-----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, MEagGWNKJjhQUuF9aZTDx/FkskCmZFUopImutaPHqu50hXE7QWCOFn61zbR5TmcB xgFXKEpxbDIJ+vx9pm1MQg== 0000201801-99-000004.txt : 19990624 0000201801-99-000004.hdr.sgml : 19990624 ACCESSION NUMBER: 0000201801-99-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990526 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: 99634718 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]Federated World-Class Investment Manager [Graphic] J. CHRISTOPHER DONAHUE President Federated Municipal Securities Fund, Inc. President's Message Dear Shareholder: Federated Municipal Securities Fund, Inc. was created in 1976, and I am pleased to present its 22nd Annual Report. As of March 31, 1999, the fund had total net assets of $668.5 million. Over 63% of the fund's assets were invested in municipal bonds rated AAA, AA or A by Standard & Poor's, with 22.1% invested in bonds rated BBB by Standard & Poor's, and 14.7% invested in non-rated bonds. The fund pursues tax-free income for its shareholders.1 This report covers the 12-month reporting period from April 1, 1998 through March 31, 1999. It begins with an interview with J. Scott Albrecht, Vice President, who co-manages the fund with Mary Jo Ochson, Senior Vice Presi dent, both of Federated Investment Management Company. Following their dis cussion covering the fund's performance and investment strategies are three additional items of shareholder interest. First is a series of graphs showing the fund's long-term investment performance. Second is a complete listing of the fund's municipal bond holdings, and third is the publication of the fund's financial statements. Federated Municipal Securities Fund, Inc. pursues monthly, tax-free income from a broadly diversified portfolio of long-term municipal bonds with an average quality rating of A+. On March 31, 1999, the fund's portfolio included 115 tax-free securities issued by municipalities across the United States. The fund produced a tax-free 30-day SEC yield of 4.19% on March 31, 1999 for Class A Shares, based on offering price.2 This translates into the equivalent of taxable yields of 6.07%, 6.55% and 6.94% for investors in the 31%, 36% and 39.6% federal tax brackets.3 1 Income may be subject to the federal alternative minimum tax, and state and local taxes. 2 The 30-day current SEC yield is calculated by dividing the investment income per share for the prior 30 days by the net asset value per share on that date. The SEC yields are compounded and annualized. The 30-day SEC yields on March 31, 1999 for Class B and C Shares were 3.50% and 3.51%, respectively, based on offering price (i.e., less any applicable sales charge). 3 The SEC yields and their taxable equivalents for investors in the 31%, 36%, and 39.6% federal tax brackets are: Class A Shares [6.07%, 6.55%, and 6.94%]; Class B Shares [5.07%, 5.47%, and 5.79%]; and Class C Shares [5.09%, 5.48%, and 5.81%]. Individual share class total return performance for the 12-month reporting period, including income distributions, follows.4
INCOME TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE Class A Shares 4.46% $0.52 $10.91 to $10.87 = (0.4%) Class B Shares 3.53% $0.42 $10.91 to $10.87 = (0.4%) Class C Shares 3.54% $0.42 $10.91 to $10.87 = (0.4%)
Thank you for selecting Federated Municipal Securities Fund, Inc. as a conve nient, diversified way to pursue tax-free income. Of course, you have the option of receiving income from the fund or building your account by rein vesting your monthly dividends and compounding tax-free. Sincerely yours, [Graphic] J. Christopher Donahue President May 15, 1999 4 Performance quoted is based on net asset value, reflects 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 (i.e., less any applicable sales charge), for Class A, B, and C Shares were (0.21%), (1.95%), and 2.55%, respectively. [Graphic] J. SCOTT ALBRECHT Vice President Federated Investment Management Company [Graphic] MARY JO OCHSON Senior Vice President Federated Investment Management Company Investment Review WHAT IS YOUR REVIEW OF THE MUNICIPAL BOND MARKETPLACE OVER THE 12-MONTH REPORTING PERIOD? Demand for municipal bonds was impacted by "rate shock" that individual investors experienced when long-term yields on municipal bonds were at or below the 5.00% threshold. Demand from institutional investors such as arbi trageurs, property & casualty insurers and corporations, was relatively mixed with some institutions actually being net sellers over the period. Municipal bond insurance continued to have a significant influence on the market. The prevalence of bond insurance, combined with a low nominal inter est rate environment, allowed credit spreads to remain historically tight. However, particular credit concerns have developed within specific sectors of the municipal market. The hospital sector has shown specific vulnerability as a result of the Medicare reimbursement reductions included in the last federal budget reconciliation bill. The electric utility sector and public power sector have also been vulnerable to credit deterioration as a result of the continuing effects of deregulation. HOW HAS FEDERATED MUNICIPAL SECURITIES FUND, INC. PERFORMED WITH RESPECT TO TOTAL RETURN AND INCOME DURING THE FISCAL YEAR ENDED MARCH 31, 1999, AND WHAT FACTORS IMPACTED THE FUND'S PERFORMANCE? For the 12-month reporting period ended March 31, 1999, the fund's Class A Shares produced a total return of 4.46%, based on net asset value.1 The Lip per General Municipal Funds Average produced a total return of 4.87% for the period.2 The fund underperformed the Lipper General Municipal Funds Average because, as interest rates rose over the reporting period, the portfolio duration was slightly longer than the target. The fund's current 30-day SEC yield on March 31, 1999, was 4.19% for Class A Shares, based on offering price.3 FEDERAL MUNICIPAL SECURITIES FUND, INC. IS A HIGH-QUALITY MUNICIPAL BOND FUND THAT HAD A WEIGHTED AVERAGE QUALITY OF A+ AT THE END OF THE REPORTING PERIOD. WHAT ROLE DOES CREDIT ANALYSIS PLAY IN MANAGING THE FUND? The fund uses a credit intensive approach to selecting securities. We have assembled a team of experienced analysts who perform extensive research on every issue. The analysts who work on this fund have an average of 13 years of analytical experience. Each analyst also has relevant work experience in some of the sectors that they follow. Each issue is independently reviewed by our analysts regardless of whether it has received a rating from one of the rating agencies. This review involves discussions with the issuer, borrower, investment bankers, and other involved parties. When appropriate, the analyst makes an on-site visit. After the research is completed, the analyst's recommendation is reviewed by our credit committee, which consists of senior department personnel, including portfolio managers and other analysts. If the committee agrees that the secu rity meets our standards, we buy it. After we purchase an issue, we continue to follow it. In addition to follow ing broad sector trends, the credit staff continuously reviews all of our securities. When we see signs of changing situations, we alter our holdings accordingly. WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF MARCH 31, 1999?
