Federated Municipal Securities Fund, Inc.

485BPOS 1 fmsfform.htm Federated Municipal Securities Fund, Inc.




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

                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549

                                 Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X

    Pre-Effective Amendment No.

    Post-Effective Amendment No.   58  .....................        X

                                   and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

    Amendment No.   42   ...................................        X

                    FEDERATED MUNICIPAL SECURITIES FUND, INC.

               (Exact Name of Registrant as Specified in Charter)

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

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

                           John W. McGonigle, Esquire
                            Federated Investors Tower
                               1001 Liberty Avenue
                       Pittsburgh, Pennsylvania 15222-3779
                     (Name and Address of Agent for Service)
                (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

    immediately upon filing pursuant to paragraph (b)
 X  on May 29, 2003, pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(i)
    on __________________ pursuant to paragraph (a)(i)
    75 days after filing pursuant to paragraph (a)(ii)
    on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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


                                 Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, NW
Washington, DC  20037

Federated Investors
World-Class Investment Manager

Federated Municipal Securities Fund, Inc.

PROSPECTUS

<R>

May 31, 2003

</R>

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking to provide for its shareholders a high level of current income which is exempt from federal regular income tax by investing primarily in a portfolio of long-term, investment grade tax exempt securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 12

What Do Shares Cost? 13

How is the Fund Sold? 17

How to Purchase Shares 17

How to Redeem and Exchange Shares 20

Account and Share Information 23

Who Manages the Fund? 25

Financial Information 26

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide for its shareholders a high level of current income which is exempt from federal regular income tax. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

<R>

The Fund pursues its objective by investing its assets in a portfolio of tax exempt securities so that at least 80% of the income that it distributes will be exempt from federal regular income tax. Interest income from the Fund's investments may be subject to the federal alternative minimum tax (AMT) for individuals and corporations. The Fund invests primarily in long-term, investment grade tax exempt securities.

</R>

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:

defaults or an increase in the risk of defaults on portfolio securities; and
a change in prevailing interest rates.

Other risk factors associated with an investment in the Fund include liquidity risk, call risk, sector risk and leverage risk.

<R>

The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

</R>

Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

<R>

The total returns shown in the bar chart do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

</R>

<R>

The Fund's Class A Shares total return for the three-month period from January 1, 2003 to March 31, 2003 was 0.99%.

</R>

Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 5.53% (quarter ended March 31, 1995). Its lowest quarterly return was (4.13)% (quarter ended March 31, 1994).

Average Annual Total Return Table

<R>

The Average Annual Total Returns for the Fund's Class A Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Fund's Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Lehman Brothers Municipal Bond Index (LBMB), a broad-based market index, and the Lipper General Municipal Debt Funds Average (LGMFA), an average of funds with similar investment objectives. The LBMB is the Fund's total return performance benchmark for the long-term, investment grade market. The LGMFA represents the average of the total returns reported by all the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes and averages are unmanaged, and it is not possible to invest directly in an index or average.

</R>

<R>

(For the periods ended December 31, 2002)

</R>

	1 Year	5 Years	10 Years	Start of Performance¹
<R>Class A Shares:</R>
Return Before Taxes	<R>4.92%</R>	<R>3.59%</R>	<R>4.65%</R>	--
Return After Taxes on Distributions²	<R>4.92%</R>	<R>3.57%</R>	<R>4.54%</R>	--
Return After Taxes on Distributions and Sale of Fund Shares²	<R>4.74%</R>	<R>3.74%</R>	<R>4.66%</R>	--
<R>Class B Shares:</R>
Return Before Taxes	<R>3.37%</R>	<R>3.27%</R>	--	<R>4.33%</R>
<R>Class C Shares:</R>
Return Before Taxes	<R>7.87%</R>	<R>3.62%</R>	--	<R>3.89%</R>
LBMB	<R>9.60%</R>	<R>6.06%</R>	<R>6.71%</R>	N/A
LGMFA	<R>8.36%</R>	<R>4.62%</R>	<R>5.80%</R>	N/A

1 The Fund's Class B and Class C Shares start of performance dates were July 26, 1994 and April 21, 1993, respectively.

<R>

2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B Shares and Class C Shares will differ from those shown above for Class A Shares. After-tax returns are not relevant to investors holding shares through tax-deferred programs, such as IRA or 401(k) plans.

</R>

What are the Fund's Fees and Expenses?

FEDERATED MUNICIPAL SECURITIES FUND, INC.

FEES AND EXPENSES

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

Shareholder Fees	Class A	Class B	Class C
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.50%	None	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None
Exchange Fee	None	None	None

Annual Fund Operating Expenses (Before Waiver)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.54%	0.54%	0.54%
Distribution (12b-1) Fee	None	0.75%	0.75%
Shareholder Services Fee³	0.25%	0.25%	0.25%
Other Expenses	0.20%	0.20%	0.20%
Total Annual Fund Operating Expenses	0.99%	1.74%⁴	1.74%
1 Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended March 31, 2003.
Total Waiver of Fund Expenses	0.14%	0.00%	0.00%
Total Actual Annual Fund Operating Expenses (after waiver)	0.85%	1.74%	1.74%
2 The management fee equals the sum of 0.30% of the Fund's average daily net assets plus 4.50% of the Fund's gross income.
3 A portion of the shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Class A Shares (after the voluntary waiver) was 0.11% for the fiscal year ended March 31, 2003.
4 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

<R>

This Example is intended to help you compare the cost of investing in the Fund's Class A, B and C Shares with the cost of investing in other mutual funds.

</R>

<R>

The Example assumes that you invest $10,000 in the Fund's Class A, B and C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, B and C Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

</R>

<R>Share Class</R>	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$546</R>	<R>$751</R>	<R>$ 972</R>	<R>$1,608</R>

Expenses assuming no redemption	<R>$546</R>	<R>$751</R>	<R>$ 972</R>	<R>$1,608</R>

Class B:
Expenses assuming redemption	<R>$727</R>	<R>$948</R>	<R>$1,144</R>	<R>$1,853</R>

Expenses assuming no redemption	<R>$177</R>	<R>$548</R>	<R>$ 944</R>	<R>$1,853</R>

Class C:
Expenses assuming redemption	<R>$375</R>	<R>$643</R>	<R>$1,034</R>	<R>$2,131</R>

Expenses assuming no redemption	<R>$275</R>	<R>$643</R>	<R>$1,034</R>	<R>$2,131</R>

What are the Fund's Investment Strategies?

<R>

The Fund invests its assets in a portfolio of tax exempt securities so that at least 80% of the income that it distributes will be exempt from federal regular income tax. Interest income from the Fund's investments may be subject to AMT. The Fund invests primarily in long-term, investment grade tax exempt securities. The Fund's investment adviser (Adviser) actively manages the Fund's portfolio, seeking to manage the interest rate risk and credit risk assumed by the Fund and provide superior levels of after-tax total return.

</R>

The Adviser manages the Fund's interest rate risk by adjusting the duration of its portfolio. "Duration" measures the sensitivity of a security's price to changes in interest rates. The greater a portfolio's duration, the greater the change in the portfolio's value in response to a change in market interest rates. The Adviser will increase or reduce the Fund's portfolio duration based on its interest rate outlook. When the Adviser expects interest rates to fall, it will maintain a longer portfolio duration. When the Adviser expects interest rates to increase, it will shorten the portfolio duration. The Adviser considers a variety of factors in formulating its interest rate outlook, including the following:

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve's monetary policy; and
supply and demand factors related to the municipal market and the affect they may have on the returns offered for various bond maturities.

The Adviser manages credit risk by performing a fundamental credit analysis on tax exempt securities before the Fund purchases such securities. The Adviser considers various factors, including the following:

the economic feasibility of revenue bond financings and general purpose financings;
the financial condition of the issuer or guarantor; and
political developments that may affect credit quality.

The Adviser monitors the credit risks of all portfolio securities on an ongoing basis by reviewing periodic financial data and ratings of nationally recognized statistical rating organizations (NRSROs).

<R>

The Adviser attempts to provide superior levels of after-tax total return. After-tax total return consists of two components: (1) changes in the market value of the Fund's portfolio securities and attendant increase or decrease in the net asset value (NAV) of Fund shares; and (2) income received from the Fund's portfolio securities. The Adviser seeks total return on an after-tax basis, so that it will try to maximize tax exempt income distributions; make no ordinary income distributions; and minimize or eliminate capital gains distributions.

</R>

<R>

The Adviser's ability to formulate an accurate interest rate outlook, coupled with effective management of the Fund's duration as described above, is critical to the Adviser's achievement of this component of its strategy. The Adviser will seek to further enhance after-tax total return by engaging in a relative value analysis; that is, the Adviser will assess the cost of a tax exempt security compared with other tax exempt securities and taxable securities such as U.S. Treasury obligations. The Adviser may also allocate investments in sectors of the tax exempt market that offer the highest return. Finally, the Adviser will invest a portion of the portfolio in tax exempt securities subject to AMT, which may offer higher returns.

