisal
Other Matters and Discretion of Persons Named in the Proxy
Agreement and Plan of Reorganization -- Exhibit A

SUMMARY OF EXPENSES

                                    Federated   State     Pro  Forma
                                    Fund        Bond     Combined
                                    (Class A    Fund
                                    Shares)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases                             4.50%(1)   4.50%    4.50%(1)
(as a percentage of offering
price)
Maximum Sales Charge Imposed on
  Reinvested Dividends (as a
percentage of                         None       None     None
  offering price)................
Contingent Deferred Sales Charge
  (as a percentage of original
purchase                              None(2)    None     None(2)
  price or redemption proceeds, as
applicable)......................
Redemption Fee (as a percentage of
  amount redeemed, if                 None       None     None
applicable)(3)...................
Exchange Fee.....................     None       None     None
   
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee...................     0.60%      0.50%    0.60%
12b-1 Fee........................     0.00%(4)   0.25%    0.00%(4)
Total Other Expenses.............     0.49%(5)   0.15%    0.46%(5)
  Total Operating Expenses(6)....     1.09%      0.90%    1.06%
    
(1)  This sales charge would not be applicable to shares of the Federated Fund
acquired under the proposed reorganization.

(2)  Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1% for redemptions made within one full year of
purchase.  For a more complete description see `Summary - Distribution
Arrangements.'' This contingent deferred sales charge would not be applicable
to shares of the Federated Fund acquired under the proposed reorganization.

(3)  Wire-transferred redemptions of Class A Shares of the Federated Fund of
less than $5,000 may be subject to additional fees.  A $10.00 fee will be
charged for certain redemptions of State Bond Fund shares by wire transfer.

(4)  The Federated Fund has no present intention of paying or accruing the 12b-1
fee.  If the Federated Fund were paying or accruing the 12b-1 fee, it would be
able to pay up to 0.25% of its average daily net assets for the 12b-1 fee.  For
a more complete description see `Summary-Distribution Arrangements.''


(5)  Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.25%.
   

(6)  The total operating expenses for Class A Shares of the Federated Fund are
based on expenses incurred during the fiscal year ending August 31, 1996.  The
total operating expenses for the State Bond Fund are based upon expenses
incurred by the State Bond Fund during its fiscal year ended June 30, 1996.
    
        The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of shares of each of the Federated
Fund, the State Bond Fund and the pro forma combined fund will bear, either
directly or indirectly.  For more complete descriptions of the various costs and
expenses see "Summary - Advisory and Other Fees" and "Summary - Distribution
Arrangements."
        Long-term shareholders of the State Bond Fund may pay more than the
economic equivalent of the maximum front-end sales charges permitted under the
rules of the National Association of Securities Dealers, Inc.
EXAMPLE
           
        The Example below is intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly.  The Example
assumes payment of operating expenses at the levels set forth in the table
above.  The Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Shares
received as a result of the proposed reorganization.  Shares purchased
subsequent to the reorganization may be subject to sales charges.  For a
complete description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of the
Federated Fund dated October 31, 1996 and the Prospectus of the State Bond Fund
dated November 1, 1995, each of which is incorporated herein by reference
thereto.
            

An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end
of each time period.  Expenses would be the
same if there were no redemption at
the end of each time period.       1 year    3 years   5 years   10 years

Federated Fund                       $11        $34       $60       $132
State Bond Fund                      $9         $29       $50       $111
Pro Forma Combined                   $11        $34       $58       $129

        THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES.  ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
           
        This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Federated Fund dated October 31, 1996, the Statement of
Additional Information of the Federated Fund dated October 31, 1996, the
Prospectus of the State Bond Fund dated November 1, 1995, the Statement of
Additional Information of the State Bond Fund dated November 1, 1995, and the
Plan, a copy of which is attached to this Prospectus/Proxy Statement as Exhibit
A.
            
About the Proposed Reorganization
           
        The Board of Directors of the State Bond Fund has voted to recommend to
holders of the shares of the State Bond Fund the approval of the Plan whereby
the Federated Fund  would acquire all of the net assets of the State Bond Fund
in exchange for the Federated Fund's Class A Shares to be distributed pro rata
by the State Bond Fund to its shareholders in complete liquidation and
dissolution of the State Bond Fund (the "Reorganization").  As a result of the
Reorganization, each shareholder of the State Bond Fund will become the owner of
the Federated Fund's Class A Shares having a total net asset value equal to the
total net asset value of his or her holdings in the State Bond Fund on the date
of the Reorganization, i.e., the Closing Date (as hereinafter defined).
            
        As a condition to the Reorganization transactions, the Federated Fund
and the State Bond Fund will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code of 1986, as amended (the `Code''), so
that no gain or loss will be recognized by either the Federated Fund or the
State Bond Fund or the shareholders of the State Bond Fund.  The tax basis of
the Federated Fund's Class A Shares received by State Bond Fund shareholders
will be the same as the tax basis of their shares in the State Bond Fund.  After
the acquisition is completed, the State Bond Fund will be dissolved.
Investment Objectives, Policies and Limitations
        The investment objective of the Federated Fund is to provide a high
level of current income which is generally exempt from the federal regular
income tax by investing primarily in a diversified portfolio of municipal bonds.
This investment objective may not be changed without the affirmative vote of a
majority of the outstanding voting securities of the Federated Fund, as defined
in the Investment Company Act of 1940, as amended (the `1940 Act'').
        The investment objective of the State Bond Fund is to seek to maximize
current income exempt from federal income taxes to the extent consistent with
preservation of capital, with consideration given to the opportunity for capital
gain, by investing primarily in tax exempt securities.   This investment
objective may not be changed without the affirmative vote of a majority of the
outstanding voting securities of the State Bond Fund, as defined in the 1940
Act.
        The Federated Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax (the `federal
AMT')).  The Federated Fund invests primarily in municipal bonds.  Municipal
bonds are debt obligations issued by or on behalf of states, territories and
possessions of the United States, including the District of Columbia, and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from the federal regular income tax.  The Federated Fund may invest in
municipal bonds, the interest on which may be included in calculating the
federal AMT.  The municipal bonds which the Federated Fund buys are rated `Ba''
or better by Moody's Investors Service, Inc. (`Moody's'') or ``BB'' or better by
Standard & Poor's Ratings Group (`S&P'') or, if not rated, are determined by
Federated Advisers (as hereinafter defined) to be of comparable quality.  The
Federated Fund will limit its purchases of municipal bonds rated Ba and BB
(commonly known as `junk bonds'') to up to but less than 35% of its net assets.
The Federated Fund may purchase securities on a when-issued or delayed delivery
basis, purchase a right to sell a security held by it back to the issuer or to
another party at an agreed upon price at any time during a stated period or on a
certain date, or hedge all or a portion of its investments by entering into
future contracts or options on them.  If necessary for temporary defensive
purposes, the Federated Fund may invest in short-term tax-exempt or taxable
temporary investments.  Unless otherwise designated, the investment policies of
the Federated Fund may be changed by the Board of Directors without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
        The State Bond Fund invests at least 80% of the value of its assets in
securities of states, territories, and possessions of the United States and the
District of Columbia, and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from federal income taxes
(`Tax Exempt Securities'').  The Tax Exempt Securities in which the State Bond
Fund invests primarily consist of a diversified portfolio of bonds rated Aaa,
Aa, A or Baa by Moody's or rated AAA, AA, A or BBB by S&P, notes rated MIG-1,
MIG-2, MIG-3 or MIG-4 by Moody's or SP-1, SP-2 or SP-3 by S&P, and commercial
paper rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P.  The State Bond
Fund may invest in Tax Exempt Securities which are not rated if, in the judgment
of ARM Capital (as hereinafter defined), such securities are of comparable
quality to rated securities in which the State Bond Fund may invest.  The State
Bond Fund may purchase floating rate, variable rate, and inverse or reverse
floating rate Tax Exempt Securities; enter into repurchase agreements; and
purchase new issues of Tax Exempt Securities on a when-issued basis.  Unless
otherwise designated, the investment policies of the State Bond Fund may be
changed by the Board of Directors without shareholder approval.
        Both the Federated Fund and the State Bond Fund are subject to certain
investment limitations.  For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money directly or through
reverse repurchase agreements or pledging securities except, under certain
circumstances, the Federated Fund may borrow up to one-third of the value of its
total assets and pledge 10% of the value of those assets to secure such
borrowings; (2) investing more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933, as amended (the
`1933 Act''), except for certain restricted securities which meet the criteria
for liquidity as established by the Directors;  (3) investing more than 5% of
its total assets in securities of one issuer (except cash and cash items and
U.S. government obligations); or (4) investing more than 5% of its total assets
in industrial development bonds of issuers that have a record of less than three
years of continuous operations. The first two investment limitations listed
above cannot be changed without shareholder approval; the last two limitations
may be changed by the Board of Directors without shareholder approval, although
shareholders will be notified before any material change becomes effective.
        The State Bond Fund has investment limitations which prohibit it from
(1) borrowing money, except for temporary purposes in an amount not in excess of
10% of the value of the total assets of the State Bond Fund; provided that
borrowings in excess of 5% of such value are permitted from banks only; (2)
mortgaging or pledging assets, except that up to 10% of the value of the State
Bond Fund's total assets can be used to secure borrowings; or (3) purchasing
securities of any issuer if immediately thereafter more than 5% of the State
Bond Fund's total assets would be invested in the securities of any one issuer,
except that this limitation does not apply to obligations issued or guaranteed
as to principal and interest either by the U.S. government or its agencies or
instrumentalities.  The above investment limitations of the State Bond Fund
cannot be changed without shareholder approval.
   
In addition to the policies and limitations set forth above, both the Federated
Fund and the State Bond Fund are subject to certain additional investment
policies and limitations, described in the Federated Fund's Statement of
Additional Information dated October 31, 1996 and the State Bond Fund's
Statement of Additional Information dated November  1, 1995.  Reference is
hereby made to the Federated Fund's Prospectus and Statement of Additional
Information, each dated October 31, 1996, and to the State Bond Fund's
Prospectus and Statement of Additional Information, each dated November 1, 1995,
which set forth in full the investment objective, policies and investment
limitations of each of the Federated Fund and the State Bond Fund, all of which
are incorporated herein by reference thereto.
    
Advisory and Other Fees
        The annual investment advisory fee for the Federated Fund is 0.60 of 1%
of the Federated Fund's average daily net assets.  The investment adviser to the
Federated Fund, Federated Advisers ("Federated Advisers"), a subsidiary of
Federated Investors, may voluntarily choose to waive a portion of its advisory
fee or reimburse the Federated Fund for certain operating expenses.  This
voluntary waiver of the advisory fee may be terminated by Federated Advisers at
any time in its sole discretion.  Federated Advisers has also undertaken to
reimburse the Federated Fund for operating expenses in excess of limitations
established by certain states.  The maximum annual management fee for the State
Bond Fund is 0.50 of 1% of the average daily net assets of the State Bond Fund.
The State Bond Fund's investment manager, ARM Capital Advisors, Inc.(`ARM
Capital'), a wholly-owned subsidiary of ARM Financial Group, Inc. (``ARM''),
has voluntarily agreed to reimburse the State Bond Fund for any expenses
incurred by it in excess of 1% of average daily net assets of the State Bond
Fund.  This voluntary arrangement may be terminated by ARM Capital at anytime in
its sole discretion.  ARM Capital has also undertaken to reimburse the State
Bond Fund for operating expenses in excess of limitations established by certain
states.
           
        Federated Services Company, an affiliate of Federated Advisers,
provides certain administrative personnel and services necessary to operate the
Federated Fund at an annual rate based upon the average aggregate daily net
assets of all funds advised by Federated Advisers and its affiliates.  The rate
charged is 0.15 of 1% on the first $250 million of all such funds' average
aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on
the next $250 million and 0.075 of 1% of all such funds' average aggregate daily
net assets in excess of $750 million, with a minimum annual fee per portfolio of
$125,000 plus $30,000 for each additional class of shares of any such portfolio.
Federated Services Company may choose voluntarily to waive a portion of its fee.
The administrative fee expense for the Federated Fund's fiscal year ending
August 31, 1996 was $311,976.  Administrative personnel and other services
necessary to operate the State Bond Fund are currently provided by ARM Capital
and are included in the annual management fee for the State Bond Fund, as
discussed above.
            
        The Federated Fund has entered into a Shareholder Services Agreement
under which it may make payments of up to 0.25 of 1% of the average daily net
asset value of the Class A Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.  The Shareholder
Services Agreement provides that Federated Shareholder Services ("FSS"), an
affiliate of Federated Advisers, will either perform shareholder services
directly or will select financial institutions to perform such services.
Financial institutions will receive fees based upon shares owned by their
clients or customers.  The schedule of such fees and the basis upon which such
fees will be paid is determined from time to time by the Federated Fund and FSS.
Other than in connection with payments under a Rule 12b-1 plan as described
below, the State Bond Fund does not make payments to obtain similar shareholder
services.
Distribution Arrangements
        Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers,
is the principal distributor for shares of the Federated Fund.  The Federated
Fund has adopted a Rule 12b-1 Distribution Plan (the `Distribution Plan'')
pursuant to which the Federated Fund will pay a fee to the distributor in an
amount computed at an annual rate of 0.25 of 1% of the average daily net assets
of the Class A Shares to finance any activity which is principally intended to
result in the sale of Class A Shares subject to the Distribution Plan.  The
Federated Fund is not currently making payments for Class A Shares under the
Distribution Plan, nor does it anticipate doing so in the immediate future.  In
addition, FSC, from its own assets, may pay financial institutions supplemental
fees as financial assistance for providing substantial sales services,
distribution-related support services or shareholder services with respect to
the Federated Fund.  Such assistance will be predicated upon the amount of Class
A Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by FSC may be reimbursed by Federated Advisers or its
affiliates.  If a financial institution elects to waive receipt of this payment,
the Federated Fund will waive any applicable contingent deferred sales charge
(such contingent deferred sales charges are discussed below).
           
        SBM Financial Services, Inc. (`SBMFS''), an affiliate of ARM Capital,
is the principal distributor for shares of the State Bond Fund.  The State Bond
Fund has also adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan")
pursuant to which the State Bond Fund pays SBMFS an amount equal to an annual
rate of 0.25 of 1% of the average daily net assets of the State Bond Fund.  The
fee may be used by SBMFS to (i) provide initial and ongoing sales compensation
to its investment executives and to other broker-dealers in connection with the
sale of State Bond Fund shares and to pay for other advertising and promotional
expenses in connection with the sale of State Bond Fund shares, and (ii) to
provide compensation to entities in connection with the provision of certain
personal and account maintenance services to State Bond Fund shareholders
including, but not limited to, responding to shareholder inquiries and providing
information on their investments. The Federated Fund will not assume any
liabilities or make any voluntary reimbursements on account of the State Bond
Fund's Rule 12b-1 Plan.
            
