485BPOS

                                   1933 Act File No. 2-57181
                                   1940 Act File No. 811-2677

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933       X

   Pre-Effective Amendment No.          ..........

   Post-Effective Amendment No.   48    ..........       X
                                                          ---

                                   and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940    X

   Amendment No.   33    .........................       X

                  FEDERATED MUNICIPAL SECURITIES FUND, INC.
             (formerly, Liberty Municipal Securities Fund, Inc.)

             (Exact Name of Registrant as Specified in Charter)

       Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
                  (Address of Principal Executive Offices)

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

                         John W. McGonigle, Esquire,
                         Federated Investors Tower,
                     Pittsburgh, Pennsylvania 15222-3779
                   (Name and Address of Agent for Service)

It is proposed that this filing will become effective:

  immediately upon filing pursuant to paragraph (b)
 X   on    May 31, 1996          pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a) (i)
    on                 pursuant to paragraph (a) (i).
    75 days after filing pursuant to paragraph (a)(ii)
    on                   pursuant to paragraph (a)(ii) of Rule 485.
       -----------------

If appropriate, check the following box:

    This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.



Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

 X  filed the Notice required by that Rule on May 15, 1996; or
    intends to file the Notice required by that Rule on or about
               ; or
   ------------
    during the most recent fiscal year did not sell any securities pursuant
 to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
 Rule 24f-2(b)(2), need not file the Notice.

                            CROSS-REFERENCE SHEET


     This Amendment to the Registration Statement of FEDERATED MUNICIPAL
SECURITIES FUND, INC.,(formerly, Liberty Municipal Securities Fund, Inc.),
which is comprised of  three classes of shares, Class A Shares (1); Class B
Shares (2); and Class C Shares (3),  is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

                                   Prospectus Heading
                                   (Rule 404(c) Cross Reference)

Item 1.   Cover Page...............Cover Page (1-3).
Item 2.   Synopsis.................General Information (1-3); Summary of Fund
                                   Expenses (1-3).
Item 3.   Condensed Financial
          Information..............Financial Highlights (1-3).
Item 4.   General Description of
          Registrant...............Performance Information (1-3); Investment
                                   Information (1-3); Investment Objective
                                   (1-3); Investment Policies (1-3);
                                   Investment Risks (1-3); Investment
                                   Limitations (1-3);
Item 5.   Management of the Fund...Fund Information (1-3); Management of the
                                   Fund (1-3); Distribution of Shares (1-3);
                                   Administration of the Fund (1-3).
Item 6.   Capital Stock and Other
          Securities...............Shareholder Information (1-3); Voting
                                   Rights (1-3); Tax Information (1-3);
                                   Federal Income Tax (1-3); State and Local
                                   Taxes (1-3).
Item 7.   Purchase of Securities Being
          Offered..................Net Asset Value (1-3); How to Purchase
                                   Shares (1-3); Investing in the Fund (1-3);
                                   Investing in Class A Shares (l); Investing
                                   in Class B Shares (2); Investing in Class
                                   C Shares (3); Special Purchase Features
                                   (1-3); Exchange Privilege (1-3);
                                   Requirements for Exchange (1-3); Tax
                                   Consequences (1-3); Making an Exchange (1-
                                   3).
Item 8.   Redemption or Repurchase.How to Redeem Shares (1-3); Special
                                   Redemption Features (1-3); Contingent
                                   Deferred Sales Charge (1-3); Elimination
                                   of Contingent Deferred Sales Charge (1-3);
                                   Account and Share Information (1-3).
Item 9.   Pending Legal Proceedings     None.


PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.


Item 10.  Cover Page...............Cover page (1-3).
Item 11.  Table of Contents........Table of Contents (1-3).
Item 12.  General Information and
          History..................General Information About the Fund (1-3);
                                   About Federated Investors 91-3).
Item 13.  Investment Objectives and
          Policies.................Investment Objective and Policies (1-3).
Item 14.  Management of the Fund...Federated Municipal Income Fund Inc.
                                   Management (1-3).
Item 15.  Control Persons and Principal
          Holders of Securities....Fund Ownership (1-3).
Item 16.  Investment Advisory and Other
          Services.................Investment Advisory Services (1-3); Other
                                   Services (1-3).
Item 17.  Brokerage Allocation.....Brokerage Transactions (1-3).
Item 18.  Capital Stock and Other
          Securities...............Not applicable.
Item 19.  Purchase, Redemption and
          Pricing of Securities
          Being Offered............Purchasing Shares (1-3); Determining Net
                                   Asset Value (1-3); Redeeming Shares (1-3).
Item 20.  Tax Status...............Tax Status (1-3).
Item 21.  Underwriters.............See Part A - Distribution of (Class A, B
                                   or C) Shares (1-3).
Item 22.  Calculation of Performance
          Data.....................Total Return (1-3); Yield (1-3); Tax-
                                   Equivalent Yield (1-3); Performance
                                   Comparisons (1-3).
Item 23   Financial Statements.....Financial Statements (incorporated by
                                   reference into Part B, to Registrant's
                                   Annual Report dated March 31, 1996; File
                                   Nos. 2-57181 and 811-2677) (1-3).






FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS
   
The shares of Federated Municipal Securities Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) with an investment objective of providing its shareholders a high level of
current income which is exempt from federal regular income tax by investing in a
professionally managed, diversified portfolio primarily limited to municipal
bonds.
    

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

   
The Fund has also filed a Statement of Additional Information dated May 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4770. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
    

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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1996


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

                               TABLE OF CONTENTS

   
Summary of Fund Expenses--
  Class A Shares...............................................................1
    

   
Summary of Fund Expenses--
  Class B Shares...............................................................2
    

   
Summary of Fund Expenses--
  Class C Shares...............................................................3
    

   
Financial Highlights--Class A Shares...........................................4
    

   
Financial Highlights--Class B Shares...........................................5
    
   
Financial Highlights--Class C Shares...........................................6
    

General Information............................................................7

Investment Information.........................................................7
  Investment Objective.........................................................7
  Investment Policies..........................................................7
  Investment Risks............................................................10
  Investment Limitations......................................................10

Net Asset Value...............................................................11

Investing in the Fund.........................................................11

How To Purchase Shares........................................................12
  Investing In Class A Shares.................................................12
  Investing In Class B Shares.................................................15
  Investing In Class C Shares.................................................15
  Special Purchase Features...................................................16

Exchange Privilege............................................................17
  Requirements For Exchange...................................................17
  Tax Consequences............................................................17
  Making An Exchange..........................................................18

How To Redeem Shares..........................................................18
  Special Redemption Features.................................................19
  Contingent Deferred Sales Charge............................................20
  Elimination of Contingent Deferred
     Sales Charge.............................................................21
Account and Share Information.................................................22

Fund Information..............................................................23
  Management of the Fund......................................................23
  Distribution of Shares......................................................24
  Administration of the Fund..................................................25

Shareholder Information.......................................................26
  Voting Rights...............................................................26

Tax Information...............................................................27
  Federal Income Tax..........................................................27
  State and Local
     Taxes....................................................................27

Performance Information.......................................................28
Addresses......................................................Inside Back Cover

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

   
                            SUMMARY OF FUND EXPENSES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
    
                                                                                                                  
                                                       CLASS A SHARES
                                              SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)....................................       4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).........................       None
Contingent Deferred Sales Charge (as a percentage of original
  purchase price or redemption proceeds, as applicable) (1)......................................................       0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)...............................................       None
Exchange Fee.....................................................................................................       None
                                                 ANNUAL OPERATING EXPENSES
                                          (As a percentage of average net assets)
Management Fee...................................................................................................       0.61%
12b-1 Fee........................................................................................................       None
Total Other Expenses.............................................................................................       0.37%
    Shareholder Services Fee (after waiver) (2).......................................................       0.12%
         Total Operating Expenses (3)............................................................................       0.98%




   
(1) Shareholders who purchased shares with the proceeds of a redemption of
    shares of an unaffiliated investment company purchased and 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 year of purchase.
    

(2) The maximum shareholder services fee is 0.25%.

(3) The total operating expenses were 1.11% absent the voluntary waiver of a
    portion of the shareholder services fee.

    The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.


EXAMPLE                                                                         1 year     3 years    5 years   10 years
                                                                                                    
You 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..........................................................     $60        $75        $97       $160
You would pay the following expenses on the same investment, assuming no
redemption...................................................................     $55        $75        $97       $160



    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 OF FUND EXPENSES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
    
                                                                                                                  
                                                       CLASS B SHARES
                                              SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)....................................       None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).........................       None
Contingent Deferred Sales Charge (as a percentage of original
  purchase price or redemption proceeds, as applicable) (1)......................................................       5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)...............................................       None
Exchange Fee.....................................................................................................       None
                                                 ANNUAL OPERATING EXPENSES
                                          (As a percentage of average net assets)
Management Fee...................................................................................................       0.61%
12b-1 Fee........................................................................................................       0.75%
Total Other Expenses.............................................................................................       0.50%
    Shareholder Services Fee..........................................................................       0.25%
         Total Class B Shares Operating Expenses (2).............................................................       1.86%




(1) The contingent deferred sales charge is 5.50% in the first year declining to
    1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
    Sales Charge").

(2) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
    approximately eight years after purchase.

    The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders 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                                                                        1 year     3 years    5 years    10 years
                                                                                                    
You 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..........................................................     $76       $102       $124       $195
You would pay the following expenses on the same investment, assuming no
redemption...................................................................     $19       $ 58       $101       $195



    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 OF FUND EXPENSES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
    
                                                                                                                  
                                                       CLASS C SHARES
                                              SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)....................................       None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).........................       None
Contingent Deferred Sales Charge (as a percentage of original
  purchase price or redemption proceeds, as applicable) (1)......................................................       1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)...............................................       None
Exchange Fee.....................................................................................................       None
                                                 ANNUAL OPERATING EXPENSES
                                          (As a percentage of average net assets)
Management Fee...................................................................................................       0.61%
12b-1 Fee........................................................................................................       0.75%
Total Other Expenses.............................................................................................       0.49%
    Shareholder Services Fee (after waiver) (2).......................................................       0.24%
         Total Operating Expenses (3)............................................................................       1.85%




(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
    original purchase price or the net asset value of Shares redeemed within one
    year of their purchase date. For a more complete description, see "Redeeming
    Class C Shares".

(2) The maximum shareholder services fee is 0.25%.

(3) The total operating expenses in the table above are based on expenses
    expected during the fiscal year ending March 31, 1997. The total operating
    expenses for the fiscal year ended March 31, 1996 were 1.82% and would have
    been 1.86% absent the voluntary waiver of a portion of the shareholder
    service fee.

    The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders 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                                                                         1 year     3 years    5 years   10 years
                                                                                                    
You 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..........................................................     $29        $58       $100       $217
You would pay the following expenses on the same investment, assuming no
redemption...................................................................     $19        $58       $100       $217



    THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

                      FINANCIAL HIGHLIGHTS--CLASS A SHARES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated May 17, 1996, on the Fund's financial
statements for the year ended March 31, 1996, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund..
    


                                                                  YEAR ENDED MARCH 31,
                              1996       1995       1994       1993       1992       1991       1990       1989       1988
                                                                                         
NET ASSET VALUE, BEGINNING
OF PERIOD                   $   10.92  $   11.20  $   11.62  $   10.98  $   10.61  $   10.47  $   10.26  $   10.03  $   10.80
- --------------------------
INCOME FROM INVESTMENT
OPERATIONS
- --------------------------
 Net investment income           0.66       0.67       0.66       0.66       0.67       0.71       0.72       0.72       0.73
- --------------------------
 Net realized and
 unrealized gain (loss) on
 investments                    (0.09)     (0.05)     (0.40)      0.64       0.37       0.14       0.21       0.23      (0.77)
- --------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 Total from investment
 operations                      0.57       0.62       0.26       1.30       1.04       0.85       0.93       0.95      (0.04)
- --------------------------
LESS DISTRIBUTIONS
- --------------------------
 Distributions from net
 investment income              (0.66)     (0.67)     (0.66)     (0.66)     (0.67)     (0.71)     (0.72)     (0.72)     (0.73)
- --------------------------
 Distributions from net
 realized gain on
 investment transactions        (0.01)     (0.23)     (0.02)      0.00       0.00       0.00       0.00       0.00       0.00
- --------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 Total distributions            (0.67)     (0.90)     (0.68)     (0.66)     (0.67)     (0.71)     (0.72)     (0.72)     (0.73)
- --------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
NET ASSET VALUE, END OF
PERIOD                      $   10.82  $   10.92  $   11.20  $   11.62  $   10.98  $   10.61  $   10.47  $   10.26  $   10.03
- --------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
TOTAL RETURN (A)                 5.32%      5.90%      2.10%     12.13%     10.05%      8.42%      9.20%      9.76%     (0.17%)
- --------------------------
RATIOS TO AVERAGE NET
ASSETS
- --------------------------
 Expenses                        0.98%      0.92%      0.84%      0.80%      0.84%      0.89%      0.90%      0.95%      0.95%
- --------------------------
 Net investment income           5.97%      6.17%      5.59%      5.81%      6.17%      6.77%      6.80%      7.07%      7.28%
- --------------------------
 Expense waiver/
 reimbursement (b)               0.13%       --         --         --         --         --         --         --         --
- --------------------------
SUPPLEMENTAL DATA
- --------------------------
 Net assets, end of period
 (000 omitted)                $663,538   $708,712   $714,384   $706,126   $590,118   $511,611   $474,797   $440,445   $388,916
- --------------------------
 Portfolio turnover                 29%        41%        27%        13%         8%        45%        25%        58%        55%
- --------------------------


