-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wgd5zUTCa+JgDWA1KJ4gpFf5iBp92NjswpIq8BBwNtDdFyN4CenEZew9e66VdE4Q 4gz9ZOqRpJQcg00/qfNNvQ== 0000201801-98-000007.txt : 19980603 0000201801-98-000007.hdr.sgml : 19980603 ACCESSION NUMBER: 0000201801-98-000007 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980602 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL SECURITIES FUND INC CENTRAL INDEX KEY: 0000201801 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251304971 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02677 FILM NUMBER: 98640735 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122886520 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY MUNICIPAL SECURITIES FUND INC DATE OF NAME CHANGE: 19930517 FORMER COMPANY: FORMER CONFORMED NAME: FEDERATED TAX FREE INCOME FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 [Graphic] [Graphic] Federated Investors Federated Municipal Securities Fund, Inc. 21ST ANNUAL REPORT MARCH 31, 1998 ESTABLISHED 1976 PRESIDENT'S MESSAGE Dear Shareholder: Federated Municipal Securities Fund, Inc. was created in 1976, and I am pleased to present its 21st Annual Report. This report covers the 12-month period from April 1, 1997 through March 31, 1998. It begins with a discussion with J. Scott Albrecht, Vice President, Federated Advisers, who co-manages the fund with Mary Jo Ochson, Senior Vice President, Federated Advisers. The discussion covers the fund's performance and investment strategy. Following their discussion are three additional items of shareholder interest. First is a series of graphs showing long-term investment performance. Second is a complete listing of the fund's municipal bond holdings. Third is the publication of the fund's financial statements. Here is a sobering fact about taxes: according to the Tax Foundation, May 9 is Tax Freedom Day--the day on which Americans have earned enough money to pay taxes for the entire year. That means everything the average American earns from January through early May--the first five months of the year--goes to taxes! With Federated Municipal Securities Fund, Inc. every day is a Tax Freedom Day. This fund is in its 22nd year of providing monthly, tax-free income from a broadly diversified portfolio of long-term municipal bonds with an average quality rating of A+.* On March 31, 1998, the fund's $724 million portfolio included 109 tax-free securities issued by municipalities across our country. Overall, it was a strong 12-month period for the fund, as declining interest rates caused the fund's holdings--and its share price--to increase in value. Individual share class total return performance including capital appreciation, income dividends, and realized gain follows.** NET ASSET TOTAL RETURN INCOME CAPITAL GAIN VALUE INCREASE Class A Shares 11.28% $0.47 $0.03 $10.31 to $10.91 = 5% Class B Shares 10.30% $0.39 $0.03 $10.31 to $10.91 = 5% Class C Shares 10.31% $0.39 $0.03 $10.31 to $10.91 = 5% * State, local, and federal alternative minimum taxes may apply. ** Performance quoted is based on net asset value, represents past performance, and is not indicative of future results. Investment return and principal value will fluctuate so an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period based on offering price for Class A, B, and C Shares were 6.23%, 4.55%, and 9.30%, respectively. Thank you for selecting Federated Municipal Securities Fund, Inc. as a convenient, diversified way to pursue tax-free income. Of course, you have the option of receiving any income from the fund or building your account by reinvesting your monthly dividends and compounding tax-free. Sincerely, [Graphic] J. Christopher Donahue President May 15, 1998 INVESTMENT REVIEW [Graphic] J. Scott Albrecht Vice President Federated Advisers [Graphic] Mary Jo Ochson Senior Vice President Federated Advisers [Graphic] OVERALL, THE FUND'S FISCAL YEAR WAS A GOOD PERIOD FOR MUNICIPAL BOND INVESTORS. WHAT ARE YOUR COMMENTS ON THE MARKET'S ENVIRONMENT? The market environment for fixed-income investments in general, and municipal bonds in particular, has been relatively favorable. Inflation and inflation expectations, which are the major determinants of nominal interest rates, have continued to be very well behaved. In fact, several inflation indicators have actually suggested a deflationary environment for some markets. Municipal bond yields, as represented by the Bond Buyer 40 Index,* have trended lower since reaching their peak at 6.01% on April 14, 1997, and ended the reporting period at 5.27% on March 31, 1998. The municipal market also is enjoying a strong technical position relative to the supply of, and demand for, municipal bonds. The demand for municipal bonds has been relatively stable, mostly due to strong institutional demand from commercial banks, property and casualty insurers, and arbitrageurs. Retail buyers, or individuals, are the primary component of municipal bond demand. Their participation in the market has been mixed, but has been stable enough to provide an important foundation for municipal bond prices. * The Bond Buyer 40 Index is an unmanaged index composed of 40 long-term actively traded bonds. These bonds: have a maturity of at least 19 years, but there is no limit as to how long the maturity can be; are fixed rate, term bonds that are tax exempt but may be subject to the alternative minimum tax; are either non-callable or have a first call date between 7 and 16 years; have a par call date; are priced between 85 and 105; and are rated at least A3 (Moody's Investors Service, Inc.) or A- (Standard & Poor's). No deep discount or high premium bonds are included. Investments cannot be made in an index. [Graphic] IN THIS ENVIRONMENT, HOW DID FEDERATED MUNICIPAL SECURITIES FUND, INC. PERFORM WITH RESPECT TO TOTAL RETURN OVER THE FUND'S FISCAL YEAR ENDED MARCH 31, 1998? For the 12-month reporting period ended March 31, 1998, investors in the fund's Class A, B, and C Shares received competitive total returns of 11.28%, 10.30%, and 10.31%, respectively, based on net asset value.* In comparison, the average total return for all 237 funds that comprise the Lipper General Municipal Debt Fund Average was 10.61% based on net asset value.** These results exceeded or virtually matched the Lehman Brothers Municipal Bond Index's total return of 10.71%.+ [Graphic] HOW DID THE FUND PERFORM IN TERMS OF INCOME AND YIELD? The fund's 30-day current net yield, or SEC yield, on March 31, 1998, was 4.30% for Class A Shares based on the net asset value.++ The Class A Shares' yield declined from 4.46% at the beginning of the reporting period, as a result of a general decline in market interest rates and positive cash flows into the fund. As a consequence of the reduced yield of the portfolio, the fund's monthly dividend for Class A Shares was slightly reduced from $0.044/share on April 1, 1997, to $0.043/share on March 31, 1998. The SEC yields and monthly dividends of Class B and Class C Shares experienced similar effects.