           
        Certain costs exist with respect to the purchase and sale of Federated
Fund and State Bond Fund shares.  Class A Shares of the Federated Fund and
shares of the State Bond Fund are sold at their net asset value next determined
after an order is received, plus a maximum sales charge of 4.50%.  No sales
charge will be imposed in connection with the issuance of Federated Fund shares
to State Bond Fund shareholders as a result of the Reorganization.  Class A
Shares of the Federated Fund purchased with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed with a sales
charge and not distributed by FSC may be charged a contingent deferred sales
charge of 0.50 of 1% for redemptions made within one full year of purchase.  Any
such charge will be imposed on the lesser of the net asset value of the redeemed
shares at the time of purchase or redemption.  The contingent deferred sales
charges are not imposed in connection with the exercise of exchange rights, nor
will they be imposed on redemptions of Federated Fund shares received by
shareholders of the State Bond Fund as a result of the consummation of the
Reorganization.  For a complete description of sales charges, contingent
deferred sales charges and exemptions from such charges, reference is hereby
made to the Prospectus of the Federated Fund dated October 31, 1996, and the
Prospectus of the State Bond Fund dated November 1, 1995, each of which is
incorporated herein by reference thereto.
            
Purchase, Exchange and Redemption Procedures
           
        The transfer agent and dividend disbursing agent for the Federated Fund
is Federated Shareholder Services Company (formerly called Federated Services
Company).  The transfer agent and dividend disbursing agent for the State Bond
Fund is ARM Transfer Agency, Inc.   Procedures for the purchase, exchange and
redemption of the Federated Fund's Class A Shares differ slightly from
procedures applicable to the purchase, exchange and redemption of the State Bond
Fund's shares.  Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the Federated
Fund's Class A Shares or the State Bond Fund's shares may be obtained from FSC,
principal distributor for the Federated Fund, at 1-800-245-5051, option one or
from SBMFS, principal distributor for the State Bond Fund, at 1-800-328-4735.
        Reference is made to the Prospectus of the Federated Fund dated October
31, 1996, and the Prospectus of the State Bond Fund dated November 1, 1995, for
a complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and State
Bond Fund shares, respectively, each of which is incorporated herein by
reference thereto.  Set forth below is a brief listing of the significant
purchase, exchange and redemption procedures applicable to the Federated Fund's
Class A Shares and the State Bond Fund's shares.
        Purchases of Class A Shares of the Federated Fund may be made through a
financial institution who has an agreement with FSC or, once an account has been
established, by wire or check.  Purchases of shares of the State Bond Fund may
be made through SBMFS and through certain broker-dealers under contract with
SBMFS or directly by wire or check once an account has been established.  The
minimum initial investment in the Federated Fund is $500.  Subsequent
investments must be in amounts of at least $100.  The minimum initial investment
in the State Bond Fund is $500.  Subsequent investments must be in an amount of
at least $50.  The Federated Fund and the State Bond Fund each reserve the right
to reject any purchase request.  In connection with the sale of Class A Shares
of the Federated Fund, FSC may from time to time offer certain items of nominal
value to any shareholder.The purchase price of the Federated Fund's Class A
Shares and the State Bond Fund's shares is based on net asset value plus a sales
charge.  The net asset value per share for each of the Federated Fund and the
State Bond Fund is calculated as of the close of trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange, Inc. (the `NYSE'') on each day on
which the Federated Fund and the State Bond Fund compute their net asset value.
Purchase and redemption orders for the Federated Fund received from
broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions
before 4:00 p.m. (Eastern time) may be entered at that day's price.  Purchase
orders for shares of the State Bond Fund received from authorized broker/dealers
will be executed at the offering price next determined after the receipt of the
order by the broker/dealer, provided that the broker/dealer promptly transmits
the order to SBMFS the same day.  Redemption orders for shares of the State Bond
Fund received by the State Bond Fund's transfer agent from authorized dealers or
representatives of SBMFS prior to the close of the NYSE will be entered at that
day's price; such redemption orders received after the close of the NYSE will be
entered at the net asset value determined at the close of the NYSE on the next
trading day.  Federated Fund purchase orders by wire are considered received
upon receipt of payment by wire.  Federated Fund purchase orders received by
check are considered received after the check is converted into federal funds,
which normally occurs the business day after receipt.
            
        Holders of Class A Shares of the Federated Fund have exchange privileges
with respect to Class A Shares in certain of the funds for which affiliates of
Federated Investors  serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different investment
objectives and policies.  Class A Shares in the Federated Fund may be exchanged
for Class A Shares of certain Federated Funds at net asset value without a
contingent deferred sales charge.  To the extent a shareholder exchanges Class A
Shares of the Federated Fund for Class A Shares in other Federated Funds, the
time for which the exchanged-for shares are to be held will be added to the time
for which exchanged-from shares were held for purposes of satisfying the
applicable holding period.  Class A Shares to be exchanged must have a net asset
value which meets the minimum investment requirement for the fund into which the
exchange is being made.  Holders of shares of the State Bond Fund have exchange
privileges with respect to shares in certain of the other funds for which ARM
Capital serves as investment manager (collectively, the `State Bond Group''),
each of which has different investment objectives and policies.  Any exchange
for shares of other funds in the State Bond Group will generally be at the
respective net asset values next determined after receipt of the request for
exchange.  Exercise of the exchange privilege is treated as a sale for federal
income tax purposes and, accordingly, may have tax consequences for the
shareholder.  Information on share exchanges may be obtained from the Federated
Fund or the State Bond Fund, as appropriate.
           
        Redemptions of Federated Fund Class A Shares may be made through a
financial institution, by telephone, by mailing a written request or through the
Federated Fund's Systematic Withdrawal Program.  Redemptions of State Bond Fund
shares may be made through an authorized dealer or representative of SBMFS, by
mailing a written request to the State Bond Fund's transfer agent or through the
State Bond Fund's quick redemption service or check redemption service.  Class A
Shares of the Federated Fund are redeemed at their net asset value, less any
applicable contingent deferred sales charge, next determined after the
redemption request is received.  Shares of the State Bond Fund are redeemed at
their net asset value, determined at the close of the NYSE on the date the
redemption request is received.  Proceeds will ordinarily be distributed by
check within seven days after receipt of a redemption request.
            
Dividends
        Each of the Federated Fund's and the State Bond Fund's current policy is
to pay dividends monthly from net investment income and to make annual
distributions of net realized capital gains, if any.  With respect to both the
Federated Fund and the State Bond Fund, unless a shareholder otherwise
instructs, dividends and capital gain distributions will be reinvested
automatically in additional shares at net asset value, subject to no sales
charge.
Tax Consequences
        As a condition to the Reorganization transactions, the Federated Fund
and the State Bond Fund will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Code so that no gain or loss will be recognized by either the
Federated Fund or the State Bond Fund or the shareholders of the State Bond
Fund.  The tax basis of the Federated Fund shares received by State Bond Fund
shareholders will be the same as the tax basis of their shares in the State Bond
Fund.
RISK FACTORS
           
        As with other mutual funds that invest in municipal bonds, the Federated
Fund is subject to market risks and credit risks.  The value of the Class A
Shares will fluctuate.  The amount of this fluctuation is dependent upon the
quality and maturity of the municipal bonds in the Federated Fund's portfolio as
well as on market conditions.  Generally speaking, the lower quality, long-term
bonds (including junk bonds) in which the Federated Fund invests have greater
fluctuation in value than high quality, shorter-term bonds.  Municipal bond
prices are interest rate sensitive, which means that their value varies
inversely with market interest rates.  Prices of bonds also fluctuate with
changes in the perceived quality of the credit of their issuers.  Since the
State Bond Fund invests primarily in Tax Exempt Securities, these risk factors
are generally also present in an investment in the State Bond Fund.  A full
discussion of the risks inherent in investment in the Federated Fund and the
State Bond Fund is set forth in the Federated Fund's Prospectus and Statement of
Additional Information, each dated October 31, 1996 and the State Bond Fund's
Prospectus and Statement of Additional Information, each dated November 1, 1995,
each of which is incorporated herein by reference thereto.





                                                                                      




FEDERATED                                                                  FEDERATED
MUNICIPAL                                                                  MUNICIPAL
OPPORTUNIT                                                                 OPPORTUNITIES
IES                                                                        FUND, INC.
FUND, INC.  STATE BOND                                                     (FORMERLY,
(FORMERLY,  MINNESOTA   STATE                                              FORTRESS        STATE      STATE
FORTRESS    TAX-FREE    BOND                                               MUNICIPAL       BOND       BOND
MUNICIPAL                TAX       PRO FORMA                               INCOME          MINNESOTA   TAX       PRO FORMA
INCOME      INCOME FUND  EXEMPT    COMBINED                                FUND, INC.)     TAX-FREE    EXEMPT    COMBINED
FUND,                   FUND                                                               INCOME     FUND
INC.)                                                                                      FUND

                                                                MOODY'S/
 PRINCIPAL  PRINCIPAL                                           S&P
AMOUNT      AMOUNT      PRINCIPAL  PRINCIPAL                    RATING*    VALUE           VALUE      VALUE      VALUE
                        AMOUNT     AMOUNT

    
MUNICIPAL BONDS (97.7%)

                                             ALABAMA- 1.2%

6,000,000   ---         ---        6,000,000 Courtland, AL,
                                             IDB, Solid Waste
                                             Disposal Revenue   BBB/Baa1   5,869,680       ---        ---        5,869,680
                                             Bonds (Series A),
                                             6.375% (Champion
                                             International
                                             Corp.)/(Original
                                             Issue Yield:
                                             6.52%), 3/1/2029

                                             ALASKA-- 0.4%

- ---         ---         690,000    690,000   Alaska Housing
                                             Finance Corp.,
                                             Collateralized,
                                             Veterans Mortgage
                                             Program, Series
                                             1991 B-1, 6.900%,
                                             due 2032           Aaa/AAA    ---             ---        708,471    708,471

- ---         ---         325,000    325,000   Alaska Housing     Aaa/AAA
                                             Finance Corp.,                ---             ---        334,419    334,419
                                             Collaterized Home
                                             Mortgage Bonds,
                                             1988 Series A-1,
                                             7.625%, due 2013

- ---         ---         1,000,000  1,000,000 Alaska Valdez
                                             Marine Terminal,
                                             5.650%,
                                             due 2028           Aa3/AA-    ---             ---        940,090    940,090

                                                 Total                     ---             ---        1,982,980  1,982,980

                                             ARIZONA-0.3%

- ---         ---         1,500,000  1,500,000 Arizona            A/A        ---             ---        1,478,205  1,478,205
                                             Industrial
                                             Development
                                             Authority,
                                             5.450%, due 2009

                                             ARKANSAS--1.7%

2,920,000   ---         ---        2,920,000 Conway, AR,
                                             Hospital           BBB/NR     2,976,560       ---        ---        2,976,560
                                             Authority,
                                             Revenue Bonds,
                                             7.125% (Conway
                                             Regional
                                             Hospital),
                                             2/1/2013

3,000,000   ---         ---        3,000,000 Conway, AR,
                                             Hospital           BBB/NR     3,205,800       ---        ---        3,205,800
                                             Authority,
                                             Revenue Refunding
                                             Bonds, 8.125%
                                             (Conway Regional
                                             Hospital),
                                             7/1/2005

1,000,000   ---         ---        1,000,000 Conway, AR,
                                             Hospital           BBB/NR     1,074,850       ---        ---        1,074,850
                                             Authority,
                                             Revenue Refunding
                                             Bonds, 8.375%
                                             (Conway Regional
                                             Hospital),
                                             7/1/2011

1,000,000   ---         ---        1,000,000 Little Rock, AR,
                                             Health Facilities  A+/NR      1,062,400       ---        ---        1,062,400
                                             Board, Revenue
                                             Refunding Bonds,
                                             7.00% (Baptist
                                             Medical Center,
                                             AR), 10/1/2017

                                                 Total                     8,319,610       ---        ---        8,319,610

                                             CALIFORNIA-0.5%

- ---         ---         500,000    500,000   Berkeley, CA,
                                             School District,
                                             5.800%,
                                             due 2020           Aaa/AAA    ---             ---        488,600    488,600

- ---         ---         1,000,000  1,000,000 Central Coast
                                             Water Authority
                                             Revenue Bonds,
                                             Series 1992,       Aaa/AAA    ---            ---         1,075,550 1,075,550
                                             6.350%, due 2007

- ---         ---         1,000,000  1,000,000 Walnut Valley,
                                             CA, Water
                                             District,
                                             Certificate of
                                             Participation,
                                             6.125%, due
                                             2009               Aaa/AAA    ---            ---         1,032,820 1,032,820

                                                 Total                     ---            ---         2,596,970 2,596,970

                                             COLORADO--0.8%

695,000     ---         ---        695,000   Colorado HFA, SFM
                                             Revenue Bonds      AA/NR      729,250        ---         ---       729,250
                                             (Series A-2),
                                             7.70% (FHA GTD),
                                             2/1/2023

2,775,000   ---         ---        2,775,000 Colorado HFA, SFM
                                             Revenue Bonds      AA/NR      2,891,162      ---         ---       2,891,162
                                             (Series C-2),
                                             7.375% (FHA GTD),
                                             8/1/2023

295,000     ---         ---        295,000   El Paso County,
                                             CO, HFA, SFM       AAA/NR     310,573        ---         ---       310,573
                                             Revenue Bonds,
                                             8.00% (GNMA COL),
                                             9/1/2022

- ---         ---         210,000    210,000   Housing Finance
                                             Agency, Single     Aa/NR      ---            ---         214,505   214,505
                                             Family Housing
                                             Revenue Bonds,
                                             1986 Series A,
                                             8.000%, due 2017

                                                 Total                     3,930,985      ---         214,505   4,145,490

                                             DISTRICT OF
                                             COLUMBIA- 0.3%

- ---         ---         1,250,000  1,250,000 District of        NR/AAA     ---            ---         1,275,012 1,275,012
                                             Columbia
                                             University
                                             Revenue Bonds,
                                             6.300%, due 2013

                                             IDAHO--0.9%

1,145,000   ---         ---        1,145,000 Idaho Housing
                                             Agency, SFM        AA/NR      1,193,823      ---         ---       1,193,823
                                             Revenue Bonds
                                             (Series A), 7.50%
                                             (FHA GTD),
                                             7/1/2024

2,785,000   ---         ---        2,785,000 Idaho Housing
                                             Agency, SFM        AA/Aa      2,918,290      ---         ---       2,918,290
                                             Revenue Bonds
                                             (Series F-2),
                                             7.80% (FHA GTD),
                                             1/1/2023

                                                 Total                     4,112,113      ---         ---       4,112,113

                                             ILLINOIS--7.0%
- ---         ---         2,000,000  2,000,000 Chicago, IL,
                                             Water Revenue
                                             Bonds,
                                             7.200% due 2016    A1/AA-     ---            ---         2,194,460 2,194,460

- ---         ---         1,000,000  1,000,000 Chicago, IL,
                                             Public District
                                             Capital
                                             Improvement        Aaa/AAA    ---            ---         1,024,200 1,024,200
                                             Bonds, 5.450%,
                                             due 2004