PERCENTAGE OF NAME/COUPON/MATURITY NET ASSETS District of Columbia- Georgetown University, 7.15%, 4/1/2021 3.41% Indianapolis, IN Airport Authority-Federal Express, 7.10%, 1/15/2017 3.18% Washington, DC Convention Center, 4.75%, 10/1/2028 3.06% Wayne County, MI- Detroit, Metropolitan Wayne County Airport, 5.00%, 12/1/2028 2.88% New York State Dormitory Authority, Department of Mental Hygiene, 5.375%, 2/15/2026 2.71% TOTAL 15.24%
1 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 net asset value, for Class B and C Shares were 3.53% and 3.54%, respectively. Total returns for the period, based on offering price (i.e., less any applicable sales charge), for Class A, B and C Shares were (0.21%), (1.95%) and 2.55%, respectively. 2 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into the category indicated. These figures do not take sales charges into account. 3 The SEC yields are compounded and annualized. The 30-day SEC yields on March 31, 1999, for Class B and C Shares were 3.50% and 3.51%, respec tively, based on offering price (i.e., less any applicable sales charge). HOW WERE THE FUND'S ASSETS ALLOCATED IN TERMS OF CREDIT QUALITY AS OF MARCH 31, 1999?
PERCENTAGE OF NET ASSETS AAA 31.50% AA 10.70% A 21.40% BBB 22.10% Non-rated 14.70%
The average quality rating of the fund is A+. WHAT KIND OF ENVIRONMENT DO YOU FORESEE FOR MUNICIPAL BONDS? The municipal bond market is undergoing fundamental changes which are being driven by new technology. The municipal bond market's use of this new tech nology will lead to better dissemination of information and could result in greater market efficiency. These changes include technology-based initia tives such as competitive bidding for municipal bond issues over the Internet and may eventually lead to Internet trading of municipal bonds. We expect the volume of municipal issuance in 1999 to be around $230 billion with a potential increase in refunding volume in what may be a lower interest rate environment. Municipal bond insurance may become less prevalent as bond insurers pull away from certain sectors of the market and toughen underwrit ing standards, especially for hospitals. The prevalence of more uninsured municipal bonds in the marketplace may contribute to additional credit spread widening in the coming period. Year 2000 ("Y2K") spending by municipal governments is a potential credit factor that must be taken into consideration as far as both the cost and the effectiveness of their Y2K preparedness. While the market does not expect any material interruptions in the supply of necessary municipal services, there remains the potential for some state functions to suffer temporary disrup tions. Two Ways You May Seek to Invest for Success: INITIAL INVESTMENT: IF YOU HAD MADE AN INITIAL INVESTMENT OF $23,000 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 $90,336 ON 3/31/99. YOU WOULD HAVE EARNED A 6.27% 1 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 3/31/99, the Class A Shares' average annual 1-year, 5-year, and 10-year total returns were (0.21%), 4.74%, and 6.52%, respectively. Class B Shares' average annual 1-year and since inception (7/26/94) total returns were (1.95%) and 4.44%, respectively. Class C Shares' average annual 1-year, 5- year, and since inception (4/21/93) total returns were 2.55%, 4.79%, and 4.04%, respectively. 2 [Graphic representation "A1" omitted. See Appendix.] 1 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. 2 The total returns stated take into account all applicable sales charges. The maximum sales charges and contingent deferred sales charges for the fund are as follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge. ONE STEP AT A TIME: $1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 22 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $56,055. With this approach, the key is consistency. If you had started investing $1,000 annually in the Class A Shares of Feder ated 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 $23,000, but your account would have reached a total value of $56,055 1 by 3/31/99. You would have earned an average annual total return of 7.15%. 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.] 1 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. 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 execu tive. Their combined income puts them in the 39.6% federal tax bracket. On March 31, 1989, the Bartletts invested $26,000 in the Class A Shares of Fed erated Municipal Securities Fund, Inc. As this chart shows, in 10 years, their original $26,000 investment has grown to $48,908. This represents a 6.52% average annual total return, which would be equivalent to a tax-free yield of 10.79%. 1 As far as the Bartletts are concerned, this fund has made all the difference. [Graphic representation "A3" omitted. See Appendix.] 1 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 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Fed erated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") from March 31, 1989 to March 31, 1999 compared to the Lehman Brothers Municipal Bond Index (LBMBI),2 and the Lipper General Municipal Funds Average (LGMFA).3
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999 1 Year (0.21%) 5 Years 4.74% 10 Years 6.52% Start of Performance (10/4/76) 6.27%
[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. 1 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 LBMBI and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged. 3 The LGMFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the Securities and Exchange Commission requires to be reflected in a fund's performance. 4 Total return quoted reflects all applicable sales charges. Federated Municipal Securities Fund, Inc.- Class B Shares GROWTH OF $10,000 INVESTMENT The graph above illustrates the hypothetical investment of $10,000 1 in Fed erated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") from July 26, 1994 (start of performance) to March 31, 1999 compared to the Lehman Brothers Municipal Bond Index (LBMBI),2 and the Lipper General Municipal Funds Average (LGMFA).3
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999 1 Year (1.95%) Start of Performance (7/26/94) 4.44%