+++ * Performance quoted is based on net asset value, represents past performance, and is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period based on offering price for Class A, B, and C Shares were 6.23%, 4.55%, and 9.30%, respectively. ** Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the category indicated. These figures do not reflect sales charges. + The Lehman Brothers Municipal Bond Index is an unmanaged broad based total return performance benchmark for the long-term, investment grade bond market. Investments cannot be made in an index. ++ The 30-day current net yield for Class A Shares based on offering price was 4.11%. The 30-day current net yield is calculated by dividing the net investment income per share for the 30 days ended on the date specified by the maximum offering price per share on that date. Then, the figure is compounded and annualized. Performance quoted represents past performance and is not indicative of future results. Yield will vary. +++ The SEC yields for Class B and C Shares based on net asset value and offering price were 3.41% and 0% and 3.42% and 0%, respectively. Performance quoted represents past performance and is not indicative of future results. Yield will vary. Monthly dividends for both Class B and C Shares were slightly reduced from $0.027/share on April 1, 1997, to $0.035/share on March 31, 1998. [Graphic] WHAT ACCOUNTED FOR THE FUND'S TOTAL RETURN PERFORMANCE? Several factors were responsible. First, there was a general decline in interest rates and thus an overall increase in bond prices during the reporting period. Municipal interest rates, as represented by the Bond Buyer 40 Index, declined from 5.96% on April 1, 1997, to 5.27% on March 31, 1998. The increase in prices in the fund's portfolio was most notable in the fund's holdings of zero coupon securities. Zero coupon bonds outperform when interest rates decline because of their call protection and duration characteristics. The fund's share price performance also benefited from its allocation to low investment-grade securities (BBB-rated). The yield spread between AAA-rated bonds and BBB-rated bonds narrowed over the reporting period from 65 basis points to 30 basis points. [Graphic] WITH A FAVORABLE PERIOD BEHIND US, WHAT IS YOUR OUTLOOK FOR INTEREST RATES THROUGH THE BALANCE OF 1998, AND DO YOU ANTICIPATE STRATEGY CHANGES AS A RESULT? We believe that economic growth will moderate in the second half of 1998 from its robust pace over the last few months. The effects on the U.S. economy from the turmoil in Asia should be evident within the next few months. This fact, combined with a potentially balanced federal budget and diminished expectations concerning inflation, should result in a favorable environment for fixed income securities later this year. Interest rates in the municipal bond market have been in a narrow trading range for several months and should continue to be range bound until economic data begins to signal a change in the economy's direction. Our portfolio strategy will include maintaining a neutral duration target relative to the fund's benchmark, while looking for opportunities to improve portfolio yield, and as a result, income distributed to shareholders. TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED MUNICIPAL SECURITIES FUND, INC. INITIAL INVESTMENT: IF YOU HAD MADE AN INITIAL INVESTMENT OF $22,000 IN THE CLASS A SHARES OF FEDERATED MUNICIPAL SECURITIES FUND, INC. ON 10/4/76, REINVESTED YOUR DIVIDENDS AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $82,786 ON 3/31/98. YOU WOULD HAVE EARNED A 6.36%* AVERAGE ANNUAL TOTAL RETURN FOR THE INVESTMENT LIFE SPAN. One key to investing wisely is to reinvest all distributions in fund shares. This increases the number of shares on which you can earn future dividends, and you gain the benefit of compounding. As of 3/31/98, Class A Shares' average annual 1-year, 5-year, and 10-year total returns were 6.23%, 4.26%, and 7.05%, respectively. Class B Shares' average annual 1-year and since inception (7/26/94) total returns were 4.55% and 4.27%, respectively. Class C Shares' average annual 1-year and since inception (4/21/93) total returns were 9.30% and 4.15%, respectively.** [Graphic representation "A1" omitted. See Appendix.] * Total return represents the change in the value of an investment after reinvesting all income and capital gains, and takes into account the 4.50% sales charge applicable to an initial investment in Class A Shares. Data quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** The total returns stated take into account the 4.50% sales charge for Class A Shares, the 5.50% contingent deferred sales charge for Class B Shares, and the 1.00% contingent deferred sales charge for Class C Shares. FEDERATED MUNICIPAL SECURITIES FUND, INC. ONE STEP AT A TIME: $1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 21 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $52,768. With this approach, the key is consistency. If you had started investing $1,000 annually in the Class A Shares of Federated Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends and capital gains, and did not redeem any shares, you would have invested only $22,000, but your account would have reached a total value of $52,768* by 3/31/98. You would have earned an average annual total return of 7.36%. A practical investment plan helps you pursue a high level of income through tax-free municipal bonds. Through systematic investing, you buy shares on a regular basis and reinvest all earnings. An investment plan works for you when you invest only $1,000 annually. You can take it one step at a time. Put time, money, and compounding to work. [Graphic representation "A2" omitted. See Appendix.] * This chart assumes that the subsequent annual investments are made on the last day of each anniversary month. No method of investing can guarantee a profit or protect against loss in down markets. However, by investing regularly over time and buying shares at various prices, investors can purchase more shares at lower prices. All accumulated shares have the ability to pay income to the investor. Because such a plan involves continuous investment, regardless of changing price levels, the investor should consider whether or not to continue purchases through periods of low price levels. FEDERATED MUNICIPAL SECURITIES FUND, INC. HYPOTHETICAL INVESTORS PROFILE: INVESTING FOR TAX-FREE INCOME Larry and Barbara Bartlett are a fictional couple who, like all other tax-sensitive shareholders, want to keep more of what they earn. Larry owns a successful architectural firm and Barbara is a marketing executive. Their combined income puts them in the 39.6% federal tax bracket. On March 31, 1988, the Bartletts invested $26,000 in the Class A Shares of Federated Municipal Securities Fund, Inc. As this chart shows, in 10 years, their original $26,000 investment has grown to $51,413-- that's $22,036 in tax-free income.* This represents a 7.06% average annual total return. As far as the Bartletts are concerned, this fund has made all the difference. [Graphic representation "A3" omitted. See Appendix.] * Income may be subject to the federal alternative minimum tax, and state and local taxes. This hypothetical scenario is provided for illustrative purposes only and does not represent the results obtained by any particular shareholder. Past performance does not guarantee future results. FEDERATED MUNICIPAL SECURITIES FUND, INC. CLASS A SHARES GROWTH OF $10,000 INVESTED IN FEDERATED MUNICIPAL SECURITIES FUND, INC. (CLASS A SHARES) The graph below illustrates the hypothetical investment of $10,000* in Federated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") from March 31, 1988, to March 31, 1998, compared to the Lehman Brothers Revenue Bond Index (LBRBI), the Lehman Brothers Municipal Bond Index (LBMBI), and the Lipper General Municipal Funds Average (LGMFA).