- ---         ---         1,480,000  1,480,000 City of Chicago,
                                             IL, Gas Supply
                                             Revenue
                                             Bonds, 7.500%,     Aa3/AA-    ---            ---         1,606,111 1,606,111
                                             due 2015

- ---         ---         1,100,000  1,100,000 City of Chicago,   Aa3/AA     ---            ---         1,198,076 1,198,076
                                             IL, Gas Supply
                                             Revenue Bonds,
                                             7.500%, due 2015

- --          ---         500,000    500,000   Cook County, IL,   Aaa/AAA    ---            ---         499,945   499,945
                                             6.000%, due 2017

- ---         ---         1,000,000  1,000,000 Cook County, IL
                                             Community Cons.
                                             School District    Aaa/AAA    ---            ---         1,023,880 1,023,880
                                             #6, 5.875%, due
                                             2008

4,500,000   ---         ---        4,500,000 Granite City, IL,
                                             Hospital
                                             Facilities         BB+/Baa    4,637,520      ---         ---       4,637,520
                                             Authority,
                                             Revenue Refunding
                                             Bonds (Series A),
                                             8.125% (St.
                                             Elizabeth Medical
                                             Center)/(Original
                                             Issue Yield:
                                             8.167%), 6/1/2008

3,000,000   ---         ---        3,000,000 Illinois
                                             Development        NR         2,667,210      ---         ---       2,667,210
                                             Finance
                                             Authority,
                                             Housing Revenue
                                             Bonds, 6.10%
                                             (Catholic
                                             Charities Housing
                                             Development
                                             Corp), 1/1/2020

10,000,000  ---         ---       10,000,000 Illinois Health
                                             Facilities         NR         10,459,300     ---         ---       10,459,300
                                             Authority,
                                             Hospital Revenue
                                             Bonds (Series A),
                                             9.25% (Edgewater
                                             Hospital &
                                             Medical Center,
                                             IL), 7/1/2024

- ---         ---         1,400,000  1,400,000 Illinois Health
                                             Facility
                                             Authorized
                                             Revenue,
                                             6.000%, due 2015   Aaa/AAA    ---            ---         1,378,468 1,378,468
- ---         ---         1,000,000  1,000,000 Illinois State
                                             Dedicated Tax,
                                             6.000%, due
                                             2015               Aaa/AAA    ---            ---         998,760   998,760

- ---         ---         1,050,000  1,050,000 Illinois State
                                             University
                                             Auxiliary
                                             Facility
                                             System, Board of
                                             Regents Revenue
                                             Bonds,
                                             Series 1989,       Aaa/A      ---            ---         1,156,680 1,156,680
                                             7.400%, due 2014

- ---         ---         500,000    500,000   Illinois State
                                             University
                                             Auxiliary
                                             Facility
                                             System, Board of
                                             Regents Revenue
                                             Bonds,
                                             Series  1989,      Aaa/A      ---            ---         550,800   550,800
                                             7.400%, due 2013

- ---         ---         2.350,000  2.350,000 Metropolitan Pier
                                             Exposition
                                             Authority,
                                             IL, Dedicated
                                             State Tax Rev.
                                             Bonds,
                                             6.000%, due 2104   A/A+       ---            ---         2,337,052 2,337,052

- ---         ---         2,000,000  2,000,000 Rolling Meadows,
                                             IL, Mortgage
                                             Revenue
                                             Bonds Woodfield
                                             Garden, 7.750%
                                             due 2004           NR/A-      ---            ---         2,122,240 2,122,240

                                                 Total                     17,764,030     ---         16,090,67 33,854,702
                                                                                                      2

                                             INDIANA--9.2%

- ---         ---         550,000    550,000   Beech Grove, IN,
                                             IDR
                                             8.750%, (Westvaco  A1/A       ---            ---         556,424   556,424
                                             Corp) due 2010

- ---         ---         1,000,000  1,000,000 Highland, IN,
                                             School Building
                                             Corp.,
                                             6.750%, due 2012   NR/AAA     ---            ---         1,105,850 1,105,850

                        1,300,000  1,300,000 Indiana Municipal
                                             Power Agency,
                                             Series
                                             1992 A, 6.000%,    Aaa/AAA    ---            ---         1,363,245 1,363,245
                                             due 2007

3,000,000   ---         ---        3,000,000 Indiana Port
                                             Commission, Port   NR/Aa3     3,232,500      ---         ---       3,232,500
                                             Facility Revenue
                                             Refunding Bonds,
                                             6.875% (Cargill,
                                             Inc.), 5/1/2012

855,000     ---         ---        855,000   Indiana State
                                             HFA, SFM Revenue   NR/Aaa     902,410        ---         ---       902,410
                                             Bonds (Series A),
                                             8.20% (GNMA COL),
                                             7/1/2020

- ---         ---         1,100,000  1,100,000 Indiana State
                                             Toll Roads,
                                             Revenue
                                             Refunding Bond,    A-/A       ---            ---         1,099,967 1,099,967
                                             6.00%, due 2013

2,785,000   ---         ---        2,785,000 Indiana State
                                             HFA, SFM Revenue   NR/Aaa     2,941,406      ---         ---       2,941,406
                                             Home Mortgage
                                             Program (Series
                                             F-2), 7.75% (GNMA
                                             COL), 7/1/2022

- ---         ---         1,150,000  1,150,000 Indiana
                                             Transportation
                                             Finance
                                             Authority,
                                             Series A, 6.250%,  A/NR       ---            ---         1,160,108 1,160,108
                                             due 2016

17,100,000  ---         ---        17,100,00 Indianapolis, IN,
                                   0         Airport
                                             Authority,         BBB/Baa2   18,041,355     ---         ---       18,041,355
                                             Special
                                             Facilities
                                             Revenue Bonds,
                                             7.10% (Federal
                                             Express
                                             Corp.)/(Original
                                             Issue Yield:
                                             7.178%),
                                             1/15/2017

- ---         ---         3,225,000  3,225,000 Indianapolis, IN,
                                             Public
                                             Improvement
                                             Bonds, Bank        Aaa/NR     ---            ---         3,558,014 3,558,014
                                             Series C, 6.700%,
                                             due 2017

2,750,000   ---         ---        2,750,000 LaPorte County,
                                             IN, Hospital
                                             Authority,         BBB-/Aaa   2,870,780      ---         ---       2,870,780
                                             Hospital
                                             Facilities
                                             Revenue Refunding
                                             Bond, 8.75%
                                             (LaPorte
                                             Hospital, Inc.,
                                             IN)/(United
                                             States Treasury
                                             PRF)/(Original
                                             Issue Yield:
                                             8.848%), 3/1/1997
                                             (@102)

5,000,000   ---         ---        5,000,000 LaPorte County,
                                             IN, Hospital
                                             Authority,         BBB/Baa1   4,587,750      ---         ---       4,587,750
                                             Hospital Facility
                                             Revenue Refunding
                                             Bonds, 6.00%
                                             (LaPorte
                                             Hospital, Inc.,
                                             IN)/(Original
                                             Issue Yield:
                                             6.35%), 3/1/2023

3,000,000   ---         ---        3,000,000 LaPorte County,
                                             IN, Hospital
                                             Authority,         BBB/Baa    2,908,350      ---         ---       2,908,350
                                             Hospital Facility
                                             Revenue Refunding
                                             Bonds, 6.25%
                                             (LaPorte
                                             Hospital, Inc.,
                                             IN)/(Original
                                             Issue Yield:
                                             6.35%), 3/1/2012

                                                 Total                     35,484,551     ---         8,843,608 44,328,159

                                             IOWA--0.2%

1,000,000   ---         ---        1,000,000 Davenport, IA,
                                             PCA, PCR           NR         1,057,090      ---         ---       1,057,090
                                             Refunding Bonds,
                                             Nicols-Homeshield
                                             Project, 8.375%
                                             (Quanex Corp.),
                                             12/1/2005

                                             KENTUCKY--1.0%

3,500,000   ---         ---        3,500,000 Kenton County,
                                             KY, Airport
                                             Board, Special     BB/Ba3     3,729,600      ---         ---       3,729,600
                                             Facilities
                                             Revenue Bonds
                                             (Series A), 7.50%
                                             (Delta Air Lines,
                                             Inc.)/(Original
                                             Issue Yield:
                                             7.60%), 2/1/2020

1,200,000   ---         ---        1,200,000 Kentucky
                                             Pollution          NR         1,200,000      ---         ---       1,200,000
                                             Abatement & Water
                                             Resource Finance
                                             Authority Daily
                                             VRDNs (Toyota
                                             Motor Credit
                                             Corp.)

                                                 Total                     4,929,600      ---         ---       4,929,600

                                             LOUISIANA-5.5%

3,000,000   ---         ---        3,000,000 De Soto Parish,
                                             LA, Environmental  A-/A3      3,381,990                            3,381,990
                                             Improvement
                                             Authority,
                                             Revenue Bonds,
                                             7.70%
                                             (International
                                             Paper Co.),
                                             11/1/2018

5,000,000   ---         ---        5,000,000 Lake Charles, LA,
                                             Harbor & Terminal
                                             District, Port     NR/Baa3    5,598,550      ---         ---       5,598,550
                                             Facilities
                                             Revenue Refunding
                                             Bond, Trunkline
                                             Lining Co
                                             Project, 7.75%
                                             (Panhandle
                                             Eastern Corp.),
                                             8/15/2022

- ---         ---         750,000    750,000   Rapides Parish,
                                             LA, Housing &
                                             Mortgage
                                             Finance
                                             Authority, Single
                                             Family
                                             Mortgage, 7.250%,  Aaa/AA-    ---            ---         847,770   847,770
                                             due 2010

5,645,000   ---         ---        5,645,000 St. Charles
                                             Parish, LA, PCR    BBB+/Baa2  5,956,660                            5,956,660
                                             Bonds, 7.50%
                                             (Louisiana Power
                                             & Light
                                             Co.)/(Original
                                             Issue Yield:
                                             7.542%), 6/1/2021

1,400,000   ---         ---        1,400,000 St. Charles
                                             Parish, LA, PCR    NR/Baa3    1,523,914      ---         ---       1,523,914
                                             Bonds, 8.00%
                                             (Louisiana Power
                                             & Light Co.),
                                             12/1/2014

2,100,000   ---         ---        2,100,000 St. Charles
                                             Parish, LA, PCR    NR         2,289,462                  ---       2,289,462
                                             Bonds, 8.25%
                                             (Louisiana Power
                                             & Light
                                             Co.)/(Original
                                             Issue Yield:
                                             8.273%), 6/1/2014

3,650,000   ---         ---        3,650,000 St. Charles
                                             Parish, LA, Solid
                                             Waste Disposal     BBB+/Baa2  3,758,770      ---         ---       3,758,770
                                             Revenue Bonds
                                             (Series A), 7.00%
                                             (Louisiana Power
                                             & Light
                                             Co.)/(Original
                                             Issue Yield:
                                             7.04%), 12/1/2022

3,000,000   ---         ---        3,000,000 St. James Parish,
                                             LA, Solid Waste    NR         3,049,200      ---         ---       3,049,200
                                             Disposal Revenue
                                             Bonds, 7.70%
                                             (Freeport
                                             McMoRan,
                                             Inc.)/(Original
                                             Issue Yield:
                                             7.75%), 10/1/2022

                                                 Total                     25,558,546     ---         847,770   26,406,316

                                             MAINE--1.0%

- ---         ---         400,000    400,000   Maine State
                                             Housing
                                             Authority,
                                             Mortgage
                                             Purchase Bonds,
                                             1988 Series B,
                                             8.000%,
                                             due 2015           A1/AA-     ---            ---         420,596   420,596

4,200,000   ---         ---        4,200,000 Maine State
                                             Housing            A+/A1      4,418,778      ---         ---       4,418,778
                                             Authority,
                                             Revenue Bonds
                                             (Series D-3),
                                             8.20%, 11/15/2019

                                                 Total                     4,418,778      ---         420,596   4,839,374

                                             MARYLAND-0.2%

- ---         ---         740,000    740,000   Maryland City
                                             Housing Multi-
                                             Family
                                             Housing, FNMA,
                                             Series A, 7.250%
                                             due 2023           NR/AAA     ---            ---         767,927   767,927

                                             MASSACHUSETTS--
                                             2.8%

21,000,000  ---         ---       21,000,000 Massachusetts
                                             IFA, Solid Waste   NR         11,350,500     ---         ---       11,350,500
                                             Disposal Sr. Lien
                                             Revenue Bonds
                                             (Series A), 9.00%
                                             (Massachusetts
                                             Recycling
                                             Association),
                                             8/1/2016

- ---         ---         1,000,000  1,000,000 Massachusetts
                                             State Housing
                                             Project
                                             Financial Agency,  A1/A+      ---            ---         1,008,500 1,008,500
                                             6.300%, due 2013

- ---         ---         1,000,000  1,000,000 Massachusetts
                                             State Housing
                                             Project
                                             Financial Agency,  Aaa/AAA    ---            ---         1,005,550 1,005,550
                                             6.100%, due 2016

                                                 Total                     11,350,500     ---         2,014,050 13,364,550

                                             MICHIGAN--0.7%

- ---         ---         500,000    500,000   Clintondale, MI,
                                             Community
                                             Schools,
                                             5.750%, due 2016   Aa/AA      ---            ---         488,450   488,450

- ---         ---         145,000    145,000   Michigan State
                                             Housing
                                             Development
                                             Authority, Single
                                             Family, Series A,
                                             7.550%, due 2014   NR/AA+     ---            ---                      145,042
                                                                                                      145,042
- ---         ---         1,000,000  1,000,000 Michigan State
                                             Housing
                                             Development,
                                             Series B, 6.950%,  NR/AA+     ---            ---         1,051,960 1,051,960
                                             due 2020

1,500,000   ---         ---        1,500,000 Western
                                             Townships, MI,     BBB+/NR    1,639,890      ---         ---       1,639,890
                                             Utilities
                                             Authority, LT GO
                                             Sewer Disposal
                                             System Bonds,
                                             8.20%, 1/1/2018

                                                 Total                     1,639,890      ---         1,685,452 3,325,342

                                             MINNESOTA--10.0%

- ---         235,000     ---        235,000   Albany, MN,
                                             Independent        Aa1/NR     ---            242,645     ---       242,645
                                             School District
                                             #745, GO Bonds,
                                             6.000%, due 2009

            200,000                200,000   Bloomington Port   Aaa/AAA                   202,052               202,052
                                             Authority, Series
                                             1994 A, 5.250%,
                                             due 2003

- ---         100,000     800,000    900,000   Burnsville, MN,
                                             Multi-Family       NR/AAA     ---            104,559     836,472   941,031
                                             Housing Revenue
                                             Refunded Bonds,
                                             Coventry Court
                                             Apartments
                                             Project, Series
                                             1989, 7.500%, due
                                             2027
- ---         250,000     ---        250,000   Centennial
                                             Minnesota          Aaa/AAA    ---            270,255     ---       270,255
                                             Independent
                                             School District
                                             #12, GO Bonds,
                                             Series 1991 A,
                                             7.150%, due 2011