                              1987
                         
NET ASSET VALUE, BEGINNING
OF PERIOD                   $   10.51
- --------------------------
INCOME FROM INVESTMENT
OPERATIONS
- --------------------------
 Net investment income           0.75
- --------------------------
 Net realized and
 unrealized gain (loss) on
 investments                     0.29
- --------------------------  ---------
 Total from investment
 operations                      1.04
- --------------------------
LESS DISTRIBUTIONS
- --------------------------
 Distributions from net
 investment income              (0.75)
- --------------------------
 Distributions from net
 realized gain on
 investment transactions         0.00
- --------------------------  ---------
 Total distributions            (0.75)
- --------------------------  ---------
NET ASSET VALUE, END OF
PERIOD                      $   10.80
- --------------------------  ---------
TOTAL RETURN (A)                10.28%
- --------------------------
RATIOS TO AVERAGE NET
ASSETS
- --------------------------
 Expenses                        0.95%
- --------------------------
 Net investment income           7.07%
- --------------------------
 Expense waiver/
 reimbursement (b)                 --
- --------------------------
SUPPLEMENTAL DATA
- --------------------------
 Net assets, end of period
 (000 omitted)               $424,655
- --------------------------
 Portfolio turnover                13%
- --------------------------



 (a)
   Based on net asset value, which does not reflect the sales load or contingent
   deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

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

                      FINANCIAL HIGHLIGHTS--CLASS B SHARES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

   
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated May 17, 1996, on the Fund's financial
statements for the year ended March 31, 1996, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
    


                                                                                                             Year Ended
                                                                                                             March 31,
                                                                                                       ----------------------
                                                                                                             
                                                                                                         1996       1995(A)
- -----------------------------------------------------------------------------------------------------  ---------   ----------
NET ASSET VALUE, BEGINNING OF PERIOD                                                                   $   10.92   $    11.06
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------
  Net investment income                                                                                     0.56         0.40
- -----------------------------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investments                                                   (0.09)       (0.03)
- -----------------------------------------------------------------------------------------------------  ---------  -----------
  Total from investment operations                                                                          0.47         0.37
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------
  Distributions from net investment income                                                                 (0.56)       (0.40)
- -----------------------------------------------------------------------------------------------------
  Distributions from net realized gain on investment transactions                                          (0.01)       (0.11)
- -----------------------------------------------------------------------------------------------------  ---------  -----------
  Total distributions                                                                                      (0.57)       (0.51)
- -----------------------------------------------------------------------------------------------------  ---------  -----------
NET ASSET VALUE, END OF PERIOD                                                                         $   10.82   $    10.92
- -----------------------------------------------------------------------------------------------------  ---------  -----------
TOTAL RETURN (B)                                                                                            4.40%        3.49%
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------
  Expenses                                                                                                  1.86%        1.84%*
- -----------------------------------------------------------------------------------------------------
  Net investment income                                                                                     5.23%        5.94%*
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
  Net assets, end of period (000 omitted)                                                                $58,296     $18,201
- -----------------------------------------------------------------------------------------------------
  Portfolio turnover                                                                                          29%         41 %
- -----------------------------------------------------------------------------------------------------



 * Computed on an annualized basis.

 (a) Reflects operations for the period from July 26, 1994 (date of initial
     public investment) to March 31, 1995.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

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

                      FINANCIAL HIGHLIGHTS--CLASS C SHARES
                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
              (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated May 17, 1996, on the Fund's financial
statements for the year ended March 31, 1996, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
    


                                                                                                 YEAR ENDED MARCH 31,
                                                                                           ---------------------------------
                                                                                                         
                                                                                             1996       1995       1994(A)
- -----------------------------------------------------------------------------------------  ---------  ---------   ----------
NET ASSET VALUE, BEGINNING OF PERIOD                                                       $   10.92  $   11.20   $    11.70
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
  Net investment income                                                                         0.56       0.58         0.52
- -----------------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investments                                       (0.09)     (0.05)       (0.48)
- -----------------------------------------------------------------------------------------  ---------  ---------  -----------
  Total from investment operations                                                              0.47       0.53         0.04
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
  Distributions from net investment income                                                     (0.56)     (0.58)       (0.52)
- -----------------------------------------------------------------------------------------
  Distributions from net realized gain on investment transactions                              (0.01)     (0.23)       (0.02)
- -----------------------------------------------------------------------------------------  ---------  ---------  -----------
  Total distributions                                                                          (0.57)     (0.81)       (0.54)
- -----------------------------------------------------------------------------------------  ---------  ---------  -----------
NET ASSET VALUE, END OF PERIOD                                                             $   10.82  $   10.92   $    11.20
- -----------------------------------------------------------------------------------------  ---------  ---------  -----------
TOTAL RETURN (B)                                                                               4.42%      4.96%        0.17%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
  Expenses                                                                                      1.82%      1.81%        1.80%*
- -----------------------------------------------------------------------------------------
  Net investment income                                                                         5.16%      5.28%        4.70%*
- -----------------------------------------------------------------------------------------
  Expense waiver/reimbursement (c)                                                              0.04%      --            --
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
  Net assets, end of period (000 omitted)                                                    $25,914     $22,389      $22,066
- -----------------------------------------------------------------------------------------
  Portfolio turnover                                                                              29%        41%         27 %
- -----------------------------------------------------------------------------------------



 * Computed on an annualized basis.

 (a) Reflects operations for the period from April 20, 1993 (date of initial
     public investment) to March 31, 1994.]

(b) Based on net asset value, which does not reflect the sales load or
    contingent deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

- -------------------------------------------------------
- -------------------------------------------------------
                              GENERAL INFORMATION

   
The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. At a meeting of the Board of Directors ("Directors") held on February
26, 1996, the Directors approved an amendment to the Articles of Incorporation
to change the name of Liberty Municipal Securities Fund, Inc. to Federated
Municipal Securities Fund, Inc. The Articles of Incorporation permit the Fund to
offer separate series representing interests in separate portfolios of
securities. As of the date of this prospectus, the Directors have established
three classes of Shares for the Fund, known as Class A Shares, Class B Shares,
and Class C Shares (individually and collectively as the context requires,
"Shares").
    

   
Shares of the Fund are designed for individuals and institutions seeking a high
level of current income which is exempt from federal regular income tax by
investing in a professionally managed, diversified portfolio primarily limited
to municipal bonds. The minimum initial investment for Class A Shares is $500.
The minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class
must be in amounts of at least $50. Subsequent investments in any class must be
in amounts of at least $100, except for retirement plans which must be in
amounts of at least $50.
    

- -------------------------------------------------------
                             INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.

INVESTMENT POLICIES

                             ACCEPTABLE INVESTMENTS

The Fund invests its assets so that at least 80% of its annual interest income
is exempt from federal regular income tax. The Fund pursues its investment
objective by investing at least 65% of its portfolio 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 federal regular income tax.

                                CHARACTERISTICS

The municipal bonds which the Fund buys have the same characteristics assigned
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Group ("S&P") to bonds of investment grade quality or better. However, the Fund
is not restricted to buying rated securities. Medium investment grade quality
bonds are rated A and Baa by Moody's or A and BBB by S&P. In certain cases the
Fund's adviser may choose bonds which are unrated if it judges the

bonds to have the same characteristics as medium quality bonds (i.e., an
adequate but not outstanding capacity to service their debt). Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to weaken capacity to make
principal and interest payments than higher rated bonds. If a high-rated bond
loses its rating or has its rating reduced after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will consider
doing so. There is no limit to portfolio maturity. A description of the ratings
categories is contained in the Appendix to the Statement of Additional
Information.

                 WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may purchase municipal bonds on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market value of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

   
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
    

                             TEMPORARY INVESTMENTS

From time to time on a temporary basis, or when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality. The Fund intends to invest no more than 20% of its assets in
temporary investments.

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.

                               PORTFOLIO TURNOVER
   
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the Fund's
portfolio turnover rate and transaction costs.
    

                                MUNICIPAL BONDS

Municipal bonds are generally issued to finance public works, such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities.

Municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith and credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however, are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically classified as
revenue bonds.
Municipal bonds may carry fixed, floating or inverse floating rates of interest.
Fixed rate bonds bear interest at the same rate from issuance until maturity.
The interest rate on floating rate bonds is subject to adjustment based upon
changes in market interest rates or indices, such as a bank's prime rate or a
published market index. The interest rate may be adjusted at specified intervals
or immediately upon any change in the applicable index rate. The interest rate
for most floating rate bonds varies directly with changes in the index rate, so
that the market value of the bond will approximate its stated value at the time
of each adjustment. However, inverse floating rate bonds have interest rates
that vary inversely with changes in the applicable index rate, such that the
bond's interest rate rises when market interest rates fall and fall when market
rates rise. The market value of floating rate bonds is less sensitive than fixed
rate bonds to changes in market interest rates. In contrast, the market value of
inverse floating rate bonds is more sensitive to market rate changes than fixed
or floating rate bonds. The affect of market rate changes on bonds depends upon
a variety of factors, including market expectations as to future changes in
interest rates and, in the case of floating and inverse floating rate bonds, the
frequency with which the interest rate is adjusted and the multiple of the index
rate used in making the adjustment.

Most municipal bonds pay interest in arrears on a semiannual or more frequent
basis. However, certain bonds, variously known as capital appreciation bonds or
zero coupon bonds, do not provide for any interest payments prior to maturity.
Such bonds are normally sold at a discount from their stated value, or provide
for periodic increases in their stated value to reflect a compounded interest
rate. The market value of these bonds is also more sensitive to changes in
market interest rates than bonds that provide for current interest payments.

The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory,
or possession of the United States.
The Fund will not invest 25% or more of its total assets in any one industry.
Governmental issuers of municipal securities are not considered part of any
"industry." However, municipal securities backed only by the assets and revenues
of nongovernmental users may, for this

purpose, be deemed to be related to the industry in which such nongovernmental
users engage, and the 25% limitation would apply to such obligations. It is
nonetheless possible that the Fund may invest more than 25% of its assets in a
broader segment of the municipal securities market, such as revenue obligations
of hospitals and other health care facilities, housing agency revenue
obligations or airport revenue obligations. This would be the case only if the
Fund determines that the yields available from obligations in a particular
segment of the market justified the additional risks associated with a large
investment in such segment. Although such obligations could be supported by the
credit of governmental users or by the credit of nongovernmental users engaged
in a number of industries, economic, business, political and other developments
generally affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of such projects
and market factors affecting the demand for their services or products) may have
a general adverse effect on all municipal securities in such a market segment.
The Fund reserves the right to invest more than 25% of its assets in industrial
development bonds or private activity bonds or in securities of issuers located
in the same state, however, it has no present intention to do so.

INVESTMENT RISKS

Yields on municipal bonds depend on a variety of factors, including: the general
conditions of the money market and the taxable and municipal bond markets; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal bonds to meet
their obligations for the payment of interest and principal when due. The prices
of municipal bonds fluctuate inversely in relation to the direction of interest
rates. The prices of longer term bonds fluctuate more widely in response to
market interest rate changes.

INVESTMENT LIMITATIONS

The Fund will not:

 borrow money or pledge securities except, under certain circumstances, the Fund
 may borrow up to one-third of the value of its total assets and pledge up to
 10% of the value of those assets to secure such borrowings;

 invest more than 5% of its total assets in securities of one issuer (except
 cash and cash items and U.S. government obligations); or

 invest more than 10% of its total assets in municipal bonds subject to legal or
 contractual restrictions on resale, including repurchase agreements maturing in
 more than seven days.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

The Fund will not:

 invest more than 5% of its total assets in securities of issuers that have
 records of less than three years of continuous operations; or

 invest more than 10% of its net assets in illiquid securities, including
 restricted securities which the adviser believes cannot be sold within seven
 days and repurchase agreements maturing in more than seven days.

- -------------------------------------------------------
                                NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

   
The net asset value of each class of Shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that it's net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
    

- -------------------------------------------------------
                             INVESTING IN THE FUND

   
The Fund offers investors three classes of Shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
    
                                 CLASS A SHARES
   
An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing or
Eliminating the Sales Charge." Class A Shares have no conversion feature.
    

                                 CLASS B SHARES

   
Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the 12b-1 fee.
    

                                 CLASS C SHARES

   
Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time
    

   
the investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the 12b-1 fee. Class C Shares have no
conversion feature.
    

- -------------------------------------------------------
                             HOW TO PURCHASE SHARES

   
Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has a
sales agreement with the distributor) or by wire or by check directly to the
Fund, with a minimum initial investment of $500 for Class A Shares and $1,500
for Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. (Financial institutions may impose different minimum investment
requirements on their customers.)
    