[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. 1 Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 2.00% contingent deferred sales charge on any redemption less than five years from the purchase date. The maximum contin gent 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 LBMBI and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged. 3 The LGMFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the Securities and Exchange Commission requires to be reflected in a fund's performance. 4 Total return quoted reflects all applicable sales charges and contingent deferred sales charges. Federated Municipal Securities Fund, Inc.- Class C Shares GROWTH OF $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Fed erated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") from April 21, 1993 (start of performance) to March 31, 1999 compared to the Leh man Brothers Municipal Bond Index (LBMBI),2 and the Lipper General Municipal Funds Average (LGMFA).3
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999 1 Year 2.55% 5 Years 4.79% Start of Performance (4/21/93) 4.04%
[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. 1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00% con tingent deferred sales charge would be applied on any redemption less than one year from the purchase date. The Fund's performance assumes the rein vestment of all dividends and distributions. The LBMBI and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged. 3 The LGMFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the Securities and Exchange Commission requires to be reflected in a fund's performance. 4 Total return quoted reflects all applicable sales charges and contingent deferred sales charges. Portfolio of Investments MARCH 31, 1999
PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS-100.4% ALABAMA-4.3% $ 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 $ 10,470,800 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 2,133,880 5,500,000 Jefferson County, AL, Sewer Revenue Capital Improvement Warrants (Series 1999A), 5.375% (FGIC INS), 2/1/2036 AAA 5,603,620 3,620,000 Jefferson County, AL, Sewer Revenue Refunding Warrants (Series 1997-A), 5.625% (Original Issue Yield: 5.68%), 2/1/2018 AAA 3,821,996 6,260,000 Jefferson County, AL, Sewer Revenue Warrants (Series 1997D), 5.70% (Original Issue Yield: 5.73%), 2/1/2018 AAA 6,656,446 TOTAL 28,686,742 ALASKA-0.8% 2,000,000 Alaska Industrial Development and Export Authority, Refunding Revenue Bonds (Series A), 5.25% (MBIA INS)/(Original Issue Yield: 5.39%), 4/1/2023 AAA 1,987,860 2,000,000 2 Anchorage, AK, UT GO Bonds (Series A), 5.00% (FGIC INS)/(Original Issue Yield: 5.03%), 4/1/2017 AAA 1,987,100 1,100,000 2 Anchorage, AK, UT GO Bonds (Series A), 5.00% (FGIC INS)/(Original Issue Yield: 5.08%), 4/1/2018 AAA 1,088,692 TOTAL 5,063,652 ARIZONA-0.1% 1,000,000 Show Low, AZ IDA, Hospital Revenue Bonds (Series 1998A), 5.50% (Navapache Regional Medical Center)/(American Capital Access INS)/(Original Issue Yield: 5.584%), 12/1/2017 A 1,019,730 CALIFORNIA-5.2% 4,500,000 Bonita Canyon, CA Public Facilities Financing Authority, Community Facilities District No. 98-1 Special Tax Bonds (Series 1998), 5.375% (Original Issue Yield: 5.50%), 9/1/2028 NR 4,362,795 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 10,509,670 600,000 California Public Capital Improvements Financing Authority, Trust Receipts (Series 1996 FR-3) Weekly VRDNs (MBIA INS)/(Bank of New York, New York LIQ) AAA 600,000 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued CALIFORNIA-CONTINUED $ 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+ $ 14,992,594 3,000,000 Long Beach California Harbor, Revenue Bonds, 5.375% (MBIA INS)/(Original Issue Yield: 5.75%), 5/15/2020 AAA 3,057,120 1,500,000 Los Angeles, CA Unified School District, Trust Receipts FR/RI-A26 Weekly VRDNs (Bank of New York, New York LIQ) A-1+C 1,500,000 TOTAL 35,022,179 DISTRICT OF COLUMBIA-8.8% 8,275,000 District of Columbia Hospital Authority, Revenue Refunding Bonds (Series A), 7.125% (Medlantic Healthcare Group)/(Original Issue Yield: 7.30%), 8/15/2019 BBB+ 9,254,015 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+ 2,241,180 22,250,000 District of Columbia, Revenue Bonds (Series B), 7.15% (Georgetown University)/(Original Issue Yield: 7.191%), 4/1/2021 A- 22,764,642 4,000,000 District of Columbia, Revenue Bonds, 5.625% (AmericanUniversity)/ (AMBAC, Inc. INS)/(Original Issue Yield: 5.90%), 10/1/2026 AAA 4,188,760 22,000,000 Washington, DC Convention Center Authority, Dedicated Senior Lien Tax Revenue Bonds, 4.75% (AMBAC, Inc. INS)/(Original Issue Yield: 5.15%), 10/1/2028 AAA 20,467,920 TOTAL 58,916,517 FLORIDA-2.7% 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+ 6,179,109 665,000 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 941,161 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+ 6,750,051 3,000,000 Florida State, UT GO Bonds, Broward County Expressway Authority, 10.00% (Original Issue Yield: 10.105%), 7/1/2014 AA+ 4,541,280 TOTAL 18,411,601 GEORGIA-0.4% 3,000,000 Effingham County, GA Development Authority, Solid Waste Disposal Revenue Bonds (Series 1998), 5.625% (Fort James Corp.), 7/1/2018 BBB- 3,006,150 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued HAWAII-1.4% $ 5,000,000 Hawaii State Department of Budget & Finance, Residual Interest Tax- Exempt Securities (Series PA-343), 6.39863% (Hawaiian Electric Company, Inc.), 4/1/2012 NR $ 5,295,200 4,000,000 Honolulu, HI City & County, UT GO Bonds (Series 1999C), 5.00% (Original Issue Yield: 5.11%), 7/1/2019 AAA 3,947,040 TOTAL 9,242,240 IDAHO-0.1% 1,000,000 Idaho Health Facilities Authority, Hospital Revenue Bonds (Series 1998), 5.45% (Idaho Elks Rehabilitation Hospital)/ (Original Issue Yield: 5.53%), 7/15/2023 BBB 991,530 ILLINOIS-4.7% 8,295,000 Cook County, IL, Refunding GO Bonds (Series 1997A), 6.25%, 11/15/2013 AAA 9,581,057 5,000,000 Illinois Development Finance Authority, Housing Revenue Bonds, 6.10% (Catholic Charities Housing Development Corp.), 1/1/2020 NR 5,078,650 11,240,000 Illinois Health Facilities Authority, Hospital Revenue Bonds (Series A), 9.25% (Edgewater Hospital & Medical Center, IL), 7/1/2024 NR 14,169,369 2,500,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1998), 5.25% (Centegra Health System)/(Original Issue Yield: 5.512%), 9/1/2024 A- 2,406,575 TOTAL 31,235,651 INDIANA-4.5% 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 6,772,632 2,000,000 Indiana Health Facility Financing Authority, Hospital Revenue Refunding Bonds, 5.25% (Floyd Memorial Hospital, IN)/(Original Issue Yield: 5.50%), 2/15/2022 A 1,967,180 19,000,000 Indianapolis, IN Airport Authority, Special Facilities Revenue Bonds, 7.10% (FDX Corp.)