- ---         ---         800,000    800,000   City of
                                             Minnetonka, MN,
                                             Multi-Family
                                             Rental Housing
                                             Rev. Bonds,
                                             7.250%,
                                             due 2002           NR/AAA     ---            ---         830,192   830,192

- ---         150,000     ---        150,000   Coon Rapids, MN,
                                             GO Tax Increment   A/NR       ---            151,877     ---       151,877
                                             Bonds, Series
                                             1986 B2, 7.750%,
                                             due 2006

- ---         300,000     ---        300,000   Dakota County,     Aaa/AAA    ---            312,642     ---       312,642
                                             MN, GO Refunded
                                             Bonds, 6.450%,
                                             due 2010

- ---         170,000     ---        170,000   Dakota County, MN
                                             Housing and        NR/AAA     ---            175,850     ---       175,850
                                             Revenue
                                             Authority, SFM
                                             Rev. Bonds,
                                             7.200%, due 2009

- ---         285,000     ---        285,000   Duluth, MN, GO     A/NR       ---            295,870     ---       295,870
                                             Water Rev.,
                                             Series 1992 A,
                                             6.250%, due 2007

- ---         60,000      ---        60,000    Duluth, MN,        Aaa/AAA    ---            64,926      ---       64,926
                                             Economic
                                             Development
                                             Authority,
                                             6.200%, due 2012

- ---         140,000     ---        140,000   Duluth, MN,        Aaa/AAA    ---            145,062     ---       145,062
                                             Economic
                                             Development
                                             Authority,
                                             6.200%, due 2012

- ---         100,000     ---        100,000   Eden Prairie, MN,
                                             Multi-Family       NR/AAA     ---            104,199     ---       104,199
                                             Housing Preserve
                                             Place Apartments,
                                             7.875%, due 2017

- ---         300,000     ---        300,000   Eden Prairie, MN,
                                             Housing &          A/NR       ---            312,033     ---       312,033
                                             Redevelopment
                                             Authority,
                                             6.200%, due 2008

- ---         300,000     ---        300,000   Edina, MN,         A1/NR      ---            299,037     ---       299,037
                                             Independent
                                             School District
                                             #273, 5.750%, due
                                             2013

- ---         100,000     ---        100,000   Foley, MN,         Aaa/AAA    ---            104,567     ---       104,567
                                             Independent
                                             School District
                                             #51 MBIA, 7.500%,
                                             due 2008

- ---         165,000     ---        165,000   Hennepin County,
                                             MN, Lease Revenue  Aa/AA      ---            176,971     ---       176,971
                                             Certificate of
                                             Participation,
                                             Series 1991,
                                             6.800%, due 2017

- ---         225,000     ---        225,000   Kandiyohi County,
                                             MN, GO Refunded    A/NR       ---            224,330     ---       224,330
                                             Bonds, Series
                                             1993, 5.650%, due
                                             2011

- ---         150,000     ---        150,000   Metropolitan       Aaa/AAA    ---            162,480     ---       162,480
                                             Council, MN,
                                             7.250%, due 2007

- ---         275,000     ---        275,000   Minneapolis, MN,   Aaa/AAA    ---            278,196     ---       278,196
                                             5.750%, due 2010

- ---         250,000     ---        250,000   Minneapolis, MN,   Aaa/AAA    ---            261,645     ---       261,645
                                             6.250%, due 2012

- ---         200,000     ---        200,000   Minneapolis, MN,   NR/AAA     ---            211,190     ---       211,190
                                             Multi-Family
                                             Housing Revenue,
                                             7.125%, due 2010

- ---         300,000     ---        300,000   Minneapolis, MN,   NR/AAA     ---            311,466     ---       311,466
                                             Multi-Family
                                             Housing Revenue,
                                             7.050%, due 2022
- ---         400,000     2,000,000  2,400,000 Minneapolis, MN,   Aaa/AAA    ---            407,148     2,035,740 2,442,888
                                             Special School
                                             District #001,
                                             5.900%, due 2011

                                             Minnesota Housing
                                             Finance Agency,
                                             Single
- ---         ---         1,300,000  1,300,000 Family Mortgage,   Aa/AA+     ---            ---         1,319,240 1,319,240
                                             6.250%, due 2015

- ---         ---         1,460,000  1,460,000 Minnesota Housing
                                             Finance
                                             Authority,
                                             Series 1993E,      NR/AA+     ---            ---         1,459,913 1,459,913
                                             6.000%, due 2014

- ---         ---         500,000    500,000   Minnesota Housing  Aa/AA+     ---            ---         527,775   527,775
                                             Finance Authority
                                             Agency, Single
                                             Family Mortgage
                                             Revenue Bonds
                                             1989 D Series,
                                             7.350%, due 2016

- ---         300,000     ---        300,000   Minnesota State    A/NR       ---            303,645     ---       303,645
                                             University Board
                                             Revenue, 6.000%,
                                             due 2013

- ---         300,000     ---        300,000   Minnesota Public
                                             Access Authority,  Aa1/AAA                   329,412               329,412
                                             Water Pollution
                                             Control, Revenue
                                             Bonds, Series
                                             1990 A, 7.100%,
                                             due 2012

- ---         250,000     ---        250,000   Minnesota Public
                                             Facilities         Aa1/AAA    ---            276,925     ---       276,925
                                             Authority, Water
                                             Pollution
                                             Control, Revenue
                                             Bonds, Series
                                             1991 A, 6.950%,
                                             due 2013

- ---         250,000     ---        250,000   Minnesota Public
                                             Facilities         Aa1/AAA    ---            266,548     ---       266,548
                                             Authority, Water
                                             Pollution
                                             Control, Revenue
                                             Bonds, Series
                                             1992 A, 6.500%,
                                             due 2014

- ---         150,000     ---        150,000   Minnesota State,   Aaa/AAA    ---            162,714     ---       162,714
                                             7.000%, due 2007

1,640,000   ---         ---        1,640,000 Minnesota State
                                             HFA, SFM Revenue   AA/Aa      1,730,167      ---         ---       1,730,167
                                             Bonds (Series A),
                                             7.95% (FHA GTD),
                                             7/1/2022

585,000     ---         ---        585,000   Minnesota State
                                             HFA, SFM Revenue   AA+/Aa     601,930        ---         ---       601,930
                                             Bonds (Series D),
                                             8.05% (FHA GTD),
                                             8/1/2018
3,000,000   ---         ---        3,000,000 Minnesota State
                                             HFA, SFM Revenue   AA/Aa      3,094,860      ---         ---       3,094,860
                                             Bonds (Series E),
                                             6.85%, 1/1/2024

- ---         240,000     ---        240,000   Minnesota State    Aa/AA+                    253,087               253,087
                                             Housing Finance
                                             Agency, 7.300%,
                                             due 2017

- ---         175,000     ---        175,000   Minnesota State
                                             Housing Finance    NR/AA+     ---            175,844     ---       175,844
                                             Agency, Rental
                                             Housing, Series C
                                             Refunded Bonds,
                                             6.150%, due 2014

- ---         90,000      ---        90,000    Minnesota State    Aa/AA+     ---            94,802      ---       94,802
                                             Housing Insurance
                                             Agency, 7.650%,
                                             due 2008

- ---         160,000     ---        160,000   Minnesota State    NR/AA+     ---            159,990     ---       159,990
                                             Housing Finance
                                             Agency, 6.000%,
                                             due 2014

- ---         195,000     ---        195,000   Minnesota State    Aa/AA+     ---            204,994     ---       204,994
                                             Housing Finance
                                             Agency, 7.100%,
                                             due 2011

- ---         335,000     ---        335,000   Minnesota State
                                             Housing Finance    Aa/AA+     ---            334,310     ---       334,310
                                             Agency, Single
                                             Family Mortgage,
                                             5.850%, due 2011

- ---         300,000     ---        300,000   Minnesota State    Aa/AA-     ---            311,982     ---       311,982
                                             Higher Education
                                             Facilities,
                                             6.300%, due 2014

- ---         200,000     ---        200,000   Minnesota State    A1/NR      ---            198,710     ---       198,710
                                             Higher Education
                                             Facilities,
                                             5.450%, due 2007

- ---         315,000     ---        315,000   Minnesota State    A1/NR      ---            303,591     ---       303,591
                                             Higher Education
                                             Facilities,
                                             5.600%, due 2014

- ---         40,000      ---        40,000    Minnesota State    Aa/AA+     ---            40,895      ---       40,895
                                             Housing
                                             Development
                                             Single Family
                                             Mortgage, Series
                                             B, 7.250%, due
                                             2016

- ---         100,000     ---        100,000   Minnetonka, MN,    NR/AA      ---            102,595     ---       102,595
                                             Multi-Family
                                             Housing Revenue
                                             Bonds (Cedar
                                             Hills East
                                             Project), 7.500%,
                                             due 2017

- ---         300,000     ---        300,000   Moorhead, MN,      Aaa/AAA    ---            315,060     ---       315,060
                                             Public Utility
                                             Revenue Bonds,
                                             Series 1992,
                                             6.050%, due 2006

- ---         285,000     ---        285,000   Northern
                                             Mu;nicipal Power   Aaa/AAA    ---            308,302     ---       308,302
                                             Agency, MN,
                                             Electric Revenue
                                             Refunded Bonds,
                                             Series A, 7.250%,
                                             due 2017

- ---         530,000     ---        530,000   Northern
                                             Municipal Power    A/A        ---            524,048     ---       524,048
                                             Agency, MN,
                                             Electric Revenue
                                             Refunded Bonds,
                                             6.000%, due 2020

- ---         300,000     ---        300,000   Owatonna, MN,
                                             Public Utility     A1/NR      ---            326,346     ---       326,346
                                             Refunded Bonds,
                                             Series 1990,
                                             7.400%, due 2007

- ---         100,000     ---        100,000   Ramsey &
                                             Washington         A1/AA-     ---            104,928     ---       104,928
                                             Counties Resource
                                             Recovery Revenue
                                             Bonds, NSP
                                             Project, 6.750%,
                                             due 2006

- ---         150,000     ---        150,000   Red Wing
                                             Independent        A1/NR      ---            155,328     ---       155,328
                                             School District
                                             #256, GO School
                                             Building, Series
                                             1998 A, 7.300%,
                                             due 2004

- ---         100,000     ---        100,000   Robbinsdale
                                             Hospital Refunded  Aaa/AAA    ---            107,973     ---       107,973
                                             Revenue NMMCP,
                                             1989, 7.200%, due
                                             2005

- ---         300,000     ---        300,000   Robbinsdale
                                             Hospital Refunded  Aaa/AAA    ---            289,641     ---       289,641
                                             Revenue NMMCP,
                                             Series A, 5.450%,
                                             due 2013

- ---         370,000     ---        370,000   Robbinsdale        Aaa/AAA    ---            357,224     ---       357,224
                                             Hospital Revenue,
                                             5.450%, due 2013

- ---         500,000     ---        500,000   Rochester, MN,
                                             Health Care        NR/AA+     ---            512,180     ---       512,180
                                             Facility Revenue
                                             Bonds, Mayo
                                             Medical Center,
                                             6.250%, due 2021

- ---         500,000     ---        500,000   Rosemount, MN,     Aa1/AA     ---            502,880               502,880
                                             Independent                                              ---
                                             School District,
                                             5.875%, due 2014

- ---         300,000     ---        300,000   Roseville, MN,     Aaa/AAA    ---            286,944               286,944
                                             Independent                                              ---
                                             School District,
                                             5.250%, due 2013

- ---         300,000     ---        300,000   St. Anthony-New    Aa1/NR     ---            301,377     ---       301,377
                                             Brighton
                                             Independent
                                             School District
                                             #282, GO Bonds,
                                             5.700%, due 2012

- ---         250,000     ---        250,000   St. Cloud, MN,
                                             Hydro Electric     NR/A-      ---            256,580     ---       256,580
                                             Generator
                                             Facility Gross
                                             Revenue Bonds,
                                             7.375%, due 2018

- ---         480,000     ---        480,000   St. Louis Park,    Aaa/AAA    ---            444,149     ---       444,149
                                             MN, Health Care
                                             Facility, 5.200%,
                                             due 2016

- ---         100,000     ---        100,000   St. Paul, MN, GO
                                             Street             Aa/AA+     ---            100,009     ---       100,009
                                             Improvement,
                                             Special
                                             Assessment Bonds,
                                             Series 1988 D,
                                             7.200%, due 2008

- ---         300,000     ---        300,000   St. Paul, MN,
                                             Housing &          NR/A-      ---            323,805     ---       323,805
                                             Redevelopment
                                             Authority,
                                             Package R,
                                             6.450%, due 2007
- ---         300,000     ---        300,000   St. Paul, MN,
                                             Housing and        Aaa/AAA    ---            298,794     ---       298,794
                                             Redevelpment
                                             Authority Revenue
                                             Bonds, 5.400%,
                                             due 2008

- ---         300,0000    ---        300,0000  St. Paul, MN,
                                             Independent        Aa/AA      ---            297,531     ---       297,531
                                             School District
                                             #625, Series C,
                                             5.550%, due 2012

- ---         400,000     ---        400,000   St. Paul, MN,
                                             Independent        Aa/AA      ---            409,564     ---       409,564
                                             School District
                                             #625, Series 1994
                                             C, 6.050%, due
                                             2012

- ---         150,000     ---        150,000   St. Paul, MN,
                                             Independent        Aa/AA      ---            159,455     ---       159,455
                                             School District
                                             #625, School
                                             Building Bonds,
                                             Series 1990 D,
                                             7.250%, due 2009

- ---         300,000     ---        300,000   St. Paul, MN,      Aa/AA      ---            282,756     ---       282,756
                                             Independent
                                             School District
                                             #625, 5.250%, due
                                             2015

- ---         300,000     ---        300,000   St. Paul, MN,      Aa1/AA     ---            289,140     ---       289,140
                                             Independent
                                             School District,
                                             5.200%, due 2011

9,000,000   ---         ---        9,000,000 St. Paul, MN,
                                             Housing &
                                             Redevelopment      BBB-/Baa   8,952,300      ---         ---       8,952,300
                                             Authority ,
                                             Hospital Revenue
                                             Refunding Bonds
                                             ( Series A),
                                             6.625%
                                             (Healtheast,
                                             MN)/(Original
                                             Issue Yield:
                                             6.687%),
                                             11/1/2017

- ---         300,000     ---        300,000   Southern, MN,
                                             Municipal Power    Aaa/AAA    ---            321,102     ---       321,102
                                             Agency, Power
                                             Supply, 8.125%,
                                             due 2018