</R>

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to protect the Fund against circumstances that would normally cause the Fund's portfolio securities to decline in value, the Fund may buy or sell a derivative contract that would normally increase in value under the same circumstances. The Fund may also attempt to hedge by using combinations of different derivatives contracts, or derivatives contracts and securities. The Fund's ability to hedge may be limited by the costs of the derivatives contracts. The Fund may attempt to lower the cost of hedging by entering into transactions that provide only limited protection, including transactions that: (1) hedge only a portion of its portfolio; (2) use derivatives contracts that cover a narrow range of circumstances or; (3) involve the sale of derivatives contracts with different terms. Consequently, hedging transactions will not eliminate risk even if they work as intended. In addition, hedging strategies are not always successful, and could result in increased expenses and losses to the Fund.

Temporary Defensive Investments

The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term securities subject to federal income tax. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to receive and distribute taxable income to investors. It may also cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

What are the Principal Securities in Which the Fund Invests?

TAX EXEMPT SECURITIES

Tax exempt securities are fixed income securities that pay interest that is not subject to federal regular income taxes. Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically.

Typically, states, counties, cities and other political subdivisions and authorities issue tax exempt securities. The market categorizes tax exempt securities by their source of repayment.

Municipal Leases

Municipalities may enter into leases for equipment or facilities. In order to comply with state public financing laws, these leases are typically subject to annual appropriation. In other words, a municipality may end a lease, without penalty, by not providing for the lease payments in its annual budget. After the lease ends, the lessor can resell the equipment or facility but may lose money on the sale.

The Fund may invest in securities supported by pools of municipal leases. The most common type of lease backed securities is certificates of participation (COPs). However, the Fund may also invest directly in individual leases.

Inverse Floaters

An inverse floater has a floating or variable interest rate that moves in the opposite direction of market interest rates. When market interest rates go up, the interest rate paid on the inverse floater goes down; when market interest rates go down, the interest rate paid on the inverse floater goes up. Inverse floaters generally respond more rapidly to market interest rates changes than fixed rate tax exempt securities. Inverse floaters are subject to interest rate risks and leverage risks.

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a "coupon payment"). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate and credit risks of a zero coupon security.

General Obligation Bonds

General obligation bonds are supported by the issuer's power to exact property or other taxes. The issuer must impose and collect taxes sufficient to pay principal and interest on the bonds. However, the issuer's authority to impose additional taxes may be limited by its charter or state law.

Special Revenue Bonds

Special revenue bonds are payable solely from specific revenues received by the issuer such as specific taxes, assessments, tolls or fees. Bondholders may not collect from the municipality's general taxes or revenues. For example, a municipality may issue bonds to build a toll road, and pledge the tolls to repay the bonds. Therefore, a shortfall in the tolls normally would result in a default on the bonds.

Private Activity Bonds

Private activity bonds are special revenue bonds used to finance private entities. For example, a municipality may issue bonds to finance a new factory to improve its local economy. The municipality would lend the proceeds from its bonds to the company using the factory, and the company would agree to make loan payments sufficient to repay the bonds. The bonds would be payable solely from the company's loan payments, not from any other revenues of the municipality. Therefore, any default on the loan normally would result in a default on the bonds.

The interest on many types of private activity bonds is subject to AMT. The Fund may invest in bonds subject to AMT.

Tax Increment Financing Bonds

Tax increment financing (TIF) bonds are payable from increases in taxes or other revenues attributable to projects financed by the bonds. For example, a municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds would be payable solely from any increase in sales taxes collected from merchants in the area. The bonds could default if merchants' sales, and related tax collections, failed to increase as anticipated.

Variable Rate Demand Instruments

Variable rate demand instruments are tax exempt securities that require the issuer or a third party, such as a dealer or bank, to repurchase the security for its face value upon demand. The securities also pay interest at a variable rate intended to cause the securities to trade at their face value. The Fund treats demand instruments as short-term securities, because their variable interest rate adjusts in response to changes in market rates, even though their stated maturity may extend beyond 397 days.

Credit Enhancement

Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.

Futures Contracts

Futures contracts, which are a type of derivative contract, provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts.

The Fund may buy and sell interest rate and index financial futures contracts. Depending upon how the Fund uses futures contracts and the relationships between the market value of a futures contract and the underlying asset, futures contracts may increase or decrease the Fund's exposure to interest rate risks, and may also expose the Fund to liquidity and leverage risks.

SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default. These transactions create leverage risks.

Asset Coverage

In order to secure its obligations in connection with derivative contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.

Interest rate changes have a greater affect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.

Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investors Service. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.

Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.

LIQUIDITY RISKS

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

Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to. If this happens, the Fund will be required to continue to hold the security or keep the position open, and the Fund could incur losses.

CALL RISKS

Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.

If a fixed income security is called, the Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks or other less favorable characteristics.

SECTOR RISKS

A substantial part of the Fund's portfolio may be comprised of securities credit enhanced by banks, insurance companies or other companies with other similar characteristics. As a result, the Fund will be more susceptible to any economic, business, political or other developments which generally affect these issuers.

LEVERAGE RISKS

<R>

Investments can have these same results if their returns are based on a multiple of a specified index, security or other benchmark.

</R>

What Do Shares Cost?

You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated NAV plus any applicable front-end sales charge (public offering price). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	4.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	<R>1.00%</R>	1.00%

<R>

1 The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $250,000 or more will be invested in Class A Shares instead of Class B Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

</R>

2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%
<R>Class C Shares</R>
<R>All Purchases</R>	<R>1.00%</R>	<R>1.01%</R>

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

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

<R>

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

</R>

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

The sales charge will be eliminated when you purchase Shares:

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

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

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

You will not be charged a CDSC when redeeming Shares:

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

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

Shares that are not subject to a CDSC; and
<R>
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).
</R>

<R>

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

</R>

How is the Fund Sold?

<R>

The Fund offers three Share classes: Class A Shares, Class B Shares and Class C Shares, each representing interests in a single portfolio of securities.

</R>

The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to institutions or to individuals, directly or through investment professionals. The Fund may not be a suitable investment for retirement plans.

When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

<R>

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Class B Shares and Class C Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

</R>

How to Purchase Shares

<R>

You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares.

</R>

<R>

Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

</R>

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

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

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

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

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

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

THROUGH AN EXCHANGE

<R>

You may purchase Shares through an exchange from the same Share class of another Federated fund. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.

</R>

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

<R>

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

</R>

By Mail

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

You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

<R>

A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer or securities exchange member. A notary public cannot provide a signature guarantee.

</R>

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGE

<R>

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

</R>

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

<R>

The Fund may modify or terminate the exchange privilege at any time. The Fund's management or Adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated funds.

</R>

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income. Generally, it is not advisable to continue to purchase Class A Shares subject to a sales charge while redeeming Shares using this program.

Systematic Withdrawal Program (SWP) on Class B Shares

You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

You will be subject to a CDSC on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, your account is valued when you establish the SWP and then annually at calendar year-end. You can redeem monthly, quarterly or semi-annually.

<R>

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

</R>

ADDITIONAL CONDITIONS

Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption or exchange request. For your protection, send your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. It is anticipated that Fund distributions will be primarily dividends that are exempt from federal income tax, although a portion of the Fund's dividends may not be exempt. Dividends may be subject to state and local taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.

Who Manages the Fund?

The Board of Directors (Board) governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

<R>

The Adviser and other subsidiaries of Federated advise approximately 138 mutual funds and a variety of separate accounts, which totaled approximately $195 billion in assets as of December 31, 2002. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,700 employees. More than 5,000 investment professionals make Federated funds available to their customers.

</R>

THE FUND'S PORTFOLIO MANAGERS ARE:

J. Scott Albrecht

<R>

J. Scott Albrecht has been the Fund's Portfolio Manager since May 1996. Mr. Albrecht joined Federated in 1989. He has been a Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University.

</R>

Mary Jo Ochson

<R>

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

</R>

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.30% of the Fund's average daily net assets plus 4.50% of the Fund's gross income. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

Gross income includes, in general, discounts earned on U.S. Treasury bills and agency discount notes, interest earned on all interest-bearing obligations, and dividend income recorded on the ex-dividend date but does not include capital gains or losses or reduction for expenses.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

<R>

This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report. The information for the fiscal year ended 1999 was audited by other auditors.

</R>

Financial Highlights--Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2003			2002			2001			2000	¹		1999
Net Asset Value, Beginning of Period	$10.22			$10.45			$ 9.90			$10.87			$10.91
Income From Investment Operations:
Net investment income	0.47	²		0.47	³		0.47	²		0.58			0.53
Net realized and unrealized gain (loss) on investments and swap contracts	0.53			(0.23	)³		0.55			(1.02	)		(0.05	)

TOTAL FROM INVESTMENT OPERATIONS	1.00			0.24			1.02			(0.44	)		0.48

Less Distributions:
Distributions from net investment income	(0.47	)		(0.47	)		(0.47	)		(0.50	)		(0.52	)
Distributions from net realized gain on investments	--			--			--			(0.03	)		--

TOTAL DISTRIBUTIONS	(0.47	)		(0.47	)		(0.47	)		(0.53	)		(0.52	)

Net Asset Value, End of Period	$10.75			$10.22			$10.45			$ 9.90			$10.87

Total Return⁴	9.91	%		2.31	%		10.60	%		(4.01	)%		4.46	%


Ratios to Average Net Assets:

Expenses	0.85	%		0.86	%		0.88	%		0.92	%		0.87	%

Net investment income	4.41	%		4.52	%³		4.68	%		5.72	%		4.86	%

Expense waiver/reimbursement⁵	0.14	%		0.14	%		0.14	%		0.14	%		0.14	%

Supplemental Data:

Net assets, end of period (000 omitted)	$466,097		$450,049			$461,456			$471,475			$562,883

Portfolio turnover	54	%		35	%		28	%		68	%		31	%

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

2 Per share information is based on average shares outstanding.

3 Effective April 1, 2001, the Fund adopted provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. For the year ended March 31, 2002, this change had no effect on the net investment income per share, net realized and unrealized gain (loss) on investments per share, or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for periods prior to April 1, 2001 have not been restated to reflect this change in presentation.