/(Original Issue Yield: 7.178%), 1/15/2017 BBB 21,242,760 TOTAL 29,982,572 IOWA-1.7% 2,000,000 Des Moines, IA, Aviation System Revenue Bonds (Series 1998B), 5.125% (FSA INS)/(Original Issue Yield: 5.40%), 7/1/2018 AAA 1,980,520 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 AAA 9,378,115 TOTAL 11,358,635 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued KANSAS-0.2% $ 1,000,000 Newton, KS, Hospital Revenue Refunding Bonds (Series 1998), 5.75% (Newton Healthcare Corp.)/(Original Issue Yield: 5.787%), 11/15/2024 BBB- $ 1,000,660 LOUISIANA-3.7% 3,000,000 Caddo Parish, LA IDB, Exempt Facility Revenue Bonds (Series 1998), 5.60% (Pennzoil Products)/(Original Issue Yield: 5.70%), 12/1/2028 BBB- 2,974,440 6,000,000 De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds, 7.70% (International Paper Co.), 11/1/2018 BBB+ 6,925,500 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 3,820,297 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 10,727,900 TOTAL 24,448,137 MARYLAND-2.0% 12,220,000 Maryland State Community Development Administration, SFM Revenue Bonds (5th Series), 6.75%, 4/1/2026 AA 13,105,095 MASSACHUSETTS-5.7% 10,000,000 Commonwealth of Massachusetts, UT GO Bonds (Series 1997C), 5.00% (Original Issue Yield: 5.30%), 8/1/2017 AA- 10,003,300 11,473,739 Massachusetts IFA, Solid Waste Disposal Revenue Bonds, 8.50%, 11/1/2012 NR 11,387,686 2,200,000 Massachusetts State HFA, Rental Housing Mortgage Revenue Bonds (Series 1995E), 5.90% (AMBAC, Inc. INS), 7/1/2025 AAA 2,303,796 15,000,000 Massachusetts Turnpike Authority, Metropolitan Highway System Revenue Bonds (Series A), 5.00% (Original Issue Yield: 5.55%), 1/1/2037 AAA 14,445,000 TOTAL 38,139,782 MICHIGAN-4.2% 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 BBB 1,163,875 1,000,000 Flint, MI Hospital Building Authority, Rental Revenue Bonds (Series 1998B), 5.375% (Hurley Medical Center)/(Original Issue Yield: 5.48%), 7/1/2018 BBB 954,350 6,500,000 2 Michigan Strategic Fund, Limited Obligation Revenue Refunding Bonds (Series A), 5.55% (Detroit Edison Co.)/(MBIA INS), 9/1/2029 AAA 6,651,320 20,000,000 Wayne County, MI, Revenue Bonds (Series A), 5.00% (Detroit Metropolitan Wayne County Airport)/(Original Issue Yield: 5.33%), 12/1/2028 AAA 19,236,400 TOTAL 28,005,945 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued MINNESOTA-2.9% $ 3,800,000 St. Paul, MN Housing & Redevelopment Authority, Hospital Revenue Refunding Bonds (Series A), 6.625% (Healtheast, MN)/(Original Issue Yield: 6.687%), 11/1/2017 BBB $ 3,929,428 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 969,720 12,000,000 VRDC/IVRC Trust, GO Inverse Variable Rate Certificates, 7.973% (Regents of University of Minnesota), 5/18/2012 AA 14,475,000 TOTAL 19,374,148 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 8,114,450 1,960,000 Missouri State Housing Development Commission, Single Family Mortgage Revenue Bonds (Series 1997C-1), 6.55% (GNMA Home Mortgage Program COL), 9/1/2028 AAA 2,178,442 TOTAL 10,292,892 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 2,443,475 NEW JERSEY-0.3% 2,100,000 New Jersey EDA, Kapkowski Road Landfill Revenue Bonds, 6.50% (New Jersey Metromall Urban Renewal, Inc.)/(Original Issue Yield: 6.55%), 4/1/2018 NR 2,174,256 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+ 5,375,900 NEW YORK-11.8% 6,500,000 Long Island Power Authority, Electric System Revenue Bonds (Series 1998A), 5.25% (Original Issue Yield: 5.47%), 12/1/2026 A- 6,502,210 9,000,000 New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British Airways), 12/1/2032 A 8,965,440 7,500,000 3 New York City, NY, Residual Interest Tax- Exempt Securities (Series PA-147), 7.55532%, 8/1/2007 NR 8,753,100 5,000,000 New York City, NY, UT GO Bonds (Series 1998G), 5.00% (Original Issue Yield: 5.25%), 8/1/2018 A- 4,923,550 5,000,000 New York City, NY, UT GO Bonds (Series 1999H), 5.25%, 3/15/2018 A- 5,055,200 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued NEW YORK-CONTINUED $ 10,000,000 New York State Dormitory Authority, Educational Facilities Revenue Bonds (Series 1998B), 4.75% (State University of New York)/(Original Issue Yield: 5.24%), 5/15/2028 A- $ 9,321,000 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- 18,138,378 400,000 New York State Energy Research & Development Authority Daily VRDNs (Niagara Mohawk Power Corp.)/(Toronto-Dominion Bank LOC) AA 400,000 900,000 New York State Energy Research & Development Authority, PCR Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/(Morgan Guaranty Trust Co., New York LOC) AA+ 900,000 5,050,000 New York State Local Government Assistance Corp., Residual Interest Tax-Exempt Securities (Series PA-207), 8.57753% (AMBAC, Inc. INS), 4/1/2008 NR 6,294,875 6,025,000 New York State Local Government Assistance Corp., Residual Interest Tax-Exempt Securities (Series PA-207A), 8.57753%, 4/1/2007 NR 7,449,430 2,000,000 New York State Mortgage Agency, Mortgage Revenue Bonds (Series 30-B), 6.65% (FHA GTD), 10/1/2025 Aaa 2,128,300 TOTAL 78,831,483 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 9,385,380 OHIO-0.6% 1,000,000 Cuyahoga County, OH Health Care Facilities, Revenue Refunding Bonds, 5.50% (Benjamin Rose Institute)/(Original Issue Yield: 5.75%), 12/1/2028 NR 985,530 3,000,000 Franklin County, OH Health Care Facilities, Revenue Refunding Bonds, 5.50% (Ohio Presbyterian Retirement Services)/(Original Issue Yield: 5.64%), 7/1/2017 NR 2,969,070 TOTAL 3,954,600 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- 8,119,350 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued PENNSYLVANIA-5.8% $ 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 $ 2,205,403 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 1,888,800 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 