            ---         ---                  Southern
10,000,000                        10,000,000 Minnesota
                                             Municipal Power    AAA/Aaa    8,751,300      ---         ---       8,751,300
                                             Agency, Supply
                                             System Revenue
                                             Bonds (Series A),
                                             4.75% (MBIA
                                             INS)/(Original
                                             Issue Yield:
                                             5.52%), 1/1/2016
    ---     325,000     ---        325,000   Stearns County,    A/NR       ---            337,028     ---       337,028
                                             MN, GO Refunded
                                             Bonds, Series B,
                                             6.000%, due 2007

- ---         300,000     ---        300,000   Stearns County,    Aa1/NR     ---            279,954     ---       279,954
                                             MN, Independent
                                             #2753, 5.000%,
                                             due 2012

- ---         200,000     ---        200,000   Wayzata, MN, Tax   Aa/NR      ---            216,496     ---       216,496
                                             Increment Bonds,
                                             7.000%, due 2010

- ---         250,000     ---        250,000   Wayzata, MN,
                                             Independent        Aa1/NR     ---            254,750     ---       254,750
                                             School District
                                             #284, GO Bonds,
                                             Series 1994 B,
                                             5.800%, due 2009

- ---         300,000     ---        300,000   Western Minnesota
                                             Municipal Power    A1/A       ---            308,934     ---       308,934
                                             Agency, Power
                                             Supply Revenue
                                             Refunded Bonds,
                                             6.875%, due 2007

- ---         250,000     ---        250,000   Western Minnesota  A1/A       ---            249,990     ---       249,990
                                             Municipal Power,
                                             Series A, 6.125%,
                                             due 2016

- ---         200,000     ---        200,000   Western Minnesota
                                             Municipal Power    Aaa/AAA    ---            215,808     ---       215,808
                                             Agency,
                                             Transmission
                                             Project Revenue
                                             Refunded Bonds,
                                             Series 1991,
                                             6.750%, due 2016

- ---         250,000     ---        250,000   Whitewater Bear    Aa1/NR     ---            254,928     ---       254,928
                                             Lake School,
                                             6.000%, due 2012

- ---         100,000     ---        100,000   Worthington, MN,
                                             GO Water Revenue   A/NR       ---            106,597     ---       106,597
                                             Bonds, Series
                                             1990 A, 7.000%,
                                             due 2010

- ---         350,000     ---        350,000   Wright County,
                                             MN, GO Jail        A/NR       ---            363,132     ---       363,132
                                             Refunded Bonds,
                                             Series 1992 B,
                                             6.000%, due 2007

                                                 Total                     23,130,557     18,201,77   7,009,332 48,341,666
                                                                                          7

                                             MONTANA--0.2%

1,130,000   ---         ---        1,130,000 Montana State
                                             Board of Housing,  NR/Aa      1,174,918      ---         ---       1,174,918
                                             SFM Revenue Bonds
                                             (Series B-2),
                                             7.50% (FHA GTD),
                                             4/1/2023

                                             NEVADA-0.8%
- ---         ---         350,000    350,000   Clark County, NV,
                                             Improvement
                                             District, 5.850%   Aaa/AAA    ---            ---         347,277   347,277
                                             due 2015

- ---         ---         1,000,000  1,000,000 Clark County, NV,
                                             School District,
                                             General
                                             Obligation Bonds,
                                             5.300%,
                                             due 2004           Aaa/AAA    ---            ---         1,012,490 1,012,490

- ---         ---         1,000,000  1,000,000 Humbolt County,
                                             NV,Pollution
                                             Control
                                             Revenue Bonds,
                                             Idaho Power
                                             Company,
                                             8.300%, due 2014   NR/A+      ---            ---         1,159,620 1,159,620

- ---         ---         800,000    800,000   Lyon County, NV,
                                             School District,
                                             6.750%. due 2011   Aaa/AAA    ---            ---         891,328   891,328

- ---         ---         585,000    585,000   Washoe County,
                                             NV, General
                                             Obligation Bonds,  Aaa/AAA    ---            ---         606,446   606,446
                                             6.000%, due 2009

                                                 Total                     ---            ---         4,017,161 4,017,161

                                             NEW HAMPSHIRE--
                                             4.8%

9,000,000   ---         ---        ---       New Hampshire
                                             Higher
                                             Educational &      A-/NR      8,456,670      ---         ---       8,456,670
                                             Health Facilities
                                             Authority,
                                             Hospital Revenue
                                             Bonds, 6.00%
                                             (Nashua Memorial
                                             Hospital,
                                             NH)/(Original
                                             Issue Yield:
                                             6.40%), 10/1/2023

- ---         ---         1,080,000  1,080,000 New Hampshire
                                             Municipal Bond
                                             Bank,
                                             Series 91 J. Non-
                                             State Guaranteed,
                                             6.900%, due 2012   NR/A+      ---            ---         1,187,460 1,187,460

1,265,000   ---         ---        1,265,000 New Hampshire
                                             State HFA, SFM     A+/Aa      1,328,958      ---         ---       1,328,958
                                             Revenue Bonds
                                             (Series B),
                                             7.75%, 7/1/2023

6,520,000   ---         ---        6,520,000 New Hampshire
                                             State HFA, SFM     A+/Aa      6,759,871      ---         ---       6,759,871
                                             Revenue Bonds
                                             (Series D),
                                             7.25%, 7/1/2015

2,865,000   ---         ---        2,865,000 New Hampshire
                                             State IDA, PCR     BBB-/Baa3  3,040,710      ---         ---       3,040,710
                                             Bonds ( Series
                                             A), 8.00% (United
                                             Illuminating
                                             Co.), 12/1/2014

1,500,000   ---         ---        1,500,000 New Hampshire
                                             State IDA, PCR     BBB-/Baa3  1,617,465      ---         ---       1,617,465
                                             Bonds (Series B),
                                             10.75% (United
                                             Illuminating
                                             Co.), 10/1/2012

- ---         ---         900,000    900,000   State of New
                                             Hampshire
                                             Turnpike System
                                             Revenue Bonds,     Aaa/A      ---            ---         961,497   961,497
                                             8.375% due 2017

                                                 Total                     21,203,674     ---         2,148,957 23,352,631

                                             NEW YORK--2.6%

- ---         ---         1,000,000  1,000,000 New York Metro
                                             Transit
                                             Authority,
                                             5.100%,
                                             due 2004           Aaa/AAA    ---            ---         1,008,280 1,008,280

2,500,000   ---         ---        2,500,000 New York State
                                             Energy Research &
                                             Development        AA-/Aa2    2,688,875      ---         ---       2,688,875
                                             Authority,
                                             Electric
                                             Facilities
                                             Revenue Bonds
                                             (Series A), 7.50%
                                             (Consolidated
                                             Edison
                                             Co.)/(Original
                                             Issue Yield:
                                             7.65%), 1/1/2026

5,000,000   ---         ---        5,000,000 New York State
                                             Environmental
                                             Facilities Corp.,  BBB/Baa3   4,763,750      ---         ---       4,763,750
                                             Solid Waste
                                             Disposal Revenue
                                             Bonds, 6.10%
                                             (Occidental
                                             Petroleum
                                             Corp.)/(Original
                                             Issue Yield:
                                             6.214%),
                                             11/1/2030

- ---         ---         2,900,000  2,900,000 New York State
                                             Environment
                                             Pollution
                                             Control Revenue    Aa/A       ---            ---         3,221,755 3,221,755
                                             Bonds, 7.250%,
                                             due 2010

- ---         ---         1,000,000  1,000,000 New York State
                                             Local Government
                                             Assistance Corp.,  A/A        ---            ---         994,240   994,240
                                             6.000%, due 2016

                                                 Total                     7,452,625      ---         5,224,275 12,676,900

                                             NORTH CAROLINA--
                                             1.7%
1,500,000   ---         ---        1,500,000 Haywood County,
                                             NC, Industrial
                                             Facilties &        BBB/Baa1   1,372,530      ---         ---       1,372,530
                                             Pollution Control
                                             Financing
                                             Authority,
                                             (Series A)
                                             Revenue Bonds,
                                             5.75% (Champion
                                             International
                                             Corp.)/(Original
                                             Issue Yield:
                                             5.975%),
                                             12/1/2025

6,000,000   ---         ---        6,000,000 Martin County,
                                             NC, IFA, (Series   A/A2       5,886,000      ---         ---       5,886,000
                                             1995) Solid Waste
                                             Disposal Revenue
                                             Bonds, 6.00%
                                             (Weyerhaeuser
                                             Co.), 11/1/2025

- ---         ---         1,000,000  1,000,000 Wake County, NC,
                                             Ind. Facilities
                                             Pollution
                                             Control, Carolina
                                             Power and Light,
                                             6.900%, due 2009   A2/A1      ---            ---         1,070,020 1,070,020

                                                 Total                     7,258,530      ---         1,070,020 8,328,550

                                             NORTH DAKOTA--
                                             0.9%

- ---         ---         1,560,000  1,560,000 North Dakota
                                             Housing, Single
                                             Family
                                             Mortgage, 1992
                                             Series A, 6.750%,
                                             due 2012           Aa/A+      ---            ---         1,620,949 1,620,949

2,635,000   ---         ---        2,635,000 North Dakota
                                             State HFA, SFM     A+/Aa      2,726,171      ---         ---       2,726,171
                                             Revenue Bonds
                                             (Series C),
                                             7.30%, 7/1/2024

                                                 Total                     2,726,171      ---         1,620,949 4,347,120

                                             OHIO--0.4%

500,000     ---         ---        ---       Ohio State Water
                                             Development        BBB-/Baa3  530,100        ---         ---       530,100
                                             Authority, PCR
                                             Bonds (Series A),
                                             8.10% (Ohio
                                             Edison
                                             Co.)/(Original
                                             Issue Yield:
                                             8.142%),
                                             10/1/2023

1,250,000   ---         ---        1,250,000 Ohio State Water
                                             Development        BB/Ba2     1,293,500      ---         ---       1,293,500
                                             Authority, PCR
                                             Bonds (Series A-
                                             1), 9.75%
                                             (Cleveland
                                             Electric
                                             Illuminating
                                             Co.), 11/1/2022

                                                 Total                     1,823,600      ---         ---       1,823,600

                                             OKLAHOMA--2.6%

4,585,000   ---         ---        4,585,000 Jackson County,
                                             OK, Hospital
                                             Authority,         BBB-/NR    4,415,768      ---         ---       4,415,768
                                             Hospital Revenue
                                             Refunding Bonds,
                                             7.30% (Jackson
                                             County Memorial
                                             Hospital,
                                             OK)/(Original
                                             Issue Yield:
                                             7.40%), 8/1/2015

1,250,000   ---         ---        1,250,000 Tulsa, OK,
                                             Municipal          BB+/Baa2   1,316,875      ---         ---       1,316,875
                                             Airport, Revenue
                                             Bonds, 7.375%
                                             (American
                                             Airlines),
                                             12/1/2020

6,200,000   ---         ---        6,200,000 Tulsa, OK,
                                             Municipal          BB+/Baa2   6,611,990      ---         ---       6,611,990
                                             Airport, Revenue
                                             Bonds, 7.60%
                                             (American
                                             Airlines)/(Origin
                                             al Issue Yield:
                                             7.931%),
                                             12/1/2030

                                                 Total                     12,344,633     ---         ---       12,344,633

                                             OREGON-0.1%

- ---         ---         500,000    500,000   Portland Oregon
                                             Sewer System,
                                             6.050%,
                                             due 2009           A1/A+      ---            ---         522,655   522,655

                                             PENNSYLVANIA--
                                             11.3%

3,000,000   ---         ---        3,000,000 Allegheny County,
                                             PA, HDA, Health &
                                             Education Revenue  BBB/NR     3,061,110      ---         ---       3,061,110
                                             Bonds, 7.00%
                                             (Rehabilitation
                                             Institute of
                                             Pittsburgh)/(Orig
                                             inal Issue Yield:
                                             7.049%), 6/1/2010

2,500,000   ---         ---        2,500,000 Allegheny County,
                                             PA, HDA, Health &
                                             Education Revenue  BBB/NR     2,533,875      ---         ---       2,533,875
                                             Bonds, 7.00%
                                             (Rehabilitation
                                             Institute of
                                             Pittsburgh)/(Orig
                                             inal Issue Yield:
                                             7.132%), 6/1/2022

5,370,000   ---         ---        5,370,000 Allegheny County,
                                             PA, Higher         NR         5,516,655      ---         ---       5,516,655
                                             Education,
                                             Building
                                             Authority Revenue
                                             Bonds, 7.375% (La
                                             Roche College),
                                             7/15/2012

1,690,000   ---         ---        1,690,000 Allegheny County,
                                             PA, IDA, Revenue   NR         1,780,162      ---         ---       1,780,162
                                             Bonds, 8.75%
                                             (United Parcel
                                             Service),
                                             2/15/2009

665,000     ---         ---        665,000   Allegheny County,
                                             PA, Residential    NR/Aaa     697,332        ---         ---       697,332
                                             Finance Agency,
                                             Mortgage Revenue
                                             Bonds (Series G),
                                             9.50% (GNMA COL),
                                             12/1/2018

3,000,000   ---         ---        3,000,000 Delaware County
                                             Authority, PA,
                                             College Revenue    NR         3,377,070      ---         ---       3,377,070
                                             Bonds, 7.25%
                                             (Eastern
                                             College)/(United
                                             States Treasury
                                             PRF)/(Original
                                             Issue Yield:
                                             7.875%), 3/1/2012

2,055,000   ---         ---        2,055,000 Erie County, PA,
                                             Hospital           NR         2,112,951      ---         ---       2,112,951
                                             Authority,
                                             Revenue Bonds,
                                             7.50% (Erie
                                             Infants & Youth
                                             Home , Inc.),
                                             10/1/2011

- ---         ---         400,000    400,000   Erie County, PA,
                                             Industrial
                                             Development
                                             Auth., Pollution
                                             Control Revenue
                                             Refunded Bonds,
                                             Series 1991,       A3/A-      ---            ---         423,124   423,124
                                             7.150%, due 2013

1,730,000   ---         ---        1,730,000 Northeastern, PA,
                                             Hospital &
                                             Education          BBB/NR     1,598,364      ---         ---       1,598,364
                                             Authority,
                                             College Revenue
                                             Refunding Bonds
                                             (Series B), 6.00%
                                             (Kings College,
                                             PA)/(Original
                                             Issue Yield:
                                             6.174%),
                                             7/15/2018

10,000,000  ---         ---       10,000,000 Pennsylvania
                                             EDFA, Wastewater   BBB-/Baa1  11,009,800     ---         ---       11,009,800
                                             Treatment Revenue
                                             Bonds (Series A),
                                             7.60% (Sun Co.,
                                             Inc.)/(Original
                                             Issue Yield:
                                             7.653%),
                                             12/1/2024

6,000,000   ---         ---        6,000,000 Pennsylvania
                                             Housing Finance    AA/AA      6,242,460      ---         ---       6,242,460
                                             Authority, SFM
                                             Revenue Bonds
                                             (Series 34-B),
                                             7.00% (FHA and
                                             FHA GTDs),
                                             4/1/2024