   
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
    

INVESTING IN CLASS A SHARES

   
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
    


                                                   DEALER
                   SALES CHARGE   SALES CHARGE   CONCESSION
                       AS A           AS A          AS A
                    PERCENTAGE     PERCENTAGE    PERCENTAGE
                     OF PUBLIC       OF NET       OF PUBLIC
    AMOUNT OF        OFFERING        AMOUNT       OFFERING
   TRANSACTION         PRICE        INVESTED        PRICE
                                       
Less than
$100,000               4.50%         4.71%          4.00%
$100,000 but less
  than $250,000        3.75%         3.90%          3.25%
$250,000 but less
  than $500,000        2.50%         2.56%          2.25%
$500,000 but less
  than $1,000,000      2.00%         2.04%          1.80%
$1,000,000 or
  greater              0.00%         0.00%         0.25%*



See sub-section entitled "Dealer Concession."

   
No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other fee
by the financial intermediary. Additionally, no sales charge is imposed on
shareholders designated as Liberty Life Members or on Class A Shares purchased
through "wrap accounts" or similar programs, under which clients pay a fee for
services.
    

                               DEALER CONCESSION

   
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.
    
   
The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.
    

   
                            REDUCING OR ELIMINATING
                                THE SALES CHARGE
    

   
The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:
    

 . quantity discounts and accumulated purchases;

 . concurrent purchases;

 . signing a 13-month letter of intent;

 . using the reinvestment privilege; or

 . purchases with proceeds from redemptions of unaffiliated investment company
  shares.

                             QUANTITY DISCOUNTS AND
                             ACCUMULATED PURCHASES

   
As shown in the table above, larger purchases reduce the sales charge paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
    

   
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.
    

   
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
    

   
the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
    

                              CONCURRENT PURCHASES
   
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser or
principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A Shares of one of the other Federated Funds with a sales
charge, and $70,000 in this Fund, the sales charge would be reduced.
    

   
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
    

                                LETTER OF INTENT

   
If a shareholder intends to purchase at least $100,000 of Shares of Federated
Funds (excluding money market funds) over the next 13 months, the sales charge
may be reduced by signing a letter of intent to that effect. This letter of
intent includes a provision for a sales charge adjustment depending on the
amount actually purchased within the 13-month period and a provision for the
custodian to hold up to 4.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.
    

   
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.
    
   
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Fund, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.
    

                             REINVESTMENT PRIVILEGE

   
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.
    

                          PURCHASES WITH PROCEEDS FROM
                          REDEMPTIONS OF UNAFFILIATED
                              INVESTMENT COMPANIES

   
Investors may purchase Class A Shares at net asset value, without a sales
charge, with the
proceeds from the redemption of shares of an unaffiliated investment company
that were purchased or sold with a sales charge or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program.
    

   
If Shares are purchased in this manner, redemptions of those shares will be
subject to a contingent deferred sales charge for one year from the date of
purchase. Shareholders will be notified prior to the implementation of any
special offering as described above.
    

INVESTING IN CLASS B SHARES

   
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.
    

                          CONVERSION OF CLASS B SHARES

   
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a fee under the Fund's Distribution Plan
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales charge,
fee or other charge. Class B Shares acquired by exchange from Class B Shares of
another Federated Fund will convert into Class A Shares based on the time of the
initial purchase. For purposes of conversion to Class A Shares, Shares purchased
through the reinvestment of dividends and distributions paid on Class B Shares
will be considered to be held in a separate sub-account. Each time any Class B
Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.
    

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

               PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

   
                           PURCHASING SHARES BY WIRE
    

   
Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this
number can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
    

   
                           PURCHASING SHARES BY CHECK
    

   
Once an account has been established, Shares may be purchased by mailing a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
    

SPECIAL PURCHASE FEATURES

                         SYSTEMATIC INVESTMENT PROGRAM

   
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
    

- -------------------------------------------------------
                               EXCHANGE PRIVILEGE
                                 CLASS A SHARES
   
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at net asset value. Neither the Fund nor any of the
Federated Funds imposes any additional fees on exchanges.
    
                                 CLASS B SHARES

   
Class B shareholders may exchange all or some of their Shares for Class B Shares
of other Federated Funds. (Not all Federated Funds currently offer Class B
Shares. Contact your financial institution regarding the availability of other
Class B Shares of the other Federated Funds). Exchanges are made at net asset
value without being assessed a contingent deferred sales charge on the exchanged
Shares. To the extent that a shareholder exchanges Shares for Class B 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 C SHARES

   
Class C shareholders may exchange all or some of their Shares for Class C Shares
of other Federated Funds at net asset value without a contingent deferred sales
charge. (Not all Federated Funds currently offer Class C Shares. Contact your
financial institution regarding the availability of Class C Shares of the other
Federated Funds.) To the extent that a shareholder exchanges Shares for Class C
Shares of other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the applicable holding period. For more information,
see "Contingent Deferred Sales Charge."
    

   
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-245-5051 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge.
    

   
Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any Federated Fund, as long as they maintain a $500 balance in one
of the Federated Funds.
    

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

   
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
    

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

   
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Shareholder Services Company, 1099 Hingham Street, Rockland,
Massachusetts 02370-3317.
    
                             TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

   
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before being
exchanged. Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern
time) and must be received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a Fund will begin receiving
dividends the following business day. This privilege may be modified or
terminated at any time.
    

- -------------------------------------------------------
                              HOW TO REDEEM SHARES

   
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Investors who redeem Shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below.
    

                            REDEEMING SHARES THROUGH
                            A FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

                         REDEEMING SHARES BY TELEPHONE

   
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check to the
shareholder's address of record or wire-transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed Shares
purchased by check or through ACH will not be wired until that method of payment
has cleared. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day. Questions
about telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
    

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

                            REDEEMING SHARES BY MAIL

   
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
    
   
The written request should state: the Fund name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
    

   
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
    

SPECIAL REDEMPTION FEATURES

                         SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually

   
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through his financial
institution. Due to the fact that Class A Shares are sold with a sales charge,
it is not advisable for shareholders to continue to purchase Class A Shares
while participating in this program. A contingent deferred sales charge may be
imposed on Class B Shares and Class C Shares.
    

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

                                 CLASS A SHARES

   
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or sold
with a sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
    

                                 CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:


                                CONTINGENT
    YEAR OF REDEMPTION           DEFERRED
      AFTER PURCHASE           SALES CHARGE
                            
First                             5.50%
Second                            4.75%
Third                             4.00%
Fourth                            3.00%
Fifth                             2.00%
Sixth                             1.00%
Seventh and thereafter            0.00%



                                 CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

               CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption

   
which will not be subject to a contingent deferred sales charge. In computing
the amount of the applicable contingent deferred sales charge, redemptions are
deemed to have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and for less than one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection with an
exchange of Fund Shares for Shares of other Federated Funds in the same class
(see "Exchange Privilege"). Any contingent deferred sales charge imposed at the
time the exchanged-for Shares are redeemed is calculated as if the shareholder
had held the Shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
    

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

   
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, and their immediate
family members; employees of any financial institution that sells Shares of the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or any other financial
institution, to the extent that no payments were advanced for purchases made
through such entities. The Directors reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the termination of
such waiver would have the contingent deferred sales charge eliminated as
provided in the Fund's prospectus at the time of the purchase of the Shares. If
a shareholder making a redemption qualifies for an elimination of the contingent
deferred sales charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that he is entitled to such elimination.
    

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

                               ACCOUNT AND SHARE
                                  INFORMATION

                         CERTIFICATES AND CONFIRMATIONS

   
As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested in writing to Federated Shareholder Services Company.
    

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

                                   DIVIDENDS

   
Dividends are declared daily and paid monthly to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that month's dividend.
    

                                 CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

                           ACCOUNTS WITH LOW BALANCES

   
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the Class A Shares required minimum value of $500 or
the required minimum value of $1,500 for Class B Shares and Class C Shares. This
requirement does not apply, however, if the balance falls below the required
minimum value because of changes in the net asset value of the respective Share
class. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to meet
the minimum requirement.
    

- -------------------------------------------------------
                                FUND INFORMATION

MANAGEMENT OF THE FUND

                               BOARD OF DIRECTORS

   
The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.
    
                               INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

                                 ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .30 of 1% of the
Fund's average daily net assets, plus 4.5% of the Fund's gross income (excluding
any capital gains or losses).

The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver at
any time at its sole discretion. The Adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by certain
states.
                              ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

   
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 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.
    

   
Mary Jo Ochson has been the Fund's portfolio manager since 1996. Ms. Ochson
joined Federated Investors in 1982 and has been a Senior Vice President of the
Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson
served as a Vice President of the Fund's investment adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.
    

   
J. Scott Albrecht has been the Fund's portfolio manager since 1966. Mr. Albrecht
joined Federated Investors in 1989 and has been a Vice President of the Fund's
investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an
Assistant Vice President of the Fund's investment adviser. In 1991, Mr. Albrecht
acted as an investment analyst. Mr. Albrecht is a Chartered
    

   
Financial Analyst and received his M.S. in Public Management from Carnegie
Mellon University.
    
   
Jonathan C. Conley has been the Fund's portfolio manager since October 1984. Mr.
Conley joined Federated Investors in 1979 and has been a Senior Vice President
of the Fund's investment adviser since 1995. Mr. Conley was a Vice President of
the Fund's investment adviser from 1982 to 1995. Mr. Conley is a Chartered
Financial Analyst and received his M.B.A. in Finance from the University of
Virginia.
    

   
Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.
    

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

   
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
    

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

   DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
                                    SERVICES

   
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution and distribution-related
support services pursuant to the Distribution Plan.
    

   
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.
    

   
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts. Under
the Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.
    

   
                             SUPPLEMENTAL PAYMENTS
                           TO FINANCIAL INSTITUTIONS
    

   
With respect to Class A Shares, Class B Shares, and Class C Shares, in addition
to payments made pursuant to the Distribution Plan and Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
    

ADMINISTRATION OF THE FUND

                            ADMINISTRATIVE SERVICES

   
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:
    


     MAXIMUM
  ADMINISTRATIVE          AVERAGE AGGREGATE
       FEE                DAILY NET ASSETS
                 
    .15 of 1%       on the first $250 million
    .125 of 1%      on the next $250 million
    .10 of 1%       on the next $250 million
    .075 of 1%      on assets in excess of
                    $750 million



The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.

   
Federated Services Company may choose voluntarily to waive a portion of its fee.
    

- -------------------------------------------------------
                            SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

   
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.
    

- -------------------------------------------------------
                                TAX INFORMATION
FEDERAL INCOME TAX
   
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. Shareholders are
not required to pay the federal regular income tax on any dividends received
from the Fund that represent net interest on tax-exempt municipal bonds.
However, under the Tax Reform Act of 1986, dividends representing net interest
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
    

   
The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax-preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
    

   
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
    
   
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
    

   
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
    

   
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
    

   
STATE AND LOCAL TAXES
    

Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
   
Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
    

- -------------------------------------------------------
                            PERFORMANCE INFORMATION

   
From time to time the Fund advertises its total return, yield, and
tax-equivalent yield for each class of Shares.
    

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

   
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that a
class of Shares would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield does not necessarily
reflect income actually earned by each class of Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
    

   
The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
    

   
Total return and yield will be calculated separately for Class A Shares, Class B
Shares and Class C Shares. Expense differences between Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
    

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

ADDRESSES
- --------------------------------------------------------------------------------
                                                                     
Federated Municipal Securities Fund, Inc.
                    Class A Shares                                         Federated Investors Tower
                    Class B Shares                                         Pittsburgh, Pennsylvania 15222-3779
                    Class C Shares
- ---------------------------------------------------------------------------------------------------------------------

Distributor
                    Federated Securities Corp.                             Federated Investors Tower
                                                                           Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Investment Adviser
                    Federated Advisers                                     Federated Investors Tower
                                                                           Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

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

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

Independent Auditors
                    Deloitte & Touche LLP                                  2500 One PPG Place
                                                                           Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------





   
                                        FEDERATED MUNICIPAL
                                        SECURITIES FUND, INC.
                                        (FORMERLY, LIBERTY MUNICIPAL
                                        SECURITIES FUND, INC.)
                                        CLASS A SHARES, CLASS B SHARES,
                                        CLASS C SHARES
                                        PROSPECTUS
                                        An Open-End, Diversified
                                        Management Investment Company
                                        May 31, 1996
    
[LOGO OF FEDERATED INVESTORS]
        FEDERATED INVESTORS

        Federated Investors Tower
        Pittsburgh, PA 15222-3779

        Federated Securities Corp. is the distributor of the fund
        and is a subsidiary of Federated Investors.