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

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

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

Financial Highlights--Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2003			2002			2001			2000	¹		1999
Net Asset Value, Beginning of Period	$10.22			$10.45			$ 9.90			$10.87			$10.91
Income From Investment Operations:
Net investment income	0.37	²		0.38	³		0.38	²		0.48			0.43
Net realized and unrealized gain (loss) on investments and swap contracts	0.53			(0.23	)³		0.55			(1.01	)		(0.05	)

TOTAL FROM INVESTMENT OPERATIONS	0.90			0.15			0.93			(0.53	)		0.38

Less Distributions:
Distributions from net investment income	(0.37	)		(0.38	)		(0.38	)		(0.41	)		(0.42	)
Distributions from net realized gain on investments	--			--			--			(0.03	)		--

TOTAL DISTRIBUTIONS	(0.37	)		(0.38	)		(0.38	)		(0.44	)		(0.42	)

Net Asset Value, End of Period	$10.75			$10.22			$10.45			$ 9.90			$10.87

Total Return⁴	8.94	%		1.41	%		9.62	%		(4.85	)%		3.53	%


Ratios to Average Net Assets:

Expenses	1.74	%		1.75	%		1.77	%		1.81	%		1.76	%

Net investment income	3.52	%		3.63	%³		3.79	%		4.68	%		3.97	%

Supplemental Data:

Net assets, end of period (000 omitted)	$77,381		$71,429			$71,511			$72,095			$88,756

Portfolio turnover	54	%		35	%		28	%		68	%		31	%

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

2 Per share information is based on average shares outstanding.

3 Effective April 1, 2001, the Fund adopted provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. For the year ended March 31, 2002, this change had no effect on the net investment income per share, net realized and unrealized gain (loss) on investments per share, or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for periods prior to April 1, 2001 have not been restated to reflect this change in presentation.

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

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

Financial Highlights--Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2003			2002			2001			2000	¹		1999
Net Asset Value, Beginning of Period	$10.22			$10.45			$ 9.90			$10.87			$10.91
Income From Investment Operations:
Net investment income	0.37	²		0.38	³		0.38	²		0.48			0.43
Net realized and unrealized gain (loss) on investments and swap contracts	0.53			(0.23	)³		0.55			(1.01	)		(0.05	)

TOTAL FROM INVESTMENT OPERATIONS	0.90			0.15			0.93			(0.53	)		0.38

Less Distributions:
Distributions from net investment income	(0.37	)		(0.38	)		(0.38	)		(0.41	)		(0.42	)
Distributions from net realized gain on investments	--			--			--			(0.03	)		--

TOTAL DISTRIBUTIONS	(0.37	)		(0.38	)		(0.38	)		(0.44	)		(0.42	)

Net Asset Value, End of Period	$10.75			$10.22			$10.45			$ 9.90			$10.87

Total Return⁴	8.94	%		1.41	%		9.63	%		(4.85	)%		3.54	%


Ratios to Average Net Assets:

Expenses	1.74	%		1.75	%		1.76	%		1.80	%		1.75	%

Net investment income	3.52	%		3.63	%³		3.80	%		4.68	%		3.98	%

Expense waiver/reimbursement⁵	--			--			0.01	%		0.01	%		0.01	%

Supplemental Data:

Net assets, end of period (000 omitted)	$13,324		$9,188			$9,620			$10,601			$16,870

Portfolio turnover	54	%		35	%		28	%		68	%		31	%

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

2 Per share information is based on average shares outstanding.

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

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

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

<R>

A Statement of Additional Information (SAI) dated May 31, 2003, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

</R>

You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Federated Investors
World-Class Investment Manager

Federated Municipal Securities Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-2677

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

Cusip 313913105
Cusip 313913204
Cusip 313913303

<R>

G00322-01 (5/03)

</R>

FEDERATED MUNICIPAL SECURITIES FUND, INC.

Statement of Additional Information

<R>

May 31, 2003

</R>

Class A Shares
Class B Shares
Class C Shares

<R>

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Municipal Securities Fund,
Inc. (Fund), dated May 31, 2003. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

</R>

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to
the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses

<R>

8051601B (5/03)

</R>

HOW IS THE FUND ORGANIZED?

<R>

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on September 10, 1976.

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

</R>

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

Fixed Income Securities

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities, in addition to
those described in the prospectus, in which the Fund invests.

Tax Exempt Securities

Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.

Municipal Notes

Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long- term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

<R>

Derivative Contracts

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets or instruments. Some derivative
contracts (such as futures, forwards and options) require payments relating to a
future trade involving the underlying asset. Other derivative contracts (such as
swaps) require payments relating to the income or returns from the underlying
asset or instrument. The other party to a derivative contract is referred to as
a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset or
instrument, derivative contracts may increase or decrease the Fund's exposure to
interest rate risks, and may also expose the Fund to liquidity, leverage and tax
risks. OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts, as well as
combinations of these contracts, including, but not limited to, options on
futures contracts, options on forward contracts and options on swaps.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset or instrument at a
specified price, date, and time. Entering into a contract to buy an underlying
asset is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.

The Fund may buy or sell the following types of futures (including forward)
contracts: interest rate and index financial futures contracts.

OPTIONS

Options are rights to buy or sell an underlying asset or instrument for a
specified price (the exercise price) during, or at the end of, a specified
period. A call option gives the holder (buyer) the right to buy the underlying
asset or instrument from the seller (writer) of the option. A put option gives
the holder the right to sell the underlying asset or instrument to the writer of
the option. The writer of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option. If the Fund writes options on futures contracts, it will
be subject to margin requirements similar to those applied to futures contracts.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets or instruments with differing
characteristics. Most swaps do not involve the delivery of the underlying assets
or instruments by either party, and the parties might not own the assets or
instruments underlying the swap. The payments are usually made on a net basis so
that, on any given day, the Fund would receive (or pay) only the amount by which
its payment under the contract is less than (or exceeds) the amount of the other
party's payment. Swap agreements are sophisticated instruments that can take
many different forms, and are known by a variety of names including caps,
floors, and collars. Common swap agreements that the Fund may use include:

Interest Rate Swaps

Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated, national
principal amount of fixed income securities, in return for payments equal to a
different fixed or floating rate times the same notional principal amount, for a
specific period. For example, a $10 million London Interbank Offer Rate (LIBOR)
swap would require one party to pay the equivalent of the of interest (which
fluctuates) on $10 million notional principal amount in exchange for the right
to receive the equivalent of a stated fixed rate of interest on $10 million
notional principal amount.

Caps and Floors

Caps and floors are contracts in which one party agrees to make payments only if
an interest rate or index goes above (cap) or below (floor) a certain level in
return for a fee from the other party.

Total Return Swaps

Total return swaps are contracts in which one party agrees to make payments of
the total return from the underlying asset or instrument during the specified
period, in return for payments equal to a fixed or floating rate of interest or
the total return from another underlying asset or instrument.

</R>

Temporary Defensive Investments

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

Corporate Debt Securities

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

Commercial Paper

Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.

Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

Agency Securities

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

Bank Instruments

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

Special Transactions

Inter-Fund Borrowing and Lending Arrangements

The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain temporary
purposes directly to and from other Federated funds. Participation in this
inter-fund lending program is voluntary for both borrowing and lending funds,
and an inter-fund loan is only made if it benefits each participating fund.
Federated Investors, Inc. (Federated) administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(Repo Rate) and more attractive to the borrowing fund than the rate of interest
that would be charged by an unaffiliated bank for short-term borrowings (Bank
Loan Rate), as determined by the Board. The interest rate imposed on inter-fund
loans is the average of the Repo Rate and the Bank Loan Rate.

Repurchase Agreements

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed-upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or sub- custodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Investment Ratings for Investment Grade Securities

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard & Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

<R>

Credit Risks

The Fund may invest up to 100% of its assets in fixed income securities rated
BBB or in unrated but comparable securities. Fixed income securities generally
compensate for greater credit risk by paying interest at a higher rate. The
difference between the yield of a security and the yield of a "AAA" rated
general obligation security or index with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.

Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

</R>

<R>

Tax Risks

In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable. Changes or proposed
changes in federal tax laws may cause the prices of municipal securities to
fall.

The federal income tax treatment of payments in respect of certain derivative
contracts is unclear. Additionally, the Fund may not be able to close out
certain derivative contracts when it wants to. Consequently, the Fund may
receive payments that are treated as ordinary income for federal income tax
purposes.

</R>

<R>

Liquidity Risks

Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivatives contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses. OTC derivative contracts
generally carry greater liquidity risk than exchange-traded contracts.

</R>

<R>

Leverage Risks

Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain. Investments can have
these same results if their returns are based on a multiple of a specified
index, security, or other benchmark.