2,660,000   ---         ---        2,660,000 Pennsylvania
                                             Housing Finance    AA/Aa      2,797,495      ---         ---       2,797,495
                                             Authority, SFM
                                             Revenue Bonds
                                             (Series28), 7.65%
                                             (FHA GTD),
                                             10/1/2023

1,740,000   ---         ---        1,740,000 Pennsylvania
                                             State Higher       NR         1,801,022      ---         ---       1,801,022
                                             Education
                                             Facilities
                                             Authority,
                                             College &
                                             University
                                             Revenue Bonds,
                                             6.75% (Thiel
                                             College ),
                                             9/1/2017

3,250,000   ---         ---        3,250,000 Pennsylvania
                                             State Higher
                                             Education          BBB+/NR    3,202,030      ---         ---       3,202,030
                                             Facilities
                                             Authority,
                                             College &
                                             University
                                             Revenue Refunding
                                             Bonds (Series A),
                                             6.10% (Allegheny
                                             College,
                                             Meadville,
                                             PA)/(Original
                                             Issue Yield:
                                             6.23%), 11/1/2008

1,200,000   ---         ---        1,200,000 Pennsylvania
                                             State Higher       NR         1,205,952      ---         ---       1,205,952
                                             Education
                                             Facilities
                                             Authority,
                                             Revenue Bonds
                                             (Series 1996),
                                             7.15% (Thiel
                                             College ),
                                             5/15/2015

3,875,000   ---         ---        3,875,000 Pennsylvania
                                             State Higher
                                             Education          AAA/NR     4,335,854      ---         ---       4,335,854
                                             Facilities
                                             Authority,
                                             Revenue Bonds
                                             (Series A),
                                             7.375% (Medical
                                             College of
                                             Pennsylvania)/(Un
                                             ited States
                                             Treasury
                                             PRF)/(Original
                                             Issue Yield:
                                             7.45%), 3/1/2021

1,750,000   ---         ---        1,750,000 Pennsylvania
                                             State Higher
                                             Education          BBB/Baa1   1,940,803      ---         ---       1,940,803
                                             Facilities
                                             Authority,
                                             Revenue Bonds
                                             (Series A),
                                             8.375% (Medical
                                             College of
                                             Pennsylvania)/(Un
                                             ited States
                                             Treasury
                                             PRF)/(Original
                                             Issue Yield:
                                             8.448%), 3/1/2011

                                                 Total                     53,212,935     ---         423,124   53,636,059

                                             RHODE ISLAND-0.4%

- ---         ---         1,675,000  1,675,000 Rhode Island
                                             Depositors,
                                             Economic
                                             Protection Corp.   Aaa/AAA    ---            ---         1,851,076 1,851,076
                                             Bonds, 6.625%,
                                             due 2019

                                             SOUTH CAROLINA--
                                             0.2%

810,000     ---         ---        810,000   South Carolina
                                             State Housing
                                             Finance &          AA/Aa      840,586        ---         ---       840,586
                                             Development
                                             Authority,
                                             Homeownership
                                             Mortgage Revenue
                                             Bonds (Series A),
                                             7.40% (FHA GTD),
                                             7/1/2023

                                             SOUTH DAKOTA-0.5%

- ---         ---         1,400,000  1,400,000 South Dakota
                                             Housing
                                             Development,
                                             Multi-
                                             Famkily Housing
                                             Revenue Bonds,
                                             6.700%,
                                             due 2020           A1/A+      ---            ---         1,424,430 1,424,430

- ---         ---         950,000    950,000   South Dakota
                                             State Building
                                             Authority
                                             Co-op, Series A,   A1/A+      ---            ---         977,332   977,332
                                             7.500%, due 2016

                                                 Total                     ---            ---         2,401,762 2,401,762

                                             TENNESSEE--3.5%

2,475,000   ---         ---        2,475,000 Memphis-Shelby
                                             County, TN,        BBB/Baa2   2,572,020      ---         ---       2,572,020
                                             Airport Refunding
                                             Revenue Bonds,
                                             6.75% (Federal
                                             Express Corp.),
                                             9/1/2012

3,100,000   ---         ---        3,100,000 Springfield, TN,
                                             Health &
                                             Educational        NR         3,266,036      ---         ---       3,266,036
                                             Facilities Board,
                                             Hospital Revenue
                                             Bonds, 8.25%
                                             (Jesse Holman
                                             Jones Hospital
                                             Corp,
                                             TN)/(Original
                                             Issue Yield:
                                             8.50%), 4/1/2012

7,800,000   ---         ---        7,800,000 Springfield, TN,
                                             Health &
                                             Educational        NR         8,212,464      ---         ---       8,212,464
                                             Facilities Board,
                                             Hospital Revenue
                                             Bonds, 8.50%
                                             (Jesse Holman
                                             Jones Hospital
                                             Corp,
                                             TN)/(Original
                                             Issue Yield:
                                             8.875%), 4/1/2024

2,825,000   ---         ---        2,825,000 Tennessee Housing
                                             Development        NR/Aa      2,936,362      ---         ---       2,936,362
                                             Agency,
                                             Homeownership
                                             Program, Issue V
                                             Revenue Bonds,
                                             7.65%, 7/1/2022

                                                 Total                     16,986,882     ---         ---       16,986,882

                                             TEXAS--12.6%

2,500,000   ---         ---        2,500,000 Brazos River
                                             Authority, TX,     BBB/Baa2   2,743,225      ---         ---       2,743,225
                                             PCR Revenue Bonds
                                             (Series A),
                                             7.875% (Texas
                                             Utilities
                                             Electric Co.),
                                             3/1/2021

1,800,000   ---         ---        1,800,000 Brazos River
                                             Authority, TX,     BBB/Baa2   1,966,104      ---         ---       1,966,104
                                             PCR Revenue Bonds
                                             (Series A),
                                             8.125% (Texas
                                             Utilities
                                             Electric Co.),
                                             2/1/2020

- ---         ---         1,000,000  1,000,000 Brownsville, TX,
                                             Utility System
                                             Revenue,
                                             6.875%, due 2020   Aaa/AAA    ---                        1,098,600 1,098,600

7,320,000   ---         ---        7,320,000 Dallas-Fort
                                             Worth, TX,         BB/Ba3     7,564,781      ---         ---       7,564,781
                                             International
                                             Airport
                                             Facilities,
                                             Revenue Bonds,
                                             7.125% (Delta Air
                                             Lines,
                                             Inc.)/(Original
                                             Issue Yield:
                                             7.55%), 11/1/2026

3,000,000   ---         ---        3,000,000 Dallas-Fort
                                             Worth, TX,         BB+/Baa2   3,165,180      ---         ---       3,165,180
                                             International
                                             Airport
                                             Facilities,
                                             Revenue Bonds,
                                             7.25% (American
                                             Airlines)/(Origin
                                             al Issue Yield:
                                             7.428%),
                                             11/1/2030

2,370,000   ---         ---        2,370,000 Dallas-Fort
                                             Worth, TX,         BB+/Baa2   2,507,105      ---         ---       2,507,105
                                             International
                                             Airport
                                             Facilities,
                                             Revenue Bonds,
                                             7.50% (American
                                             Airlines)/(Origin
                                             al Issue Yield:
                                             8.20%), 11/1/2025

2,500,000   ---         ---        2,500,000 Dallas-Fort
                                             Worth, TX,         BB/Ba3     2,673,000      ---         ---       2,673,000
                                             International
                                             Airport
                                             Facilities,
                                             Revenue Bonds,
                                             7.625% (Delta Air
                                             Lines,
                                             Inc.)/(Original
                                             Issue Yield:
                                             7.65%), 11/1/2021

1,000,000   ---         ---        1,000,000 Guadalupe-Blanco
                                             River Authority    NR         1,051,630                            1,051,630
                                             TX, Industrial
                                             Development Corp
                                             PCR Bonds, 8.60%
                                             (A.P. Green
                                             Industries),
                                             4/1/2009

2,500,000   ---         ---        2,500,000 Guadalupe-Blanco
                                             River Authority    NR         2,683,200      ---         ---       2,683,200
                                             TX, Industrial
                                             Development
                                             Corp.,  PCR
                                             Bonds, 8.60%
                                             (A.P. Green
                                             Industries),
                                             4/1/2009

5,000,000   ---         ---        5,000,000 Gulf Coast, TX,
                                             Waste Disposal
                                             Authority,         BBB/Baa1   5,132,350      ---         ---       5,132,350
                                             Revenue Bonds
                                             (Series A),
                                             6.875% (Champion
                                             International
                                             Corp.)/(Original
                                             Issue Yield:
                                             7.15%), 12/1/2028

20,000,000  ---         ---       20,000,000 Houston, TX,
                                             Water & Sewer
                                             System, Junior     AAA/Aaa    18,365,800     ---         ---       18,365,800
                                             Lien Refunding
                                             Revenue Bonds
                                             (Series A), 5.25%
                                             (FGIC
                                             INS)/(Original
                                             Issue Yield:
                                             5.60%), 12/1/2025

- ---         ---         1,545,000  1,545,000 Houston, TX,
                                             Water & Sewer
                                             Revenue Refunded
                                             Bonds, 6.400%,     A/A        ---            ---         1,625,618 1,625,618
                                             due 2009

7,630,000   ---         ---        7,630,000 Richardson, TX,
                                             Hospital
                                             Authority,         BBB-/Baa   7,613,824      ---         ---       7,613,824
                                             Hospital
                                             Refunding &
                                             Improvement
                                             Bonds, 6.75%
                                             (Richardson
                                             Medical Center,
                                             TX)/(Original
                                             Issue Yield:
                                             6.82%), 12/1/2023

- ---         ---         1,000,000  1,000,000 Texas Water
                                             Development Board
                                             Revenue, State
                                             Revolving Fund     Aa1/AAA    ---            ---         1,071,120 1,071,120
                                             Bonds, 6.400%,
                                             due 2007

1,700,000   ---         ---        1,700,000 Tyler, TX, Health
                                             Facilities         NR/Baa     1,696,124      ---         ---       1,696,124
                                             Development
                                             Corp., Revenue
                                             Bonds, 6.75%
                                             (East Texas
                                             Medical
                                             Center)/(Original
                                             Issue Yield:
                                             7.00%), 11/1/2025

                                                 Total                     57,162,323     ---         3,795,338 60,957,661

                                             UTAH--5.0%

- ---         ---         1,000,000  1,000,000 Intermountain      Aa/AA-     ---            ---         985,100   985,100
                                             Power Agency Utah
                                             Power Supply,
                                             6.000%, due 2016

20,000,000  ---         ---        20,000,00 Intermountain
                                   0         Power Agency, UT,  AA-/Aa     17,240,200     ---         ---       17,240,200
                                             Refunding Revenue
                                             Bonds (Series A),
                                             5.00% (Original
                                             Issue Yield:
                                             5.687%), 7/1/2023

980,000     ---         ---        980,000   Utah State HFA,    AA/NR      1,013,722      ---         ---       1,013,722
                                             SFM Revenue Bonds
                                             (Series B-3),
                                             7.10%, 7/1/2024

1,445,000   ---         ---        1,445,000 Utah State HFA,
                                             SFM Revenue Bonds  AA/NR      1,498,942      ---         ---       1,498,942
                                             (Series E-2),
                                             7.15% (FHA
                                             GTD)/(Original
                                             Issue Yield:
                                             7.169%), 7/1/2024

1,860,000   ---         ---        1,860,000 Utah State HFA,
                                             Single Family      AA/NR      1,950,619      ---         ---       1,950,619
                                             Mortgage Revenue
                                             Bonds, 7.55% (FHA
                                             GTD), 7/1/2023

455,000     ---         ---        455,000   Utah State HFA,
                                             Single Family      AA/NR      477,532        ---         ---       477,532
                                             Mortgage Revenue
                                             Bonds, 7.75% (FHA
                                             GTD), 1/1/2023

- ---         ---         1,000,000  1,000,000 Utah State
                                             Municipal Finance
                                             Co-op,
                                             Government
                                             Revenue Bonds,
                                             6.400%,
                                             due 2009           A/A        ---            ---         1,018,130 1,018,130

                                                 Total                     22,181,015     ---         2,003,230 24,184,245

                                             VIRGINIA-0.1%

- ---         ---         135,000    135,000   Virginia Housing
                                             Authority,
                                             Residential
                                             Mortgage Revenue
                                             Bonds, Series B,
                                             7.550%,
                                             due 2012           Aa/AAA     ---            ---         136,096   136,096

- ---         ---         500,000    500,000   Virginia Housing
                                             Development
                                             Authority,
                                             Series C 1992,     Aa1/AA+    ---            ---         522,140   522,140
                                             6.500%, due 2007

                                                 Total                     ---            ---         658,236   658,236

                                             WASHINGTON--4.9%

4,250,000   ---         ---        4,250,000 Pierce County,
                                             WA, Economic
                                             Development        BBB/Baa2   3,803,070      ---         ---       3,803,070
                                             Corp., Solid
                                             Waste Revenue
                                             Bond, 5.80%
                                             (Occidental
                                             Petroleum
                                             Corp.)/(Original
                                             Issue Yield:
                                             5.90%), 9/1/2029

4,075,000   ---         ---        4,075,000 Pilchuck
                                             Development
                                             Public Corp., WA,  BBB+/Baa1  3,837,957      ---         ---       3,837,957
                                             Special
                                             Facilities
                                             Airport Revenue
                                             Bonds ( Series
                                             1993) , Tramco,
                                             Inc. Project,
                                             6.00% (Goodrich
                                             (B.F.) Co.),
                                             8/1/2023

4,300,000   ---         ---        4,300,000 Port of Camas-
                                             Washougal, WA,
                                             PCR Refunding      BBB+/NR    4,323,306      ---         ---       4,323,306
                                             Bonds (Series
                                             1993), 6.70%
                                             (James River
                                             Project,
                                             WA)/(Original
                                             Issue Yield:
                                             6.75%), 4/1/2023

- ---         ---         1,000,000  1,000,000 Skagit County,
                                             WA, Cons. School
                                             District, 6.700%,  Aaa/AAA    ---            ---         1,118,290 1,118,290
                                             due 2007

- ---         ---         1,500,000  1,500,000 Washington State
                                             Municipal Finance
                                             Co-op,
                                             Government         Aa/AA      ---            ---         1,465,380 1,465,380
                                             Revenue Bonds,
                                             5.600%,
                                             due 2007

10,000,000  ---         ---       10,000,000 Washington State,
                                             UT, GO (Series     AAA/Aa     9,313,100      ---         ---       9,313,100
                                             A), 5.375%
                                             (Original Issue
                                             Yield: 6.00%),
                                             7/1/2021

                                                 Total                     21,277,433     ---         2,583,670 23,861,103

                                             WEST VIRGINIA--
                                             0.5%

5,000,000   ---         ---        5,000,000 Marion County,
                                             WV, County
                                             Commission, Solid  NR         2,429,200      ---         ---       2,429,200
                                             Waste Facility
                                             Revenue Bonds
                                             (Series 1993),
                                             7.75% (American
                                             Power Paper
                                             Recycling),
                                             12/1/2011