   
       Cusip 313913105
       Cusip 313913204
       Cusip 313913303
    
   
       G00322-01 (5/96)                    [RECYCLED PAPER LOGO]
    







                   FEDERATED MUNICIPAL SECURITIES FUND, INC.
           (FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)    
                               CLASS A SHARES
                               CLASS B SHARES
                               CLASS C SHARES
                     STATEMENT OF ADDITIONAL INFORMATION
      This Statement of Additional Information should be read with the
   prospectus of Federated Municipal Securities Fund, Inc. (the "Fund") dated
   May 31, 1996. This Statement is not a prospectus. You may request a copy
   of a prospectus or a paper copy of this Statement, if you have received it
   electronically, free of charge by calling 1-800-245-4770.
   FEDERATED INVESTORS TOWER
   PITTSBURGH, PENNSYLVANIA 15222-3779
                          Statement dated May 31, 1996




         Federated Securities Corp. is the distributor of the Fund and is a
         subsidiary of Federated Investors
         CUSIP 313913105
         CUSIP 313913204
         CUSIP 313913303
         8051601B (5/96)    



   

GENERAL INFORMATION ABOUT THE FUND                 2

INVESTMENT OBJECTIVE AND POLICIES                  2

 ACCEPTABLE INVESTMENTS                            2
 WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS     3
 TEMPORARY INVESTMENTS                             3
 PORTFOLIO TURNOVER                                4
 INVESTMENT LIMITATIONS                            5
FEDERATED MUNICIPAL SECURITIES FUND, INC. MANAGEMENT9

 THE FUNDS                                        17
 FUND OWNERSHIP                                   18
 DIRECTOR COMPENSATION           9
 DIRECTOR LIABILITY              9
INVESTMENT ADVISORY SERVICES                      20

 ADVISER TO THE FUND                              20
 ADVISORY FEES                                    20
BROKERAGE TRANSACTIONS                            21

OTHER SERVICES                                    23

 FUND ADMINISTRATION                              23
 CUSTODIAN AND PORTFOLIO ACCOUNTANT               23
 TRANSFER AGENT                                   24
 INDEPENDENT AUDITORS                             24
PURCHASING SHARES                                 24



 DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES
  ONLY) AND SHAREHOLDER SERVICES                  24
 CONVERSION TO FEDERAL FUNDS                      25
 PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS,
  AND EMPLOYEES                                   26
DETERMINING NET ASSET VALUE    26

 VALUING MUNICIPAL BONDS       26
REDEEMING SHARES               26

TAX STATUS                     27

 THE FUND'S TAX STATUS         27
TOTAL RETURN                   27

YIELD                          28

TAX-EQUIVALENT YIELD           29

 TAX-EQUIVALENCY TABLE         29
PERFORMANCE COMPARISONS        31

 ECONOMIC AND MARKET INFORMATION15
ABOUT FEDERATED INVESTORS      33

 MUTUAL FUND MARKET            34
 INSTITUTIONAL                 34
 TRUST ORGANIZATIONS           35
 BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES35
FINANCIAL STATEMENTS           35

APPENDIX                   36    




   GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on
September 10, 1976. On December 23, 1992, the shareholders of the Fund voted
to permit the Fund to offer separate series and classes of shares. On
January 6, 1993, the Board of Directors ("Directors") approved changing the
name of the Fund from Federated Tax-Free Income Fund, Inc. to Liberty
Municipal Securities Fund, Inc. On February 26, 1996, the Directors approved
an amendment to the Articles of Incorporation to change the name of Liberty
Municipal Securities Fund, Inc. to Federated Municipal Securities Fund, Inc.
Shares of the Fund are offered in three classes, known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred to
as "Shares" as the context may require). This Statement of Additional
Information relates to all three classes of the above-mentioned Shares.    
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax. The
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal bonds.
  CHARACTERISTICS AND RISKS
     The municipal bonds in which the Fund invests have the characteristics
     and risks set forth in the prospectus.
        If ratings made by Moody's or  S&P change because of changes in those
     organizations or in their rating systems, the Fund will try to use
     comparable ratings as standards in accordance with the investment
     policies described in the Fund's prospectus.    



WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend
to engage in when-issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its
assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes. During the last fiscal year, the Fund did not invest in
temporary investments and does not presently intend to do so in the current
fiscal year. The Fund might invest in temporary investments:
   o as a reaction to market conditions;
   o while waiting to invest proceeds of sales of shares or portfolio
     securities, although generally proceeds from sales of shares will be
     invested in municipal bonds as quickly as possible; or
   o in anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of
the U.S. government, its agencies, or instrumentalities) if, as a result of
the purchase, 25% or more of the value of its total assets would be invested
in any one industry. However, the Fund may, for temporary defensive purposes,
invest more than 25% of the value of its assets in cash or cash items, U.S.
Treasury bills, or securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.



  REPURCHASE AGREEMENTS
     Repurchase agreements are arrangements in which banks, broker/dealers,
     and other recognized financial institutions sell U.S. government
     securities or certificates of deposit to the Fund and agree at the time
     of sale to repurchase them at a mutually agreed upon time and price. The
     Fund or its custodian will take possession of the securities subject to
     repurchase agreements and these securities will be marked to market
     daily. To the extent that the original seller does not repurchase the
     securities from the Fund, the Fund could receive less than the
     repurchase price on any sale of such securities. In the event that such
     a defaulting seller filed for bankruptcy or became insolvent,
     disposition of such securities by the Fund might be delayed pending
     court action. The Fund believes that under the regular procedures
     normally in effect for custody of the Fund's portfolio securities
     subject to repurchase agreements, a court of competent jurisdiction
     would rule in favor of the Fund and allow retention or disposition of
     such securities. The Fund may only enter into repurchase agreements with
     banks and other recognized financial institutions, such as
     broker/dealers, which are found by the Fund's adviser to be creditworthy
     pursuant to guidelines established by the Directors.
From time to time, such as when suitable municipal bonds are not available,
the Fund may invest a portion of its assets in cash. Any portion of the
Fund's assets maintained in cash will reduce the amount of assets in
municipal bonds and thereby reduce the Fund's yield.
PORTFOLIO TURNOVER
   Portfolio trading will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any



time when changes in circumstances or conditions make such a move desirable
in light of the investment objective. The Fund will not attempt to achieve or
be limited to a predetermined rate of portfolio turnover, such turnover
always being incidental to transactions undertaken with a view to achieving
the Fund's investment objective. During the fiscal years ended March 31,
1996, and 1995, the portfolio turnover rates were 29% and 41%,
respectively.    
INVESTMENT LIMITATIONS
  SELLING SHORT AND BUYING ON MARGIN
     The Fund will not make short sales of securities or purchase any
     securities on margin, except for such credits as are necessary for the
     clearance of transactions.
  BORROWING MONEY
     The Fund will not borrow money except as a temporary measure for
     extraordinary or emergency purposes and then only in amounts not in
     excess of 5% of the value of its total assets or in an amount up to one-
     third of the value of its total assets, including the amount borrowed,
     in order to meet redemption requests without immediately selling any
     portfolio securities. This borrowing provision is not for investment
     leverage but solely to facilitate management of the portfolio by
     enabling the Fund to meet redemption requests where the liquidation of
     portfolio securities is deemed to be inconvenient or disadvantageous.
     While any such borrowings are outstanding, no net purchases of
     investment securities will be made by the Fund.
  PLEDGING ASSETS
     The Fund will not pledge, mortgage or hypothecate its assets, except to
     secure permitted borrowings. In those cases, it may pledge securities



     having a market value at the time of pledge not exceeding 10% of the
     value of the Fund's total assets.
  INVESTING IN COMMODITIES OR MINERALS
     The Fund will not purchase or sell commodities, commodity contracts,
     oil, gas, or other mineral exploration or development programs.
  INVESTING IN REAL ESTATE
     The Fund will not purchase or sell real estate, but this shall not
     prevent the Fund from investing in Municipal Bonds secured by real
     estate or interest therein.
  UNDERWRITING
     The Fund will not underwrite any issue of securities except as it may be
     deemed to be an underwriter under the Securities Act of 1933, in
     connection with the sale of securities in accordance with its investment
     objective, policies and limitations.
  MAKING LOANS
     The Fund will not make loans except that the Fund may, in accordance
     with its investment objective, policies and limitations, acquire
     publicly or non-publicly issued Municipal Bonds or temporary investments
     or enter into repurchase agreements.
  ACQUIRING SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
     The Fund will not invest in securities issued by any other investment
     company or investment trust.
  DIVERSIFICATION OF INVESTMENTS
     The Fund will not purchase the securities of any one issuer, except in
     cash and cash instruments and securities issued by the United States
     government, its agencies, and instrumentalities, if as a result more
     than 5% of its total assets would be invested in the securities of such
     issuer. For purposes of this limitation, each governmental subdivision,



     i.e. state, territory, possession of the United States or any political
     subdivision of the foregoing including agencies, authorities,
     instrumentalities, or similar entities, or of the District of Columbia
     shall be considered a separate issuer if its assets and revenues are
     separate from those of the governmental body creating it and revenues
     are separate from those of the governmental body creating it and the
     security is backed by its own assets and revenues. In the case of an
     industrial development bond, if the security is backed only by the
     assets and revenues of a non-governmental user, then such non-
     governmental user will be deemed to be the sole issuer. If, however, in
     the case of an industrial development bond or governmental issued
     security, a governmental or some other entity guarantees the security,
     such guarantee would be considered a separate security issued by the
     guarantor as well as the other issuer (as above defined), subject to
     limited exclusions allowed by the Investment Company Act of 1940, as
     amended. For purposes of this limitation, cash instruments do not
     include securities issued by banks.
  DEALING IN PUTS AND CALLS
     The Fund will not purchase or sell puts, calls, straddles, spreads, or
     any combination thereof.
  INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
         Fund will not purchase or retain the securities of any issuer other
     than the securities of the Fund, if, to the Fund's knowledge, those
     officers and directors of the Fund, or of the Adviser, who individually
     own beneficially more than 1/2 of 1% of the outstanding securities of
     such issuer, together own beneficially more than 5% of such outstanding
     securities.    



  CONCENTRATION OF INVESTMENTS
     The Fund will not purchase securities if, as a result of such purchase
     more than 25% of the value of its assets would be invested in the
     securities of governmental subdivisions located in any one state,
     territory, or possession of the United States. The Fund may invest more
     than 25% of the value of its assets in industrial development bonds. As
     to industrial development bonds, the Fund may purchase securities of an
     issuer resulting in the ownership of more than 25% of the Fund's assets
     in any one industry.
  INVESTING IN RESTRICTED SECURITIES
     The Fund will not invest more than 10% of the value of its total assets
     in Municipal Bonds which are subject to legal or contractual
     restrictions on resale, including repurchase agreements maturing in more
     than seven days.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
  INVESTING IN ILLIQUID SECURITIES
     The Fund will not invest more than 10% of its net assets in illiquid
     securities, including restricted securities which the adviser believes
     cannot be sold within seven days and repurchase agreements maturing in
     more than seven days.
  INVESTING IN NEW OR FOREIGN ISSUERS OR IN SECURITIES NOT READILY MARKETABLE
     In order to qualify Shares of the Fund for sale in certain states, the
     Fund has agreed with certain state securities administrators not to
     invest more than 5% of the value of its total assets in securities of
     issuers with records of less than three years of continuous operations,



     including the operation of any predecessor. The Fund has also agreed not
     to purchase equity securities of any issuer that are not readily
     marketable or to invest in securities of any foreign issuer.
In addition, in order to comply with certain state restrictions, the Fund
will not invest in real estate limited partnerships, oil, gas or other
mineral leases.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Fund did not borrow money, pledge securities, invest in municipal bonds
subject to legal or contractual restrictions, invest in issuers whose
securities are owned by officers of the Fund, or invest in securities of
issuers with a record of less than three years of continuous operation in
excess of 5% of the value of its net assets during the last fiscal year and
has no present intent to do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates
of deposits and demand and time deposits issued by a U.S. branch of a
domestic bank or savings association having capital, surplus and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items."
   FEDERATED MUNICIPAL SECURITIES FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Municipal Securities Fund, Inc., and principal
occupations.


John F. Donahue@*



Federated Investors Tower
Pittsburgh, PA
Birthdate:  July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, President and Director of the Company .


Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate:  February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; Director or Trustee
of the Funds; formerly, Senior Partner, Ernst & Young LLP.




John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate:  June 23, 1937
Director



President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director or Trustee of the Funds; formerly, President, Naples
Property Management, Inc.


William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate:  July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director
or Trustee of the Funds; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.


J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate:  April 11, 1949
President and Director
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of



some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director  of the Company.


James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate:  May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.


Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate:  October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate:  June 18, 1924



Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee of the Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.


Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate:  March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.


Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate:  October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.



John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate:  December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.


Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate:  September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management
Center; Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate:  June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.




Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate:  October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.


 John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate:  October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.




Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate:  May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.




David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate:  January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.


* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board.



THE FUNDS
 As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total  Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.;
High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty  Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration



Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment Series,
Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of May 6, 1996, no shareholders of record owned 5% or more of the Class A
Shares and Class B Shares of the Fund.
As of May 6, 1996, the following shareholders of record owned 5% or more of
the Class C Shares of the Fund: Merrill Lynch, Pierce, Fenner & Smith, (a
record owner holding Shares for its clients), Jacksonville, Florida, owned
approximately 638,570 shares (26.62%); James C. Gilman, Butte, Montana, owned
approximately 120,161 shares (5.01%).