</R>

Risks Associated with Noninvestment Grade Securities

Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.

Ordinarily, the Fund will invest primarily in a portfolio of investment grade
securities and unrated securities determined to be of equivalent quality. The
remainder of the portfolio may be invested in securities rated below investment
grade.

Fundamental Investment Objective and Policy

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. The
Fund will invest its assets so that at least 80% of the income that it
distributes will be exempt from federal regular income tax. The investment
objective and policy may not be changed by the Board without shareholder
approval.

INVESTMENT LIMITATIONS

Diversification

With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities, and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.

Borrowing Money and Issuing Senior Securities

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940 (1940
Act).

Investing in Real Estate

The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.

Investing in Commodities

The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities. For purposes of
this restriction, investments in transactions involving futures contracts and
options, forward currency contracts, swap transactions and other financial
contracts that settle by payment of cash are not deemed to be investments in
commodities.

Underwriting

The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.

Lending

The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

Concentration

The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry,
provided that the Fund may invest more that 25% of the value of its assets in
industrial development bonds. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry. As to industrial
development bonds, the Fund may purchase securities of an issuer resulting in
the ownership of more than 25% of the Fund's assets in one industry, and the
Fund reserves the right to invest more than 25% of its assets in industrial
development bonds in the same state.

The above limitations cannot be changed unless authorized by the Board and by
the "vote of a majority of its outstanding voting securities," as defined by the
1940 Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

Pledging Assets

The Fund will not mortgage, pledge or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.

Purchases on Margin

The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.

Restricted Securities

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the board, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.

To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration tests as long as the policy of the SEC remains in
effect.

The Fund applies its concentration of investments restrictions as follows:

o utility companies will be divided according to their services, for example,
gas, gas transmissions, electric and telephone will each be considered a
separate industry;

o financial service companies will be classified according to the end users
of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and

o asset backed securities will be classified according to the underlying
assets securing such securities.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;

o for fixed income securities, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that fixed
income securities with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost; and

o for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

REDUCING OR eliminating THE FRONT-END SALES CHARGE

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

<R>

Quantity Discounts (Class A Shares only)

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

</R>

<R>

Accumulated Purchases (Class A Shares only)

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

</R>

<R>

Concurrent Purchases (Class A Shares only)

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

</R>

<R>

Letter of Intent (Class A Shares only)

You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.

</R>

Reinvestment Privilege

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

Purchases by Affiliates of the Fund

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

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

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

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

<R>

Purchases through Omnibus Accounts (Class C Shares only)

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

</R>

Federated Life Members

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

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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

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

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

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;

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

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

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

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

Class B Shares Only

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

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES

The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.

RULE 12B-1 PLAN (Class B Shares and Class C Shares)

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professionals.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.

SUPPLEMENTAL PAYMENTS

Investment professionals (such as broker/dealers or banks) may be paid fees, in
significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services Company. (These fees do not come out of Fund assets.) The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts. These payments may be based upon such factors
as the number or value of Shares the investment professional sells or may sell;
the value of client assets invested; and/or the type and nature of sales or
marketing support furnished by the investment professional.

When an investment professional's customer purchases Shares, the investment
professional may receive:

o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.

Class A Shares

Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:

Advance Payments
as a Percentage
of Public Offering
Amount Price

First $1 - $5 0.75%
million

Next $5 - $20 0.50%
million

Over $20 million 0.25%

For accounts with assets over $1 million, the dealers advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.

A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase. The CDSC does not apply under certain investment
programs where the investment professional does not receive an advance payment
on the transaction including, but not limited to, trust accounts and wrap
programs where the investor pays an account level fee for investment management.

EXCHANGING SECURITIES FOR SHARES

You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

<R>

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.

All Shares of the Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that class are entitled to
vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding Shares.

As of May 1, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class A Shares: Edward Jones & Co., Maryland
Heights, MO., owned approximately 3,727,249 Shares (8.05%).

As of May 1, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class B Shares: Edward Jones & Co., Maryland
Heights, MO., owned approximately 489,177 Shares (6.76%).

As of May 1, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class C Shares: MLPF&S, Jacksonville, FL.,
owned approximatly 259,927 Shares (19.05%) and Edward Jones & Co., Maryland
Heights, MO., owned approximately 189,165 Shares (13.86%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

</R>

TAX INFORMATION

<R>

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will be subject to federal
corporate income tax.

The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.

</R>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

<R>

BOARD OF DIRECTORS

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders. The
following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. The Corporation comprises one portfolio and the
Federated Fund Complex consists of 44 investment companies (comprising 138
portfolios). Unless otherwise noted, each Officer is elected annually. Unless
otherwise noted, each Board member oversees all portfolios in the Federated Fund
Complex; serves for an indefinite term; and also serves as a Board member of the
following investment company complexes: Banknorth Funds-four portfolios; CCMI
Funds-two portfolios; Regions Funds-nine portfolios; Riggs Funds-eight
portfolios; and WesMark Funds-five portfolios.

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

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

Principal Occupation(s) for Past Aggregate Total
Name Five Years, Other Directorships Compensation Compensation
Birth Date Held and Previous Position(s) From Fund From Fund and
Address past Federated Fund
Positions Held with (fiscal Complex
Fund year) (past calendar year)
Date Service Began

Principal Occupations: Chairman $0 $0
John F. Donahue* and Director or Trustee of the
Birth Date: July Federated Fund Complex; Chairman
28, 1924 and Director, Federated
CHAIRMAN AND Investors, Inc.
DIRECTOR ---------------------------------
Began serving:
September 1976 Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and
Director, Federated Investment
Counseling.

Principal Occupations: Principal $0 $0
J. Christopher Executive Officer and President
Donahue* of the Federated Fund Complex;
Birth Date: April Director or Trustee of some of
11, 1949 the Funds in the Federated Fund
PRESIDENT AND Complex; President, Chief
DIRECTOR Executive Officer and Director,
Began serving: Federated Investors, Inc.;
December 1986 Chairman and Trustee, Federated
Investment Management Company;
Trustee, Federated Investment
Counseling; Chairman and
Director, Federated Global
Investment Management Corp.;
Chairman, Passport Research,
Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services
Company.

Previous Positions: President,
Federated Investment Counseling;
President and Chief Executive
Officer, Federated Investment
Management Company, Federated
Global Investment Management
Corp.; and Passport Research,
Ltd.

Principal Occupations: Director $1,320.99 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
DIRECTOR University of Pittsburgh Medical
Began serving: Center.
August 1987
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue
is the father of J. Christopher Donahue; both are "interested" due to the
positions they hold with Federated and its subsidiaries. Lawrence D. Ellis,
M.D. is "interested" because his son-in-law is employed by the Fund's
principal underwriter, Federated Securities Corp.

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

INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION

Principal Occupation: Director $1,453.10 $163,350
Thomas G. Bigley or Trustee of the Federated Fund
Birth Date: Complex.
February 3, 1934 ---------------------------------
15 Old Timber Trail
Pittsburgh, PA Other Directorships Held:
DIRECTOR Director, Member of Executive
Began serving: Committee, Children's Hospital
November 1994 of Pittsburgh; Director,
University of Pittsburgh.
.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director $1,453.10 $163,350
John T. Conroy, Jr. or Trustee of the Federated Fund
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
3838 Tamiami Trail Previous Positions: President,
N. Investment Properties
Naples, FL Corporation; Senior Vice
DIRECTOR President, John R. Wood and
Began serving: Associates, Inc., Realtors;
August 1991 President, Naples Property
Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director $1,453.10 $163,350
Nicholas P. or Trustee of the Federated Fund
Constantakis Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Drive Director, Michael Baker
Pittsburgh, PA Corporation (engineering and
DIRECTOR energy services worldwide).
Began serving:
February 1998 Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director $1,320.99 $148,500
John F. Cunningham or Trustee of the Federated Fund
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
DIRECTOR Executive Officer, Cunningham
Began serving: July & Co., Inc. (strategic
1999 business consulting); Trustee
Associate, Boston College.

Previous Positions: Director,
Redgate Communications and EMC
Corporation (computer storage
systems); Chairman of the Board
and Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief Operating
Officer, Wang Laboratories;
Director, First National Bank of
Boston; Director, Apollo
Computer, Inc.

Principal Occupation: Director $1,320.99 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
DIRECTOR Previous Positions:
Began serving: Representative, Commonwealth of
August 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director,
VISA USA and VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust Corporation;
Director, The Boston Stock
Exchange.

Principal Occupations: Director $1,453.10 $163,350
Charles F. or Trustee of the Federated Fund
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
DIRECTOR Previous Positions: Chief
Began serving: July Executive Officer, PBTC
1999 International Bank; Partner,
Arthur Young & Company (now
Ernst & Young LLP); Chief
Financial Officer of Retail
Banking Sector, Chase Manhattan
Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine
Midland Bank); Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.

John E. Murray, Principal Occupations: Director $1,585,20 $178,200
Jr., J.D., S.J.D. or Trustee of the Federated Fund
Birth Date: Complex; Chancellor and Law
December 20, 1932 Professor, Duquesne University;
Chancellor, Consulting Partner, Mollica
Duquesne University & Murray.
Pittsburgh, PA
DIRECTOR Other Directorships Held:
Began serving: Director, Michael Baker Corp.
February 1995 (engineering, construction,
operations and technical
services).