                                             WISCONSIN--0.4%

- ---         ---         985,000    985,000   Wisconsin Housing
                                             and Economic
                                             Development
                                             Authority, Series
                                             A,
                                             7.100%, due 2023   Aa/AA      ---            ---         1,030,526 1,030,526

- ---         ---         550,000    550,000   Wisconsin Housing
                                             and Economic
                                             Development
                                             Authority,
                                             6.000%,
                                             due 2015           Aa/AA      ---            ---         542,647   542,647

565,000     ---         ---        565,000   Wisconsin Housing
                                             & Economic
                                             Development        A+/Aa      579,681        ---                   579,681
                                             Authority,
                                             Homeownership
                                             Revenue Bonds
                                             (Series E), 8.00%
                                             (FHA
                                             GTD)/(Original
                                             Issue Yield:
                                             8.044%), 3/1/2021

                                                 Total                     579,681        ---         1,573,173 2,152,854

                                             WYOMING-0.5%

- ---         ---         2,150,000  2,150,000 Sweetwater
                                             County, WY, PCR
                                             for Idaho
                                             Power, 7.625%,     A3/A       ---            ---         2,222,218 2,222,218
                                             due 2013

                                              TOTAL MUNICIPAL              $376,220,136   18,201,77   77,342,92 471,764,836
                                             BONDS (IDENTIFIED                            7           3
                                             COST
                                             $471,438,409)

SHORT-TERM SECURITIES ( 0.6%)

- ---         ---         1,150,000  1,150,000 American Express
                                             Credit Corp.,
                                             5.280%,
                                             due 09/03/1996                ---            ---         1,150,000 1,150,000

- ---         ---         950,000    950,000   Ford Motor Credit
                                             Corp., 5.230%,
                                             due 09/04/1996                ---            ---         949,862   949,862

- ---         820,000     ---        820,000   Ford Motor Credit             ---            820,000     ---       820,000
                                             Corp., 5.160%,
                                             due 09/03/1996

                                             TOTAL SHORT-TERM              ---            820,000     2,099,862 2,919,862
                                             SECURITIES, AT
                                             AMORTIZED COST

                                              TOTAL                        $376,220,136   $19,021,777   $79,442,785 $474,684,698
                                             INVESTMENTS               
                                             (IDENTIFIED COST                                             $474,358,271)(A)






   
    Please refer to the Appendix of the Statement of Additional Information
Federated Municipal Opportunities Fund, Inc. Prospectus as of October 31, 1996
for an explanation of the credit ratings.

(a) The cost of investments for federal tax purposes amounts to $474,358,271.
The net unrealized appreciation of investments on a federal tax basis amounts to
$326,427  which is comprised of $16,464,732  appreciation and $16,138,305
depreciation at August 31, 1996.

Note:    The categories of investments are shown as a percentage of
net assets ($ 482,861,041) at August 31, 1996.

    
The following acronym(s) are used throughout this portfolio:
COL      --Collateralized
EDFA     --Economic Development Financing Authority
FGIC     --Financial Guaranty Insurance Company
FHA      --Federal Housing Administration
GNMA     --Government National Mortgage Association
GO       --General Obligation
GTD      --Guaranteed
HDA      --Hospital Development Authority
HFA      --Housing Finance Authority
IDA      --Industrial Development Authority
IDB      --Industrial Development Bond
IFA      --Industrial Finance Authority
INS      --Insured
LT       --Limited Tax
MBIA     --Municipal Bond Investors Assurance
PCA      --Pollution Control Authority
PCR      --Pollution Control Revenue
PRF      --Prerefunded
SFM      --Single Family Mortgage
UT       --Unlimited Tax
VRDNs    --Variable Rate Demand Notes

(See Notes to Pro Forma Financial Statements)



   FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL
                               INCOME FUND, INC.)

                   STATE BOND MINNESOTA TAX-FREE INCOME FUND

                           STATE BOND TAX EXEMPT FUND

            PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES

                          AUGUST 31, 1996 (UNAUDITED)




                                                                          
                           FEDERATED       STATE BOND  STATE
                           MUNICIPAL       MINNESOTA   BOND
                           OPPORTUNITIES   TAX-FREE    TAX EXEMPT     PRO FORMA          Pro Forma
                           FUND, INC.      INCOME      FUND            ADJUSTMENT        Combined
                                           FUND

            
        ASSETS:

        Investments in     376,220,136     19,021,777  79,442,785     ---                474,684,698
securities, at  value

        Cash               32,391          24,959      15,433         ---                72,783

        Income receivable  6,897,754       261,034     1,299,429      ---                8,458,217

        Receivable due     ---             6,206       1,827                             8,033
from affiliates

        Receivable for     273,742         ---         ---            ---                273,742
shares sold

             Total assets  383,424,023     19,313,976  80,759,474     ---                483,497,473

        LIABILITIES:

        Income             942             87,407      69,481         ---                157,830
distributions payable

        Payable for        270,076         ---         ---            ---                270,076
shares redeemed

        Accrued expenses   123,827         17,663      67,036         ---                208,526

             Total         394,845         105,070     136,517        ---                636,432
liabilities

        TOTAL NET ASSETS   383,029,178     19,208,906  80,622,957     ---                482,861,041

        NET ASSETS
CONSISTS OF:
        Paid in capital    396,775,582     18,694,128  77,104,625     ---                492,574,335

        Net unrealized     (3,518,145)     468,398     3,360,390      ---                310,643
appreciation
(depreciation) of
investments

        Accumulated net    (11,001,821)    46,380      157,942        ---                (10,797,499)
realized gain (loss) on                                                                  
investments

        Undistributed net  773,562         ---         ---            ---                773,562
investment income

        TOTAL NET ASSETS   383,029,178     19,208,906  80,622,957     ---                482,861,041

        Class A Shares     296             19,208,906  80,622,957     ---                99,832,159

        Class B Shares     296             ---         ---            ---                296

        Class C Shares     296             ---         ---            ---                296

        Class F Shares     383,028,290     ---         ---            ---                383,028,290

        SHARES
OUTSTANDING:

           
        Class A Shares     28.662          1,820,401   7,474,279      371,820.649        9,666,529.311
                                                                                  (a)    

        Class B Shares     28.662          ---         ---            ---                28.662

        Class C Shares     28.662          ---         ---            ---                28.662

        Class F Shares     37,075,241.00   ---         ---            ---                37,075,241.000
                                                                                       0

        TOTAL SHARES       37,075,326.98   1,820,401   7,474,279      371,820.649        46,741,827.

OUTSTANDING                6                                                             635

            
        NET ASSET VALUE,
OFFERING PRICE, AND
REDEMPTION PROCEEDS PER
SHARE:

        CLASS A SHARES:

        Net Asset Value    10.33           10.55       10.79          ---                10.33
Per Share

        Offering Price     10.82*          11.05**     11.30**        ---                10.82*
Per Share                                 $

        Redemption         10.33           10.55       10.79          ---                10.33
Proceeds Per Share

        CLASS B SHARES:

        Net Asset Value    10.33           ---         ---            ---                10.33
Per Share

        Offering Price     10.33           ---         ---            ---                10.33
Per Share

        Redemption         9.76            ---         ---            ---                9.76
Proceeds Per Share ***

        CLASS C SHARES:

        Net Asset Value    10.33           ---         ---            ---                10.33
Per Share

        Offering Price     10.33           ---         ---            ---                10.33
Per Share

        Redemption         10.23           ---         ---            ---                10.23
Proceeds Per Share ***

        CLASS F SHARES:

        Net Asset Value    10.33           ---         ---            ---                10.33
Per Share

        Offering Price     10.43           ---         ---            ---                10.43
Per Share *

        Redemption         10.23           ---         ---            ---                10.23
Proceeds Per Share ***

        Investments, at    379,738,281     18,548,504  76,071,486     ---                474,358,271
identified cost



        

           
        (A)  ADJUSTMENT TO REFLECT SHARE BALANCE AS A RESULT OF THE COMBINATION,
BASED ON THE EXCHANGE RATIOS  OF 1.02172889271  FOR STATE BOND MINNESOTA TAX-
FREE INCOME FUND AND  1.04445450212 FOR STATE BOND TAX EXEMPT FUND.
          *   SEE ``HAT SHARES COST'' IN THE FEDERATED MUNICIPAL OPPORTUNITIES
FUND, INC. PROSPECTUS AS OF OCTOBER 31, 1996.
         **   SEE ``OW ARE THE FUND'S SALES CHARGES DETERMINED'' IN THE STATE
BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX-EXEMPT FUND PROSPECTUSES
EACH DATED AS OF NOVEMBER 1, 1995
        ***   SEE ``CONTINGENT DEFERRED SALES CHARGE'' IN THE FEDERATED
MUNICIPAL OPPORTUNITIES FUND, INC. PROSPECTUS AS OF OCTOBER 31, 1996.

        (SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS)
    

   FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. (FORMERLY, FORTRESS MUNICIPAL
                               INCOME FUND, INC.)

                   STATE BOND MINNESOTA TAX-FREE INCOME FUND

                           STATE BOND TAX EXEMPT FUND

                  PRO FORMA COMBINING STATEMENT OF OPERATIONS

                     YEAR ENDED AUGUST 31, 1996 (UNAUDITED)





                                                                      
                                                                                
                           FEDERATED       STATE BOND  STATE

                           MUNICIPAL       MINNESOTA   BOND
                           OPPORTUNITIES   TAX-        TAX EXEMPT   Pro Forma        Pro
                           FUND, INC.      FREEINCOME  FUND(*)      Adjustment       Forma
                                           FUND(*)                                   Combined

    
INVESTMENT INCOME:

Interest                   28,818,178      1,135,500   5,041,950    ---          $   34,995,628

EXPENSES:

Investment advisory fee    2,475,132       113,090     407,880      81,718       (a) 3,077,820

Administrative personnel   311,976         ---         ---          75,829       (b) 387,805

and services fee

Transfer agent and         235,048         7,625       31,461       (3,616)      (c) 270,518
dividend disbursing agent
fees and expenses

Accounting and custodian   175,732         18,684      30,415       (20,978)     (d) 203,853
fees

Professional Fees          21,106          16,868      20,498       (37,366)     (e) 21,106

Distribution services      ---             47,121      204,057      (251,178)    (f) ---
fee- Class A Shares

Shareholder services fee-  1,031,305       ---         ---          251,178      (f) 1,282,483
Class F Shares

Printing and postage       75,552          8,069       18,150       (16,771)     (g) 85,000

Other expenses             155,218         9,666       23,952       (24,815)     (h) 164,021

     Total expenses        4,481,069       221,123     736,413      54,001           5,492,606

Waivers-

Waiver of investment       ---             (32,639)    ---          32,639       (i) ---
advisory fee

Waiver of shareholder      (41,252)        ---         ---          ---              (41,252)
services fee- Class F
Shares

  Total waivers            (41,252)        (32,639)    ---          32,639           (41,252)

   Net expenses            4,439,817       188,484     736,413      86,640           5,451,354

     Net investment        24,378,361      947,016     4,305,537    (86,640)         29,544,274
income

REALIZED AND UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS:

Net realized gain  on      (116,813)       53,432      40,206       ---              (23,175)
investments

Net change in unrealized   (13,721,871)    (128,527)   64,146       ---              (13,786,252)
appreciation                                                                         
(depreciation) of
investments

    Net realized and       (13,838,684)    (75,095)    104,352      ---              (13,809,427)
unrealized gain (loss) on                                                            
investments

       Change in net       10,539,677      871,921     4,409,889    (86,640)     $   15,734,847
assets resulting from
operations



        

           
        (*)   REPRESENTS THE PERIOD FOR THE YEAR ENDED JUNE 30, 1996.

        (SEE NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS)

        (SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS)
            
   
Federated Municipal Opportunities Fund, Inc. (formerly, Fortress Municipal
Income Fund, Inc.)
State Bond Minnesota Tax-Free Income Fund
State Bond Tax Exempt Fund
Notes to Pro Forma Combining Statement of Operations
Year Ended August 31, 1996 (unaudited)

(A) FEDERATED ADVISERS (THE `ADVISER'') RECEIVES FOR ITS SERVICES AN ANNUAL
INVESTMENT ADVISORY FEE EQUAL TO 0.60% OF THE FEDERATED MUNICIPAL OPPORTUNITIES
FUND INC.'S (THE `FEDERATED FUND'') AVERAGE DAILY NET ASSETS. THE ADVISER MAY
VOLUNTARILY CHOOSE TO WAIVE A PORTION OF ITS FEE. ARM CAPITAL ADVISORS, INC.
CHARGED 0.60% AND 0.50%, RESPECTIVELY, OF STATE BOND MINNESOTA TAX-FREE INCOME
FUND'S AND STATE BOND TAX-EXEMPT FUND'S AVERAGE DAILY NET ASSETS FOR ITS
ADVISORY FEE.

(B) FEDERATED SERVICES COMPANY (`F SERV'') PROVIDES THE FEDERATED FUND WITH
CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES. THE FEE IS BASED ON THE LEVEL OF
AVERAGE AGGREGATE NET ASSETS OF THE FUND FOR THE PERIOD.

(C) F SERV SERVES AS TRANSFER AND DIVIDEND DISBURSING AGENT FOR THE FEDERATED
FUND. THE FEE IS BASED ON THE SIZE, TYPE, AND NUMBER OF ACCOUNTS AND
TRANSACTIONS MADE BY SHAREHOLDERS.

(D) FEES REFLECT CUSTODIAN COSTS FOR THE FEDERATED FUND PAID TO STATE STREET
BANK AND TRUST COMPANY.  THE CUSTODIAN FEE IS BASED ON A PERCENTAGE OF ASSETS,
PLUS OUT-OF-POCKET EXPENSES. F SERV MAINTAINS THE FEDERATED FUND'S ACCOUNTING
RECORDS. THE FEE IS BASED ON THE LEVEL OF THE FEDERATED FUND'S AVERAGE NET
ASSETS FOR THE PERIOD, PLUS OUT-OF-POCKET EXPENSES.

(E)  ADJUSTMENT TO REFLECT THE AUDIT FEE AND LEGAL FEE REDUCTIONS DUE TO THE
COMBINING OF TWO PORTFOLIOS INTO ONE.

(F)  UNDER THE TERMS OF A SHAREHOLDER SERVICES AGREEMENT WITH FEDERATED
SHAREHOLDER SERVICES (`FSS'') THE FEDERATED FUND WILL PAY FSS UP TO 0.25% OF
AVERAGE DAILY NET ASSETS OF THE FEDERATED FUND FOR THE PERIOD.  THE FEE PAID TO
FSS IS USED TO FINANCE CERTAIN SERVICES FOR SHAREHOLDERS AND TO MAINTAIN
SHAREHOLDER ACCOUNTS.  FSS MAY VOLUNTARILY CHOOSE TO WAIVE A PORTION OF ITS FEE.
FSS CAN MODIFY OR TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME AT ITS SOLE
DISCRETION.  SBM FINANCIAL SERVICES, INC. RECEIVED 0.25% OF THE AVERAGE DAILY
NET ASSETS OF STATE BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX-
EXEMPT FUND, RESPECTIVELY,  UNDER THE TERMS OF A DISTRIBUTION PLAN PURSUANT TO
RULE 12B-1 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, TO FINANCE
ACTIVITIES INTENDED TO RESULT IN THE SALE OF STATE BOND MINNESOTA TAX-FREE
INCOME FUND'S AND STATE BOND TAX-EXEMPT FUND'S SHARES AND TO PROVIDE CERTAIN
SERVICES FOR SHAREHOLDERS AND TO MAINTAIN SHAREHOLDER ACCOUNTS.  CLASS A SHARES
OF THE FEDERATED FUND DONOT HAVE A DISTRIBUTION PLAN.
    


(G) ADJUSTMENT TO REFLECT PRINTING AND POSTAGE EXPENSES ARE ADJUSTED TO REFLECT
ESTIMATED SAVINGS TO BE REALIZED BY COMBINING THREE PORTFOLIOS INTO A SINGLE
PORTFOLIO.
   
(H) ADJUSTMENT REFLECTS THE ELIMINATION OF THE DIRECTORS/TRUSTEES FEES FOR STATE
BOND MINNESOTA TAX-FREE INCOME FUND AND STATE BOND TAX-EXEMPT FUND, THE STATE
REGISTRATION COSTS FOR THE FEDERATED FUND ONLY, AND THE DECREASE IN INSURANCE
FEES DUE TO THE REDUCTION IN COVERAGE REQUIREMENT OF ONE PORTFOLIO ONLY.

(I) THE EXPENSES ACCRUED ON THE FEDERATED FUND ARE SUFFICIENT TO COVER ALL
EXPENSES. THEREFORE, NO REIMBURSEMENT IS NECESSARY.
    

        Federated Municipal Opportunities Fund, Inc. (formerly, Fortress
Municipal Income Fund, Inc.)
        State Bond Minnesota Tax-Free Income Fund
        State Bond Tax Exempt Fund
        Notes to Pro Forma Financial Statements (unaudited)

        1.     BASIS OF COMBINATION


                                                                               d

          THE ACCOMPANYING UNAUDITED PRO FORMA COMBINING PORTFOLIO OF
INVESTMENTS, STATEMENT OF ASSETS AND LIABILITIES REFLECT THE ACCOUNTS OF
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. , STATE BOND MINNESOTA TAX-FREE
INCOME FUND, AND STATE BOND TAX EXEMPT FUND, COLLECTIVELY (`THE FUNDS''), FOR
THE YEAR ENDED AUGUST 31, 1996. THESE STATEMENTS HAVE BEEN DERIVED FROM THE
BOOKS AND RECORDS UTILIZED IN CALCULATING DAILY NET ASSET VALUES AT AUGUST 31,
1996. THE ACCOMPANYING UNAUDITED PRO FORMA COMBINING STATEMENT OF  OPERATIONS
REFLECTS THE ACCOUNTS OF THE FUNDS, FOR THE YEARS ENDED AUGUST 31, 1996, JUNE
30, 1996, AND JUNE 30, 1996, RESPECTIVELY, THE MOST RECENT FISCAL YEAR ENDS OF
THE FUNDS.

          THE PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS, STATEMENT OF ASSETS
AND LIABILITIES, AND STATEMENT OF  OPERATIONS (``RO FORMA FINANCIAL
STATEMENTS') SHOULD BE READ IN CONJUNCTION WITH THE HISTORICAL FINANCIAL
STATEMENTS OF THE FUNDS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THE
STATEMENT OF ADDITIONAL INFORMATION.  THE FUNDS FOLLOW GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES APPLICABLE TO MANAGEMENT INVESTMENT COMPANIES WHICH ARE
DISCLOSED IN THE HISTORICAL FINANCIAL STATEMENTS OF EACH FUND.

          THE PRO FORMA FINANCIAL STATEMENTS GIVE EFFECT TO THE PROPOSED
TRANSFER OF THE ASSETS OF STATE BOND MINNESOTA TAX-FREE INCOME FUND, AND STATE
BOND TAX EXEMPT FUND IN EXCHANGE FOR CLASS A SHARES OF FEDERATED MUNICIPAL
OPPORTUNITIES FUND, INC.  UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC. WILL BE THE SURVIVING ENTITY FOR
ACCOUNTING PURPOSES WITH ITS HISTORICAL COST OF INVESTMENT SECURITIES AND
RESULTS OF OPERATIONS BEING CARRIED FORWARD.


                                     22


                                                                               d
          THE PRO FORMA FINANCIAL STATEMENTS HAVE BEEN ADJUSTED TO REFLECT THE
ANTICIPATED ADVISORY AND ADMINISTRATION FEE ARRANGEMENTS FOR THE SURVIVING
ENTITY.  CERTAIN OTHER OPERATING COSTS HAVE ALSO BEEN ADJUSTED TO REFLECT
ANTICIPATED EXPENSES OF THE COMBINED ENTITY.  OTHER COSTS WHICH MAY CHANGE AS A
RESULT OF THE REORGANIZATION ARE CURRENTLY UNDETERMINABLE.

          FOR THE FISCAL YEARS ENDED AUGUST 31, 1996, JUNE 30, 1996, AND JUNE
30, 1996, RESPECTIVELY, THE FUNDS PAID INVESTMENT ADVISORY FEES COMPUTED AT THE
ANNUAL RATE OF EACH FUND'S AVERAGE NET ASSETS AS FOLLOWS:
           

            FUND                              PERCENT OF EACH
                                              FUND'S AVERAGE NET
                                              ASSETS
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC        0.60%
STATE BOND MINNESOTA TAX-FREE INCOME FUND          0.43%*
STATE BOND TAX EXEMPT FUND                         0.50%

           THE ADVISOR MAY VOLUNTARILY CHOOSE TO WAIVE A PORTION OF THEIR FEES
AND REIMBURSE CERTAIN OPERATING EXPENSES OF THE FUNDS.

                  *THE ADVISORY FEE OF THE STATE BOND MINNESOTA TAX-FREE INCOME
          FUND IS NET EXPENSE
                   REIMBURSEMENTS, WITHOUT SUCH REIMBURSEMENTS, THE  ADVISORY
          FEE WOULD HAVE BEEN 0.60%.
                      

        2.     SHARES OF BENEFICIAL INTEREST

                                     23


                                                                               d

          THE PRO FORMA NET ASSET VALUE PER SHARE ASSUMES THE ISSUANCE OF
9,666,500.649 SHARES OF  THE FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.'S
CLASS A SHARES IN EXCHANGE FOR 1,820,401 AND  7,474,279 SHARES FROM STATE BOND
MINNESOTA TAX-FREE INCOME FUND, AND STATE BOND TAX EXEMPT FUND,  RESPECTIVELY,
WHICH WOULD HAVE BEEN ISSUED AT AUGUST 31, 1996, IN CONNECTION WITH THE PROPOSED
REORGANIZATION.









PART C - OTHER INFORMATION
Item 15.  Indemnification
        Indemnification is provided to directors and officers of the Registrant
pursuant to the Registrant's Articles of Incorporation, except where such
indemnification is not permitted by law.  However, the Articles of Incorporation
do not protect the directors or officers from liability based on willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.
        Directors and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933 (the
"Act").


                                     24


                                                                               d
        Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.  In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers, or controlling
persons of the Registrant in connection with the successful defense of any act,
suit, or proceeding) is asserted by such directors, officers, or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
        Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for directors, officers, or
controlling persons of the Registrant by the Registrant pursuant to the Articles
of Incorporation or otherwise, the Registrant is aware of the position of the
Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330.  Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Articles of Incorporation or
otherwise, in the absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority vote of
a quorum of non-party directors who are not interested persons of the Registrant
or (ii)  by independent legal counsel in a written opinion that the indemnitee

                                     25


                                                                               d
was not liable for an act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties.  The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer, director, or controlling
person of the Registrant will not be made absent the fulfillment of at least one
of the following conditions:  (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of disinterested non-party
directors or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.


Item 16.  Exhibits
1.1  Conformed Copy of Amended and Restated Articles of Incorporation of the
Registrant (9)

1.2  Conformed Copy of Certificate of Correction of the Registrant (9)

2.1  Amended and Restated Bylaws of the Registrant (9)

3    Not Applicable

4    Agreement and Plan of Reorganization dated September 23, 1996, between
State Bond Municipal Funds, Inc., a Maryland corporation, on behalf of its
portfolio, State Bond Tax Exempt Fund, and Federated Municipal Opportunities
Fund, Inc., a Maryland corporation (8)

                                     26


                                                                               d

5.1  Copy of Specimen Certificate for Shares of Capital Stock of Class A Shares
of the Registrant (9)

5.2  Copy of Specimen Certificate for Shares of Capital Stock of Class B Shares
of the Registrant (9)

5.3  Copy of Specimen Certificate for Shares of Capital Stock of Class C Shares
of the Registrant (9)

5.4  Copy of Specimen Certificate for Shares of Capital Stock of Class F Shares
of the Registrant (9)

6.1  Conformed Copy of Investment Advisory Contract of the Registrant(2)

7.1  Conformed Copy of Distributor's Contract of the Registrant(9)

7.2  Conformed Copy of Exhibits A through C to the Distributor's Contract of the
Registrant(9)

7.3  The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and
Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust
Series II Registration Statement on Form N-1A, filed with the Commission on July
24, 1995.  (File Nos. 33-38550 and 811-6269)

8    Not Applicable


                                     27


                                                                               d
9    Conformed Copy of Custodian Agreement of the Registrant(4)

10.1 Conformed Copy of Distribution Plan of the Registrant, as amended(9)

10.2 The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the Commission on January 26,
1996.  (File Nos. 33-52149 and 811-07141)

10.3 The responses described in Item 16 (7.3) are hereby incorporated by
reference

11   Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors
regarding legality of shares being issued (8)


12   Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax
consequences of Reorganization(6)

13.1 Conformed Copy of Agreement for Fund Accounting Services, Administrative
Services, Shareholder Recordkeeping Services and Custody Services Procurement(3)
13.2 Conformed Copy of Shareholder Services Agreement(7)
13.3 The responses described in Item 16 (7.3) and Item 16 (10.2) are hereby
incorporated by reference
14.1 Conformed Copy of Consent of Independent Auditors of Federated Municipal
Opportunities Fund, Inc., Deloitte & Touche LLP*

14.2 Conformed Copy of Consent of Independent Auditors of State Bond Tax Exempt

                                     28


                                                                               d
Fund, Ernst & Young LLP*

15   Not Applicable

16   Conformed Copy of Power of Attorney (8)

17   Form of Proxy of State Bond Tax Exempt Fund (8)

*    Filed electronically.

(1)  Response is incorporated by reference to Registrant's Initial Registration
Amendment No. 1 filed on January 21, 1987.  (File Nos. 33-11410 and 811-4533)

(2)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed August 25, 1989.  (File Nos. 33-11410 and
811-4533)

(3)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed on May 3, 1996.  (File Nos. 33-11410 and
811-4533)

(4)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed October 25, 1995.  (File Nos. 33-11410 and
811-4533)

(5)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed October 25, 1989.  (File Nos. 33-11410 and

                                     29


                                                                               d
811-4533)

(6)  To be filed by Post-Effective Amendment pursuant to `Dear Registrant''
letter dated February 15, 1996.

(7)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed October 26, 1994.  (File Nos. 33-11410 and
811-4533)

(8)  Response is incorporated by reference to Registrant's Registration
Statement on Form N-14 filed October 4, 1996.  (File Nos. 333-13527 and
811-4533)

(9)  Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed October 25, 1996.  (File Nos. 33-11410 and
811-4533)



Item 17.  Undertakings
        (1)    The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.

                                     30


                                                                               d
        (2)    The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
        (3)    The undersigned Registrant agrees to file by Post-Effective
Amendment the opinion of counsel regarding the tax consequences of the proposed
reorganization required by Item 16(12) of Form N-14 within a reasonable time
after receipt of such opinion.


SIGNATURES
        Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Federated Municipal Opportunities Fund, Inc., has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on
October 25, 1996.

                           FEDERATED MUNICIPAL PPORTUNITIES
                           FUND, INC.

                           (Registrant)

                           By:               *
                                Richard B. Fisher
                                President

                                     31


                                                                               d


SIGNATURES
        Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on  October 25, 1996:

               *               Chairman and Director
                               John F. Donahue
                               (Chief Executive Officer)


               *               President and Director
                               Richard B. Fisher


               *               Executive Vice President and Treasurer
                               John W. McGonigle
                               (Principal Financial and
                               Accounting Officer)

               *               Director
                               Thomas G. Bigley


              *                Director
                               John T. Conroy, Jr.


                                     32


                                                                               d

              *                Director
                               William J. Copeland


               *               Director
                               James E. Dowd


               *               Director
                               Lawrence D. Ellis, M.D.


               *               Director
                               Edward L. Flaherty, Jr.


               *               Director
                               Peter E. Madden


               *               Director
                               Gregor F. Meyer


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


                                     33


                                                                               d

             *                 Director
                               Wesley W. Posvar


             *                 Director
                               Marjorie P. Smuts

1* By: /s/ S. Elliott Cohan
          Attorney in Fact


















1* Such signature has been affixed pursuant to a Power of Attorney.

EX-99.AUDITORCONSNT

                                             Exhibit 14.2



                      CONSENT OF INDEPENDENT AUDITORS



We consent to the references to our firm under the captions `Financial
Highlights''and ``Independent Auditors'' and the use of our report dated
August 9, 1996 except for Note 5, as to which the date is August 26, 1996,
on the financial statements of State Bond Tax Exempt Fund (the Fund) in the
Registration Statement (Form N-1A) of the Fund which is incorporated by
reference in, and reference to our firm in Exhibit A of, the pre-effective
amendment to the Registration Statement (Form N-14) of Federated
Municipal Opportunities Fund, Inc. filed with the Securities and Exchange
Commission.



/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP

Kansas City, Missouri
October 25, 1996

EX-99.AUDITORCONSNT

                                             Exhibit 14.1



                       INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Shareholders
 of FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.:

We consent to the incorporation by reference in Pre-Effective Amendment No.
1 to Registration Statement on Form N-14
(No. 333-13527)of Federated Municipal Opportunities Fund, Inc.(formerly,
Fortress Municipal Income Fund, Inc.) of our report dated October 11, 1996,
appearing in the Annual Report of Federated Municipal Opportunities Fund,
Inc. for the year ended August 31, 1996, and to the incorporation by
reference in the Prospectus and Statement of Additional Information dated
October 31, 1996, and to the reference to us within this registration
statement.


/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 25, 1996