+ [Graphic representation "A4" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). The Fund's performance assumes the reinvestment of all dividends and distributions. The LBRBI, LBMBI, and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the indices and the average. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The LBRBI and LBMBI are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. These indices are unmanaged. The Investment Adviser has elected to change the benchmark of the Fund from the LBRBI to the LBMBI. The LBMBI more accurately reflects the composition of the Fund's portfolio. The LGMFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the category. FEDERATED MUNICIPAL SECURITIES FUND, INC. CLASS B SHARES GROWTH OF $10,000 INVESTED IN FEDERATED MUNICIPAL SECURITIES FUND, INC. (CLASS B SHARES) The graph below illustrates the hypothetical investment of $10,000* in Federated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") from July 26, 1994 (start of performance) to March 31, 1998, compared to the Lehman Brothers Revenue Bond Index (LBRBI), the Lehman Brothers Municipal Bond Index (LBMBI), and the Lipper General Municipal Funds Average (LGMFA).+ [Graphic representation "A5" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 3.00% contingent deferred sales charge on any redemption less than four years from the purchase date. The maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The LBRBI, LBMBI, and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the indices and the average. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The LBRBI and LBMBI are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. These indices are unmanaged. The Investment Adviser has elected to change the benchmark of the Fund from the LBRBI to the LBMBI. The LBMBI more accurately reflects the composition of the Fund's portfolio. The LGMFA represents the average of the total returns designated by Lipper Analytical Services, Inc. as falling into the category. FEDERATED MUNICIPAL SECURITIES FUND, INC. CLASS C SHARES GROWTH OF $10,000 INVESTED IN FEDERATED MUNICIPAL SECURITIES FUND, INC. (CLASS C SHARES) The graph below illustrates the hypothetical investment of $10,000* in Federated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") from April 21, 1993 (start of performance) to March 31, 1998, compared to the Lehman Brothers Revenue Bond Index (LBRBI), the Lehman Brothers Municipal Bond Index (LBMBI), and the Lipper General Municipal Funds Average (LGMFA).+ [Graphic representation "A6" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 1.00% contingent deferred sales charge on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The LBRBI, LBMBI, and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the indices and the average. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The LBRBI and LBMBI are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. The indices are unmanaged. The Investment Adviser has elected to change the benchmark of the Fund from the LBRBI to the LBMBI. The LBMBI more accurately reflects the composition of the Fund's portfolio. The LGMFA represents the average of the total returns designated by Lipper Analytical Services., Inc. as falling into the category. FEDERATED MUNICIPAL SECURITIES FUND, INC. PORTFOLIO OF INVESTMENTS MARCH 31, 1998
PRINCIPAL CREDIT AMOUNT RATING* VALUE SHORT-TERM MUNICIPALS--0.7% NORTH CAROLINA--0.1% $ 800,000 Person County, NC Industrial Facilities & Pollution Control Financing Authority Daily VRDNs (Carolina Power & Light Co.) NR $ 800,000 PENNSYLVANIA--0.2% 1,000,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial Hospital)/(FSA INS)/ (PNC Bank, N.A. LIQ) AAA 1,000,000 TEXAS--0.4% 2,800,000 Harris County, TX HFDC, Hospital Revenue Bonds (Series 1997) Daily VRDNs (Methodist Hospital, Harris County, TX) A-1+ 2,800,000 TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 4,600,000 LONG-TERM MUNICIPALS--103.4% ALABAMA--3.2% 10,000,000 Alabama State Docks Department, Docks Facilities Refunding Revenue Bonds, 5.50% (MBIA INS)/ (Original Issue Yield: 5.75%), 10/1/2022 AAA 10,173,600 2,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue Bonds (Series A), 6.50% (Champion International Corp.)/(Original Issue Yield: 6.654%), 9/1/2025 BBB 2,188,140 3,620,000 Jefferson County, AL, Sewer Revenue Refunding Warrants (Series 1997-A), 5.625% (FGIC INS)/(Original Issue Yield: 5.68%), 2/1/2018 AAA 3,781,995 6,260,000 Jefferson County, AL, Sewer Revenue Warrants (Series 1997D), 5.70% (FGIC INS)/(Original Issue Yield: 5.73, 2/1/2018%) AAA 6,582,327 Total 22,726,062 CALIFORNIA--10.7% 1,000,000 Anaheim, CA Public Financing Authority, Lease Revenue Bonds (Series 1997C), 6.00% (Anaheim Public Improvements Project)/(FSA INS), 9/1/2011 AAA 1,134,120
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED CALIFORNIA--CONTINUED $ 1,600,000 Anaheim, CA Public Financing Authority, Lease Revenue Bonds (Series 1997C), 6.00% (Anaheim Public Improvements Project)/(FSA INS), 9/1/2016 AAA $ 1,807,648 9,400,000 California PCFA, Refunding Revenue Bonds (Series A), 5.90% (San Diego Gas & Electric)/(Original Issue Yield: 5.934%), 6/1/2014 A 10,407,116 5,000,000 California State, Refunding UT GO Bonds, 5.00% (Original Issue Yield: 5.06%), 2/1/2021 A+ 4,873,400 14,600,000 California Statewide Communities Development Authority, Special Facilities Revenue Bonds, 5.625% (United Air Lines)/(Original Issue Yield: 5.75%), 10/1/2034 BB+ 14,803,670 19,000,000 Long Beach California Harbor, Revenue Bonds, 5.375% (MBIA INS)/(Original Issue Yield: 5.75%), 5/15/2020 AAA 19,059,850 1,820,000 Los Angeles County, CA Unified School District, UT GO Bonds (Series A), 6.00% (FGIC INS), 7/1/2011 AAA 2,061,823 9,105,000 Sacramento, CA Municipal Utility District, Electric Revenue Bonds (Series 1997K), 5.70% (AMBAC INS), 7/1/2017 AAA 9,933,646 8,000,000 Sacramento, CA Municipal Utility District, Revenue Refunding Bonds, Series L, 5.20% (MBIA INS)/ (Original Issue Yield: 5.35%), 7/1/2017 AAA 8,068,560 3,000,000 Santa Clara County, CA Financing Authority, Refunding Lease Revenue Bonds (Series A), 5.00% (AMBAC INS)/ (Original Issue Yield: 5.42%), 11/15/2022 AAA 2,921,100 Total 75,070,933 COLORADO--0.6% 4,795,000 Highlands Ranch Metropolitan District No. 3, CO, UT GO Refunding Bonds, Series B, 5.25% (American Capital Access INS)/(Original Issue Yield: 5.375%), 12/1/2018 A 4,764,744 DISTRICT OF COLUMBIA--7.0% 12,775,000 District of Columbia Hospital Authority, Revenue Refunding Bonds (Series A), 7.125% (Medlantic Healthcare Group)/(Original Issue Yield: 7.30%), 8/15/2019 BBB+ 14,408,028