DIRECTOR COMPENSATION

                  AGGREGATE
NAME ,          COMPENSATION
POSITION WITH       FROM          TOTAL COMPENSATION PAID
FUND                FUND*           FROM FUND COMPLEX +


John F. Donahue, $0        $0 for the Fund  and
Chairman and Director         54 other investment companies in the Fund
Complex
J. Christopher Donahue,    $0 $0 for the Fund and



President and Director        16 other investment companies in the Fund
Complex
Thomas G. Bigley,++        $1,704  $86,331 for the Fund and
Director                   54 other investment companies in the Fund Complex
John T. Conroy, Jr.,       $1,835  $115,760 for the Fund and
Director                   54 other investment companies in the Fund Complex
William J. Copeland,       $1,835  $115,760 for the Fund and
Director                   54 other investment companies in the Fund Complex
James E. Dowd,   $1,835    $115,760 for the Fund and
Director                   54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D.,   $1,704  $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex
Edward L Flaherty, Jr.,    $1,835  $115,760 for the Fund and
Director                   54 other investment companies in the Fund Complex
Peter E. Madden, $1,704    $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex
Gregor F. Meyer, Jr.,      $1,704  $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex
John E. Murray, Jr.,       $1,704  $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex
Wesley W. Posvar,$1,704    $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex
Marjorie P. Smuts,         $1,704  $104,898 for the Fund and
Director                   54 other investment companies in the Fund Complex


*Information is furnished for the fiscal year ended March 31, 1996.
+The information is provided for the last calendar year.



++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

EX-99.AUDITORCONSNT

                              Exhibit (11) under N-1A
                              Exhibit 23 under 601/Reg SK


INDEPENDENT AUDITORS' CONSENT

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

We consent to the incorporation by reference in Post-Effective Amendment No.
48 to Registration Statement (No. 2-57181) of Federated Municipal Securities
Fund, Inc. (formerly, Liberty Municipal Securities Fund, Inc.) of our report
dated May 17, 1996, appearing in the Annual Report, which is incorporated by
reference in such Registration Statement, and to the reference to us under
the heading "Financial Highlights" in such Prospectus.


/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania

EX-99.TRANSAGENCYAGM

                                        Exhibit 9(I) under Form N-1A
                                  Exhibit 10 under Item 601/Reg. S-K

                                  AGREEMENT
                                     FOR
                          FUND ACCOUNTING SERVICES,
                          ADMINISTRATIVE SERVICES,
                          TRANSFER AGENCY SERVICES
                                     AND
                        CUSTODY SERVICES PROCUREMENT

  AGREEMENT made as of March 1, 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania corporation, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf
of itself and its subsidiaries (the "Company").
  WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
  WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company desires to accept such appointment;
  WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
if so indicated on Exhibit, and the Company desires to accept such
appointment;
  WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer
agency services (as herein defined) if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
  WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the
Company desires to accept such appointment; and
  NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
  The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
  Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment
Company with regard to fund accounting for the Investment Company, and/or the
Funds, and/or the Classes, and in connection therewith undertakes to perform
the following specific services;
  A.  Value the assets of the Funds using: primarily, market quotations,
      including the use of matrix pricing, supplied by the independent
      pricing services selected by the Company in consultation with the
      adviser, or sources selected by the adviser, and reviewed by the board;
      secondarily, if a designated pricing service does not provide a price
      for a security which the Company believes should be available by market
      quotation, the Company may obtain a price by calling brokers designated
      by the investment adviser of the fund holding the security, or if the
      adviser does not supply the names of such brokers, the Company will
      attempt on its own to find brokers to price those securities; thirdly,
      for securities for which no market price is available, the Pricing
      Committee of the Board will determine a fair value in good faith.
      Consistent with Rule 2a-4 of the 40 Act, estimates may be used where
      necessary or appropriate. The Company's obligations with regard to the
      prices received from outside pricing services and designated brokers or
      other outside sources, is to exercise reasonable care in the
      supervision of the pricing agent. The Company is not the guarantor of
      the securities prices received from such agents and the Company is not
      liable to the Fund for potential errors in valuing a Fund's assets or
      calculating the net asset value per share of such Fund or Class when
      the calculations are based upon such prices. All of the above sources
      of prices used as described are deemed by the Company to be authorized
      sources of security prices. The Company provides daily to the adviser
      the securities prices used in calculating the net asset value of the
      fund, for its use in preparing exception reports for those prices on
      which the adviser has comment. Further, upon receipt of the exception
      reports generated by the adviser, the Company diligently pursues
      communication regarding exception reports with the designated pricing
      agents;
  B.  Determine the net asset value per share of each Fund and/or Class, at
      the time and in the manner from time to time determined by the Board
      and as set forth in the Prospectus and Statement of Additional
      Information ("Prospectus") of each Fund;
  C.  Calculate the net income of each of the Funds, if any;
  D.  Calculate realized capital gains or losses of each of the Funds
      resulting from sale or disposition of assets, if any;
  E.  Maintain the general ledger and other accounts, books and financial
      records of the Investment Company, including for each Fund, and/or
      Class, as required under Section 31(a) of the 1940 Act and the Rules
      thereunder in connection with the services provided by the Company;
  F.  Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
      the records to be maintained by Rule 31a-1 under the 1940 Act in
      connection with the services provided by the Company. The Company
      further agrees that all such records it maintains for the Investment
      Company are the property of the Investment Company and further agrees
      to surrender promptly to the Investment Company such records upon the
      Investment Company's request;
  G.  At the request of the Investment Company, prepare various reports or
      other financial documents in accordance with generally accepted
      accounting principles as required by federal, state and other
      applicable laws and regulations; and
  H.  Such other similar services as may be reasonably requested by the
      Investment Company.
  The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
One, shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3.  COMPENSATION AND ALLOCATION OF EXPENSES.
  A.  The Funds will compensate the Company for Fund Accounting Services in
      accordance with the fees agreed upon from time to time between the
      parties hereto. Such fees do not include out-of-pocket disbursements of
      the Company for which the Funds shall reimburse the Company. Out-of-
      pocket disbursements shall include, but shall not be limited to, the
      items agreed upon between the parties from time to time.
  B.  The Fund and/or the Class, and not the Company, shall bear the cost of:
      custodial expenses; membership dues in the Investment Company Institute
      or any similar organization; transfer agency expenses; investment
      advisory expenses; costs of printing and mailing stock certificates,
      Prospectuses, reports and notices; administrative expenses; interest on
      borrowed money; brokerage commissions; taxes and fees payable to
      federal, state and other governmental agencies; fees of Trustees or
      Directors of the Investment Company; independent auditors expenses;
      legal and audit department expenses billed to the Company for work
      performed related to the Investment Company, the Funds, or the Classes;
      law firm expenses; organizational expenses; or other expenses not
      specified in this Article 3 which may be properly payable by the Funds
      and/or Classes.
  C.  The compensation and out-of-pocket expenses attributable to the Fund
      shall be accrued by the Fund and shall be paid to the Company no less
      frequently than monthly, and shall be paid daily upon request of the
      Company. The Company will maintain detailed information about the
      compensation and out-of-pocket expenses by Fund and Class.
  D.  Any schedule of compensation agreed to hereunder, as may be adjusted
      from time to time, shall be dated and signed by a duly authorized
      officer of the Investment Company and/or the Funds and a duly
      authorized officer of the Company.
  E.  The fee for the period from the effective date of this Agreement with
      respect to a Fund or a Class to the end of the initial month shall be
      prorated according to the proportion that such period bears to the full
      month period. Upon any termination of this Agreement before the end of
      any month, the fee for such period shall be prorated according to the
      proportion which such period bears to the full month period. For
      purposes of determining fees payable to the Company, the value of the
      Fund's net assets shall be computed at the time and in the manner
      specified in the Fund's Prospectus.
  F.  The Company, in its sole discretion, may from time to time subcontract
      to, employ or associate with itself such person or persons as the
      Company may believe to be particularly suited to assist it in
      performing Fund Accounting Services. Such person or persons may be
      affiliates of the Company, third-party service providers, or they may
      be officers and employees who are employed by both the Company and the
      Investment Company; provided, however, that the Company shall be as
      fully responsible to each Fund for the acts and omissions of any such
      subcontractor as it is for its own acts and omissions. The compensation
      of such person or persons shall be paid by the Company and no
      obligation shall be incurred on behalf of the Investment Company, the
      Funds, or the Classes in such respect.
SECTION TWO:  ADMINISTRATIVE SERVICES.
ARTICLE 4.  APPOINTMENT.
  The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth
in Article 5 of this Agreement in return for the compensation set forth in
Article 9 of this Agreement.
ARTICLE 5.  THE COMPANY'S DUTIES.
  As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its
portfolios:
  A.  prepare, file, and maintain the Investment Company's governing
      documents and any amendments thereto, including the  Charter (which has
      already been prepared and filed), the By-laws and minutes of meetings
      of the Board and Shareholders;
  B.  prepare and file with the Securities and Exchange Commission and the
      appropriate state securities authorities the registration statements
      for the Investment Company and the Investment Company's shares and all
      amendments thereto, reports to regulatory authorities and shareholders,
      prospectuses, proxy statements, and such other documents all as may be
      necessary to enable the Investment Company to make a continuous
      offering of its shares;
  C.  prepare, negotiate, and administer contracts (if any) on behalf of the
      Investment Company with, among others, the Investment Company's
      investment advisers and distributors, subject to any applicable
      restrictions of the Board or the 1940 Act;
  D.  calculate performance data of the Investment Company for dissemination
      to information services covering the investment company industry;
  E.  prepare and file the Investment Company's tax returns;
  F.  coordinate the layout and printing of publicly disseminated
      prospectuses and reports;
  G.  perform internal audit examinations in accordance with a charter to be
      adopted by the Company and the Investment Company;
  H.  assist with the design, development, and operation of the Investment
      Company and the Funds;
  I.  provide individuals reasonably acceptable to the Board for nomination,
      appointment, or election as officers of the Investment Company, who
      will be responsible for the management of certain of the Investment
      Company's affairs as determined by the Investment Company's Board; and
  J.  consult with the Investment Company and its Board on matters concerning
      the Investment Company and its affairs.
  The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section 4,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6.  RECORDS.
  The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the
Investment Company.  Where applicable, such records shall be maintained by
the Company for the periods and in the places required by Rule 31a-2 under
the 1940 Act.  The books and records pertaining to the Investment Company
which are in the possession of the Company shall be the property of the
Investment Company.  The Investment Company, or the Investment Company's
authorized representatives, shall have access to such books and records at
all times during the Company's normal business hours.  Upon the reasonable
request of the Investment Company, copies of any such books and records shall
be provided promptly by the Company to the Investment Company or the
Investment Company's authorized representatives.
ARTICLE 7.  DUTIES OF THE FUND.
     The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any
other laws, rules and regulations of government authorities having
jurisdiction.
ARTICLE 8.  EXPENSES.
  The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Investment Company, including the
compensation of the Company employees who serve as trustees or directors or
officers of the Investment Company.  The Investment Company shall be
responsible for all other expenses incurred by the Company on behalf of the
Investment Company, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing fees,
fees of outside counsel and independent auditors, or other professional
services, organizational expenses, insurance premiums, fees payable to
persons who are not the Company's employees, trade association dues, and
other expenses properly payable by the Funds and/or the Classes.
ARTICLE 9.  COMPENSATION.
  For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation
for its services rendered hereunder an administrative fee at an annual rate
per Fund, as specified below.
  The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.  The Company
will maintain detailed information about the compensation and out of pocket
expenses by the Fund.
          MAX. ADMIN.       AVERAGE DAILY NET ASSETS
             FEE                OF THE FUNDS
            .150%           on the first $250 million
            .125%           on the next $250 million
            .100%           on the next $250 million
            .075%           on assets in excess of $750 million
     (Average Daily Net Asset break-points are on a complex-wide basis)