Previous Positions: President,
Duquesne University; Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean
and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director $1,320.99 $148,500
Marjorie P. Smuts or Trustee of the Federated Fund
Birth Date: June Complex; Public
21, 1935 Relations/Marketing
4905 Bayard Street Consultant/Conference
Pittsburgh, PA Coordinator.
DIRECTOR
Began serving: Previous Positions: National
February 1984 Spokesperson, Aluminum Company
of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director $1,320.99 $148,500
John S. Walsh or Trustee of the Federated Fund
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
DIRECTOR Director, Manufacturers
Began serving: Products, Inc. (distributor of
January 1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.

Previous Position: Vice
President, Walsh & Kelly,
Inc.

OFFICERS**

Name Principal Occupation(s) and Previous Position(s)
Birth Date
Positions Held with Fund

Date Service Began
Principal Occupations: Executive Vice President of
Edward C. Gonzales some of the Funds in the Federated Fund Complex; Vice
Birth Date: October 22, 1930 Chairman, Federated Investors, Inc.; Trustee,
EXECUTIVE VICE PRESIDENT Federated Administrative Services.
Began serving: June 1995
Previous Positions: President and Trustee or Director
of some of the Funds in the Federated Fund Complex;
CEO and Chairman, Federated Administrative Services;
Vice President, Federated Investment Management
Company, Federated Investment Counseling, Federated
Global Investment Management Corp. and Passport
Research, Ltd.; Director and Executive Vice President,
Federated Securities Corp.; Director, Federated
Services Company; Trustee, Federated Shareholder
Services Company.

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive
Birth Date: October 26, 1938 Vice President, Secretary and Director, Federated
EXECUTIVE VICE PRESIDENT AND Investors, Inc.
SECRETARY
Began serving: September 1976 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment
Counseling; Director, Federated Global Investment
Management Corp., Federated Services Company and
Federated Securities Corp.

Principal Occupations: Principal Financial Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
Began serving: November 1998 Previous Positions: Vice President, Federated
Administrative Services; held various management
positions within Funds Financial Services Division of
Federated.

Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE PRESIDENT Federated Securities Corp.
Began serving: January 1985
Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.
and Director and Chief Executive Officer, Federated
Securities Corp.

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

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

Mary Jo Ochson has been the Fund's Portfolio Manager
Mary Jo Ochson since May 1996. She is Vice President of the Fund. Ms.
Birth Date: September 12, 1953 Ochson joined Federated in 1982 and has been a Senior
VICE PRESIDENT Portfolio Manager and a Senior Vice President of the
Began serving: November 1998 Fund's Adviser since 1996. From 1988 through 1995, Ms.
Ochson served as a Portfolio Manager and a Vice
President of the Fund's Adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in
Finance from the University of Pittsburgh.

** Officers do not receive any compensation from the Fund.

Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and
Assistant Secretary of Federated and an officer of its various advisory and
underwriting subsidiaries, has served as a Term Member on the Board of Directors
of Duquesne University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John
E. Murray, Jr., an Independent Director of the Fund, served as President of
Duquesne from 1988 until his retirement from that position in 2001, and became
Chancellor of Duquesne on August 15, 2001. It should be noted that Mr. Donahue
abstains on any matter that comes before Duquesne's Board that affects Mr.
Murray personally.

COMMITTEES OF THE BOARD
Committee Functions Meetings
Held
During
Last
Board Committee Fiscal
Committee Members Year
Executive John F. Donahue In between meetings of the full Board, One
John E. Murray, the Executive Committee generally may
Jr., J.D., S.J.D. exercise all the powers of the full Board
in the management and direction of the
business and conduct of the affairs of
the Corporation in such manner as the
Executive Committee shall deem to be in
the best interests of the Corporation.
However, the Executive Committee cannot
elect or remove Board members, increase
or decrease the number of Directors,
elect or remove any Officer, declare
dividends, issue shares or recommend to
shareholders any action requiring
shareholder approval.

Audit Thomas G. Bigley The Audit Committee reviews and Four
John T. Conroy, recommends to the full Board the
Jr. independent auditors to be selected to
Nicholas P. audit the Fund`s financial statements;
Constantakis meets with the independent auditors
Charles F. periodically to review the results of the
Mansfield, Jr. audits and reports the results to the
full Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance policies
and programs, and the related reports
received from regulators; reviews the
Fund `s internal audit function; reviews
compliance with the Fund`s code of
conduct/ethics; reviews valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigates any matters brought to the
Committee's attention that are within the
scope of its duties.

Board ownership of shares in the fund and in the FEDERATED family of
Investment companies AS OF DECEMBER 31, 2002
----------------------------------------------------------------------------
Dollar Aggregate
Range of Dollar Range of
Shares Shares Owned in
Owned Federated
in Fund Family of
Interested Investment
Board Member Name Companies

John F. Donahue None Over $100,000

J. Christopher None Over $100,000
Donahue

Lawrence D. Ellis, $1-$10,000 Over $100,000
M.D.

Independent Board Member Name

Thomas G. Bigley None Over $100,000

John T. Conroy, Jr. None Over $100,000

Nicholas P. None Over $100,000
Constantakis

John F. Cunningham None Over $100,000

Peter E. Madden None Over $100,000

Charles F. None $50,001 - $100,000
Mansfield, Jr.

John E. Murray,
Jr., J.D., S.J.D. -- None Over $100,000

Marjorie P. Smuts None Over $100,000

John S. Walsh None Over $100,000

</R>
----------------------------------------------------------------------------

<R>

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's investment
advisory contract. The Board's decision to approve the contract reflects the
exercise of its business judgment on whether to continue the existing
arrangements. During its review of the contract, the Board considers many
factors, among the most material of which are: the Fund's investment objectives
and long term performance; the Adviser's management philosophy, personnel, and
processes; the preferences and expectations of Fund shareholders and their
relative sophistication; the continuing state of competition in the mutual fund
industry; comparable fees in the mutual fund industry; the range and quality of
services provided to the Fund and its shareholders by the Federated organization
in addition to investment advisory services; and the Fund's relationship to the
Federated funds.

In assessing the Adviser's performance of its obligations, the Board also
considers whether there has occurred a circumstance or event that would
constitute a reason for it to not renew an advisory contract. In this regard,
the Board is mindful of the potential disruptions of the Fund's operations and
various risks, uncertainties and other effects that could occur as a result of a
decision to terminate or not renew an advisory contract. In particular, the
Board recognizes that most shareholders have invested in the Fund on the
strength of the Adviser's industry standing and reputation and in the
expectation that the Adviser will have a continuing role in providing advisory
services to the Fund.

The Board also considers the compensation and benefits received by the Adviser.
This includes fees received for services provided to the Fund by other entities
in the Federated organization and research services received by the Adviser from
brokers that execute fund trades, as well as advisory fees. In this regard, the
Board is aware that various courts have interpreted provisions of the 1940 Act
and have indicated in their decisions that the following factors may be relevant
to an Adviser's compensation: the nature and quality of the services provided by
the Adviser, including the performance of the Fund; the Adviser's cost of
providing the services; the extent to which the Adviser may realize "economies
of scale" as the Fund grows larger; any indirect benefits that may accrue to the
Adviser and its affiliates as a result of the Adviser's relationship with the
Fund; performance and expenses of comparable funds; and the extent to which the
independent Board members are fully informed about all facts bearing on the
Adviser's service and fee. The Fund's Board is aware of these factors and takes
them into account in its review of the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its substantial
accumulated experience in governing the Fund and working with Federated on
matters relating to the Federated funds, and is assisted in its deliberations by
the advice of independent legal counsel. In this regard, the Board requests and
receives a significant amount of information about the Fund and the Federated
organization. Federated provides much of this information at each regular
meeting of the Board, and furnishes additional reports in connection with the
particular meeting at which the Board's formal review of the advisory contracts
occurs. In between regularly scheduled meetings, the Board may receive
information on particular matters as the need arises. Thus, the Board's
evaluation of an advisory contract is informed by reports covering such matters
as: the Adviser's investment philosophy, personnel, and processes; the Fund's
short- and long-term performance (in absolute terms as well as in relationship
to its particular investment program and certain competitor or "peer group"
funds), and comments on the reasons for performance; the Fund's expenses
(including the advisory fee itself and the overall expense structure of the
Fund, both in absolute terms and relative to similar and/or competing funds,
with due regard for contractual or voluntary expense limitations); the use and
allocation of brokerage commissions derived from trading the Fund's portfolio
securities; the nature and extent of the advisory and other services provided to
the Fund by the Adviser and its affiliates; compliance and audit reports
concerning the Federated funds and the Federated companies that service them;
and relevant developments in the mutual fund industry and how the Federated
funds and/or Federated are responding to them.

The Board also receives financial information about Federated, including reports
on the compensation and benefits Federated derives from its relationships with
the Federated funds. These reports cover not only the fees under the advisory
contracts, but also fees received by Federated's subsidiaries for providing
other services to the Federated funds under separate contracts (e.g., for
serving as the Federated funds' administrator and transfer agent). The reports
also discuss any indirect benefit Federated may derive from its receipt of
research services from brokers who execute Federated fund trades.