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED DISTRICT OF COLUMBIA--CONTINUED $ 2,000,000 District of Columbia Hospital Authority, Revenue Refunding Bonds (Series B), 7.00% (Medlantic Healthcare Group)/(Original Issue Yield: 7.282%), 8/15/2015 BBB+ $ 2,245,800 22,250,000 District of Columbia, Revenue Bonds (Series B), 7.15% (Georgetown University)/(Original Issue Yield: 7.191%), 4/1/2021 A+ 23,315,330 4,000,000 District of Columbia, Revenue Bonds, 5.625% (American University)/(AMBAC INS)/(Original Issue Yield: 5.90%), 10/1/2026 AAA 4,169,120 4,765,000 Georgetown University, 8.25%, 4/1/1998 (@102) A+ 4,860,300 Total 48,998,578 FLORIDA--2.6% 4,335,000 Florida State Board of Education Administration, UT GO Capital Outlay Bonds, 9.125% (Florida State)/ (Original Issue Yield: 9.173%), 6/1/2014 AA+ 6,209,757 665,000 Florida State Board of Education Administration, UT GO Capital Outlay Bonds, 9.125% (Florida State)/ (United States Treasury COL)/(Original Issue Yield: 9.173%), 6/1/2014 AAA 946,189 6,635,000 Florida State Department of Transportation, Right of Way Acquisition & Bridge Construction Bonds (Series 1997A), 5.00% (Original Issue Yield: 5.10%), 7/1/2014 AA+ 6,639,777 3,000,000 Florida State, UT GO Bonds, Broward County Expressway Authority, 10.00% (Original Issue Yield: 10.105%), AA+ 4,597,050 7/1/2014 Total 18,392,773 HAWAII--1.1% 5,000,000 Hawaii State Department of Budget & Finance, Residual Interest Tax-Exempt Securities (Series PA-343), 6.00% (Hawaiian Electric Company, Inc.), 4/1/2012 NR 5,106,250 700,000 Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds, 5.35% (G.N. Wilcox Memorial Hospital)/(Original Issue Yield: 5.45%), 7/1/2018 BBB+ 694,806
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED HAWAII--CONTINUED $ 1,750,000 Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds, 5.50% (G.N. Wilcox Memorial Hospital), 7/1/2028 BBB+ $ 1,756,038 Total 7,557,094 ILLINOIS--5.6% 2,080,000 Chicago, IL, GO Library Bonds (Series 1997), 5.25% (FGIC INS)/(Original Issue Yield: 5.55%), 1/1/2012 AAA 2,136,784 5,380,000 Cook County, IL, Refunding GO Bonds (Series 1997A), 6.25% (MBIA INS), 11/15/2010 AAA 6,191,788 8,295,000 Cook County, IL, Refunding GO Bonds (Series 1997A), 6.25% (MBIA INS), 11/15/2013 AAA 9,576,080 5,000,000 Illinois Development Finance Authority, Housing Revenue Bonds, 6.10% (Catholic Charities Housing Development Corp.),1/1/2020 NR 5,100,450 11,340,000 Illinois Health Facilities Authority, Hospital Revenue Bonds (Series A), 9.25% (Edgewater Hospital & Medical Center, IL), 7/1/2024 NR 13,576,475 1,000,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1997A), 6.00% (Loyola University Health System)/(MBIA INS), 7/1/2012 AAA 1,116,150 1,000,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1997A), 6.00% (Loyola University Health System)/(MBIA INS), 7/1/2013 AAA 1,115,960 Total 38,813,687 INDIANA--5.9% 6,200,000 Indiana Health Facility Financing Authority, Hospital Revenue Bonds, 6.625% (Floyd Memorial Hospital, IN)/ (Original Issue Yield: 6.902%), 2/15/2022 A 6,833,826 2,000,000 Indiana Health Facility Financing Authority, Hospital Revenue Refunding Bonds, 5.25% (Floyd Memorial Hospital, IN)/(Original Issue Yield: 5.50%), A 1,946,800 2/15/2022
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED INDIANA--CONTINUED $ 19,000,000 Indianapolis, IN Airport Authority, Special Facilities Revenue Bonds, 7.10% (FDX Corp.)/ (Original Issue Yield: 7.178%), 1/15/2017 BBB $ 21,406,920 10,000,000 Kokomo, IN Hospital Authority, Revenue Refunding Bonds, 6.35% (St. Joseph Hospital, IN)/(Original Issue Yield: 6.40%), 8/15/2005 (@100) Baa2 11,212,400 Total 41,399,946 IOWA--1.3% 9,500,000 Iowa Finance Authority, Hospital Facilities Revenue Bonds (Series 1998A), 5.125% (Iowa Health System)/(MBIA INS)/(Original Issue Yield: 5.36%), 7/1/2020 NR 9,223,075 LOUISIANA--3.1% 6,000,000 De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds, 7.70% (International Paper Co.), 11/1/2018 A- 7,083,240 3,550,000 St. Charles Parish, LA, Solid Waste Disposal Revenue Bonds (Series A), 7.00% (Louisiana Power & Light Co.)/(Original Issue Yield: 7.04%), 12/1/2022 BBB 3,880,150 10,000,000 St. James Parish, LA, Solid Waste Disposal Revenue Bonds, 7.70% (Freeport McMoRan, Inc.)/ (Original Issue Yield: 7.75%), 10/1/2022 NR 10,896,500 Total 21,859,890 MARYLAND--1.9% 12,220,000 Maryland State Community Development Administration, SFM Revenue Bonds (5th Series), 6.75%, 4/1/2026 Aa 13,122,691 MASSACHUSETTS--4.5% 10,000,000 Commonwealth of Massachusetts, UT GO Bonds (Series 1997C), 5.00% (Original Issue Yield: AA- 9,817,000 5.30%), 8/1/2017 33,800,000 (a)Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series A), 9.00% (Massachusetts Recycling Association), 8/1/2016 NR 13,182,000
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED MASSACHUSETTS--CONTINUED $ 2,200,000 Massachusetts State HFA, Rental Housing Mortgage Revenue Bonds, 1995 Series E, 5.90% (AMBAC INS), 7/1/2025 AAA $ 2,277,264 6,000,000 Nantucket, MA, UT GO Bonds, 5.00% (MBIA INS)/ (Original Issue Yield: 5.28%), 7/15/2017 Aaa 5,904,720 Total 31,180,984 MICHIGAN--0.3% 1,250,000 Flint, MI Hospital Building Authority, Rental Revenue Bonds (Series 1998B), 5.375% (Hurley Medical Center)/ (Original Issue Yield: 5.53%), 7/1/2028 Baa1 1,225,175 1,000,000 Flint, MI Hospital Building Authority, Revenue Rental Bonds (Series 1998B), 5.375% (Hurley Medical Center)/(Original Issue Yield: 5.48%), 7/1/2018 Baa1 989,570 Total 2,214,745 MINNESOTA--3.4% 8,000,000 St. Paul, MN Housing & Redevelopment Authority, Hospital Revenue Refunding Bonds ( Series A), 6.625% (Healtheast, MN)/(Original Issue Yield: 6.687%), BBB 8,613,440 11/1/2017 1,000,000 St. Paul, MN Housing & Redevelopment Authority, Revenue Bonds (Series 1997A), 5.70% (Healtheast, MN)/ (Original Issue Yield: 5.756%), 11/1/2015 BBB 1,022,510 12,000,000 VRDC/IVRC Trust, GO Inverse Variable Rate Certificates, 7.223% (Regents of University of Minnesota), 5/18/2012 AA 14,145,000 Total 23,780,950 MISSISSIPPI--1.4% 9,875,000 Mississippi State, UT GO Bonds (Series A), 5.125% (Original Issue Yield: 5.35%), 7/1/2015 AA 9,928,424 MISSOURI--1.5% 8,010,000 Kansas City, MO, UT GO Bonds, Series B, 5.125% (Original Issue Yield: 5.25%), 2/1/2017 AA 8,019,292
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED MISSOURI--CONTINUED $ 2,000,000 Missouri State Housing Development Commission, Single Family Mortgage Revenue Bonds (Series 1997C-1), 6.55% (GNMA Collateralized Home Mortgage Program COL), 9/1/2028 AAA $ 2,204,100 Total 10,223,392 NEW HAMPSHIRE--0.4% 2,500,000 New Hampshire Higher Educational & Health Facilities Authority, Revenue Bonds (Series 1998), 5.30% (Franklin Pierce College)/(American Capital Access INS)/(Original Issue Yield: 5.48%), 10/1/2028 A 2,470,200 NEW MEXICO--0.8% 5,000,000 Farmington, NM, PCR Refunding Bonds (Series A), 7.20% (Southern California Edison Co.)/(Original Issue Yield: 7.30%), 4/1/2021 A+ 5,439,300 NEW YORK--16.6% 13,000,000 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds (Series Q), 5.125% (AMBAC INS)/(Original Issue Yield: 5.27%), 7/1/2013 AAA 13,095,160 3,000,000 Municipal Assistance Corp. of New York, Revenue Bonds (Series 67), 7.625% (United States Treasury PRF)/(Original Issue Yield: 7.698%), 7/1/1999 (@102) Aa2 3,199,410 22,400,000 New York City Municipal Water Finance Authority, Water & Sewer System Revenue Bonds (Series B), 5.25% (Original Issue Yield: 5.53%), 6/15/2029 A- 22,262,016 4,600,000 New York City, NY IDA, Industrial Development Revenue Bonds (Series 1997), 5.75% (Brooklyn Navy Yard Cogeneration Partners, L.P. Project)/(Original Issue Yield: 5.81%), 10/1/2036 BBB- 4,715,506 7,500,000 New York City, NY, Residual Interest Tax-Exempt Securities (Series PA-147), 6.24912%, 8/1/2007 NR 8,400,000 5,000,000 New York City, NY, UT GO Bonds (Series 1998G), 5.00% (Original Issue Yield: 5.25%), 8/1/2018 BBB+ 4,820,350
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED NEW YORK--CONTINUED $ 17,800,000 New York State Dormitory Authority, Revenue Bonds (Series B), 5.375% (New York State Department of Mental Hygiene)/(Original Issue Yield: 5.97%), 2/15/2026 A- $ 17,805,518 13,925,000 New York State Dormitory Authority, Revenue Bonds, 5.125% (State University of New York)/(Original Issue Yield: 5.54%), 5/15/2021 A- 13,656,108 5,050,000 New York State Local Government Assistance Corp., Residual Interest Tax-Exempt Securities (Series PA-207), 7.70959% (AMBAC INS), 4/1/2008 NR 6,255,688 6,025,000 New York State Local Government Assistance Corp., Residual Interest Tax-Exempt Securities (Series PA-207A), 7.70959% (AMBAC INS), 4/1/2007 NR 7,403,219 2,000,000 New York State Mortgage Agency, Mortgage Revenue Bonds (Series 30-B), 6.65% (FHA GTD), 10/1/2025 Aaa 2,135,560 4,000,000 New York State Thruway Authority, Service Contract Revenue Bonds, 5.25% (Original Issue Yield: 5.52%), BBB+ 3,995,720 4/1/2014 7,000,000 Port Authority of New York and New Jersey, Special Project Bonds (Series 6), 6.00% (JFK International Air Terminal LLC)/(MBIA INS), 12/1/2007 AAA 7,760,200 Total 115,504,455 NORTH CAROLINA--1.4% 9,000,000 Martin County, NC IFA, (Series 1995) Solid Waste Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.), 11/1/2025 A 9,530,550 OHIO--0.2% 1,000,000 Franklin County, OH Hospital Facility Authority, Hospital Revenue Refunding & Improvement Bonds, 7.25% (Riverside United Methodist Hospital)/(MBIA INS)/ (Original Issue Yield: 7.29%), 5/15/2020 AAA 1,085,130 OKLAHOMA--1.2% 7,500,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60% (American Airlines)/(Original Issue Yield: 7.931%), 12/1/2030 BBB- 8,279,325
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED PENNSYLVANIA--8.5% $ 2,310,000 Allegheny County, PA HDA, Refunding Revenue Bonds (Series 1998A), 5.125% (South Hills Health System)/(Original Issue Yield: 5.34%), 5/1/2023 A2 $ 2,247,907 2,000,000 Allegheny County, PA HDA, Refunding Revenue Bonds (Series 1998A), 5.125% (South Hills Health System)/(Original Issue Yield: 5.40%), 5/1/2029 A2 1,923,320 2,210,000 Elizabeth Forward, PA School District, GO UT Bonds, 6.75% accrual (MBIA INS)/(Original Issue Yield: 6.75%), 9/1/2018 AAA 763,356 2,210,000 Elizabeth Forward, PA School District, GO UT, 6.75% accrual (MBIA INS)/(Original Issue Yield: 6.75%), 9/1/2019 AAA 721,609 1,300,000 Latrobe, PA Industrial Development Authority, College Revenue Bonds, 6.75% (St. Vincent College, PA)/(Original Issue Yield: 7.00%), 5/1/2024 Baa1 1,413,646 4,250,000 Pennsylvania EDFA, Revenue Bonds, 7.60% (Macmillan Bloedel LTD Partnership)/(Original Issue Yield: 7.65%), 12/1/2020 BBB- 4,772,708 8,000,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds (Series 39B), 6.875%, 10/1/2024 AA+ 8,654,160 4,000,000 Pennsylvania State Higher Education Facilities Authority, Hospital Revenue Bonds (Series A), 7.25% (Allegheny General Hospital)/(Original Issue Yield: 7.40%), 9/1/2017 A 4,413,280 12,865,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series A), 7.375% (Medical College of Pennsylvania)/(United States Treasury PRF)/ (Original Issue Yield: 7.45%), 3/1/2021 AAA 14,249,531 15,000,000 Philadelphia, PA School District, UT GO (Series B), 5.50% (AMBAC INS)/(Original Issue Yield: 5.95%), 9/1/2025 AAA 15,443,550 2,000,000 Sayre, PA, Health Care Facilities Authority, Revenue Bonds (Series A), 7.10% (Guthrie Healthcare System, PA)/(AMBAC INS)/(Original Issue Yield: 7.175%), 3/1/2017 AAA 2,173,960
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED PENNSYLVANIA--CONTINUED $ 2,000,000 York County, PA Solid Waste & Refuse Authority, Solid Waste System Refunding Revenue Bonds, 5.50% (FGIC INS), 12/1/2013 AAA $ 2,143,660 Total 58,920,687 PUERTO RICO--0.7% 2,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securites (Series PA 331A), 6.6274% (AMBAC INS), 7/1/2013 NR 2,295,000 2,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securities (Series PA 331B), 6.6274% (AMBAC INS), 7/1/2014 NR 2,287,500 Total 4,582,500 TENNESSEE--2.2% 13,000,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue Bonds, 8.50% (NorthCrest Medical Center)/(Original Issue Yield: 8.875%), 4/1/2024 NR 15,162,420 TEXAS--9.9% 4,000,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 BBB+ 4,407,760 12,750,000 Dallas-Fort Worth, TX International Airport Facilities, Revenue Bonds, 7.25% (American Airlines)/ (Original Issue Yield: 7.428%), 11/1/2030 BBB- 14,282,040 10,000,000 Fort Worth, TX Higher Education Finance Corp., Revenue Bonds, 5.00% (Texas Christian University)/ (Original Issue Yield: 5.287%), 3/15/2027 AA- 9,658,600 2,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds (Series A), 6.875% (Champion International Corp.)/(Original Issue Yield: 7.15%), 12/1/2028 BBB 2,218,040 2,200,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series 1997A, 6.00% (Memorial Hospital System)/(MBIA LOC), 6/1/2011 AAA 2,472,492
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED TEXAS--CONTINUED $ 4,000,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series 1997A, 6.00% (Memorial Hospital System)/(MBIA LOC), 6/1/2012 AAA $ 4,489,000 3,700,000 Red River Authority, TX, PCR Bonds, 6.875% (Hoechst Celanese Corp.)/(Original Issue Yield: 6.939%), A+ 4,047,541 4/1/2017 6,610,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement Bonds, 6.50% (Richardson Medical Center, TX)/(Original Issue Yield: 6.72%), 12/1/2012 BBB- 7,115,202 1,000,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement Bonds, 6.75% (Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 BBB- 1,088,550 12,450,000 San Antonio, TX Electric & Gas, Revenue Refunding Bonds, 5.00% (Original Issue Yield: 6.10%), 2/1/2017 AA 12,225,651 5,000,000 Tarrant County, TX Health Facilities Development Corp., System Revenue Bonds (Series 1997A), 5.75% (Texas Health Resources System)/(MBIA INS), 2/15/2015 AAA 5,447,600 1,500,000 Texas State, UT GO Veterans Housing Assistance, 7.00%, 12/1/2025 AA 1,622,145 Total 69,074,621 UTAH--2.5% 13,500,000 Salt Lake City, UT Hospital Authority, Hospital Revenue Refunding Bonds (Series A), 8.125% (IHC Hospitals Inc., UT)/(United States Treasury COL)/ (Original Issue Yield: 8.17%), 5/15/2015 AAA 17,486,280 WASHINGTON--1.9% 10,000,000 Washington State Public Power Supply System, (Nuclear Project No. 2) Refunding Revenue Bonds (Series 1998A), 5.00% (Original Issue Yield: 5.18%), 7/1/2012 AA- 9,854,000 3,250,000 Washington State, UT GO Bonds (Series 1997A), 5.00% (Original Issue Yield: 5.20%), 1/1/2016 AA+ 3,212,073 Total 13,066,073
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PRINCIPAL CREDIT AMOUNT RATING* VALUE LONG-TERM MUNICIPALS--CONTINUED WEST VIRGINIA--1.6% $ 1,368,351 Marion County, WV County Commission, Refunding Revenue Bonds, 10.00% (Adirondack Recycling), NR $ 1,320,458 12/1/2025 9,790,831 Marion County, WV County Commission, Refunding Revenue Bonds, 8.00% (Adirondack Recycling), NR 9,497,106 12/1/2025 Total 10,817,564 WYOMING--1.4% 8,460,000 Sweetwater County, WY IDA, Solid Waste Disposal Revenue Bonds (Series A), 7.00% (FMC Corp.), 6/1/2024 BBB- 9,472,408 TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST 720,149,481 $689,744,458) TOTAL INVESTMENTS (IDENTIFIED COST $ 724,749,481 $694,344,458)(B)
(a) Non-income producing security. (b) The cost of investments for federal tax purposes amounts to $694,344,458. The net unrealized appreciation of investments on a federal tax basis amounts to $30,405,023 which is comprised of $51,732,387 appreciation and $21,327,364 depreciation at March 31, 1998. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. Note: The categories of investments are shown as a percentage of net assets ($696,230,076) at March 31, 1998. FEDERATED MUNICIPAL SECURITIES FUND, INC. The following acronyms are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation COL --Collateralized EDFA --Economic Development Financing Authority FGIC --Financial Guaranty Insurance Company FHA --Federal Housing Administration FSA --Financial Security Assurance GNMA --Government National Mortgage Association GO --General Obligation GTD --Guaranty HDA --Hospital Development Authority HFA --Housing Finance Authority HFDC --Health Facility Development Corporation IDA --Industrial Development Authority IDB --Industrial Development Bond IFA --Industrial Finance Authority INS --Insured LIQ --Liquidity Agreement LLC --Limited Liability Corporation LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PCR --Pollution Control Revenue PCFA --Pollution Control Finance Authority PRF --Prerefunded SFM --Single Family Mortgage UT --Unlimited Tax VRDNs --Variable Rate Demand Notes MASSACHUSETTS IFA, SOLID WASTE DISPOSAL SR. LIEN REVENUE BONDS (SERIES A), 9.00% (MASSACHUSETTS RECYCLING ASSOCIATION) There are $173 million face amount of these Senior Lien Revenue Bonds currently outstanding. On August 12, 1997, the obligor filed a petition for relief under Chapter 11 of the Federal Bankruptcy Code. Pursuant to a Bankruptcy Court approved settlement, on October 24, 1997, a new owner acquired the facility subject to a portion of the Senior Lien Revenue Bonds. The new owner then entered into a fifteen-year lease guaranteed by the company that built the facility and pledged the lease and guarantee as additional collateral for the Senior Lien Revenue Bonds. The settlement also anticipates that the Senior Lien Revenue Bonds may be replaced with refunding bonds in the face amount of $56.3 million by July 31, 1998. The Senior Lien Revenue Bonds will not produce any income until exchanged for such refunding bonds. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1998 ASSETS: Total investments in securities, at value (identified and tax cost $724,749,481 $694,344,458) Income receivable 12,783,809 Receivable for shares sold 442,745 Total assets 737,976,035 LIABILITIES: Payable for investments purchased $ 39,478,519 Payable for shares redeemed 617,899 Income distribution payable 998,492 Payable to Bank 342,100 Accrued expenses 308,949 Total liabilities 41,745,959 NET ASSETS for 63,838,317 shares outstanding $696,230,076 NET ASSETS CONSIST OF: Paid in capital $672,001,933 Net unrealized appreciation of investments 30,405,023 Accumulated net realized loss on investments (2,325,516) Distributions in excess of net investment income (3,851,364) Total Net Assets $696,230,076 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: CLASS A SHARES: Net Asset Value Per Share ($591,310,325 / 54,217,940 shares outstanding) $10.91 Offering Price Per Share (100/95.50 of $10.91)* $11.42 Redemption Proceeds Per Share $10.91 CLASS B SHARES: Net Asset Value Per Share ($87,304,060 / 8,005,162 shares outstanding) $10.91 Offering Price Per Share $10.91 Redemption Proceeds Per Share (94.50/100 of $10.91)* $10.31 CLASS C SHARES: Net Asset Value Per Share ($17,615,691 / 1,615,215 shares outstanding) $10.91 Offering Price Per Share $10.91 Redemption Proceeds Per Share (99.00/100 of $10.91)* $10.80
* See "Investing in the Fund" in the Prospectus. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1998 INVESTMENT INCOME: Interest $ 39,150,357 EXPENSES: Investment advisory fee $3,872,458 Administrative personnel and services fee 530,941 Custodian fees 47,465 Transfer and dividend disbursing agent fees and 542,534 expenses Directors'/Trustees' fees 17,767 Auditing fees 19,178 Legal fees 10,718 Portfolio accounting fees 150,902 Distribution services fee--Class B Shares 638,542 Distribution services fee--Class C Shares 139,644 Shareholder services fee--Class A Shares 1,499,514 Shareholder services fee--Class B Shares 212,847 Shareholder services fee--Class C Shares 46,548 Share registration costs 48,626 Printing and postage 42,683 Insurance premiums 5,467 Taxes 6,943 Miscellaneous 13,198 Total expenses 7,845,975 Waivers-- Waiver of shareholder services fee--Class A Shares $(839,728) Waiver of shareholder services fee--Class C Shares (1,862) Total waivers (841,590) Net expenses 7,004,385 Net investment income 32,145,972 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (664,845) Net change in unrealized appreciation of investments 42,415,663 Net realized and unrealized gain on investments 41,750,818 Change in net assets resulting from operations $ 73,896,790
(See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31, 1998 1997 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS-- Net investment income $ 32,145,972 $ 38,070,897 Net realized gain (loss) on investments ($3,273,099 net gain and $439,197 net loss, respectively, as computed for federal tax purposes) (664,845) (30,587) Net change in unrealized appreciation/depreciation 42,415,663 (25,442,823) Change in net assets resulting from operations 73,896,790 12,597,487 DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income Class A Shares (28,187,919) (33,864,603) Class B Shares (3,245,800) (3,157,991) Class C Shares (712,253) (1,067,075) Distributions in excess of net investment income Class A Shares (446,648) (2,893,224) Class B Shares (66,543) (332,555) Class C Shares (12,628) (99,766) Distributions from net realized gains Class A Shares (1,381,790) (5,887,308) Class B Shares (204,140) (554,488) Class C Shares (39,946) (229,139) Change in net assets resulting from distributions to (34,297,667) (48,086,149) shareholders SHARE TRANSACTIONS-- Proceeds from sale of shares 129,961,665 161,534,404 Net asset value of shares issued to shareholders in payment of 21,687,238 30,227,698 distributions declared Cost of shares redeemed (188,612,798) (210,426,834) Change in net assets resulting from share transactions (36,963,895) (18,664,732) Change in net assets 2,635,228 (54,153,394) NET ASSETS: Beginning of period 693,594,848 747,748,242 End of period $ 696,230,076 $ 693,594,848
(See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. FINANCIAL HIGHLIGHTS--CLASS A SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31, 1998 1997 1996 1995 1994 NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.20 $11.62 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.46 0.55 0.66 0.67 0.66 Net realized and unrealized gain (loss) on investments 0.64 (0.36) (0.09) (0.05) (0.40) Total from investment operations 1.10 0.19 0.57 0.62 0.26 LESS DISTRIBUTIONS Distributions from net investment income (0.46) (0.55) (0.66) (0.67) (0.66) Distributions in excess of net investment (0.01) (0.05) -- -- -- income(a) Total distributions from net investment (0.47) (0.60) (0.66) (0.67) (0.66) income Distributions from net realized gain on (0.03) (0.10) (0.01) (0.23) (0.02) investments Total distributions (0.50) (0.70) (0.67) (0.90) (0.68) NET ASSET VALUE, END OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20 TOTAL RETURN(B) 11.28% 1.84% 5.32% 5.90% 2.10% RATIOS TO AVERAGE NET ASSETS Expenses 0.86% 0.93% 0.98% 0.92% 0.84% Net investment income 4.70% 5.37% 5.97% 6.17% 5.59% Expense waiver/reimbursement(c) 0.14% 0.14% 0.13% -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $591,310 $595,515 $663,538 $708,712 $714,384 Portfolio turnover 64% 33% 29% 41% 27%
(a)Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. (b) Based on net asset value, which does not reflect the sales charge 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. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. FINANCIAL HIGHLIGHTS--CLASS B SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31, 1998 1997 1996 1995(A) NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.06 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.38 0.47 0.56 0.40 Net realized and unrealized gain (loss) on 0.64 (0.37) (0.09) (0.03) investments Total from investment operations 1.02 0.10 0.47 0.37 LESS DISTRIBUTIONS Distributions from net investment income (0.38) (0.47) (0.56) (0.40) Distributions in excess of net investment (0.01) (0.04) -- -- income(b) Total distributions from net investment income (0.39) (0.51) (0.56) (0.40) Distributions from net realized gain on (0.03) (0.10) (0.01) (0.11) investments Total distributions (0.42) (0.61) (0.57) (0.51) NET ASSET VALUE, END OF PERIOD $10.91 $10.31 $10.82 $10.92 TOTAL RETURN(C) 10.30% 0.94% 4.40% 3.49% RATIOS TO AVERAGE NET ASSETS Expenses 1.75% 1.82% 1.86% 1.84%* Net investment income 3.81% 4.50% 5.23% 5.94%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $87,304 $77,536 $58,296 $18,201 Portfolio turnover 64% 33% 29% 41%
* Computed on an annualized basis. (a) Reflects operations for the period from July 26, 1994 (date of initial public offering) to March 31, 1995. (b) Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. (c) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. FINANCIAL HIGHLIGHTS--CLASS C SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31, 1998 1997 1996 1995 1994(A) NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.20 $11.70 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.37 0.46 0.56 0.58 0.52 Net realized and unrealized gain (loss) on investments 0.65 (0.36) (0.09) (0.05) (0.48) Total from investment operations 1.02 0.10 0.47 0.53 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.37) (0.46) (0.56) (0.58) (0.52) Distributions in excess of net investment income(b) (0.02) (0.05) -- -- -- Total distributions from net investment income (0.39) (0.51) (0.56) (0.58) (0.52) Distributions from net realized gain on investments (0.03) (0.10) (0.01) (0.23) (0.02) Total distributions (0.42) (0.61) (0.57) (0.81) (0.54) NET ASSET VALUE, END OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20 TOTAL RETURN(C) 10.31% 0.95% 4.42% 4.96% 0.17% RATIOS TO AVERAGE NET ASSETS Expenses 1.74% 1.81% 1.82% 1.81% 1.80%* Net investment income 3.83% 4.51% 5.16% 5.28% 4.70%* Expense waiver/reimbursement(d) 0.01% 0.01% 0.04% -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $17,616 $20,544 $25,914 $22,389 $22,066 Portfolio turnover 64% 33% 29% 41% 27%
* Computed on an annualized basis. (a) Reflects operations for the period from April 21, 1993 (date of initial (b) Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. (c) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) FEDERATED MUNICIPAL SECURITIES FUND, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund offers three classes of shares: Class A Shares, Class B Shares, and Class C Shares. 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. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS --Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue, and any other factors or market data the pricing service deems relevant. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS --Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. FEDERAL TAXES --It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. Additionally, net capital losses of $5,489,729 attributable to security transactions incurred after October 31, 1997, are treated as arising on April 1, 1998, the first day of the Fund's next taxable year. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS --The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. USE OF ESTIMATES --The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses, and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER --Investment transactions are accounted for on the trade date. 3. CAPITAL STOCK At March 31, 1998, par value shares ($0.01 per share) authorized were as follows: PERCENTAGE OF PAR VALUE SHARE CLASS NAME CAPITAL STOCK AUTHORIZED Class A Shares 375,000,000 Class B Shares 250,000,000 Class C Shares 375,000,000 Total shares authorized 1,000,000,000 Transactions in capital stock were as follows:
YEAR ENDED MARCH 31, 1998 1997 CLASS A SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 9,670,305 $ 103,414,194 11,574,693 $ 121,849,621 Shares issued to shareholders in payment of distributions 1,807,665 19,419,915 2,586,707 27,181,535 declared Shares redeemed (15,033,250) (160,904,159) (17,732,936) (185,898,913) Net change resulting from Class A Share (3,555,280) $ (38,070,050) (3,571,536) $ (36,867,757) transactions YEAR ENDED MARCH 31, 1998 1997 CLASS B SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 2,304,892 $ 24,638,393 3,354,939 $ 35,239,171 Shares issued to shareholders in payment of distributions declared 162,455 1,793,068 203,345 2,136,903 Shares redeemed (1,983,725) (21,309,970) (1,426,287) (14,965,753) Net change resulting from Class B Share transactions 483,622 $ 5,121,491 2,131,997 $ 22,410,321 YEAR ENDED MARCH 31, 1998 1997 CLASS C SHARES SHARES AMOUNT SHARES AMOUNT Shares sold 176,581 $ 1,909,078 423,472 $ 4,445,612 Shares issued to shareholders in payment of distributions declared 44,200 474,255 86,450 909,260 Shares redeemed (598,603) (6,398,669) (912,686) (9,562,168) Net change resulting from Class C Share transactions (377,822) $ (4,015,336) (402,764) $ (4,207,296) Net change resulting from share transactions (3,449,480) $ (36,963,895) (1,842,303) $ (18,664,732)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE --Federated Advisers, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to (a) a maximum of 0.30% of the average daily net assets of the Fund, and (b) 4.50% of the gross income of the Fund, excluding capital gains or losses. ADMINISTRATIVE FEE --Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc. for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE --The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class B Shares and Class C Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC. PERCENTAGE OF AVERAGE SHARE CLASS NAME DAILY NET ASSETS Class B Shares 0.75% Class C Shares 0.75% FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE --Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of each class of shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES --FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC"), serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES --FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS --During the period ended March 31, 1998, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $147,111,000 and $178,809,433, respectively. GENERAL --Certain of the Officers and Directors of the Fund are Officers and Directors or Trustees of the above companies. 