834,385 1,300,000 Latrobe, PA IDA, College Revenue Bonds, 6.75% (St. Vincent College, PA)/(Original Issue Yield: 7.00%), 5/1/2024 AAA 1,490,333 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 13,998,407 1,100,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series 1996A) Daily VRDNs (Children's Hospital of Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) AA 1,100,000 15,000,000 Philadelphia, PA School District, UT GO (Series B), 5.50% (AMBAC, Inc. INS)/(Original Issue Yield: 5.95%), 9/1/2025 AAA 15,504,300 2,000,000 Sayre, PA, Health Care Facilities Authority, Revenue Bonds (Series A), 7.10% (Guthrie Healthcare System, PA)/(Original Issue Yield: 7.175%), 3/1/2017 AAA 2,152,180 TOTAL 39,173,808 PUERTO RICO-0.7% 2,000,000 3 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securites (Series PA 331A), 7.84384% (Ambac Financial Group, Inc. INS), 7/1/2013 NR 2,366,400 2,000,000 3 Puerto Rico Highway and Transportation Authority, Residual Interest Tax-Exempt Securities (Series PA 331B), 7.84384% (AMBAC, Inc. INS), 7/1/2014 NR 2,356,720 TOTAL 4,723,120 TENNESSEE-2.5% 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 AAA 16,590,860 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued TEXAS-12.3% $ 4,000,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 BBB+ $ 4,321,560 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- 13,983,818 5,000,000 Fort Worth, TX Higher Education Finance Corp., Revenue Bonds, 5.00% (Texas Christian University)/(Original Issue Yield: 5.287%), 3/15/2027 AA- 4,821,250 3,000,000 Georgetown, TX HFDC, Revenue Bonds, 5.375% (Wesleyan Homes, Inc.)/(American Capital Access INS)/(Original Issue Yield: 5.55%), 8/15/2028 A 2,943,330 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 2,170,700 4,490,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds, 5.60% (Valero Energy Corp.), 4/1/2032 BBB- 4,443,349 2,200,000 Harris County, TX HFDC, Hospital Revenue Bonds (Series 1997A), 6.00% (Memorial Hospital System), 6/1/2011 AAA 2,474,538 4,000,000 Harris County, TX HFDC, Hospital Revenue Bonds (Series 1997A), 6.00% (Memorial Hospital System), 6/1/2012 AAA 4,503,840 2,000,000 Lufkin, TX HFDC, Health System Revenue Bonds (Series 1998), 5.70% (Memorial Health System of East Texas)/(Original Issue Yield: 5.75%), 2/15/2028 BBB 1,989,460 6,000,000 3 Matagorda County, TX Navigation District Number One, Residual Interest Tax-Exempt Securities (Series PA- 427), 6.79863% (Houston Industries, Inc.)/(MBIA INS), 11/1/2029 NR 5,835,780 3,700,000 Red River Authority, TX, PCR Bonds, 6.875% (Hoechst Celanese Corp.)/(Original Issue Yield: 6.939%), 4/1/2017 A+ 3,984,974 1,700,000 Richardson, TX Hospital Authority, Hospital Revenue Refunding and Improvement Bonds, 5.625% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 5.70%), 12/1/2028 BBB+ 1,646,280 3,850,000 Richardson, TX Hospital Authority, Refunding Revenue Bonds, 6.50% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 6.72%), 12/1/2012 BBB+ 4,170,359 2,420,000 Richardson, TX Hospital Authority, Refunding Revenue Bonds, 6.50% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 6.72%), 12/1/2012 BBB+ 2,717,176 615,000 Richardson, TX Hospital Authority, Refunding Revenue Bonds, 6.75% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 BBB+ 672,521 385,000 Richardson, TX Hospital Authority, Refunding Revenue Bonds, 6.75% (Baylor/Richardson Medical Center, TX)/(Original Issue Yield: 6.82%), 12/1/2023 BBB+ 436,340 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued TEXAS-CONTINUED $ 1,400,000 Sabine River Authority, TX, PCR Bonds (Series B) Daily VRDNs (Texas Utilities Electric Co.)/(UBS AG LOC) AA+ $ 1,400,000 535,000 San Antonio, TX Electric & Gas, PRF Revenue Bonds, 5.00%/(Original Issue Yield: 6.00%), 2/1/2002 NR 557,930 11,915,000 San Antonio, TX Electric & Gas, Revenue Bonds, 5.00% (Original Issue Yield: 6.10%), 2/1/2017 BBB- 11,837,791 5,000,000 Tarrant County, TX HFDC, System Revenue Bonds (Series 1997A), 5.75% (Texas Health Resources System)/(MBIA INS), 2/15/2015 AAA 5,479,300 1,405,000 Texas State, UT GO Veterans Housing Assistance, 7.00%, 12/1/2025 AA 1,518,369 TOTAL 81,908,665 UTAH-3.5% 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 17,488,575 6,000,000 Tooele County, UT, Hazardous Waste Treatment Revenue Bonds (Series 1998A), 5.70% (Union Pacific Corp.), 11/1/2026 BBB- 5,966,640 TOTAL 23,455,215 VIRGINIA-0.2% 1,600,000 Roanoke, VA IDA, Hospital Revenue Bonds (Series 1997A) Daily VRDNs (Carillion Health System)/(Nationsbank, N.A., Charlotte LIQ) AA- 1,600,000 WASHINGTON-0.8% 5,000,000 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- 5,053,250 WEST VIRGINIA-1.2% 1,368,351 Marion County, WV County Commission, Refunding Revenue Bonds, 10.00% (Adirondack Recycling), 12/1/2025 NR 889,428 9,790,831 Marion County, WV County Commission, Refunding Revenue Bonds, 8.00% (Adirondack Recycling), 12/1/2025 NR 6,853,581 TOTAL 7,743,009 WISCONSIN-0.6% $ 4,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series 1998A), 5.375% (The Richland Hospital, Inc.)/(American Capital Access INS)/(Original Issue Yield: 5.46%), 6/1/2028 A $ 3,936,000 PRINCIPAL CREDIT AMOUNT RATING 1 VALUE LONG-TERM MUNICIPALS- continued WYOMING-1.4% $ 8,460,000 Sweetwater County, WY Water Pollution Authority, (Series A), 7.00% (FMC Corp.), 6/1/2024 BBB- $ 9,253,802 TOTAL INVESTMENTS (IDENTIFIED COST $632,720,414) 4 $ 671,026,031