The Board bases its decision to approve an advisory contract on the totality of
the circumstances and relevant factors, and with a view to past and future
long-term considerations. Not all of the factors and considerations identified
above are relevant to every Federated fund, nor does the Board consider any one
of them to be determinative. Because the totality of circumstances includes
considering the relationship of each Federated fund, the Board does not approach
consideration of every Federated fund's advisory contract as if that were the
only Federated fund offered by Federated.

</R>

Other Related Services

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

Code of Ethics Restrictions on Personal Trading

As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Directors, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

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

Average Aggregate Daily
Maximum Net Assets of the
Administrative Fee Federated funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
on assets in excess of
0.075 of 1% $750 million

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

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT Auditors

The independent auditor for the Fund, Ernst & Young LLP, conducts its audits
in accordance with auditing standards generally accepted in the United States of
America, which require it to plan and perform its audits to provide reasonable
assurance about whether the Fund's financial statements and financial highlights
are free of material misstatement.

<R>

FEES PAID BY THE FUND FOR SERVICES
For the Year Ended March 31 2003 2002 2001

Advisory Fee Earned $2,991,220 $2,939,907 $2,966,085
Advisory Fee Reduction 0 0 0
Advisory Fee Reimbursement 0 0 0
Brokerage Commissions 0 0 0
Administrative Fee $418,946 $408,152 $405,789
12b-1 Fee:
Class B Shares $563,576 -- --
Class C Shares $80,687 -- --
Shareholder Services Fee:
Class A Shares $518,328 -- --
Class B Shares $187,858 -- --
Class C Shares $26,896 -- --

----------------------------------------------------------------------------
</R>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard methods for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.

Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
and/or the value of portfolio holdings fluctuate daily. Both net earnings and
offering price per Share are factors in the computation of yield and total
return.

<R>

Average Annual Total Returns and Yield

Total returns are given for the one-year, five-year, ten-year and Start of
Performance periods ended March 31, 2003.

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

30-Day 1 Year 5 Years 10 Years
Period
Class A Shares:
Total Return
Before Taxes NA 4.98% 3.57% 4.39%
After Taxes on NA 4.98% 3.55% 4.28%
Distributions
After Taxes on NA 4.78% 3.72% 4.43%
Distributions
and Sale of Shares
Yield 3.39% NA NA NA
Tax-Equivalent Yield 5.52% NA NA NA

30-Day 1 Year 5 Years Start of
Period Performance
on 7/26/1994
Class B Shares:
Total Return
Before Taxes NA 3.44% 3.25% 4.32%
After Taxes on NA 3.44% 3.23% 4.23%
Distributions
After Taxes on NA 3.55% 3.33% 4.26%
Distributions
and Sale of Shares
Yield 2.66% NA NA NA
Tax-Equivalent Yield 4.33% NA NA NA
------------------------------------------------------------------------

----------------------------------------------------------------------------
30-Day 1 Year 5 Years Start of
Period Perfomance on
4/21/1993
Class C Shares:
Total Return
Before Taxes NA 6.89% 3.39% 3.76%
After Taxes on NA 6.89% 3.37% 3.65%
Distributions
After Taxes on NA 5.65% 3.44% 3.78%
Distributions
and Sale of Shares
Yield 2.66% NA NA NA
Tax-Equivalent Yield 4.33% NA NA NA
------------------------------------------------------------------------

</R>
----------------------------------------------------------------------------

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $10,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $10,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions. Total returns after taxes are calculated in a
similar manner, but reflect additional standard assumptions required by the SEC.

YIELD AND Tax-Equivalent YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming the
maximum combined federal and state tax rate. The yield and tax-equivalent yield
do not necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

TAX EQUIVALENCY TABLE

Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.

<R>

TAX EQUIVALENCY TABLE
TAXABLE YIELD EQUIVALENT FOR 2003
MULTISTATE MUNICIPAL FUND
------------ ----------- --------- ---------- ----------- ----------- -----------
TAX
BRACKET:
FEDERAL 10.00% 15.00% 27.00% 30.00% 35.00% 38.60%

------------ ----------- --------- ---------- ----------- ----------- -----------
------------ ----------- --------- ---------- ----------- ----------- -----------
JOINT $0- $12,001 - $47,451- $114,651 - $174,701 - OVER
RETURN: $12,000 $47,450 $114,650 174,700 311,950 $311,950

SINGLE $0- $6,001 - $28,401- $68,801 - $143,501 - OVER
RETURN: $6,000 $28,400 $68,800 $143,500 $311,950 $311,950

------------ ----------- --------- ---------- ----------- ----------- -----------
------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
------------ ----------- --------- ---------- ------------ ----------- -----------
0.50% 0.56% 0.59% 0.68% 0.71% 0.77% 0.81%
1.00% 1.11% 1.18% 1.37% 1.43% 1.54% 1.63%
1.50% 1.67% 1.76% 2.05% 2.14% 2.31% 2.44%
2.00% 2.22% 2.35% 2.74% 2.86% 3.08% 3.26%
2.50% 2.78% 2.94% 3.42% 3.57% 3.85% 4.07%
3.00% 3.33% 3.53% 4.11% 4.29% 4.62% 4.89%
3.50% 3.89% 4.12% 4.79% 5.00% 5.38% 5.70%
4.00% 4.44% 4.71% 5.48% 5.71% 6.15% 6.51%
4.50% 5.00% 5.29% 6.16% 6.43% 6.92% 7.33%
5.00% 5.56% 5.88% 6.85% 7.14% 7.69% 8.14%
5.50% 6.11% 6.47% 7.53% 7.86% 8.46% 8.96%
6.00% 6.67% 7.06% 8.22% 8.57% 9.23% 9.77%
6.50% 7.22% 7.65% 8.90% 9.29% 10.00% 10.59%
7.00% 7.78% 8.24% 9.59% 10.00% 10.77% 11.40%
7.50% 8.33% 8.82% 10.27% 10.71% 11.54% 12.21%
8.00% 8.89% 9.41% 10.96% 11.43% 12.31% 13.03%
8.50% 9.44% 10.00% 11.64% 12.14% 13.08% 13.84%
9.00% 10.00% 10.59% 12.33% 12.86% 13.85% 14.66%
9.50% 10.56% 11.18% 13.01% 13.57% 14.62% 15.47%
10.00% 11.11% 11.76% 13.70% 14.29% 15.38% 16.29%
10.50% 11.67% 12.35% 14.38% 15.00% 16.15% 17.10%
11.00% 12.22% 12.94% 15.07% 15.71% 16.92% 17.92%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.

</R>

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and

o information about the mutual fund industry from sources such as the
Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

Lipper, Inc.

Lipper, Inc. ranks funds in various fund categories by making comparative
calculations using total return. Total return assumes the reinvestment of all
capital gains distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From time to time, the
Fund will quote its Lipper ranking in the general municipal bond funds category
in advertising and sales literature.

Lehman Brothers Municipal Bond Index

Lehman Brothers Municipal Bond Index is an unmanaged broad based total return
performance benchmark for the long-term, investment grade bond market.

Morningstar, Inc.

Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

Federated Funds overview

<R>

Municipal Funds

In the municipal sector, as of December 31, 2002, Federated managed 14 bond
funds with approximately $3.2 billion in assets and 22 money market funds with
approximately $20.6 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

</R>

<R>

Equity Funds

In the equity sector, Federated has more than 31 years' experience. As of
December 31, 2002, Federated managed 37 equity funds totaling approximately
$16.2 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

</R>

<R>

Corporate Bond Funds

In the corporate bond sector, as of December 31, 2002, Federated managed 10
money market funds and 9 bond funds with assets approximating $59.4 billion and
$6.0 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 29 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

</R>

<R>

Government Funds

In the government sector, as of December 31, 2002, Federated managed 7 mortgage
backed, 3 multi-sector government funds, 4 government/agency and 19 government
money market mutual funds, with assets approximating $4.9 billion, $0.9 billion,
$2.9 billion and $56.2 billion, respectively. Federated trades approximately
$90.4 billion in U.S. government and mortgage backed securities daily and places
approximately $35 billion in repurchase agreements each day. Federated
introduced the first U.S. government fund to invest in U.S. government bond
securities in 1969. Federated has been a major force in the short- and
intermediate-term government markets since 1982 and currently manages
approximately $50 billion in government funds within these maturity ranges.

</R>

<R>

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
2002, Federated managed $136.2 billion in assets across 52 money market funds,
including 19 government, 10 prime, 22 municipal and 1 euro-denominated with
assets approximating $56.2 billion, $59.4 billion, $20.6 billion and $173.9
million, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Global Equity - Stephen F. Auth is
responsible for overseeing the management of Federated's domestic and
international equity products; Global Fixed Income - William D. Dawson III is
responsible for overseeing the management of Federated's domestic and
international fixed income and high yield products.

</R>

Mutual Fund Market

Forty-nine percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $6.2 trillion to the approximately 8,300 funds available,
according to the Investment Company Institute.

Federated Clients Overview

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

Institutional Clients

Federated meets the needs of approximately 3,035 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.

Bank Marketing

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.

FINANCIAL INFORMATION

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

INVESTMENT RATINGS

<R>

Standard & Poor's Short-Term Municipal Obligation Ratings A Standard &
Poor's (S&P) note rating reflects the liquidity concerns and market access
risks unique to notes.