  However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in
this Article 9 may increase annually upon each March 1 anniversary of this
Agreement over the minimum fee during the prior 12 months, as calculated
under this agreement, in an amount equal to the increase in  Pennsylvania
Consumer Price Index (not to exceed 6% annually) as last reported by the U.S.
Bureau of Labor Statistics for the twelve months immediately preceding such
anniversary.
ARTICLE 10.  RESPONSIBILITY OF ADMINISTRATOR.
  A.  The Company shall not be liable for any error of judgment or mistake of
      law or for any loss suffered by the Investment Company in connection
      with the matters to which this Agreement relates, except a loss
      resulting from willful misfeasance, bad faith or gross negligence on
      its part in the performance of its duties or from reckless disregard by
      it of its obligations and duties under this Agreement.  The Company
      shall be entitled to rely on and may act upon advice of counsel (who
      may be counsel for the Investment Company) on all matters, and shall be
      without liability for any action reasonably taken or omitted pursuant
      to such advice.  Any person, even though also an officer, director,
      trustee, partner, employee or agent of the Company, who may be or
      become an officer, director, trustee, partner, employee or agent of the
      Investment Company, shall be deemed, when rendering services to the
      Investment Company or acting on any business of the Investment Company
      (other than services or business in connection with the duties of the
      Company hereunder) to be rendering such services to or acting solely
      for the Investment Company and not as an officer, director, trustee,
      partner, employee or agent or one under the control or direction of the
      Company even though paid by the Company.
  B.  The Company shall be kept indemnified by the Investment Company and be
      without liability for any action taken or thing done by it in
      performing the Administrative Services in accordance with the above
      standards.  In order that the indemnification provisions contained in
      this Article 10 shall apply, however, it is understood that if in any
      case the Investment Company may be asked to indemnify or hold the
      Company harmless, the Investment Company shall be fully and promptly
      advised of all pertinent facts concerning the situation in question,
      and it is further understood that the Company will use all reasonable
      care to identify and notify the Investment Company promptly concerning
      any situation which presents or appears likely to present the
      probability of such a claim for indemnification against the Investment
      Company.  The Investment Company shall have the option to defend the
      Company against any claim which may be the subject of this
      indemnification.  In the event that the Investment Company so elects,
      it will so notify the Company and thereupon the Investment Company
      shall take over complete defense of the claim, and the Company shall in
      such situation initiate no further legal or other expenses for which it
      shall seek indemnification under this Article.  the Company shall in no
      case confess any claim or make any compromise in any case in which the
      Investment Company will be asked to indemnify the Company except with
      the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
  Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for each
Fund's Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund ("Shareholder(s)"),
including without limitation any periodic investment plan or periodic
withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
  The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company
as to any Fund:
  A.  Purchases
      (1)  The Company shall receive orders and payment for the purchase of
           shares and promptly deliver payment and appropriate documentation
           therefore to the custodian of the relevant Fund, (the
           "Custodian"). The Company shall notify the Fund and the Custodian
           on a daily basis of the total amount of orders and payments so
           delivered.
      (2)  Pursuant to purchase orders and in accordance with the Fund's
           current Prospectus, the Company shall compute and issue the
           appropriate number of Shares of each Fund and/or Class and hold
           such Shares in the appropriate Shareholder accounts.
      (3)  For certificated Funds and/or Classes, if a Shareholder or its
           agent requests a certificate, the Company, as Transfer Agent,
           shall countersign and mail by first class mail, a certificate to
           the Shareholder at its address as set forth on the transfer books
           of the Funds, and/or Classes, subject to any Proper Instructions
           regarding the delivery of certificates.
      (4)  In the event that any check or other order for the purchase of
           Shares of the Fund and/or Class is returned unpaid for any reason,
           the Company shall debit the Share account of the Shareholder by
           the number of Shares that had been credited to its account upon
           receipt of the check or other order, promptly mail a debit advice
           to the Shareholder, and notify the Fund and/or Class of its
           action. In the event that the amount paid for such Shares exceeds
           proceeds of the redemption of such Shares plus the amount of any
           dividends paid with respect to such Shares, the Fund and/the Class
           or its distributor will reimburse the Company on the amount of
           such excess.
  B.  Distribution
      (1)  Upon notification by the Funds of the declaration of any
           distribution to Shareholders, the Company shall act as Dividend
           Disbursing Agent for the Funds in accordance with the provisions
           of its governing document and the then-current Prospectus of the
           Fund. The Company shall prepare and mail or credit income, capital
           gain, or any other payments to Shareholders. As the Dividend
           Disbursing Agent, the Company shall, on or before the payment date
           of any such distribution, notify the Custodian of the estimated
           amount required to pay any portion of said distribution which is
           payable in cash and request the Custodian to make available
           sufficient funds for the cash amount to be paid out. The Company
           shall reconcile the amounts so requested and the amounts actually
           received with the Custodian on a daily basis. If a Shareholder is
           entitled to receive additional Shares by virtue of any such
           distribution or dividend, appropriate credits shall be made to the
           Shareholder's account, for certificated Funds and/or Classes,
           delivered where requested; and
      (2)  The Company shall maintain records of account for each Fund and
           Class and advise the Investment Company, each Fund and Class and
           its Shareholders as to the foregoing.
  C.  Redemptions and Transfers
      (1)  The Company shall receive redemption requests and redemption
           directions and, if such redemption requests comply with the
           procedures as may be described in the Fund Prospectus or set forth
           in Proper Instructions, deliver the appropriate instructions
           therefor to the Custodian. The Company shall notify the Funds on a
           daily basis of the total amount of redemption requests processed
           and monies paid to the Company by the Custodian for redemptions.
      (2)  At the appropriate time upon receiving redemption proceeds from
           the Custodian with respect to any redemption, the Company shall
           pay or cause to be paid the redemption proceeds in the manner
           instructed by the redeeming Shareholders, pursuant to procedures
           described in the then-current Prospectus of the Fund.
      (3)  If any certificate returned for redemption or other request for
           redemption does not comply with the procedures for redemption
           approved by the Fund, the Company shall promptly notify the
           Shareholder of such fact, together with the reason therefor, and
           shall effect such redemption at the price applicable to the date
           and time of receipt of documents complying with said procedures.
      (4)  The Company shall effect transfers of Shares by the registered
           owners thereof.
      (5)  The Company shall identify and process abandoned accounts and
           uncashed checks for state escheat requirements on an annual basis
           and report such actions to the Fund.
  D.  Recordkeeping
      (1)  The Company shall record the issuance of Shares of each Fund,
           and/or Class, and maintain pursuant to applicable rules of the
           Securities and Exchange Commission ("SEC") a record of the total
           number of Shares of the Fund and/or Class which are authorized,
           based upon data provided to it by the Fund, and issued and
           outstanding. The Company shall also provide the Fund on a regular
           basis or upon reasonable request with the total number of Shares
           which are authorized and issued and outstanding, but shall have no
           obligation when recording the issuance of Shares, except as
           otherwise set forth herein, to monitor the issuance of such Shares
           or to take cognizance of any laws relating to the issue or sale of
           such Shares, which functions shall be the sole responsibility of
           the Funds.
      (2)  The Company shall establish and maintain records pursuant to
           applicable rules of the SEC relating to the services to be
           performed hereunder in the form and manner as agreed to by the
           Investment Company or the Fund to include a record for each
           Shareholder's account of the following:
           (a)  Name, address and tax identification number (and whether such
                number has been certified);
           (b)  Number of Shares held;
           (c)  Historical information regarding the account, including
                dividends paid and date and price for all transactions;
           (d)  Any stop or restraining order placed against the account;
           (e)  Information with respect to withholding in the case of a
                foreign account or an account for which withholding is
                required by the Internal Revenue Code;
           (f)  Any dividend reinvestment order, plan application, dividend
                address and correspondence relating to the current
                maintenance of the account;
           (g)  Certificate numbers and denominations for any Shareholder
                holding certificates;
           (h)  Any information required in order for the Company to perform
                the calculations contemplated or required by this Agreement.
      (3)  The Company shall preserve any such records required to be
           maintained pursuant to the rules of the SEC for the periods
           prescribed in said rules as specifically noted below. Such record
           retention shall be at the expense of the Company, and such records
           may be inspected by the Fund at reasonable times. The Company may,
           at its option at any time, and shall forthwith upon the Fund's
           demand, turn over to the Fund and cease to retain in the Company's
           files, records and documents created and maintained by the Company
           pursuant to this Agreement, which are no longer needed by the
           Company in performance of its services or for its protection. If
           not so turned over to the Fund, such records and documents will be
           retained by the Company for six years from the year of creation,
           during the first two of which such documents will be in readily
           accessible form. At the end of the six year period, such records
           and documents will either be turned over to the Fund or destroyed
           in accordance with Proper Instructions.
  E.  Confirmations/Reports
      (1)  The Company shall furnish to the Fund periodically the following
           information:
           (a)  A copy of the transaction register;
           (b)  Dividend and reinvestment blotters;
           (c)  The total number of Shares issued and outstanding in each
                state for "blue sky" purposes as determined according to
                Proper Instructions delivered from time to time by the Fund
                to the Company;
           (d)  Shareholder lists and statistical information;
           (e)  Payments to third parties relating to distribution
                agreements, allocations of sales loads, redemption fees, or
                other transaction- or sales-related payments;
           (f)  Such other information as may be agreed upon from time to
                time.
      (2)  The Company shall prepare in the appropriate form, file with the
           Internal Revenue Service and appropriate state agencies, and, if
           required, mail to Shareholders, such notices for reporting
           dividends and distributions paid as are required to be so filed
           and mailed and shall withhold such sums as are required to be
           withheld under applicable federal and state income tax laws, rules
           and regulations.
      (3)  In addition to and not in lieu of the services set forth above,
           the Company shall:
           (a)  Perform all of the customary services of a transfer agent,
                dividend disbursing agent and, as relevant, agent in
                connection with accumulation, open-account or similar plans
                (including without limitation any periodic investment plan or
                periodic withdrawal program), including but not limited to:
                maintaining all Shareholder accounts, mailing Shareholder
                reports and Prospectuses to current Shareholders, withholding
                taxes on accounts subject to back-up or other withholding
                (including non-resident alien accounts), preparing and filing
                reports on U.S. Treasury Department Form 1099 and other
                appropriate forms required with respect to dividends and
                distributions by federal authorities for all Shareholders,
                preparing and mailing confirmation forms and statements of
                account to Shareholders for all purchases and redemptions of
                Shares and other conformable transactions in Shareholder
                accounts, preparing and mailing activity statements for
                Shareholders, and providing Shareholder account information;
                and
           (b)  provide a system which will enable the Fund to monitor the
                total number of Shares of each Fund (and/or Class) sold in
                each state ("blue sky reporting"). The Fund shall by Proper
                Instructions (i) identify to the Company those transactions
                and assets to be treated as exempt from the blue sky
                reporting for each state and (ii) verify the classification
                of transactions for each state on the system prior to
                activation and thereafter monitor the daily activity for each
                state. The responsibility of the Company for each Fund's
                (and/or Class's) state blue sky registration status is
                limited solely to the recording of the initial classification
                of transactions or accounts with regard to blue sky
                compliance and the reporting of such transactions and
                accounts to the Fund as provided above.
  F.  Other Duties
      (1)  The Company shall answer correspondence from Shareholders relating
           to their Share accounts and such other correspondence as may from
           time to time be addressed to the Company;
      (2)  The Company shall prepare Shareholder meeting lists, mail proxy
           cards and other material supplied to it by the Fund in connection
           with Shareholder meetings of each Fund; receive, examine and
           tabulate returned proxies, and certify the vote of the
           Shareholders;
      (3)  The Company shall establish and maintain facilities and procedures
           for safekeeping of stock certificates, check forms and facsimile
           signature imprinting devices, if any; and for the preparation or
           use, and for keeping account of, such certificates, forms and
           devices.
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
  A.  Compliance
      The Investment Company or Fund assume full responsibility for the
      preparation, contents and distribution of their own and/or their
      classes' Prospectus and for complying with all applicable requirements
      of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
      Act and any laws, rules and regulations of government authorities
      having jurisdiction.
  B.  Share Certificates
      The Investment Company shall supply the Company with a sufficient
      supply of blank Share certificates and from time to time shall renew
      such supply upon request of the Company. Such blank Share certificates
      shall be properly signed, manually or by facsimile, if authorized by
      the Investment Company and shall bear the seal of the Investment
      Company or facsimile thereof; and notwithstanding the death,
      resignation or removal of any officer of the Investment Company
      authorized to sign certificates, the Company may continue to
      countersign certificates which bear the manual or facsimile signature
      of such officer until otherwise directed by the Investment Company.
  C.  Distributions
      The Fund shall promptly inform the Company of the declaration of any
      dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
  A.  Annual Fee
      For performance by the Company pursuant to Section Three of this
      Agreement, the Investment Company and/or the Fund agree to pay the
      Company an annual maintenance fee for each Shareholder account as
      agreed upon between the parties and as may be added to or amended from
      time to time. Such fees may be changed from time to time subject to
      written agreement between the Investment Company and the Company.
      Pursuant to information in the Fund Prospectus or other information or
      instructions from the Fund, the Company may sub-divide any Fund into
      Classes or other sub-components for recordkeeping purposes. The Company
      will charge the Fund the same fees for each such Class or sub-component
      the same as if each were a Fund.
  B.  Reimbursements
      In addition to the fee paid under Article 7A above, the Investment
      Company and/or Fund agree to reimburse the Company for out-of-pocket
      expenses or advances incurred by the Company for the items agreed upon
      between the parties, as may be added to or amended from time to time.
      In addition, any other expenses incurred by the Company at the request
      or with the consent of the Investment Company and/or the Fund, will be
      reimbursed by the appropriate Fund.
  C.  Payment
      The compensation and out-of-pocket expenses shall be accrued by the
      Fund and shall be paid to the Company no less frequently than monthly,
      and shall be paid daily upon request of the Company. The Company will
      maintain detailed information about the compensation and out-of-pocket
      expenses by Fund and Class.
  D.  Any schedule of compensation agreed to hereunder, as may be adjusted
      from time to time, shall be dated and signed by a duly authorized
      officer of the Investment Company and/or the Funds and a duly
      authorized officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15.    APPOINTMENT.
  The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a custodian
(the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 16.    THE COMPANY AND ITS DUTIES.
  Subject to the review, supervision and control of the Board, the Company
shall:
  A. evaluate and obtain custody services from a financial institution that
     meets the criteria established in Section 17(f) of the 1940 Act and has
     been approved by the Board as being eligible for selection by the
     Company as an Eligible Custodian;
  B.  negotiate and enter into agreements with Eligible Custodians for the
      benefit of the Investment Company, with the Investment Company as a
      party to each such agreement. The Company may, as paying agent, be a
      party to any agreement with any such Eligible Custodian;
  C.  establish procedures to monitor the nature and the quality of the
      services provided by Eligible Custodians;
  D.  monitor and evaluate the nature and the quality of services provided by
      Eligible Custodians;
  E.  periodically provide to the Investment Company (i) written reports on
      the activities and services of Eligible  Custodians; (ii) the nature
      and amount of disbursements made on account of the each Fund with
      respect to each custodial agreement; and (iii) such other information
      as the Board shall reasonably request to enable it to fulfill its
      duties and obligations under Sections 17(f) and 36(b) of the 1940 Act
      and other duties and obligations thereof;
  F.  periodically provide recommendations to the Board to enhance Eligible
      Custodian's customer services capabilities and improve upon fees being
      charged to the Fund by Eligible Custodian; and
  The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter
be referred to as "Custody Services Procurement."
ARTICLE 17.    FEES AND EXPENSES.
  A.  Annual Fee
      For the performance of Custody Services Procurement by the Company
      pursuant to Section Four of this Agreement, the Investment Company
      and/or the Fund agree to compensate the Company in accordance with the
      fees agreed upon from time to time.
  B.  Reimbursements
      In addition to the fee paid under Section 11A above, the Investment
      Company and/or Fund agree to reimburse the Company for out-of-pocket
      expenses or advances incurred by the Company for the items agreed upon
      between the parties, as may be added to or amended from time to time.
      In addition, any other expenses incurred by the Company at the request
      or with the consent of the Investment Company and/or the Fund, will be
      reimbursed by the appropriate Fund.
  C.  Payment
      The compensation and out-of-pocket expenses shall be accrued by the
      Fund and shall be paid to the Company no less frequently than monthly,
      and shall be paid daily upon request of the Company. The Company will
      maintain detailed information about the compensation and out-of-pocket
      expenses by Fund.
  D.  Any schedule of compensation agreed to hereunder, as may be adjusted
      from time to time, shall be dated and signed by a duly authorized
      officer of the Investment Company and/or the Funds and a duly
      authorized officer of the Company.
ARTICLE 18.    REPRESENTATIONS.
  The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Four of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE  19.  PROPER INSTRUCTIONS.
  As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Investment Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing.  Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Company, or the Fund, and the Company
are satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
  Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
  A.  This Agreement shall inure to the benefit of and be binding upon the
      parties and their respective permitted successors and assigns.
  B.  With regard to Transfer Agency Services, the Company may without
      further consent on the part of the Investment Company subcontract for
      the performance of Transfer Agency Services with
      (1)  its subsidiary, Federated Shareholder Service Company, a Delaware
           business trust, which is duly registered as a transfer agent
           pursuant to Section 17A(c)(1) of the Securities Exchange Act of
           1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
           or
      (2)  such other provider of services duly registered as a transfer
           agent under Section 17A(c)(1) as Company shall select.
      The Company shall be as fully responsible to the Investment Company for
      the acts and omissions of any subcontractor as it is for its own acts
      and omissions.
  C.  With regard to Fund Accounting Services, Administrative Services and
      Custody Procurement Services, the Company may without further consent
      on the part of the Investment Company subcontract for the performance
      of such services with Federated Administrative Services, a wholly-owned
      subsidiary of the Company.
  D.  The Company shall upon instruction from the Investment Company
      subcontract for the performance of services under this Agreement with
      an Agent selected by the Investment Company, other than as described in
      B. and C. above; provided, however, that the Company shall in no way be
      responsible to the Investment Company for the acts and omissions of the
      Agent.
ARTICLE 21. DOCUMENTS.
  A.  In connection with the appointment of the Company under this Agreement,
      the Investment Company shall file with the Company the following
      documents:
      (1)  A copy of the Charter and By-Laws of the Investment Company and
           all amendments thereto;
      (2)  A copy of the resolution of the Board of the Investment Company
           authorizing this Agreement;
      (3)  Specimens of all forms of outstanding Share certificates of the
           Investment Company or the Funds in the forms approved by the Board
           of the Investment Company with a certificate of the Secretary of
           the Investment Company as to such approval;
      (4)  All account application forms and other documents relating to
           Shareholders accounts; and
      (5)  A copy of the current Prospectus for each Fund.
  B.  The Fund will also furnish from time to time the following documents:
      (1)  Each resolution of the Board of the Investment Company authorizing
           the original issuance of each Fund's, and/or Class's Shares;
      (2)  Each Registration Statement filed with the SEC and amendments
           thereof and orders relating thereto in effect with respect to the
           sale of Shares of any Fund, and/or Class;
      (3)  A certified copy of each amendment to the governing document and
           the By-Laws of the Investment Company;
      (4)  Certified copies of each vote of the Board authorizing officers to
           give Proper Instructions to the Custodian and agents for fund
           accountant, custody services procurement, and shareholder
           recordkeeping or transfer agency services;
      (5)  Specimens of all new Share certificates representing Shares of any
           Fund, accompanied by Board resolutions approving such forms;
      (6)  Such other certificates, documents or opinions which the Company
           may, in its discretion, deem necessary or appropriate in the
           proper performance of its duties; and
      (7)  Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
  A.  Representations and Warranties of the Company
      The Company represents and warrants to the Fund that:
      (1)  it is a corporation duly organized and existing and in good
           standing under the laws of the Commonwealth of Pennsylvania;
       (2) It is duly qualified to carry on its business in each jurisdiction
           where the nature of its business requires such qualification, and
           in the Commonwealth of Pennsylvania;
      (3)  it is empowered under applicable laws and by its Articles of
           Incorporation and By-Laws to enter into and perform this
           Agreement;
      (4)  all requisite corporate proceedings have been taken to authorize
           it to enter into and perform its obligations under this Agreement;
      (5)  it has and will continue to have access to the necessary
           facilities, equipment and personnel to perform its duties and
           obligations under this Agreement;
      (6)  it is in compliance with federal securities law requirements and
           in good standing as an administrator and fund accountant; and
  B.  Representations and Warranties of the Investment Company
      The Investment Company represents and warrants to the Company that:
      (1)  It is an investment company duly organized and existing and in
           good standing under the laws of its state of organization;
      (2)  It is empowered under applicable laws and by its Charter and By-
           Laws to enter into and perform its obligations under this
           Agreement;
      (3)  All corporate proceedings required by said Charter and By-Laws
           have been taken to authorize it to enter into and perform its
           obligations under this Agreement;
      (4)  The Investment Company is an open-end investment company
           registered under the 1940 Act; and
      (5)  A registration statement under the 1933 Act will be effective, and
           appropriate state securities law filings have been made and will
           continue to be made, with respect to all Shares of each Fund being
           offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
  A.  Standard of Care
      With regard to Sections One, Three and Four, the Company shall be held
      to a standard of reasonable care in carrying out the provisions of this
      Contract. The Company shall be entitled to rely on and may act upon
      advice of counsel (who may be counsel for the Investment Company) on
      all matters, and shall be without liability for any action reasonably
      taken or omitted pursuant to such advice, provided that such action is
      not in violation of applicable federal or state laws or regulations,
      and is in good faith and without negligence.
  B.  Indemnification by Investment Company
      The Company shall not be responsible for and the Investment Company or
      Fund shall indemnify and hold the Company, including its officers,
      directors, shareholders and their agents, employees and affiliates,
      harmless against any and all losses, damages, costs, charges, counsel
      fees, payments, expenses and liabilities arising out of or attributable
      to:
      (1)  The acts or omissions of any Custodian, Adviser, Sub-adviser or
           other party contracted by or approved by the Investment Company or
           Fund,
      (2)  The reliance on or use by the Company or its agents or
           subcontractors of information, records and documents in proper
           form which
           (a)  are received by the Company or its agents or subcontractors
                and furnished to it by or on behalf of the Fund, its
                Shareholders or investors regarding the purchase, redemption
                or transfer of Shares and Shareholder account information;
           (b)  are received by the Company from independent pricing services
                or sources for use in valuing the assets of the Funds; or
           (c)  are received by the Company or its agents or subcontractors
                from Advisers, Sub-advisers or other third parties contracted
                by or approved by the Investment Company of Fund for use in
                the performance of services under this Agreement;
           (d)  have been prepared and/or maintained by the Fund or its
                affiliates or any other person or firm on behalf of the
                Investment Company.
      (3)  The reliance on, or the carrying out by the Company or its agents
           or subcontractors of Proper Instructions of the Investment Company
           or the Fund.
      (4)  The offer or sale of Shares in violation of any requirement under
           the federal securities laws or regulations or the securities laws
           or regulations of any state that such Shares be registered in such
           state or in violation of any stop order or other determination or
           ruling by any federal agency or any state with respect to the
           offer or sale of such Shares in such state.
           Provided, however, that the Company shall not be protected by this
           Article 23.B. from liability for any act or omission resulting
           from the Company's willful misfeasance, bad faith, negligence or
           reckless disregard of its duties or failure to meet the standard
           of care set forth in 23.A. above.
  C.  Reliance
      At any time the Company may apply to any officer of the Investment
      Company or Fund for instructions, and may consult with legal counsel
      with respect to any matter arising in connection with the services to
      be performed by the Company under this Agreement, and the Company and
      its agents or subcontractors shall not be liable and shall be
      indemnified by the Investment Company or the appropriate Fund for any
      action reasonably taken or omitted by it in reliance upon such
      instructions or upon the opinion of such counsel provided such action
      is not in violation of applicable federal or state laws or regulations.
      The Company, its agents and subcontractors shall be protected and
      indemnified in recognizing stock certificates which are reasonably
      believed to bear the proper manual or facsimile signatures of the
      officers of the Investment Company or the Fund, and the proper
      countersignature of any former transfer agent or registrar, or of a co-
      transfer agent or co-registrar.
  D.  Notification
      In order that the indemnification provisions contained in this
      Article 23 shall apply, upon the assertion of a claim for which either
      party may be required to indemnify the other, the party seeking
      indemnification shall promptly notify the other party of such
      assertion, and shall keep the other party advised with respect to all
      developments concerning such claim. The party who may be required to
      indemnify shall have the option to participate with the party seeking
      indemnification in the defense of such claim. The party seeking
      indemnification shall in no case confess any claim or make any
      compromise in any case in which the other party may be required to
      indemnify it except with the other party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
  This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term").  Thereafter, the Agreement will continue
for 18 month terms.  The Agreement can be terminated by either party upon 18
months notice to be effective as of the end of such 18 month period.  In the
event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right
to terminate the Agreement upon 60 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard
of its duties within 60 days.  The termination date for all original or
after-added Investment companies which are, or become, a party to this
Agreement. shall be coterminous.  Investment Companies that merge or dissolve
during the Term, shall cease to be a party on the effective date of such
merger or dissolution.
  Should the Investment Company exercise its rights to terminate, all out-of-
pocket expenses associated with the movement of records and materials will be
borne by the Investment Company or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
  This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
  In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing signed
by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Charter. No interpretive or
additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
  This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
  Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779,
or to such other address as the Investment Company or the Company may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
ARTICLE 29. COUNTERPARTS.
     This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
 ARTICLE 30. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
  The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Company, but bind only the appropriate
property of the Fund, or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
  This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 32. SUCCESSOR AGENT.
  If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all properties
of the Investment Company held by it hereunder. If no such successor agent
shall be appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such instructions.
  In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 33. FORCE MAJEURE.
  The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
  This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all
of or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 34 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
  In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
  The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Investment Company, but bind
only the property of the Fund, or Class, as provided in the Declaration of
Trust.

  IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.


                                   INVESTMENT COMPANIES
                                   (LISTED ON EXHIBIT 1)


                                   By:  /s/ S. Elliott Cohan
                                   S. Elliott Cohan
                                   Assistant Secretary

                                   FEDERATED SERVICES COMPANY

                                   By:  /s/ Thomas J. Ward
                                   Thomas J. Ward
                                   Secretary


                                  EXHIBIT 1
CONTRACT
DATE             INVESTMENT COMPANY
                  Portfolios
                    Classes

March 1, 1996    FEDERATED MUNICIPAL SECURITIES FUND, INC.
                 CLASS A SHARES
                 CLASS B SHARES
                 CLASS C SHARES








FEDERATED SERVICES COMPANY provides the following services:

                 Administrative Services
                 Fund Accounting Services
                 Shareholder Recordkeeping Services

EX-99.POWEROFATTY

                              POWER OF ATTORNEY


     Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of           FEDERATED
MUNICIPAL SECURITIES FUND, INC.   and the Deputy General Counsel of Federated
Investors, and each of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for them and in
their names, place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to sign and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.


SIGNATURES                    TITLE                          DATE



/s/ John F. Donahue           Chairman                May 3, 1996
John F. Donahue                (Chief Executive Officer)



/s/ J. Christopher Donahue    President               May 3, 1996
J. Christopher Donahue



/s/ David M. Taylor           Treasurer               May 3, 1996
David M. Taylor                 (Principal Financial and
                                 Accounting Officer)



/s/ Thomas G. Bigley          Director                May 3, 1996
Thomas G. Bigley



/s/ John T. Conroy, Jr.       Director                May 3, 1996
John T. Conroy, Jr.



SIGNATURES                    TITLE                          DATE



/s/ William J. Copeland       Director                May 3, 1996
William J. Copeland



/s/ James E. Dowd             Director                May 3, 1996
James E. Dowd

/s/ Lawrence D. Ellis, M.D.   Director                May 3, 1996
Lawrence D. Ellis, M.D.



/s/ Edward L. Flaherty, Jr.   Director                May 3, 1996
Edward L. Flaherty, Jr.



/s/ Peter E. Madden           Director                May 3, 1996
Peter E. Madden



/s/ Gregor F. Meyer           Director                May 3, 1996
Gregor F. Meyer



/s/ John E. Murray, Jr.       Director                May 3, 1996
John E. Murray, Jr.



/s/ Wesley W. Posvar          Director                May 3, 1996
Wesley W. Posvar



/s/ Marjorie P. Smuts         Director                May 3, 1996
Marjorie P. Smuts



Sworn to and subscribed before me this 3rd day of May, 1996


/s/ Marie M. Hamm

Notarial Seal
Marie M. Hamm Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996

EX-27.FINANDATASCH

 

                                                                               
                                                                         
                                                                               
<ARTICLE>                       6                                              
                                                                       
     <NUMBER>                   001                                            
     <NAME>                     Federated Municipal Securities Fund, Inc.      
                                Class A Shares                                 
                                                                               
<PERIOD-TYPE>                   12-MOS                                         
<FISCAL-YEAR-END>               Mar-31-1996                                    
<PERIOD-END>                    Mar-31-1996                                    
<INVESTMENTS-AT-COST>           719,348,580                                    
<INVESTMENTS-AT-VALUE>          732,780,763                                    
<RECEIVABLES>                   17,074,378                                     
<ASSETS-OTHER>                  100,273                                        
<OTHER-ITEMS-ASSETS>            0                                              
<TOTAL-ASSETS>                  749,955,414                                    
<PAYABLE-FOR-SECURITIES>        0                                              
<SENIOR-LONG-TERM-DEBT>         0                                              
<OTHER-ITEMS-LIABILITIES>       2,207,170                                      
<TOTAL-LIABILITIES>             2,207,170                                      
<SENIOR-EQUITY>                 0                                              
<PAID-IN-CAPITAL-COMMON>        727,630,560                                    
<SHARES-COMMON-STOCK>           61,344,756                                     
<SHARES-COMMON-PRIOR>           64,904,435                                     
<ACCUMULATED-NII-CURRENT>       0                                              
<OVERDISTRIBUTION-NII>          0                                              
<ACCUMULATED-NET-GAINS>         6,666,727                                      
<OVERDISTRIBUTION-GAINS>        0                                              
<ACCUM-APPREC-OR-DEPREC>        13,432,183                                     
<NET-ASSETS>                    663,537,987                                    
<DIVIDEND-INCOME>               0                                              
<INTEREST-INCOME>               52,709,355                                     
<OTHER-INCOME>                  0                                              
<EXPENSES-NET>                  7,960,058                                      
<NET-INVESTMENT-INCOME>         44,749,297                                     
<REALIZED-GAINS-CURRENT>        7,079,845                                      
<APPREC-INCREASE-CURRENT>       (13,521,713)                                   
<NET-CHANGE-FROM-OPS>           38,307,429                                     
<EQUALIZATION>                  0                                              
<DISTRIBUTIONS-OF-INCOME>       41,611,908                                     
<DISTRIBUTIONS-OF-GAINS>        894,502                                        
<DISTRIBUTIONS-OTHER>           0                                              
<NUMBER-OF-SHARES-SOLD>         23,530,576                                     
<NUMBER-OF-SHARES-REDEEMED>     29,468,002                                     
<SHARES-REINVESTED>             2,377,750                                      
<NET-CHANGE-IN-ASSETS>          (1,553,724)                                    
<ACCUMULATED-NII-PRIOR>         0                                              
<ACCUMULATED-GAINS-PRIOR>       556,412                                        
<OVERDISTRIB-NII-PRIOR>         0                                              
<OVERDIST-NET-GAINS-PRIOR>      0                                              
<GROSS-ADVISORY-FEES>           4,644,716                                      
<INTEREST-EXPENSE>              0                                              
<GROSS-EXPENSE>                 8,888,165                                      
<AVERAGE-NET-ASSETS>            753,112,728                                    
<PER-SHARE-NAV-BEGIN>           10.920                                         
<PER-SHARE-NII>                 0.660                                          
<PER-SHARE-GAIN-APPREC>         0.090                                          
<PER-SHARE-DIVIDEND>            0.660                                          
<PER-SHARE-DISTRIBUTIONS>       0.010                                          
<RETURNS-OF-CAPITAL>            0.000                                          
<PER-SHARE-NAV-END>             10.820                                         
<EXPENSE-RATIO>                 0.98                                           
<AVG-DEBT-OUTSTANDING>          0                                              
<AVG-DEBT-PER-SHARE>            0.000                                          
                                                                               

 

EX-27.FINANDATASCH

 

                                                                               
                                                                         
                                                                               
<ARTICLE>                       6                                              
                                                                       
     <NUMBER>                   002                                            
     <NAME>                     Federated Municipal Securities Fund, Inc.      
                                Class B Shares                                 
                                                                               
<PERIOD-TYPE>                   12-MOS                                         
<FISCAL-YEAR-END>               Mar-31-1996                                    
<PERIOD-END>                    Mar-31-1996                                    
<INVESTMENTS-AT-COST>           719,348,580                                    
<INVESTMENTS-AT-VALUE>          732,780,763                                    
<RECEIVABLES>                   17,074,378                                     
<ASSETS-OTHER>                  100,273                                        
<OTHER-ITEMS-ASSETS>            0                                              
<TOTAL-ASSETS>                  749,955,414                                    
<PAYABLE-FOR-SECURITIES>        0                                              
<SENIOR-LONG-TERM-DEBT>         0                                              
<OTHER-ITEMS-LIABILITIES>       2,207,170                                      
<TOTAL-LIABILITIES>             2,207,170                                      
<SENIOR-EQUITY>                 0                                              
<PAID-IN-CAPITAL-COMMON>        727,630,560                                    
<SHARES-COMMON-STOCK>           5,389,543                                      
<SHARES-COMMON-PRIOR>           1,666,993                                      
<ACCUMULATED-NII-CURRENT>       0                                              
<OVERDISTRIBUTION-NII>          0                                              
<ACCUMULATED-NET-GAINS>         6,666,727                                      
<OVERDISTRIBUTION-GAINS>        0                                              
<ACCUM-APPREC-OR-DEPREC>        13,432,183                                     
<NET-ASSETS>                    58,296,233                                     
<DIVIDEND-INCOME>               0                                              
<INTEREST-INCOME>               52,709,355                                     
<OTHER-INCOME>                  0                                              
<EXPENSES-NET>                  7,960,058                                      
<NET-INVESTMENT-INCOME>         44,749,297                                     
<REALIZED-GAINS-CURRENT>        7,079,845                                      
<APPREC-INCREASE-CURRENT>       (13,521,713)                                   
<NET-CHANGE-FROM-OPS>           38,307,429                                     
<EQUALIZATION>                  0                                              
<DISTRIBUTIONS-OF-INCOME>       1,898,925                                      
<DISTRIBUTIONS-OF-GAINS>        44,667                                         
<DISTRIBUTIONS-OTHER>           0                                              
<NUMBER-OF-SHARES-SOLD>         4,157,827                                      
<NUMBER-OF-SHARES-REDEEMED>     526,969                                        
<SHARES-REINVESTED>             91,690                                         
<NET-CHANGE-IN-ASSETS>          (1,553,724)                                    
<ACCUMULATED-NII-PRIOR>         0                                              
<ACCUMULATED-GAINS-PRIOR>       556,412                                        
<OVERDISTRIB-NII-PRIOR>         0                                              
<OVERDIST-NET-GAINS-PRIOR>      0                                              
<GROSS-ADVISORY-FEES>           4,644,716                                      
<INTEREST-EXPENSE>              0                                              
<GROSS-EXPENSE>                 8,888,165                                      
<AVERAGE-NET-ASSETS>            753,112,728                                    
<PER-SHARE-NAV-BEGIN>           10.920                                         
<PER-SHARE-NII>                 0.560                                          
<PER-SHARE-GAIN-APPREC>         0.090                                          
<PER-SHARE-DIVIDEND>            0.560                                          
<PER-SHARE-DISTRIBUTIONS>       0.010                                          
<RETURNS-OF-CAPITAL>            0.000                                          
<PER-SHARE-NAV-END>             10.820                                         
<EXPENSE-RATIO>                 1.86                                           
<AVG-DEBT-OUTSTANDING>          0                                              
<AVG-DEBT-PER-SHARE>            0.000                                          
                                                                               

 

EX-27.FINANDATASCH

 

                                                                               
                                                                         
                                                                               
<ARTICLE>                       6                                              
                                                                       
     <NUMBER>                   003                                            
     <NAME>                     Federated Municipal Securities Fund, Inc.      
                                Class C Shares                                 
                                                                               
<PERIOD-TYPE>                   12-MOS                                         
<FISCAL-YEAR-END>               Mar-31-1996                                    
<PERIOD-END>                    Mar-31-1996                                    
<INVESTMENTS-AT-COST>           719,348,580                                    
<INVESTMENTS-AT-VALUE>          732,780,763                                    
<RECEIVABLES>                   17,074,378                                     
<ASSETS-OTHER>                  100,273                                        
<OTHER-ITEMS-ASSETS>            0                                              
<TOTAL-ASSETS>                  749,955,414                                    
<PAYABLE-FOR-SECURITIES>        0                                              
<SENIOR-LONG-TERM-DEBT>         0                                              
<OTHER-ITEMS-LIABILITIES>       2,207,170                                      
<TOTAL-LIABILITIES>             2,207,170                                      
<SENIOR-EQUITY>                 0                                              
<PAID-IN-CAPITAL-COMMON>        727,630,560                                    
<SHARES-COMMON-STOCK>           2,395,801                                      
<SHARES-COMMON-PRIOR>           2,050,571                                      
<ACCUMULATED-NII-CURRENT>       0                                              
<OVERDISTRIBUTION-NII>          0                                              
<ACCUMULATED-NET-GAINS>         6,666,727                                      
<OVERDISTRIBUTION-GAINS>        0                                              
<ACCUM-APPREC-OR-DEPREC>        13,432,183                                     
<NET-ASSETS>                    25,914,024                                     
<DIVIDEND-INCOME>               0                                              
<INTEREST-INCOME>               52,709,355                                     
<OTHER-INCOME>                  0                                              
<EXPENSES-NET>                  7,960,058                                      
<NET-INVESTMENT-INCOME>         44,749,297                                     
<REALIZED-GAINS-CURRENT>        7,079,845                                      
<APPREC-INCREASE-CURRENT>       (13,521,713)                                   
<NET-CHANGE-FROM-OPS>           38,307,429                                     
<EQUALIZATION>                  0                                              
<DISTRIBUTIONS-OF-INCOME>       1,219,692                                      
<DISTRIBUTIONS-OF-GAINS>        30,361                                         
<DISTRIBUTIONS-OTHER>           0                                              
<NUMBER-OF-SHARES-SOLD>         797,328                                        
<NUMBER-OF-SHARES-REDEEMED>     511,334                                        
<SHARES-REINVESTED>             59,235                                         
<NET-CHANGE-IN-ASSETS>          (1,553,724)                                    
<ACCUMULATED-NII-PRIOR>         0                                              
<ACCUMULATED-GAINS-PRIOR>       556,412                                        
<OVERDISTRIB-NII-PRIOR>         0                                              
<OVERDIST-NET-GAINS-PRIOR>      0                                              
<GROSS-ADVISORY-FEES>           4,644,716                                      
<INTEREST-EXPENSE>              0                                              
<GROSS-EXPENSE>                 8,888,165                                      
<AVERAGE-NET-ASSETS>            753,112,728                                    
<PER-SHARE-NAV-BEGIN>           10.920                                         
<PER-SHARE-NII>                 0.560                                          
<PER-SHARE-GAIN-APPREC>         0.090                                          
<PER-SHARE-DIVIDEND>            0.560                                          
<PER-SHARE-DISTRIBUTIONS>       0.010                                          
<RETURNS-OF-CAPITAL>            0.000                                          
<PER-SHARE-NAV-END>             10.820                                         
<EXPENSE-RATIO>                 1.82                                           
<AVG-DEBT-OUTSTANDING>          0                                              
<AVG-DEBT-PER-SHARE>            0.000