Securities that are subject to Alternative Minimum Tax represent 28.5% of the portfolio as calculated based upon total portfolio market value. 1 Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. 2 When-issued security 3 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. These securities have been deemed liquid based upon criteria approved by the fund's board of directors. At March 31, 1999, these securities amounted to $19,312,000 which represents 2.9% of net assets. 4 The cost of investments for federal tax purposes amounts to $632,720,414. The net unrealized appreciation of investments on a federal tax basis amounts to $38,305,617 which is comprised of $43,354,652 appreciation and $5,049,035 depreciation at March 31, 1999. Note: The categories of investments are shown as a percentage of net assets ($668,509,438) at March 31, 1999. The following acronyms are used throughout this portfolio: AMBAC -American Municipal Bond Assurance Corporation COL -Collateralized EDA - -Economic Development 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 LOC -Letter of Credit MBIA -Municipal Bond Investors Assurance PCFA -Pollution Control Finance Authority PCR -Pollution Control Revenue PRF -Prerefunded SFM -Single Family Mortgage UT -Unlimited Tax VRDNs - -Variable Rate Demand Notes See Notes which are an integral part of the Financial Statements Statement of Assets and Liabilities MARCH 31, 1999 ASSETS: Total investments in securities, at value (identified and tax cost $632,720,414) $ 671,026,031 Cash 31,069 Income receivable 12,342,102 Receivable for investments sold 4,728,196 Receivable for shares sold 693,814 TOTAL ASSETS 688,821,212 LIABILITIES: Payable for investments purchased $ 18,571,571 Payable for shares redeemed 333,983 Income distribution payable 1,228,953 Accrued expenses 177,267 TOTAL LIABILITIES 20,311,774 Net assets for 61,487,927 shares outstanding $ 668,509,438 NET ASSETS CONSIST OF: Paid in capital $ 646,224,229 Net unrealized appreciation of investments 38,305,617 Accumulated net realized loss on investments (12,835,164) Distributions in excess of net investment income (3,185,244) TOTAL NET ASSETS $ 668,509,438 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: CLASS A SHARES: Net Asset Value Per Share ($562,883,233 / 51,772,752 shares outstanding) $10.87 Offering Price Per Share (100/95.50 of $10.87)1 $11.38 Redemption Proceeds Per Share $10.87 CLASS B SHARES: Net Asset Value Per Share ($88,756,282 / 8,163,539 shares outstanding) $10.87 Offering Price Per Share $10.87 Redemption Proceeds Per Share (94.50/100 of $10.87) 1 $10.27 CLASS C SHARES: Net Asset Value Per Share ($16,869,923 / 1,551,636 shares outstanding) $10.87 Offering Price Per Share $10.87 Redemption Proceeds Per Share (99.00/100 of $10.87) 1 $10.76 1 See "Investing in the Fund" in the Prospectus. See Notes which are an integral part of the Financial Statements Statement of Operations YEAR ENDED MARCH 31, 1999 INVESTMENT INCOME: Interest $ 39,383,504 EXPENSES: Investment advisory fee $ 3,832,697 Administrative personnel and services fee 517,819 Custodian fees 42,941 Transfer and dividend disbursing agent fees and expenses 455,275 Directors'/Trustees' fees 16,778 Auditing fees 19,128 Legal fees 4,580 Portfolio accounting fees 135,631 Distribution services fee-Class B Shares 653,674 Distribution services fee-Class C Shares 129,084 Shareholder services fee-Class A Shares 1,455,986 Shareholder services fee-Class B Shares 217,892 Shareholder services fee-Class C Shares 43,028 Share registration costs 47,580 Printing and postage 88,189 Insurance premiums 3,201 Taxes 54,190 Miscellaneous 16,430 TOTAL EXPENSES 7,734,103 WAIVERS: Waiver of shareholder services fee-Class A Shares $ (815,352) Waiver of shareholder services fee-Class C Shares (1,721) TOTAL WAIVERS (817,073) Net expenses 6,917,030 Net investment income 32,466,474 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (10,509,648) Net change in unrealized appreciation of investments 7,900,594 Net realized and unrealized loss on investments (2,609,054) Change in net assets resulting from operations $ 29,857,420 See Notes which are an integral part of the Financial Statements Statement of Changes in Net Assets
YEAR ENDED MARCH 31 1999 1998 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 32,466,474 $ 32,145,972 Net realized gain (loss) on investments ($2,566,287 and $3,273,099 net gain, respectively, as computed for federal tax purposes) (10,509,648) (664,845) Net change in unrealized appreciation 7,900,594 42,415,663 CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 29,857,420 73,896,790 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income Class A Shares (27,771,720) (28,187,919) Class B Shares (3,383,778) (3,245,800) Class C Shares (670,339) (712,253) Distributions in excess of net investment income Class A Shares - (446,648) Class B Shares - (66,543) Class C Shares - (12,628) Distributions from net realized gains Class A Shares - (1,381,790) Class B Shares - (204,140) Class C Shares - (39,946) CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (31,825,837) (34,297,667) SHARE TRANSACTIONS: Proceeds from sale of shares 134,901,460 129,961,665 Net asset value of shares issued to shareholders in payment of distributions declared 19,740,788 21,687,238 Cost of shares redeemed (180,394,469) (188,612,798) CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (25,752,221) (36,963,895) Change in net assets (27,720,638) 2,635,228 NET ASSETS: Beginning of period 696,230,076 693,594,848 End of period $ 668,509,438 $ 696,230,076
See Notes which are an integral part of the Financial Statements Financial Highlights-Class A Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 NET ASSET VALUE, BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.53 0.46 0.55 0.66 0.67 Net realized and unrealized gain (loss) on investments (0.05) 0.64 (0.36) (0.09) (0.05) TOTAL FROM INVESTMENT OPERATIONS 0.48 1.10 0.19 0.57 0.62 LESS DISTRIBUTIONS: Distributions from net investment income (0.52) (0.46) (0.55) (0.66) (0.67) Distributions in excess of net investment income 1 - (0.01) (0.05) - - Total distributions from net investment income (0.52) (0.47) (0.60) (0.66) (0.67) Distributions from net realized gain on investments - (0.03) (0.10) (0.01) (0.23) TOTAL DISTRIBUTIONS (0.52) (0.50) (0.70) (0.67) (0.90) NET ASSET VALUE, END OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 TOTAL RETURN 2 4.46% 11.28% 1.84% 5.32% 5.90% RATIOS TO AVERAGE NET ASSETS: Expenses 0.87% 0.86% 0.93% 0.98% 0.92% Net investment income 4.86% 4.70% 5.37% 5.97% 6.17% Expense waiver/reimbursement 3 0.14% 0.14% 0.14% 0.13% - SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $562,883 $591,310 $595,515 $663,538 $708,712 Portfolio turnover 31% 64% 33% 29% 41%
1 Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These dis tributions do not represent a return of capital for federal income tax pur poses. 2 Based on net asset value, which does not reflect the sales charge or con tingent deferred sales charge, if applicable. 3 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 Financial Highlights-Class B Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1 NET ASSET VALUE, BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.06 Income from Investment Operations: Net investment income 0.43 0.38 0.47 0.56 0.40 Net realized and unrealized gain (loss) on investments (0.05) 0.64 (0.37) (0.09) (0.03) TOTAL FROM INVESTMENT OPERATIONS 0.38 1.02 0.10 0.47 0.37 LESS DISTRIBUTIONS: Distributions from net investment income (0.42) (0.38) (0.47) (0.56) (0.40) Distributions in excess of net investment income 2 - (0.01) (0.04) - - Total distributions from net investment income (0.42) (0.39) (0.51) (0.56) (0.40) Distributions from net realized gain on investments - (0.03) (0.10) (0.01) (0.11) TOTAL DISTRIBUTIONS (0.42) (0.42) (0.61) (0.57) (0.51) NET ASSET VALUE, END OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 TOTAL RETURN 3 3.53% 10.30% 0.94% 4.40% 3.49% RATIOS TO AVERAGE NET ASSETS: Expenses 1.76% 1.75% 1.82% 1.86% 1.84% 4 Net investment income 3.97% 3.81% 4.50% 5.23% 5.94% 4 SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $88,756 $87,304 $77,536 $58,296 $18,201 Portfolio turnover 31% 64% 33% 29% 41%
1 Reflects operations for the period from July 26, 1994 (date of initial pub lic offering) to March 31, 1995. 2 Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These dis tributions do not represent a return of capital for federal income tax pur poses. 3 Based on net asset value, which does not reflect the sales charge or con tingent deferred sales charge, if applicable. 4 Computed on an annualized basis. See Notes which are an integral part of the Financial Statements Financial Highlights-Class C Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 NET ASSET VALUE, BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20 Income from Investment Operations: Net investment income 0.43 0.37 0.46 0.56 0.58 Net realized and unrealized gain (loss) on investments (0.05) 0.65 (0.36) (0.09) (0.05) TOTAL FROM INVESTMENT OPERATIONS 0.38 1.02 0.10 0.47 0.53 LESS DISTRIBUTIONS: Distributions from net investment income (0.42) (0.37) (0.46) (0.56) (0.58) Distributions in excess of net investment income 1 - (0.02) (0.05) - - Total distributions from net investment income (0.42) (0.39) (0.51) (0.56) (0.58) Distributions from net realized gain on investments - (0.03) (0.10) (0.01) (0.23) TOTAL DISTRIBUTIONS (0.42) (0.42) (0.61) (0.57) (0.81) NET ASSET VALUE, END OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 TOTAL RETURN 2 3.54% 10.31% 0.95% 4.42% 4.96% RATIOS TO AVERAGE NET ASSETS: Expenses 1.75% 1.74% 1.81% 1.82% 1.81% Net investment income 3.98% 3.83% 4.51% 5.16% 5.28% Expense waiver/reimbursement 3 0.01% 0.01% 0.01% 0.04% - SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $16,870 $17,616 $20,544 $25,914 $22,389 Portfolio turnover 31% 64% 33% 29% 41%
1 Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These dis tributions do not represent a return of capital for federal income tax pur poses. 2 Based on net asset value, which does not reflect the sales charge or con tingent deferred sales charge, if applicable. 3 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 Notes to Financial Statements MARCH 31, 1999 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 cur rent income which is exempt from federal regular income tax. 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 rel evant. Short-term securities are valued at the prices provided by an indepen dent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amor tized 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 the generally accepted accounting principles. These distri butions do not represent a return of capital for federal income tax purposes. The following reclassifications have been made to the financial statements: INCREASE (DECREASE) UNDISTRIBUTED NET PAID-IN CAPITAL INVESTMENT INCOME $(25,483) $25,483 Net investment income, net realized gains/losses and net assets were not affected by this reclassification. 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 $18,626,739 attributable to security transactions incurred after October 31, 1998, are treated as arising on April 1, 1999, 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 posi tions 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 rev enues reported in the financial statements. Actual results could differ from those estimated. OTHER Investment transactions are accounted for on the trade date. CAPITAL STOCK At March 31, 1999, par value shares ($0.01 per share) authorized were as fol lows: 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 1,000,000,000 Transactions in capital stock were as follows:
YEAR ENDED MARCH 31 1999 1998 CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 10,327,327 $ 113,274,145 9,670,305 $ 103,414,194 Shares issued to shareholders in payment of distributions declared 1,619,511 17,770,129 1,807,665 19,419,915 Shares redeemed (14,392,026) (157,856,794) (15,033,250) (160,904,159) NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (2,445,188) $ (26,812,520) (3,555,280) $ (38,070,050) YEAR ENDED MARCH 31 1999 1998 CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 1,554,992 $ 17,066,503 2,304,892 $ 24,638,393 Shares issued to shareholders in payment of distributions declared 140,590 1,542,609 162,455 1,793,068 Shares redeemed (1,537,205) (16,860,862) (1,983,725) (21,309,970) NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS 158,377 $ 1,748,250 483,622 $ 5,121,491 YEAR ENDED MARCH 31 1999 1998 CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 414,516 $ 4,560,812 176,581 $ 1,909,078 Shares issued to shareholders in payment of distributions declared 39,027 428,050 44,200 474,255 Shares redeemed (517,122) (5,676,813) (598,603) (6,398,669) NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS (63,579) $ (687,951) (377,822) $ (4,015,336) NET CHANGE RESULTING FROM SHARE TRANSACTIONS (2,350,390) $ (25,752,221) (3,449,480) $ (36,963,895)