SP-1-- Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus sign (+)
designation.

SP-2--Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-term
rating) addresses the likelihood of repayment of principal and interest when
due, and the second rating (short-term rating) describes the demand
characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions
for the long-term and the short-term ratings are provided below.)

Commercial Paper (CP) Ratings

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.

A-1--A Short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign(+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2--A Short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions that
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

Standard & Poor's Long-Term Debt Ratings

AAA--An obligation rated 'AAA' has the highest assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA--An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A--An obligation rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

Moody's Investors Service Short-Term Municipal Obligation Ratings

Moody's Investors Service (Moody's) short-term ratings are designated Moody's
Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.

MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.

MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.

Commercial Paper (CP) Ratings

Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of seniorshort-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structure with moderate reliance on
debt and ample asset protection, broad margins in earning coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.

Prime-2--Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Long-Term Debt Ratings

Aaa-- Bonds and preferred stock which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa-- Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.

A-- Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future.

NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.

NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.

NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.

NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.

Fitch Ratings Short-Term Debt Rating Definitions

F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. Under their
national rating scale, this rating is assigned to the "best" credit risk
relative to all others in the same country and is normally assigned to all
financial commitments issued or guaranteed by the sovereign state. Where the
credit risk is particularly strong, a "+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. However,
the margin of safety is not as great as in the case of the higher ratings.

F-3--Indicates an adequate capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. However, such capacity

</R>

Addresses

Federated Municipal Securities Fund, Inc.

Class A Shares

Class B Shares

Class C Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

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


PART C.    OTHER INFORMATION.

Item 23.    Exhibits:

            a)                Conformed Copy of Articles of
                              Restatement of the Registrant
                              (including Amendment Nos. 4-13); (20)
            b)    (i)         Copy of By-Laws of the Registrant
                              (including Amendment Nos. 11-13); (20)
                  (ii)        Copy of Amendment #14 to the By-Laws +
            c)                Copies of Specimen Certificates for
                              Shares of Capital Stock of the
                              Registrant's Class A Shares, Class B
                              Shares and Class C Shares; (16)
            d)    (i)         Conformed Copy of Investment Advisory
                              Contract of the Registrant;(9)
                  (ii)        Conformed copy of Amendment to the
                              Investment Advisory Contract of the
                              Registrant; (21)
            e)    (i)         Conformed Copy of Distributor's
                              Contract of the Registrant; (12)
                  (ii)        Conformed Copy of Exhibit A to the
                              Distributor's Contract of the
                              Registrant; (20)
                  (iii)       Conformed Copy of Exhibit B to the
                              Distributor's Contract of the
                              Registrant; (20)
                  (iv)        Conformed Copy of Distributor's
                              Contract (Class B Shares) including
                              Exhibit 1 and Schedule A and B; (17)
                  (v)         The Registrant hereby incorporates
                              the conformed copy of the specimen
                              Mutual Funds Sales and Service
                              Agreement; Mutual Funds Service
                              Agreement; and Plan Trustee/Mutual
                              Funds Service Agreement from Item
                              24(b)(6) of the Cash Trust Series II
                              Registration Statement on Form N-1A,
                              filed with the Commission on July 24,
                              1995 (File Numbers 33-38550 and
                              811-6269);
                  (vi)        Conformed copy of Amendment to
                              Distributor's Contract of the
                              Registrant; (21)
            f)                Not applicable;


            g)    (i)         Conformed Copy of Custodian Contract of the
                              Registrant; (13)
                  (ii)        Conformed Copy of Custodian Fee
                              Schedule; (17)
                  (iii)       Conformed copy of Amendment to
                              Custodian Contract of the Registrant;
                              (21)
            h)    (i)         Conformed Copy of Amended and
                              Restated Agreement for Fund
                              Accounting Services, Administrative
                              Services, Transfer Agency Services
                              and Custodian Services Procurement;
                              (15)
                  (ii)        The responses described in Item
                              23(e)(v) are hereby incorporated by
                              reference.
                  (iii)       The Registrant hereby incorporates
                              the conformed copy of the Second
                              Amended and Restated Services
                              Agreement from Item (h)(v) of the
                              Investment Series Funds, Inc.
                              Registration Statement on Form N-1A,
                              filed with the Commission on January
                              23, 2002 (File Nos. 33-48847 and
                              811-07021).
                  (ii)        Conformed Copy of Principal
                              Shareholder Servicer's Agreement
                              (Class B Shares) including Exhibit 1
                              and Schedule A and B; (17)
                  (v)         Conformed Copy of Shareholders
                              Services Agreement (Class B Shares)
                              including Exhibit 1 and Schedule A;
                              (17)
                  (vi)        Conformed copy of Amendment to
                              Agreement for Fund Accounting
                              Services, Administrative Services,
                              Transfer Agency Services and Custody
                              Services Procurement; (21)
                  (i)         Conformed Copy of Opinion and Consent
                              of Counsel as to legality of shares
                              being registered; (2);
            j)                Conformed Copy of Independent
                              Auditors' Consent; +
            k)                Not applicable;
            l)                Conformed Copy of Initial Capital
                              Understanding; (2)
            m)    (i)         Conformed Copy of the 12b-1
                              Distribution Plan of the Registrant;
                              (12)
                  (ii)        Conformed Copy of Exhibit A of the
                              12b-1 Distribution Plan of the
                              Registrant; (20)
                  (iii)       The responses described in Item
                              23(e)(iv) are hereby incorporated by
                              reference.
                  (iv)        Conformed Copy of Exhibit 1 and
                              Schedule A to the 12b-1 Distribution
                              Plan (Class B Shares) of the
                              Registrant; (17)
            n)                The Registrant hereby incorporates the conformed
                              copy of the Multiple Class Plan from
                              Item (n) of the Federated GNMA
                              TrustRegistration Statement on Form
                              N-1A, filed with the Commission on
                              March 27, 2003. (File Nos. 2-45670
                              and 811-3375);
            o)                Conformed Copy of Power of Attorney
                              of the Registrant; (20)
            p)                The Registrant hereby incorporates
                              the Conformed Copy of the Code of
                              Ethics for Access Persons from Item
                              23(p) of the Federated High Yeild
                              Trust Registration Statement on Form
                              N-1A filed with the Commission on
                              April 28, 2003. (File Nos. 2-91091
                              and 811-4018.)

+     All exhibits have been filed electronically.

9.   Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 36 on Form N-1A filed July 17, 1990.  (File Nos.  2-57181 and
     811-2677)

12.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 42 on Form N-1A filed May 25, 1994.  (File Nos.  2-57181 and
     811-2677)

13.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 45 on Form N-1A filed May 25, 1995.  (File Nos.  2-57181 and
     811-2677)

15.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 48 on Form N-1A filed May 28, 1996.  (File Nos.  2-57181 and
     811-2677)

16.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 50 on Form N-1A filed May 29, 1997.  (File Nos.  2-57181 and
     811-2677)

17.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 51 on Form N-1A filed May 29, 1998.  (File Nos.  2-57181 and
     811-2677)

20.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 56 on Form N-1A filed May 25, 2001.  (File Nos.  2-57181 and
     811-2677)

21.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 57 on Form N-1A filed May 29, 2002.  (File Nos.  2-57181 and
     811-2677)


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

            None

Item 25. Indemnification: (11)


11.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 38 on Form N-1A filed

Item 26.    Business and Other Connections of Investment Adviser:

            For a description of the other business of the investment
            adviser, see the section entitled "Who Manages the Fund?" in
            Part A. The affiliations with the Registrant of four of the
            Trustees and one of the Officers of the investment adviser are
            included in Part B of this Registration Statement under "Who
            Manages and Provides Services to the Fund?"  The remaining
            Trustees of the investment adviser and, in parentheses, their
            principal occupations are:  Thomas R. Donahue, (Chief
            Financial Officer, Federated Investors, Inc.), 1001 Liberty
            Avenue, Pittsburgh, PA, 15222-3779 and Mark D. Olson (a
            principal of the firm, Mark D. Olson & Company, L.L.C. and
            Partner, Wilson, Halbrook & Bayard, P.A.), 800 Delaware
            Avenue, P.O. Box 2305, Wilmington, DE  19899-2305.

The remaining Officers of the investment adviser are:

Vice Chairman:                                  J. Thomas Madden

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


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

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



11.  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 38 on Form N-1A filed


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

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

Secretary:                                       G. Andrew Bonnewell

Treasurer:                                       Thomas R. Donahue

Assistant Secretaries:                           Jay S. Neuman
                                                 Leslie K. Ross

Assistant Treasurer:                             Denis McAuley, III

     The business  address of each of the Officers of the investment  adviser is
     Federated  Investors Tower, 1001 Liberty Avenue,  Pittsburgh,  Pennsylvania
     15222-3779.  These  individuals  are also  officers  of a  majority  of the
     investment  advisers to the  investment  companies  in the  Federated  Fund
     Complex described in Part B of this Registration Statement.