5. YEAR 2000 ISSUE Similar to other financial organizations, the Fund could be adversely affected if the computer systems used by the Fund's service providers do not properly process and calculate date-related information and data from and after January 1, 2000. The Fund's Adviser and administrator are taking measures that they believe are reasonably designed to address the Year 2000 issue with respect to computer systems that they use and to obtain reasonable assurances that comparable steps are being taken by each of the Fund's other service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any adverse impact to the Fund. 6. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended March 31, 1998, were as follows: PURCHASES $448,794,552 SALES $448,440,093 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of FEDERATED MUNICIPAL SECURITIES FUND, INC.: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Municipal Securities, Inc. as of March 31, 1998, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended March 31, 1998 and 1997, and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 1998, by correspondence with the custodian and brokers; where replies were not received, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Federated Municipal Securities, Inc. as of March 31, 1998, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania May 8, 1998 DIRECTORS John F. Donahue Thomas G. Bigley John T. Conroy, Jr. Nicholas P. Constantakis William J. Copeland J. Christopher Donahue James E. Dowd Lawrence D. Ellis, M.D. Edward L. Flaherty, Jr. Peter E. Madden John E. Murray, Jr. Wesley W. Posvar Marjorie P. Smuts OFFICERS John F. Donahue Chairman J. Christopher Donahue President Richard B. Fisher Vice President Edward C. Gonzales Executive Vice President John W. McGonigle Executive Vice President, Treasurer, and Secretary Nicholas J. Seitanakis Assistant Secretary Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the fund's prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information. [Graphic]Federated Investors Federated Securities Corp., Distributor Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA 15222-3779 1-800-341-7400 www.federatedinvestors.com Cusip 313913105 Cusip 313913204 Cusip 313913303 8042830 (5/98) [Graphic] A1. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 10/4/76 to 3/31/98. The "y" axis is measured in increments of $20,000 ranging from $0 to $100,000 and indicates that the ending value of hypothetical initial investment of $22,000 in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $82,786 on 3/31/98. A2. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 10/4/76 to 3/31/98. The "y" axis is measured in increments of $10,000 ranging from $0 to $60,000 and indicates that the ending value of hypothetical yearly investments of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $52,768 on 3/31/98. A3. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color-coded mountain chart is a visual representation of the narrative text beneath it. The "x" axis reflects computation periods from 3/31/88 to 3/31/98. The "y" axis is measured in increments of $10,000 ranging from $0 to $60,000 and indicates that the ending value of a hypothetical initial investment of $26,000 in the fund's Class A Shares would have grown to $51,413 on 3/31/98. A4. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class A Shares of Federated Municipal Securities Fund, Inc., based on a 4.50% sales charge are represented by a solid line. The Lehman Brothers Revenue Bond Index (the "LBRBI") is represented by a dotted line, the Lehman Brothers Municipal Bond Index (the "LBMBI") is represented by a dashed line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a broken line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class A Shares of the fund, the LBRBI, the LBMBI and the LGMFA. The "x" axis reflects computation periods from 3/31/88 to 3/31/98. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the fund's Class A Shares, based on a 4.50% sales charge, as compared to the LBRBI, the LBMBI and the LGMFA. The ending values were $19,763, $23,889, $22,282, and $21,504, respectively. The legend in the bottom quadrant of the graphic presentation indicates the fund's Class A Shares Average Annual Total Returns for the one-year, five-year and 10-year periods ended 3/31/98 and from the start of performance of the fund's Class A Shares (10/4/76) to 3/31/98. The total returns were 6.23%, 4.26%, 7.05%, and 6.36%, respectively. A5. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class B Shares of Federated Municipal Securities Fund, Inc., based on a 3.00% contingent deferred sales charge are represented by a solid line. The Lehman Brothers Revenue Bond Index (the "LBRBI") is represented by a dotted line, the Lehman Brothers Municipal Bond Index (the "LBMBI") is represented by a dashed line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a broken line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class B Shares of the fund, the LBRBI, the LBMBI and the LGMFA. The "x" axis reflects computation periods from 7/26/94 to 3/31/98. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the fund's Class B Shares, based on a 3.00% contingent deferred sales charge, as compared to the LBRBI, the LBMBI and the LGMFA. The ending values were $11,628, $13,795, $13,203, and $12,889, respectively. The legend in the bottom quadrant of the graphic presentation indicates the fund's Class B Shares Average Annual Total Returns for the one-year period ended 3/31/98 and from the start of performance of the fund's Class B Shares (7/26/94) to 3/31/98. The total returns were 4.55% and 4.27%, respectively. A6. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class C Shares of Federated Municipal Securities Fund, Inc., based on a 1.00% contingent deferred sales charge are represented by a solid line. The Lehman Brothers Revenue Bond Index (the "LBRBI") is represented by a dotted line, the Lehman Brothers Municipal Bond Index (the "LBMBI") is represented by a dashed line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a broken line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class C Shares of the fund, the LBRBI, the LBMBI and the LGMFA. The "x" axis reflects computation periods from 4/21/93 to 3/31/98. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the fund's Class C Shares, based on a 1.00% contingent deferred sales charge, as compared to the LBRBI, the LBMBI and the LGMFA. The ending values were $12,224, $14,090, $13,768, and $13,293, respectively. The legend in the bottom quadrant of the graphic presentation indicates the fund's Class C Shares Average Annual Total Returns for the one-year period ended 3/31/98 and from the start of performance of the fund's Class C Shares (4/21/93) to 3/31/98. The total returns were 9.30% and 4.15%, respectively. -----END PRIVACY-ENHANCED MESSAGE-----