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE Federated Investment Management Company (formerly, 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 Administra tive 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 Feder ated 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 Share holder Service Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily net assets of each class of shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 FSSC, serves as transfer and dividend disburs ing 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, 1999, 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 pursu ant to Rule 17a-7 under the Act amounting to $134,400,000 and $165,280,000, respectively. GENERAL Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended March 31, 1999, were as follows: Purchases $210,914,333 Sales $265,786,267 CONCENTRATION OF CREDIT RISK At March 31, 1999, 17.2% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial insti tutions and financial guaranty assurance agencies. The percentage of invest ments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 6.7% of total investments. YEAR 2000 (UNAUDITED) 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 mea sures 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. 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, includ ing the portfolio of investments of Federated Municipal Securities Fund, Inc. as of March 31, 1999, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended March 31, 1999 and March 31, 1998, and the financial highlights for the periods pre sented. These financial statements and financial highlights are the respon sibility 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 stan dards. 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 finan cial statements. Our procedures included confirmation of the securities owned at March 31, 1999, by correspondence with the custodian and brokers; where replies were not received from brokers, 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 over all financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Federated Munici pal Securities Fund, Inc. as of March 31, 1999, 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 Boston, Massachusetts May 14, 1999 Directors JOHN F. DONAHUE THOMAS G. BIGLEY JOHN T. CONROY, JR. NICHOLAS P. CONSTANTAKIS WILLIAM J. COPELAND JOHN F. CUNNINGHAM J. CHRISTOPHER DONAHUE JAMES E. DOWD, ESQ. LAWRENCE D. ELLIS, M.D. EDWARD L. FLAHERTY, JR., ESQ. PETER E. MADDEN CHARLES F. MANSFIELD, JR. JOHN E. MURRAY, JR., J.D., S.J.D. WESLEY W. POSVAR MARJORIE P. SMUTS JOHN S. WALSH officers JOHN F. DONAHUE Chairman J. CHRISTOPHER DONAHUE President EDWARD C. GONZALES Executive Vice President JOHN W. MCGONIGLE Executive Vice President and Secretary RICHARD B. FISHER Vice President RICHARD J. THOMAS Treasurer 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 gov ernment agency. Investment in mutual funds involves investment risk, includ ing 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 con cerning its objective and policies, management fees, and other information. AS OF MARCH 31, 1999 [Graphic] Federated World-Class Investment Manager ANNUAL REPORT AS OF MARCH 31, 1999 Federated Municipal Securities Fund, Inc. Established 1976 22ND ANNUAL REPORT [Graphic] Federated Federated Municipal Securities Fund, Inc. Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-7000 1-800-341-7400 WWW.FEDERATEDINVESTORS.COM Federated Securities Corp., Distributor Cusip 313913105 Cusip 313913204 Cusip 313913303 8042830 (5/99) [Graphic] APPENDIX 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 3/31/99. 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 $23,000 in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $90,336 on 3/31/99. 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 3/31/99. 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 $56,055 on 3/31/99. 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 from3/31/89 to 3/31/99. The "y" axis is measured in increments of $10,000 ranging from $0 to $50,000 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 $48,908 on 3/31/99. 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 Municipal Bond Index (the "LBMBI") is represented by a dotted line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a dashed 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 LBMBI and the LGMFA. The "x" axis reflects computation periods from 3/31/89 to3/31/99. 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 LBMBI and the LGMFA. The ending values were $18,809, $22,072, and $20,687, respectively. The legend in the upper right 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 3/31/99 and from the start of performance of the fund's Class A Shares (10/4/76) to 3/31/99. The total returns were (0.21%), 4.746%, 6.52%, and 6.27%, 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 2.00% contingent deferred sales charge are represented by a solid line. The Lehman Brothers Municipal Bond Index (the "LBMBI") is represented by a dotted line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a dashed 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 LBMBI and the LGMFA. The "x" axis reflects computation periods from 7/26/94 to 3/31/99. 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 2.00% contingent deferred sales charge, as compared to the LBMBI and the LGMFA. The ending values were $12,254,$14,022, and $13,516, respectively. The legend in the upper right quadrant of the graphic presentation indicates the fund's Class B Shares Average Annual Total Returns for the one-year period ended 3/31/99 and from the start of performance of the fund's Class B Shares (7/26/94) to 3/31/99. The total returns were (1.95%) and 4.44%, 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 Municipal Bond Index (the "LBMBI") is represented by a dotted line and the Lipper General Municipal Funds Average (the "LGMFA") is represented by a dashed 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 LBMBI and the LGMFA. The "x" axis reflects computation periods from 4/21/93 to 3/31/99. 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 LBMBI and the LGMFA. The ending values were $12,657, $14,622, and $13,940, 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 and five-year periods ended 3/31/99 and from the start of performance of the fund's Class C Shares (4/21/93) to 3/31/99. The total returns were 2.55%, 4.79%, and 4.04%, respectively. -----END PRIVACY-ENHANCED MESSAGE-----