Item 27.  Principal Underwriters:

(a)  Federated  Securities  Corp. the  Distributor for shares of the Registrant,
     acts  as  principal  underwriter  for  the  following  open-end  investment
     companies, including the Registrant:


                  Cash Trust Series II; Cash Trust Series, Inc.;
                  Edward Jones Money Market Fund; Edward Jones
                  Tax-Free Money Market Fund; Federated American
                  Leaders Fund, Inc.; Federated Adjustable Rate
                  Securities Fund; Federated Capital Income Fund,
                  Inc.; Federated Core Trust; Federated Equity
                  Funds; Federated Equity Income Fund, Inc.;
                  Federated Fixed Income Securities, Inc.; Federated
                  GNMA Trust; Federated Government Income
                  Securities, Inc.; Federated High Income Bond Fund,
                  Inc.; Federated High Yield Trust; Federated Income
                  Securities Trust; Federated Income Trust;
                  Federated Index Trust; Federated Institutional
                  Trust; Federated Insurance Series; Federated
                  International Series, Inc.; Federated Investment
                  Series Funds, Inc.; Federated Limited Duration
                  Government Fund, Inc.; Federated Managed
                  Allocation Portfolios; Federated Municipal
                  Opportunities Fund, Inc.; Federated Municipal
                  Securities Fund, Inc.; Federated Municipal
                  Securities Income Trust; Federated Short-Term
                  Municipal Trust; Federated Stock and Bond Fund,
                  Inc.; Federated Stock Trust; Federated Total
                  Return Government Bond Fund; Federated Total
                  Return Series, Inc.; Federated U.S. Government
                  Bond Fund; Federated U.S. Government Securities
                  Fund: 1-3 Years; Federated U.S. Government
                  Securities Fund: 2-5 Years; Federated World
                  Investment Series, Inc.; Intermediate Municipal
                  Trust; Money Market Obligations Trust; CCMI Funds;
                  Regions Morgan Keegan Select Funds; RIGGS Funds;
                  SouthTrust Funds; and Vision Group of Funds.


         (b)

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

Chairman:                                             Richard B. Fisher
Vice President

Director:                                             Arthur L. Cherry

President-Institutional
Sales and Director:           John B. Fisher

Executive Vice
Vice President, Assistant
Secretary and Director:       Thomas R. Donahue

President-Broker/Dealer
And Director:                 James F. Getz

Senior Vice Presidents:
                                                      Mark W. Bloss
                                                      Richard W. Boyd
                                                      Laura M. Deger
                                                      Peter W. Eisenbrandt
                                                      Theodore Fadool, Jr.
                                                      Christopher T. Fives
                                                      James S. Hamilton

         (1)                        (2)                        (3)
Positions and Offices                                 Positions and Offices
  With Distributor                  Name                 With Registrant
_____________________         _________________       ______________________
Senior Vice Presidents:       James M. Heaton
                                                      Amy Michaliszyn
                                                      Keith Nixon
                                                      Solon A. Person, IV
                                                      Ronald M. Petnuch
                                                      Timothy C. Pillion
                                                      Thomas E. Territ
                                                      Robert F. Tousignant

Vice Presidents:              Irving Anderson
                                                      John B. Bohnet
                                                      Edward R. Bozek
                                                      Jane E.
Broeren-Lambesis
                                                      Craig Burness
                                                      David J. Callahan
                                                      Mark Carroll
                                                      Scott Charlton
                                                      Steven R. Cohen
                                                      Mary J. Combs
                                                      R. Edmond Connell, Jr.
                                                      Kevin J. Crenny
                                                      Daniel T. Culbertson
                                                      G. Michael Cullen
                                                      Marc C. Danile
                                                      Robert J. Deuberry
                                                      Ron Dorman
                                                      William C. Doyle
                                                      Donald C. Edwards
                                                      Lee England
                                                      Timothy Franklin
                                                      Renee Gebben
                                                      Peter J. Germain
                                                      Joseph D. Gibbons
                                                      G. Tad Gullickson
                                                      Scott Gundersen
                                                      Dayna C. Haferkamp
                                                      Raymond J. Hanley
                                                      Vincent L. Harper, Jr.
                                                      Bruce E. Hastings
                                                      Teresa M. Johnson
                                                      Christopher L. Johnston
                                                      H. Joseph Kennedy
                                                      Stephen Kittel
                                                      Michael W. Koenig
                                                      Ed Koontz
                                                      Christopher A. Layton
                                                      Michael H. Liss
                                                      Michael R. Manning
                                                      Martin J. McCaffrey
                                                      Mary A. McCaffrey
                                                      Maurice W. McKinney
                                                      Mark J. Miehl

         (1)                        (2)                        (3)
Positions and Offices                                 Positions and Offices
  With Distributor                  Name                 With Registrant
_____________________         _________________       ______________________
Vice Presidents:              Richard C. Mihm
                                                      Vincent T. Morrow
                                                      Alec H. Neilly
                                                      Thomas A. Peter III
                                                      Raleigh Peters
                                                      Robert F. Phillips
                                                      Richard A. Recker
                                                      Christopher Renwick
                                                      Brian S. Ronayne
                                                      Thomas S. Schinabeck
                                                      Edward J. Segura
                                                      Peter Siconolfi
                                                      Edward L. Smith
                                                      David W. Spears
                                                      John A. Staley
                                                      Colin B. Starks
                                                      Jeffrey A. Stewart
                                                      Kevin Stutz
                                                      Timothy A. Rosewicz
                                                      Greg Spralding
                                                      William C. Tustin
                                                      Paul A. Uhlman
                                                      G. Walter Whalen
                                                      Stephen White
                                                      Patrick M. Wiethorn
                                                      Edward J. Wojnarowski
                                                      Michael P. Wolff


Assistant Vice Presidents:                            Lisa Arcuri
                                                      Robert W. Bauman
                                                      Charles L. Davis, Jr.
                                                      Beth C. Dell
                                                      Jennifer Fetteroff
                                                      John T. Glickson
                                                      William Rose
                                                      Lynn Sherwood-Long

Treasurer:                                            Denis McAuley, III

Secretary:                                            Stephen A. Keen

Assistant Secretaries:                                Peter J. Germain

     The business address of each of the Officers of Federated  Securities Corp.
     is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
     15222-3779.

         (c)     Not applicable






                                   SIGNATURES

     Pursuant  to  the  requirements  of the  Securities  Act of  1933  and  the
     Investment  Company  Act  of  1940,  the  Registrant,  FEDERATED  MUNICIPAL
     SECURITIES FUND, INC.,  certifies that it meets all of the requirements for
     effectiveness of this Amendment to its Registration  Statement  pursuant to
     Rule  485(b)  under the  Securities  Act of 1933 and has duly  caused  this
     Amendment to its  Registration  Statement to be signed on its behalf by the
     undersigned, duly authorized, in the City of Pittsburgh and Commonwealth of
     Pennsylvania, on the 29th day of May, 2003.

                    FEDERATED MUNICIPAL SECURITIES FUND, INC.
                    BY: /s/ Andrew P. Cross
                            Andrew P. Cross, Assistant Secretary


     Pursuant to the  requirements of the Securities Act of 1933, this Amendment
to its  Registration  Statement has been signed below by the following person in
the capacity and on the date indicated:

    NAME                                 TITLE                        DATE

By: /s/ Andrew P. Cross              Attorney In Fact             May 29, 2003
    Andrew P. Cross                  For the Persons
    ASSISTANT SECRETARY              Listed Below

John F. Donahue*                     Chairman and Director

J. Christopher Donahue*              President and Director
                                     (Principal Executive Officer)

John W. McGonigle*                   Executive Vice President and
                                     Secretary

Richard J. Thomas*                   Treasurer (Principal Financial Officer)

William D. Dawson*                   Chief Investment Officer

Thomas G. Bigley*                    Director

John T. Conroy, Jr.*                 Director

Nicholas P. Constantakis*            Director

John F. Cunningham*                  Director

Lawrence D. Ellis, M.D.*             Director

Peter E. Madden*                     Director

Charles F. Mansfield, Jr.*           Director

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

Marjorie P. Smuts*                   Director

John S. Walsh*                       Director

* By Power of Attorney

Federated Municipal Securities Fund, Inc.

PROSPECTUS

CLASS A SHARES CLASS B SHARES CLASS C SHARES

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Risk/Return Bar Chart and Table

Average Annual Total Return Table

(For the periods ended December 31, 2002)

What are the Fund's Fees and Expenses?

FEDERATED MUNICIPAL SECURITIES FUND, INC.

FEES AND EXPENSES

EXAMPLE

What are the Fund's Investment Strategies?

HEDGING

Temporary Defensive Investments

What are the Principal Securities in Which the Fund Invests?

TAX EXEMPT SECURITIES

Municipal Leases

Inverse Floaters

Zero Coupon Securities

General Obligation Bonds

Special Revenue Bonds

Private Activity Bonds

Tax Increment Financing Bonds

Variable Rate Demand Instruments

Credit Enhancement

Futures Contracts

SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Asset Coverage

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

CREDIT RISKS

LIQUIDITY RISKS

CALL RISKS

SECTOR RISKS

LEVERAGE RISKS

What Do Shares Cost?

SALES CHARGE WHEN YOU PURCHASE

SALES CHARGE WHEN YOU REDEEM

How is the Fund Sold?

RULE 12B-1 PLAN

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Wire

By Check

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

EXCHANGE PRIVILEGE

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Systematic Withdrawal Program (SWP) on Class B Shares

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

J. Scott Albrecht

Mary Jo Ochson

ADVISORY FEES

Financial Information

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES