Federated Municipal Securities Fund, Inc.

N-CSR 1 form.htm Federated Municipal Securities Fund, Inc. - N-CSR

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form N-CSR

Certified Shareholder Report of Registered Management Investment Companies

811-2677

(Investment Company Act File Number)

Federated Municipal Securities Fund, Inc.

_______________________________________________________________

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds

4000 Ericsson Drive

Warrendale, Pennsylvania 15086-7561

(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)

Date of Fiscal Year End: 3/31/2009

Date of Reporting Period: 3/31/2009

Item 1. Reports to Stockholders

Federated
World-Class Investment Manager

Federated Municipal Securities
Fund, Inc.

Established 1976

ANNUAL SHAREHOLDER REPORT

March 31, 2009

Class A Shares
Class B Shares
Class C Shares
Class F Shares

FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND FUND OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2009		2008		2007		2006		2005
Net Asset Value, Beginning of Period	$10.05		$10.65		$10.59		$10.65		$10.83
Income From Investment Operations:
Net investment income	0.43	¹	0.44	¹	0.46	¹	0.46	¹	0.45
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	(0.64	)	(0.59	)	0.06		(0.05	)	(0.17	)
TOTAL FROM INVESTMENT OPERATIONS	(0.21	)	(0.15	)	0.52		0.41		0.28
Less Distributions:
Distributions from net investment income	(0.43	)	(0.45	)	(0.46	)	(0.47	)	(0.46	)
Net Asset Value, End of Period	$ 9.41		$10.05		$10.65		$10.59		$10.65
Total Return²	(2.14	)%	(1.48	)%	5.05	%	3.93	%	2.64	%

Ratios to Average Net Assets:
Net expenses	0.87	%³	0.88	%⁴	1.15	%⁴	0.98	%⁴	0.93	%⁴
Net investment income	4.40	%	4.28	%	4.31	%	4.28	%	4.15	%
Expense waiver/reimbursement⁵	0.15	%	0.13	%	0.14	%	0.14	%	0.14	%
Supplemental Data:
Net assets, end of period (000 omitted)	$396,603		$431,074		$436,073		$436,026		$423,632
Portfolio turnover	52	%	37	%	23	%	23	%	28	%

1 Per share numbers have been calculated using the average shares method.

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

3 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio for the year ended March 31, 2009 is 0.87% after taking into account this expense reduction.

4 Includes interest and trust expenses related to the Fund's participation in certain inverse floater structures of less than 0.01%, 0.30%, 0.14% and 0.08% for the years ended March 31, 2008, 2007, 2006 and 2005, respectively.

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

See Notes which are an integral part of the Financial Statements

Financial Highlights - Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2009		2008		2007		2006		2005
Net Asset Value, Beginning of Period	$10.05		$10.65		$10.59		$10.65		$10.83
Income From Investment Operations:
Net investment income	0.34	¹	0.35	¹	0.36	¹	0.37	¹	0.38
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	(0.64	)	(0.60	)	0.07		(0.05	)	(0.20	)
TOTAL FROM INVESTMENT OPERATIONS	(0.30	)	(0.25	)	0.43		0.32		0.18
Less Distributions:
Distributions from net investment income	(0.34	)	(0.35	)	(0.37	)	(0.38	)	(0.36	)
Net Asset Value, End of Period	$ 9.41		$10.05		$10.65		$10.59		$10.65
Total Return²	(3.01	)%	(2.35	)%	4.12	%	3.01	%	1.73	%

Ratios to Average Net Assets:
Net expenses	1.76	%³	1.76	%⁴	2.04	%⁴	1.87	%⁴	1.82	%⁴
Net investment income	3.52	%	3.39	%	3.42	%	3.38	%	3.26	%
Expense waiver/reimbursement⁵	0.01	%	0.00	%⁶	0.00	%⁶	0.00	%⁶	0.00	%⁶
Supplemental Data:
Net assets, end of period (000 omitted)	$15,105		$18,246		$25,129		$33,002		$43,150
Portfolio turnover	52	%	37	%	23	%	23	%	28	%

1 Per share numbers have been calculated using the average shares method.

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

3 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio for the year ended March 31, 2009 is 1.76% after taking into account this expense reduction.

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

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights - Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2009		2008		2007		2006		2005
Net Asset Value, Beginning of Period	$10.05		$10.65		$10.59		$10.65		$10.83
Income From Investment Operations:
Net investment income	0.34	¹	0.35	¹	0.36	¹	0.37	¹	0.35
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	(0.64	)	(0.59	)	0.07		(0.05	)	(0.17	)
TOTAL FROM INVESTMENT OPERATIONS	(0.30	)	(0.24	)	0.43		0.32		0.18
Less Distributions:
Distributions from net investment income	(0.34	)	(0.36	)	(0.37	)	(0.38	)	(0.36	)
Net Asset Value, End of Period	$ 9.41		$10.05		$10.65		$10.59		$10.65
Total Return²	(3.00	)%	(2.34	)%	4.13	%	3.01	%	1.73	%

Ratios to Average Net Assets:
Net expenses	1.76	%³	1.75	%⁴	2.03	%⁴	1.87	%⁴	1.82	%⁴
Net investment income	3.54	%	3.42	%	3.43	%	3.38	%	3.26	%
Expense waiver/reimbursement⁵	0.01	%	0.00	%⁶	0.00	%⁶	0.00	%⁶	0.00	%⁶
Supplemental Data:
Net assets, end of period (000 omitted)	$20,376		$15,434		$12,510		$13,739		$13,039
Portfolio turnover	52	%	37	%	23	%	23	%	28	%

1 Per share numbers have been calculated using the average shares method.

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

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

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights - Class F Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended 3/31/2009		Period Ended 3/31/2008	¹
Net Asset Value, Beginning of Period	$10.05		$10.56
Income From Investment Operations:
Net investment income	0.43	²	0.37	²
Net realized and unrealized loss on investments, futures contracts and swap contracts	(0.64	)	(0.51	)
TOTAL FROM INVESTMENT OPERATIONS	(0.21	)	(0.14	)
Less Distributions:
Distributions from net investment income	(0.43	)	(0.37	)
Net Asset Value, End of Period	$ 9.41		$10.05
Total Return³	(2.14	)%	(1.33	)%

Ratios to Average Net Assets:
Net expenses	0.87	%⁴	0.87	%⁵
Net investment income	4.46	%	4.42	%⁵
Expense waiver/reimbursement⁶	0.11	%	0.13	%⁵
Supplemental Data:
Net assets, end of period (000 omitted)	$11,361		$4,292
Portfolio turnover	52	%	37	%⁷

1 Reflects operations for the period from May 31, 2007 (date of initial public investment) to March 31, 2008.

2 Per share numbers have been calculated using the average shares method.

3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

4 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratio for the year ended March 31, 2009 is 0.87% after taking into account this expense reduction.

5 Computed on an annualized basis.

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

7 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal year ended March 31, 2008.

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2008 to March 31, 2009.

ACTUAL EXPENSES

The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

	Beginning Account Value 10/1/2008	Ending Account Value 3/31/2009	Expenses Paid During Period¹
Actual:
Class A Shares	$1,000	$1,021.70	$4.39
Class B Shares	$1,000	$1,017.30	$8.85
Class C Shares	$1,000	$1,017.30	$8.85
Class F Shares	$1,000	$1,021.70	$4.39
Hypothetical (assuming a 5% return before expenses):
Class A Shares	$1,000	$1,020.59	$4.38
Class B Shares	$1,000	$1,016.16	$8.85
Class C Shares	$1,000	$1,016.16	$8.85
Class F Shares	$1,000	$1,020.59	$4.38

1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:

Class A Shares		0.87%
Class B Shares		1.76%
Class C Shares		1.76%
Class F Shares		0.87%

Management's Discussion of Fund Performance (unaudited)

The fund's total return, based on net asset value, for the 12-month reporting period ended March 31, 2009, was -2.14% for the fund's Class A Shares and Class F Shares, -3.01% for the fund's Class B Shares and -3.00% for the fund's Class C Shares. The total return of the Barclays Capital Municipal Bond Index (BCMB),¹ the fund's benchmark index, was 2.27% during the same period. The fund's total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the BCMB.

The fund's investment strategy focused on: (a) the effective duration of its portfolio (which indicates the portfolio's sensitivity to changes in interest rates);² (b) sector allocation (i.e., allocation of the portfolio among securities with similar issuers); and (c) the credit rating of portfolio securities. These were the most significant factors affecting the fund's performance relative to the BCMB.

1 The BCMB is an unmanaged market value-weighted index for the long-term tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa, an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed- rate, have an issue date after December 31, 1990, and must be at least one year from their maturity date. The BCMB includes both zero coupon bonds and bonds subject to the alternative minimum tax. The BCMB is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the fund's performance. The index is unmanaged and, unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.

2 Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices.

The following discussion will focus on the performance of the fund's Class A Shares. The -2.14% total return for the Class A Shares for the reporting period consisted of 4.23% of tax-exempt dividends and reinvestments, and -6.37% depreciation in the net asset value of the shares.³

MARKET OVERVIEW

During the 12-month reporting period, the economy continued to contract. Job losses, declining equity and housing wealth, and tight credit conditions weighed heavily on consumer spending and sentiment. In light of increasing economic slack both in the United States and overseas, inflation remained subdued. The Federal Reserve (the "Fed") reduced the federal funds target rate from 2.25% to a range between 0.0% and 0.25%, while maintaining its apparent bias to a downside risk to growth. Additionally, the Fed appeared to commit itself to employ all available tools to promote economic recovery and signaled that economic conditions appear to warrant maintaining rates at these low levels for an extended period of time. The Fed also increased the size of its balance sheet through the increased purchase of agency mortgage-backed securities, agency debt and Treasury securities (known as quantitative easing) and launched the Term Asset-Backed Securities Loan Facility in an attempt to facilitate the extension of credit to households and small businesses.

3 Income may be subject to state and local taxes. The investment adviser normally (except as disclosed in the fund's prospectus) will invest the fund's assets entirely in securities whose interest is not subject to the alternative minimum tax for individuals and corporations (AMT), such that, normally, distributions of annual interest income are exempt from the AMT (in addition to the federal regular income tax). However, in certain circumstances (such as, for example, when there is a lack of supply of non-AMT securities or there are advantageous market conditions, or there is a change in law relating to the AMT), to pursue the fund's investment objective, the fund's adviser may invest the fund's assets in securities that may be subject to the AMT. When there is a lack of supply of non-AMT securities and/or other circumstances that exist, such circumstances may result in the fund acquiring AMT securities that are consistent with the fund's investment objective. These acquisitions may occur in the ordinary course or in connection with fund reorganization transactions (i.e., transactions in which the fund acquires the portfolio securities of other mutual funds), an issuer bankruptcy or another event or circumstance. In such circumstances, interests from the fund's investments may be subject to the AMT.

Investors' continued flight to quality tax-exempt municipal debt and heightened demand for assets that historically have had less risk led to a trend of appreciably lower interest rates and an environment in which tax-exempt municipal credit spreads continued to widen. This means that the yield difference between AAA-rated (or unrated comparable) tax-exempt municipal bonds and bonds of lower credit quality and similar maturity increased. Long-term interest rates (using the 10-year Treasury security rate) peaked at 4.27% in June 2008, and declined to a low of 2.05% in December 2008, while ending the reporting period at 2.66%. Fed activity, liquidity concerns and investor demands for shorter maturity debt resulted in a steepening of the tax-exempt municipal yield curve with long-term interest rates declining less than short-term interest rates (that is, while securities provided higher incremental income or yield as maturities became longer, the amount of the increase in incremental income was somewhat steepened). Congress passed the American Recovery and Reinvestment Act during the period which included a $53.6 billion state fiscal stabilization fund targeted at providing fiscal stimulus for education and infrastructure spending and Medicare expenses. The quantity of the Federal government's fiscal assistance to state and local governments has not been seen since the 1930s and was intended to provide relief for the economic driven stresses that have been impacting regional growth throughout the United States.

DURATION⁴

At the end of the 12-month reporting period, the fund's dollar-weighted average duration for the reporting period was 7.46 years. Duration management continued to be a significant component of the fund's investment strategy. The shorter a fund's duration relative to an index, the less its net asset value will react as interest rates change. The fund adjusted duration relative to the BCMB several times during the reporting period to seek to take advantage of the expectations concerning the Fed's response to the deterioration in the global economy and the markets' apparent concerns about potential deflation. Overall, the fund maintained its duration shorter than the duration of the BCMB, and close to the Morningstar Municipal National Long Funds Average (MMNLFA).⁵ As a result of the general decline in interest rates due to the slowing of the U.S. economy and the steep decline in the federal funds target rate during the reporting period, duration was a positive contributor to fund performance.

4 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities with shorter durations. For purposes of this Management's Discussion of Fund Performance, duration is determined using a third-party analytical system.

5 Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar, Inc. as falling into the respective category indicated. They do not reflect sales charges. It is not possible to invest directly in an average.

SECTOR

During the 12-month reporting period, the fund maintained a higher portfolio allocation to securities issued by hospital and industrial development projects. These allocations hurt the fund's performance due to the widening of credit spreads within these sectors and the demand by investors for the higher relative quality of refunded bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account) and general obligation bonds. The fund increased its exposure to general obligation bonds issued by cities, states and school districts and this allocation to higher quality tax-exempt municipal debt had a positive performance impact during the period. The fund also allocated a portion of the portfolio to refunded tax-exempt municipal bonds. The exposure to these refunded bonds had a positive impact on performance due to lower price volatility exhibited by these refunded bonds as compared to other sectors. The fund was also underweight in Tobacco Settlement bonds, which also had a positive performance impact due to the sector's negative price reaction to continued litigation challenges.

CREDIT QUALITY⁶

Continued risk-aversion by investors and the introduction of credit deterioration across the tax-exempt municipal market as a result of the decline of the U.S. economy (especially on a regional basis) resulted in the ongoing underperformance of bonds rated A and BB (or unrated bonds of comparable quality) relative to bonds rated in the higher rating categories (or unrated bonds of comparable quality). With the increase in credit spreads over the period and the widening of credit spreads to a greater extent for A and BBB-rated (or comparable quality) debt, the fund's overweight, relative to the BCMB, in BBB-rated (or comparable quality) debt during the reporting period hurt the fund's performance as the yield on BBB-rated (or comparable quality) debt increased to a greater extent than for other investment-grade securities.⁷ During the reporting period, yield spreads between AAA-rated and BBB-rated municipal debt increased by 172 basis points for bonds with 20 years until maturity.

6 Credit ratings pertain only to the securities in the portfolio and do not protect fund shares against market risk.

7 Investment-grade securities are securities that are rated at least "BBB" or unrated securities of a comparable quality. Non-investment-grade securities are securities that are not rated at least "BBB" or unrated securities of a comparable quality. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower creditworthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.

GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES

The graph below illustrates the hypothetical investment of $10,000¹ in Federated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") from March 31, 1999 to March 31, 2009, compared to the Barclays Capital Municipal Bond Index (BCMB)² and the Lipper General Municipal Debt Funds Average (LGMFA).³

Average Annual Total Returns⁴ for the Period Ended 3/31/2009
1 Year		-6.51%
5 Years		0.63%
10 Years		2.60%

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 4.50%.

1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). The Fund's performance assumes the reinvestment of all dividends and distributions. The BCMB and the LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.

2 The BCMB is a market value-weighted index for the long-term, tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa, an outstanding par value of at least $7 million and be issued as a part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated date after December 31, 1990, and must be at least one year from their maturity date. The BCMB is not adjusted to reflect sales charges, expenses and other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The BCMB is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.

3 The LGMFA represents the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling in the respective category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a fund's performance.

4 Total returns quoted reflect all applicable sales charges.

GROWTH OF A $10,000 INVESTMENT - CLASS B SHARES

The graph below illustrates the hypothetical investment of $10,000¹ in Federated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") from March 31, 1999 to March 31, 2009, compared to the Barclays Capital Municipal Bond Index (BCMB)² and the Lipper General Municipal Debt Funds Average (LGMFA).³

Average Annual Total Returns⁴ for the Period Ended 3/31/2009
1 Year		-8.16%
5 Years		0.32%
10 Years		2.33%

1 Represents a hypothetical investment of $10,000 in the Fund. The maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The BCMB and LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.

2 The BCMB is a market value-weighted index for the long-term, tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa, an outstanding par value of at least $7 million and be issued as a part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated date after December 31, 1990, and must be at least one year from their maturity date. The BCMB is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The BCMB is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.

4 Total returns quoted reflect all applicable contingent deferred sales charges.

GROWTH OF A $10,000 INVESTMENT- CLASS C SHARES

The graph below illustrates the hypothetical investment of $10,000¹ in Federated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") from March 31, 1999 to March 31, 2009, compared to the Barclays Capital Municipal Bond Index (BCMB)² and the Lipper General Municipal Debt Funds Average (LGMFA).³

Average Annual Total Returns⁴ for the Period Ended 3/31/2009
1 Year		-3.94%
5 Years		0.67%
10 Years		2.16%

1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00% contingent deferred sales charge would be applied to any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The BCMB and the LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.

2 The BCMB is a market value-weighted index for the long-term, tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa, an outstanding par value of at least $7 million and be issued as a part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated date after December 31, 1990, and must be at least one year from their maturity date. The BCMB is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The BCMB is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.

4 Total returns quoted reflect all applicable contingent deferred sales charges.

GROWTH OF A $10,000 INVESTMENT - CLASS F SHARES

The graph below illustrates the hypothetical investment of $10,000¹ in Federated Municipal Securities Fund, Inc. (Class F Shares) (the "Fund") from May 31, 2007 (start of performance) to March 31, 2009, compared to the Barclays Capital Municipal Bond Index (BCMB)² and the Lipper General Municipal Debt Funds Average (LGMFA).³

Average Annual Total Returns⁴ for the Period Ended 3/31/2009
1 Year		-4.03%
Start of Performance (5/31/2007)		-2.93%

1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900). A 1.00% contingent deferred sales charge would be applied to any redemption less than four years from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The BCMB and the LGMFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.

2 The BCMB is a market value-weighted index for the long-term, tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa, an outstanding par value of at least $7 million and be issued as a part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated date after December 31, 1990, and must be at least one year from their maturity date. The BCMB is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. The BCMB is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.

4 Total returns quoted reflect all applicable sales charges and contingent deferred sales charges.

Portfolio of Investments Summary Table (unaudited)

At March 31, 2009, the Fund's sector composition¹ was as follows:

Sector	Percentage of Total Net Assets
Insured	26.8	%
Refunded	15.3	%
General Obligation - State	14.4	%
Hospital	10.1	%
Public Power	7.4	%
Water Sewer	5.7	%
General Obligation - Local	4.8	%
Transportation	3.2	%
Education	2.9	%
Industrial Development Bond/Pollution Control Revenue	3.0	%
Other²	6.5	%
Other Assets and Liabilities - Net³	(0.1	)%
TOTAL	100.0	%

1 Sector classifications, and the assignment of holdings to such sectors, are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser. For securities that have been enhanced by a third party (other than a bond insurer), such as a guarantor, sector classifications are based upon the economic sector and/or revenue source of the third party as determined by the Fund's Adviser. Securities that are insured by a bond insurer are assigned to the "Insured" sector. Refunded securities are those whose debt service is paid from escrowed assets, usually U.S. government securities.

2 For purposes of this table, sector classifications constitute 93.6% of the Fund's total net assets. Remaining sectors have been aggregated under the designation "Other."

3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.

Portfolio of Investments

March 31, 2009

Principal Amount					Value
			MUNICIPAL BONDS--98.4%
			Alabama--1.0%
$	1,400,000		Camden, AL IDB, Exempt Facilities Refunding Revenue Bonds (Series 2003A), 6.125% (Weyerhaeuser Co.)/(United States Treasury PRF 12/1/2013@100), 12/1/2024	$	1,646,274
	2,000,000		Homewood, AL Educational Building Authority, Educational Facilities Revenue Bonds (Series 2007-A), 5.00% (Samford University)/(MBIA Insurance Corp. INS), 12/1/2034		1,792,460
	1,000,000		Tuscaloosa, AL, UT GO Warrants (Series 2000), 5.75% (United States Treasury PRF 1/1/2010@101)/(Original Issue Yield: 5.90%), 1/1/2020		1,048,660
			TOTAL		4,487,394
			Arizona--2.2%
	1,000,000		Arizona Board of Regents, System Revenue Bonds (Series 2008C), 6.00% (Arizona State University)/(Original Issue Yield: 6.12%), 7/1/2028		1,089,480
	155,000		Cochise County, AZ USD No. 68, UT GO Refunding Bonds, 7.50% (FGIC & MBIA Insurance Corp. INS), 7/1/2010		165,881
	365,000		Flagstaff, AZ Street and Highway, Revenue Bonds, 7.75% (FGIC & MBIA Insurance Corp. INS), 7/1/2009		370,234
	2,000,000		Phoenix, AZ Civic Improvement Corp., Senior Lien Wastewater System Revenue Bonds (Series 2008), 5.50%, 7/1/2024		2,137,320
	560,000		Pima County, AZ USD No. 1, UT GO Bonds (Series E), 6.75% (FGIC & MBIA Insurance Corp. INS), 7/1/2011		615,686
	4,000,000		Salt River Project, AZ Agricultural Improvement & Power District, Electric System Revenue Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.03%), 1/1/2034		3,954,880
	1,810,000		Show Low, AZ IDA, Hospital Revenue Bonds, 5.00% (Navapache Regional Medical Center)/(Radian Asset Assurance, Inc. INS), 12/1/2030		1,294,168
			TOTAL		9,627,649
			Arkansas--0.3%
	1,000,000		Jefferson County, AR, Hospital Revenue Improvement and Refunding Bonds (Series 2001), 5.80% (Jefferson Regional Medical Center, AR)/(Original Issue Yield: 5.90%), 6/1/2021		1,005,350
	375,000		North Little Rock, AR Electric Authority, Revenue Refunding Bonds (Series A), 6.50% (MBIA Insurance Corp. INS)/(Original Issue Yield: 6.56%), 7/1/2015		416,872
			TOTAL		1,422,222
Principal Amount					Value
			MUNICIPAL BONDS--continued
			California--11.0%
$	2,665,000		California State Department of Water Resources Power Supply Program, Revenue Bonds (Series 2005F), 5.00%, 5/1/2022	$	2,716,354
	1,000,000		California State Department of Water Resources, Water System Revenue Bonds (Series 2008AE), 5.00% (Central Valley Project), 12/1/2029		1,005,850
	5,000,000		California State, UT GO Bonds (Series 2008), 5.00%, 4/1/2025		4,745,400
	1,000,000		California State, UT GO Bonds, 5.00%, 2/1/2023		969,540
	170,000		California State, UT GO Bonds, 5.75%, 5/1/2030		168,759
	3,000,000		California State, Various Purpose UT GO Bonds, 5.125% (Original Issue Yield: 5.16%), 4/1/2023		2,943,630
	2,000,000		California State, Various Purpose UT GO Bonds, 5.25% (Original Issue Yield: 5.32%), 11/1/2025		1,942,160
	4,000,000		California State, Various Purpose UT GO Bonds, 5.75% (Original Issue Yield: 5.85%), 4/1/2029		3,995,280
	5,000,000		California State, Various Purpose UT GO Bonds, 5.00%, 6/1/2037		4,305,750
	1,495,000		California Statewide Communities Development Authority, COP, 6.00% (Sutter Health)/(FSA INS), 8/15/2013		1,534,662
	1,930,000		California Statewide Communities Development Authority, COP, 6.00% (Sutter Health)/(FSA INS), 8/15/2015		1,983,789
	1,000,000		Eastern Municipal Water District of Riverside County, CA, Water & Sewer Revenue Fixed Rate COP (Series 2008H), 5.00% (Original Issue Yield: 5.11%), 7/1/2033		933,390
	1,000,000		Los Angeles, CA Department of Water & Power, Power System Revenue Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.10%), 7/1/2039		956,400
	1,110,000		Los Angeles, CA USD, UT GO Bonds (Series 2009D), 5.00% (Original Issue Yield: 5.35%), 1/1/2034		1,043,911
	1,500,000		Manhattan Beach, CA, COP (Series 2004), 5.00% (AMBAC INS), 1/1/2036		1,399,425
	1,350,000		Poway, CA USD, Special Tax Bonds (Series 2005), 5.125% (Community Facilities District No. 6 (4S Ranch))/(Original Issue Yield: 5.21%), 9/1/2035		1,015,794
	6,000,000		Regents of the University of California Medical Center, Pooled Revenue Bonds (Series 2008D), 5.00%, 5/15/2024		6,060,720
	2,400,000		Roseville, CA Natural Gas Financing Authority, Gas Revenue Bonds (Series 2007), 5.00%, 2/15/2028		1,491,168
	3,000,000		Roseville, CA Natural Gas Financing Authority, Gas Revenue Bonds, 5.00%, 2/15/2025		1,960,470
	125,000		San Francisco, CA City and County, UT GO Bonds (Series A), 4.10% (MBIA Insurance Corp. INS)/(Original Issue Yield: 4.20%), 6/15/2020		125,270
Principal Amount					Value
			MUNICIPAL BONDS--continued
			California--continued
$	3,000,000		Southern California Public Power Authority (Southern Transmission System), Transmission Project Revenue Bonds (2009 Subordinate Refunding Series A), 5.00%, 7/1/2023	$	3,033,240
	1,000,000		Tustin, CA USD, Community Facilities District #97-1, Sr. Lien Special Tax Bonds (Series 2002 A), 5.00% (FSA INS)/(Original Issue Yield: 5.06%), 9/1/2038		907,250
	1,500,000		University of California, General Revenue Bonds, (Series A), 5.125% (AMBAC INS), 5/15/2020		1,558,845
	1,575,000		University of California, Hospital Revenue Bonds (Series 2004 A), 5.25% (UCLA Medical Center)/(United States Treasury PRF 5/15/2012@101), 5/15/2030		1,784,790
			TOTAL		48,581,847
			Colorado--1.4%
	710,000		Colorado Health Facilities Authority, Health Facilities Revenue Bonds (Series 2004A), 5.25% (Evangelical Lutheran Good Samaritan Society)/(Original Issue Yield: 5.48%), 6/1/2034		530,313
	710,000		Colorado Health Facilities Authority, Health Facilities Revenue Bonds (Series 2005), 5.25% (Evangelical Lutheran Good Samaritan Society), 6/1/2023		613,760
	1,590,000		Colorado State Higher Education Capital Construction Lease Purchase Financing Program, COP (Series 2008), 5.50% (Original Issue Yield: 5.60%), 11/1/2027		1,626,777
	125,000		Douglas County, CO School District, UT GO Bonds (Series A), 8.00% (MBIA Insurance Corp. INS), 12/15/2009		131,367
	4,000,000		Fort Collins, CO, PCR Refunding Bonds (Series 2007), 4.70% (Anheuser-Busch Cos., Inc.), 9/1/2040		3,200,600
			TOTAL		6,102,817
			Connecticut--0.3%
	1,375,000		Connecticut State, UT GO Bonds (Series 2009A), 5.00%, 2/15/2029		1,417,075
			District of Columbia--1.5%
	3,000,000		District of Columbia Hospital Authority, Hospital Revenue Bonds (Series 2008), 5.25% (Children's Hospital Obligated Group)/(Assured Guaranty Corp. INS)/(Original Issue Yield: 5.45%), 7/15/2038		2,744,970
	2,440,000		District of Columbia Water & Sewer Authority, Public Utility Subordinated Lien Revenue Bonds (Series 2008A), 5.00% (Assured Guaranty Corp. INS), 10/1/2034		2,348,158
Principal Amount					Value
			MUNICIPAL BONDS--continued
			District of Columbia--continued
$	1,310,000		District of Columbia, Revenue Bonds (Series 2000A), 6.00% (World Wildlife Fund, Inc.) /(AMBAC INS), 7/1/2016	$	1,391,233
	100,000		District of Columbia, UT GO Bonds, 6.50% (MBIA Insurance Corp. INS), 6/1/2009		100,763
	100,000		District of Columbia, UT GO Refunding Bonds, 6.50% (Escrowed In Treasuries COL), 6/1/2009		101,016
			TOTAL		6,686,140
			Florida--5.7%
	1,000,000		Broward County, FL Educational Facilities Authority, Educational Facilities Revenue Bonds (Series 2004B), 5.50% (Nova Southeastern University), 4/1/2024		848,050
	665,000		Florida State Board of Education Administration, UT GO Capital Outlay Bonds, 9.125% (Florida State)/(Escrowed In Treasuries COL)/(Original Issue Yield: 9.173%), 6/1/2014		875,373
	4,335,000		Florida State Board of Education Administration, UT GO Capital Outlay Bonds, 9.125% (Florida State)/(Original Issue Yield: 9.173%), 6/1/2014		4,936,785
	3,000,000		Florida State, UT GO Bonds, Broward County Expressway Authority, 10.00% (Escrowed In Treasuries COL)/(Original Issue Yield: 10.105%), 7/1/2014		3,745,980
	500,000		Jupiter, FL, UT GO Bonds, 5.50%, 7/1/2021		558,410
	5,000,000		Miami-Dade County, FL Aviation, Revenue Bonds (Series 2008B), 5.00% (Assured Guaranty Corp. INS), 10/1/2028		4,731,850
	1,000,000		Miami-Dade County, FL Expressway Authority, Toll System Revenue Bonds, 6.00% (FGIC & MBIA Insurance Corp. INS), 7/1/2013		1,055,710
	1,060,000		Orange County, FL, Health Facilities Authority, Revenue Bonds (Series 1996A), 6.25% (Orlando Regional Healthcare System)/(United States Treasury COL), 10/1/2013		1,266,064
	5,000,000		Orlando, FL, Senior Tourist Development Tax Revenue Bonds (Series 2008A), 5.125% (6th Cent Contract Payments)/(Assured Guaranty Corp. INS)/(Original Issue Yield: 5.34%), 11/1/2027		4,973,100
	500,000		Polk County, FL School Board, COP (Series A), 5.00% (FSA INS), 1/1/2020		504,935
	1,870,000		Tallahassee, FL Consolidated Utility System, Revenue Bonds (Series 2007), 5.00%, 10/1/2032		1,803,634
	100,000		Village Center Community Development District, FL, Revenue Refunding Bond (Series A), 5.50% (MBIA Insurance Corp. INS), 11/1/2013		107,164
			TOTAL		25,407,055
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Georgia--3.2%
$	5,000,000		Athens-Clarke County, GA Water & Sewerage, Revenue Bonds (Series 2008), 5.625% (Original Issue Yield: 5.78%), 1/1/2033	$	5,203,150
	2,000,000		Burke County, GA Development Authority, PCRBs (Series 2008A), 5.50% (Oglethorpe Power Corp.), 1/1/2033		1,788,240
	1,000,000		Georgia State, UT GO Bonds (Series 2009B), 5.00%, 1/1/2026		1,059,290
	1,000,000		Municipal Electric Authority of Georgia, Project One Subordinated Bonds (Series 2008A), 5.25%, 1/1/2021		1,046,390
	3,000,000		Municipal Electric Authority of Georgia, Project One Subordinated Bonds (Series 2008D), 5.50% (Original Issue Yield: 5.80%), 1/1/2026		3,040,980
	2,000,000		Savannah, GA EDA, Revenue Bonds, 6.80% (Savannah College of Art and Design, Inc.) /(United States Treasury PRF 10/1/2009@102), 10/1/2019		2,102,620
			TOTAL		14,240,670
			Hawaii--0.5%
	2,000,000		Hawaii State, UT GO Bonds (Series 2006D1), 5.00% (FSA INS), 3/1/2025		2,070,580
			Illinois--3.8%
	235,000		Bensenville IL, UT GO Bonds (Series D), 4.40% (Syncora Guarantee, Inc. INS), 12/1/2017		240,311
	355,000		Chicago, IL Board of Education, COP (Series A), 6.25% (MBIA Insurance Corp. INS), 1/1/2011		382,083
	3,000,000		Chicago, IL Water Revenue, Second Lien Water Refunding Revenue Bonds (Series 2008), 5.00% (FSA INS), 11/1/2028		2,955,690
	3,000,000		Chicago, IL, UT GO Bonds, 5.25%, 1/1/2027		3,026,970
	2,000,000		Chicago, IL, UT GO Bonds, 5.25%, 1/1/2028		2,009,580
	50,000		Cook County, IL, UT GO Refunding Bonds (Series B), 5.00% (FGIC & MBIA Insurance Corp. INS), 11/15/2009		51,280
	1,330,000		Harvey, IL, Refunding & Improvement UT GO Bonds (Series 2007A), 5.625%, 12/1/2032		1,190,230
	100,000		Illinois Department Central Management Services, COP, 6.15% (Original Issue Yield: 6.20%), 7/1/2013		101,335
	250,000		Illinois Educational Facilities Authority, Revenue Bonds, 5.50% (Depaul University)/(United States Treasury PRF 10/1/2010@101)/(Original Issue Yield: 5.64%), 10/1/2020		269,680
	2,145,000		Illinois Finance Authority, Revenue Refunding Bonds (Series 2007), 5.00% (Loyola University of Chicago), 7/1/2022		2,080,157
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Illinois--continued
$	450,000		Illinois State, UT GO Bonds, 5.25%, 10/1/2018	$	485,343
	310,000		Joliet, IL Junior College Assistance Corp., Revenue Bonds, 6.70% (Original Issue Yield: 6.78%), 9/1/2012		337,376
	400,000		Kane County, IL School District No. 129, UT GO Bonds (Series A), 6.50% (MBIA Insurance Corp. INS), 2/1/2010		415,996
	500,000		Madison & St. Clair Counties, IL School District Number 10, UT GO Bonds, 5.25% (United States Treasury PRF 2/1/2012@100), 2/1/2018		555,305
	500,000		Marion, IL, UT GO Refunding Bonds, 5.375% (United States Treasury PRF 9/15/2011@101), 9/15/2021		557,195
	500,000		McHenry County, IL, UT GO Bonds (Series B), 5.25% (United States Treasury PRF 1/15/2011@100), 1/15/2021		538,670
	125,000		Posen, IL, UT GO Bonds, 4.20% (MBIA Insurance Corp. INS), 12/1/2017		129,920
	130,000		Posen, IL, UT GO Bonds, 4.30% (MBIA Insurance Corp. INS), 12/1/2018		134,494
	140,000		Posen, IL, UT GO Bonds, 4.40% (MBIA Insurance Corp. INS), 12/1/2019		144,241
	150,000		Southwestern Illinois Development Authority, Revenue Bonds, 4.25% (FSA INS), 2/1/2027		133,815
	200,000		Southwestern, IL Development Authority, Revenue Bonds, 4.95% (FGIC & MBIA Insurance Corp. INS), 1/1/2020		201,746
	175,000		University of Illinois, COP (Series B), 5.25% (United States Treasury PRF 8/15/2011@100), 8/15/2021		192,087
	400,000		University of Illinois, COP (Series A), 5.50% (United States Treasury PRF 8/15/2011@100), 8/15/2017		441,392
	180,000		Western, IL University, Revenue Bonds, 4.00% (MBIA Insurance Corp. INS), 4/1/2018		179,435
			TOTAL		16,754,331
			Indiana--3.2%
	25,000		Attica Independent Elementary School Building Corp., First Mortgage Revenue Bonds, 4.00% (Syncora Guarantee, Inc. INS), 7/15/2018		24,838
	375,000		Blue River Valley Independent School Building Corp., First Mortgage Revenue Bonds, 5.00% (FGIC & MBIA Insurance Corp. INS), 1/15/2023		383,374
	100,000		Carmel Independent 2002 School Building Corp., First Mortgage Revenue Bonds, 4.25% (FSA INS), 1/15/2022		98,520
	60,000		Carmel Independent 2002 School Building Corp., First Mortgage Revenue Bonds, 4.30% (FSA INS), 1/15/2023		58,647
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Indiana--continued
$	750,000		Center Grove IN 2000 Building Corp., First Mortgage Revenue Bonds, 5.50% (United States Treasury PRF 7/15/2011@100), 7/15/2021	$	825,037
	115,000		Evansville, IN Industrial Waterworks, UT GO Refunding Bonds, 4.00% (AMBAC INS)/(Original Issue Yield: 4.05%), 1/1/2017		117,650
	25,000		Indiana Bond Bank, Revenue Bonds (Series A), 9.75% (Escrowed In Treasuries COL)/(Original Issue Yield: 9.884%), 8/1/2009		25,693
	1,000,000		Indiana Development Finance Authority, Environmental Improvement Revenue Bonds, 5.25% TOBs (Marathon Oil Corp.) Mandatory Tender 12/2/2011		979,150
	2,200,000		Indiana Health Facility Financing Authority, Revenue Bonds (Series 2004A), 5.375% (Deaconess Hospital)/(AMBAC INS), 3/1/2029		1,841,620
	1,005,000		Indiana Municipal Power Agency, Revenue Bonds (Series B), 5.25%, 1/1/2018		1,029,281
	1,500,000		Indiana State Office Building Commission Capitol Complex, Revenue Bonds (Series 1990A: Senate Avenue Parking Facility), 7.40% (MBIA Insurance Corp. INS)/(Original Issue Yield: 7.488%), 7/1/2015		1,800,915
	100,000		Indiana State Toll Road Commission, Revenue Bonds, 9.00% (Escrowed In Treasuries COL)/(Original Issue Yield: 10.50%), 1/1/2015		124,568
	4,000,000		Indianapolis, IN Gas Utility Distribution System, Second Lien Revenue Refunding Bonds (Series 2008C), 5.25% (Assured Guaranty Corp. INS), 6/1/2019		4,376,640
	250,000		Indianapolis, IN Local Public Improvement Bond Bank, Revenue Refunding Bonds (Series A), 6.50%, 1/1/2013		282,317
	110,000		Marion County, IN Convention and Recreational Facilities Authority, Revenue Refunding Bond (Series A), 5.00% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.30%), 6/1/2021		109,963
	200,000		Porter County, IN Jail Building Corp., Revenue Bonds, 5.875% (United States Treasury PRF 7/15/2009@101)/(Original Issue Yield: 5.90%), 7/15/2018		205,160
	2,000,000		St. Joseph County, IN Hospital Authority, Health Facilities Revenue Bonds (Series 2005), 5.375% (Madison Center Obligated Group), 2/15/2034		1,358,760
	500,000		Westfield Washington, IN Schools, Revenue Bonds, 5.50% (United States Treasury PRF 7/15/2011@100), 1/15/2022		550,385
			TOTAL		14,192,518
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Kansas--0.5%
$	1,010,000		Kansas State Development Finance Authority, Health Facilities Revenue Bonds (Series 2007L), 5.125% (Stormont-Vail HealthCare, Inc.)/(MBIA Insurance Corp. INS), 11/15/2032	$	799,476
	1,150,000		University of Kansas Hospital Authority, Health Facilities Revenue Bonds, 5.50% (KU Health System)/(United States Treasury PRF 9/1/2012@100)/(Original Issue Yield: 5.62%), 9/1/2022		1,306,343
			TOTAL		2,105,819
			Kentucky--0.7%
	3,000,000		Kentucky Turnpike Authority, Economic Development Road Revenue Bonds (Series 2008A), 5.00%, 7/1/2023		3,148,170
			Louisiana--0.4%
	505,000		Louisiana Public Facilities Authority, FHA INS Mortgage Revenue Bonds, 5.25% (Baton Rouge General Medical Center)/(MBIA Insurance Corp. INS), 7/1/2033		477,821
	250,000		New Orleans, LA, UT GO Refunding Bonds, 5.50% (FGIC INS), 12/1/2013		252,970
	1,500,000		St. John the Baptist Parish, LA, Revenue Bonds (Series 2007A), 5.125% (Marathon Oil Corp.), 6/1/2037		1,041,195
			TOTAL		1,771,986
			Massachusetts--1.5%
	170,000		Massachusetts Bay Transportation Authority General Transportation System, Special Assessment Bonds, 5.75%, 7/1/2016		178,311
	1,000,000		Massachusetts HEFA, Revenue Bonds (Series 2002D), 6.50% (Milford Regional Medical Center)/(United States Treasury PRF 7/15/2012@101), 7/15/2023		1,161,280
	4,550,000		Massachusetts HEFA, Revenue Bonds (Series 2005E), 5.00% (Emerson Hospital)/(Radian Asset Assurance, Inc. INS), 8/15/2025		3,389,750
	960,000		Massachusetts Water Resources Authority, General Revenue Bonds (Series 2009A), 5.00% (Original Issue Yield: 5.09%), 8/1/2039		943,738
	1,000,000		Sterling, MA, UT GO Bonds, 6.00% (United States Treasury PRF 2/15/2010@101), 2/15/2020		1,057,850
			TOTAL		6,730,929
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Michigan--3.1%
$	3,560,000		Detroit, MI Water Supply System, Refunding Revenue Bonds (Series 2006C), 5.00% (FSA INS), 7/1/2029	$	3,104,106
	4,000,000		Detroit, MI, UT GO Bonds (Series 2008-A), 5.00% (Assured Guaranty Corp. INS), 4/1/2028		3,138,160
	1,000,000		Dexter, MI Community Schools, UT GO Bonds, 5.10% (FGIC & MBIA Insurance Corp. INS), 5/1/2018		1,018,040
	1,500,000		Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Series 2002A), 6.00% (Oakwood Obligated Group), 4/1/2022		1,407,345
	1,000,000		Michigan State Hospital Finance Authority, Refunding Revenue Bonds (Series 2002A), 5.50% (Crittenton Hospital, MI)/(Original Issue Yield: 5.67%), 3/1/2022		891,730
	2,900,000		Michigan State Strategic Fund, Revenue Refunding PCRBs (Series C), 5.45% (Detroit Edison Co.), 9/1/2029		2,707,701
	500,000		Michigan State Trunk Line, Revenue Bonds (Series 2001A), 5.50% (United States Treasury PRF 11/1/2011@100), 11/1/2018		550,645
	750,000		Rochester, MI Community School District, UT GO Bonds (Series I), 5.75% (United States Treasury PRF 5/1/2010@100)/(Original Issue Yield: 5.85%), 5/1/2019		790,800
			TOTAL		13,608,527
			Mississippi--2.1%
	1,000,000		Jackson, MS Water & Sewer System, Revenue Bonds, 5.25% (United States Treasury PRF 9/1/2009@100)/(Original Issue Yield: 5.41%), 9/1/2020		1,020,210
	8,000,000		Mississippi State, UT GO Bonds (Series 2007B), 5.00%, 12/1/2024		8,372,800
			TOTAL		9,393,010
			Missouri--0.2%
	1,335,000		Missouri Development Finance Board, Infrastructure Facilities Revenue Bonds (Series 2005A), 5.00% (Branson, MO), 6/1/2035		962,975
	100,000		Stone County Missouri Reorganized School District, UT GO Refunding Bonds, 7.60% (MBIA Insurance Corp. INS), 3/1/2010		105,571
			TOTAL		1,068,546
			Nebraska--0.4%
	2,000,000		Nebraska Public Power District, General Revenue Bonds (Series 2008B), 5.00% (Original Issue Yield: 5.15%), 1/1/2033		1,919,320
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Nevada--1.5%
$	4,000,000		Clark County, NV School District, LT GO Building Bonds (Series 2008A), 5.00%, 6/15/2025	$	3,908,520
	500,000		Clark County, NV School District, UT GO Bonds (Series A), 7.00% (MBIA Insurance Corp. INS)/(Original Issue Yield: 7.05%), 6/1/2010		528,405
	500,000		Clark County, NV School District, UT GO Bonds (Series B), 5.50% (United States Treasury PRF 6/15/2009@100), 6/15/2013		505,240
	500,000		Clark County, NV School District, UT GO Bonds (Series C), 5.00% (United States Treasury PRF 6/15/2012@100)/(Original Issue Yield: 5.15%), 6/15/2022		557,975
	1,000,000		Henderson, NV, Health Facility Revenue Bonds (Series 2004A), 5.625% (Catholic Healthcare West)/(Original Issue Yield: 5.72%), 7/1/2024		894,650
	245,000		Henderson, NV, LID No. T-16 LT Obligation Improvement Bonds, 5.10% (Falls at Lake Las Vegas LID No. T-16)/(Original Issue Yield: 5.15%), 3/1/2022		98,088
	585,000		Henderson, NV, LID No. T-16 LT Obligation Improvement Bonds, 5.125% (Falls at Lake Las Vegas LID No. T-16)/(Original Issue Yield: 5.20%), 3/1/2025		233,432
	125,000		Washoe County, NV, LT GO Bonds (Series B), 5.00% (AMBAC INS), 5/1/2022		129,853
			TOTAL		6,856,163
			New Hampshire--0.3%
	1,685,000		New Hampshire Higher Educational & Health Facilities Authority, Healthcare System Revenue Bonds (Series 2004), 5.375% (Covenant Health Systems)/(Original Issue Yield: 5.50%), 7/1/2024		1,498,656
			New Mexico--1.1%
	2,000,000		Albuquerque Bernalillo County, NM Water Utility Authority, Joint Water & Sewer System Improvement Revenue Bonds (Series 2009A-1), 5.25% (Original Issue Yield: 5.34%), 7/1/2034		2,026,740
	3,000,000		University of New Mexico, Subordinate Lien System Improvement Revenue Bonds (Series 2007A), 5.00% (FSA INS), 6/1/2036		2,977,740
			TOTAL		5,004,480
			New York--9.3%
	2,000,000		Hempstead Town, NY IDA, Civic Facility Revenue Bonds, 5.00% (Adelphi University), 10/1/2035		1,804,740
	2,000,000		Hempstead Town, NY IDA, Civic Facility Revenue Bonds, 5.25% (Hofstra University), 7/1/2018		2,064,720
Principal Amount					Value
			MUNICIPAL BONDS--continued
			New York--continued
$	3,080,000		New York City Trust For Cultural Resources, Revenue Refunding Bonds (Series 2008A), 5.00% (Museum of Modern Art), 4/1/2026	$	3,112,494
	4,000,000		New York City, NY IDA, CPI PILOT Revenue Bonds (Series 2006), 0.850% (Yankee Stadium LLC)/(FGIC INS), 3/1/2021		2,933,920
	3,970,000		New York City, NY Municipal Water Finance Authority, Water & Sewer System Revenue Bonds (Fiscal 2002 Series A), 5.00%, 6/15/2032		3,889,608
	3,000,000		New York City, NY Municipal Water Finance Authority, Water & Sewer System Revenue Bonds (Fiscal 2005 Series C), 5.00%, 6/15/2030		2,968,830
	270,000		New York City, NY Municipal Water Finance Authority, Water & Sewer System Revenue Bonds (Series 2009A), 5.75% (Original Issue Yield: 5.90%), 6/15/2040		284,264
	4,000,000		New York City, NY Transitional Finance Authority, Building Aid Revenue Bonds (Fiscal 2009 S-1), 5.50% (TFA State/School Building Aid)/(Original Issue Yield: 5.60%), 7/15/2028		4,034,360
	5,000,000		New York State Dormitory Authority, Revenue Bonds, 6.00% (State University of New York)/(United States Treasury PRF 5/15/2010@101), 5/15/2016		5,350,350
	1,060,000		New York State Dormitory Authority, Revenue Bonds (Series 2007B), 5.25% (Health Quest Systems, Inc. Obligated Group)/(Assured Guaranty Corp. INS), 7/1/2027		1,080,522
	2,000,000		New York State Dormitory Authority, Revenue Bonds (Series 2008A), 5.00% (New York State Personal Income Tax Revenue Bond Fund), 3/15/2028		2,007,120
	2,500,000		New York State Thruway Authority, Revenue Bonds (Series 2007A), 5.25% (New York State Personal Income Tax Revenue Bond Fund), 3/15/2026		2,577,375
	1,015,000		Suffolk County, NY Water Authority, Water System Revenue Bonds (Series 1994), 6.00% (Escrowed In Treasuries COL), 6/1/2014		1,187,063
	1,985,000		Suffolk County, NY Water Authority, Water System Revenue Bonds (Series 1994), 6.00% (MBIA Insurance Corp. INS), 6/1/2014		2,187,887
	2,000,000	^1,2	Triborough Bridge & Tunnel Authority, NY, DRIVERs (Series 3063), 11.278%, 5/15/2016		2,013,320
	4,000,000		Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (Original Issue Yield: 5.10%), 11/15/2037		3,875,520
			TOTAL		41,372,093
Principal Amount					Value
			MUNICIPAL BONDS--continued
			North Carolina--0.6%
$	1,660,000		Johnston Memorial Hospital Authority, NC, FHA INS Mortgage Revenue Bonds (Series 2008), 5.25% (Johnston Memorial Hospital)/(FSA INS) 10/1/2036	$	1,461,016
	1,600,000		North Carolina Medical Care Commission, Health Care Housing Revenue Bonds (Series 2004A), 5.80% (Arc of North Carolina Projects), 10/1/2034		1,190,688
			TOTAL		2,651,704
			Ohio--3.2%
	5,000,000		American Municipal Power-Ohio, Inc., Prairie State Energy Campus Project Revenue Bonds (Series 2008A), 5.25%, 2/15/2028		4,981,900
	1,700,000		Cleveland, OH Municipal School District, UT GO Bonds, 5.25% (FSA INS), 12/1/2024		1,729,070
	100,000		Dayton, OH, LT GO Bonds, 7.00% (MBIA Insurance Corp. INS), 12/1/2009		104,216
	200,000		Fairfield County, OH, LT GO Bonds, 5.00% (MBIA Insurance Corp. INS), 12/1/2023		202,526
	1,660,000		Ohio HFA, Residential Mortgage Revenue Bonds (Series 2008F), 5.25% (GTD by GNMA COL Home Mortgage Program), 9/1/2028		1,640,030
	1,345,000		Ohio State Building Authority, Revenue Bonds (Series 2002A), 5.00% (Adult Correctional Building Fund Projects), 4/1/2022		1,391,900
	100,000		Ohio State Water Development Authority, Revenue Bonds (Series I), 7.00% (Escrowed In Treasuries COL)/(Original Issue Yield: 7.45%), 12/1/2014		113,802
	1,800,000		Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033		1,745,208
	2,000,000		Ohio State, Infrastructure Improvement GO Bonds (Series 2008A), 5.375% (Original Issue Yield: 5.50%), 9/1/2028		2,092,880
			TOTAL		14,001,532
			Oklahoma--0.3%
	75,000		McAlester, OK Public Works Authority, Revenue Bonds (Series A), 5.75% (FSA INS), 2/1/2020		76,019
	1,000,000		Tulsa, OK Industrial Authority, Revenue Bonds, (Series A), 6.00% (University of Tulsa)/(MBIA Insurance Corp. INS), 10/1/2016		1,115,970
			TOTAL		1,191,989
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Oregon--0.3%
$	1,500,000		Clackamas County, OR Hospital Facilities Authority, Revenue Refunding Bonds (Series 2001), 5.25% (Legacy Health System)/(Original Issue Yield: 5.50%), 5/1/2021	$	1,516,800
			Pennsylvania--7.6%
	3,890,000		Allegheny County, PA Hospital Development, Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018		3,973,207
	1,280,000		Allegheny County, PA Hospital Development, Refunding Revenue Bonds (Series 1998A), 5.125% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.40%), 5/1/2029		978,944
	1,085,000		Allegheny County, PA IDA, Environmental Improvement Refunding Revenue Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016		930,409
	1,435,000		Allegheny County, PA, UT GO Bonds, 5.00% (Assured Guaranty Corp. INS), 12/1/2033		1,416,876
	1,700,000	^1,2	Commonwealth of Pennsylvania, JPMorgan Chase DRIVERs (Series 3350), 13.00%, 3/15/2017		2,103,580
	5,000,000		Delaware Valley, PA Regional Finance Authority, Revenue Bonds, 5.75%, 7/1/2017		5,192,300
	1,000,000		Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2001A), 6.00% (UPMC Health System)/(Original Issue Yield: 6.10%), 1/15/2022		1,015,760
	5,000,000		Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2001A), 6.25% (UPMC Health System), 1/15/2016		5,416,600
	2,000,000		Pennsylvania State Higher Education Facilities Authority, Student Housing Revenue Bonds, 5.125% (Foundation for Indiana University of Pennsylvania)/(Syncora Guarantee, Inc. INS), 7/1/2039		1,298,480
	3,000,000		Pennsylvania State Turnpike Commission, Subordinate Revenue Bonds (Series 2008 B-1), 5.50%, 6/1/2033		3,032,040
	1,000,000		Pennsylvania State Turnpike Commission, Turnpike Subordinated Revenue Bonds (Series 2008A), 5.00% (Assured Guaranty Corp. INS), 6/1/2033		995,760
	5,000,000		Philadelphia, PA School District, UT GO Bonds (Series 2008E), 6.00% (Original Issue Yield: 6.30%), 9/1/2038		5,185,300
	1,000,000		Pittsburgh & Allegheny County PA Public Auditorium Hotel Room Authority, Public Auditorium Hotel Room Revenue Bonds, 5.00% (AMBAC INS)/(Original Issue Yield: 5.15%), 2/1/2017		1,018,110
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Pennsylvania--continued
$	135,000		Pittsburgh, PA Water & Sewer Authority, Revenue Refunding Bonds, 6.00% (Escrowed In Treasuries COL)/(Original Issue Yield: 7.65%), 9/1/2016	$	156,291
	1,000,000		University of Pittsburgh, University Capital Project Bonds (Series 2009B), 5.50%, 9/15/2024		1,070,390
			TOTAL		33,784,047
			Puerto Rico--1.7%
	1,000,000		Commonwealth of Puerto Rico, UT GO Bonds, 5.50% (MBIA Insurance Corp. INS), 7/1/2009		1,005,920
	1,000,000		Puerto Rico Electric Power Authority, Power Refunding Revenue Bonds (Series 2007VV), 5.25% (MBIA Insurance Corp. INS), 7/1/2029		842,400
	4,500,000		Puerto Rico Electric Power Authority, Revenue Bonds (Series II), 5.25% (United States Treasury PRF 7/1/2012@101)/(Original Issue Yield: 5.27%), 7/1/2022		5,122,395
	470,000		Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2026		323,449
	200,000		Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds (Series 2006), 5.00% (Ana G. Mendez University System), 3/1/2036		121,850
			TOTAL		7,416,014
			Rhode Island--0.6%
	2,500,000		Rhode Island State Health and Educational Building Corp., Higher Education Facilities Revenue Bonds (Series 2007), 5.00% (Brown University), 9/1/2037		2,488,625
			South Carolina--1.7%
	300,000		Hilton Head Island, SC, UT GO Bonds (Series A), 5.75% (United States Treasury PRF 12/1/2009@100)/(Original Issue Yield: 5.80%), 12/1/2017		310,695
	220,000		Piedmont Municipal Power Agency, SC, Revenue Bond (Series 2004A), 6.50% (FGIC INS)/(Original Issue Yield: 6.625%), 1/1/2016		235,825
	280,000		Piedmont Municipal Power Agency, SC, Revenue Bond (Series A), 6.50% (Escrowed In Treasuries COL)/(Original Issue Yield: 6.625%), 1/1/2016		349,549
	615,000		South Carolina Jobs-EDA, EDRBs, (Series 2002A), 5.50% (Bon Secours Health System)/(United States Treasury PRF 11/15/2012@100)/(Original Issue Yield: 5.75%), 11/15/2023		701,635
Principal Amount					Value
			MUNICIPAL BONDS--continued
			South Carolina--continued
$	580,000		South Carolina Jobs-EDA, Health System Revenue Bonds (Series A), 5.625% (Bon Secours Health System)/(United States Treasury PRF 11/15/2012@100)/(Original Issue Yield: 5.84%), 11/15/2030	$	664,251
	4,000,000		South Carolina Jobs-EDA, Hospital Revenue Bonds, 1.29% Floating Rate Notes (Palmetto Health Alliance), Mandatory Tender 8/1/2013		3,680,000
	500,000		South Carolina State Public Service Authority (Santee Cooper), Refunding Revenue Bonds (Series 2002A), 5.125% (Santee Cooper)/(FSA INS)/(Original Issue Yield: 5.25%), 1/1/2020		528,990
	1,000,000		South Carolina State Public Service Authority (Santee Cooper), Revenue Obligations (Series 2008A), 5.375% (Original Issue Yield: 5.60%), 1/1/2028		1,035,610
			TOTAL		7,506,555
			South Dakota--1.1%
	250,000		Sioux Falls, SD Parking Systems, Revenue Bonds, 5.55% (AMBAC INS)/(Original Issue Yield: 5.65%), 11/15/2013		250,468
	2,225,000		South Dakota Housing Development Authority, Home Ownership Mortgage Revenue Bonds (Series 2002C), 5.35%, 5/1/2022		2,309,350
	2,420,000		South Dakota Housing Development Authority, Multiple Purpose Revenue Bonds (Series 2002A), 5.15% (FSA INS), 11/1/2020		2,455,840
			TOTAL		5,015,658
			Tennessee--1.4%
	1,880,000		Shelby County, TN Health Education & Housing Facilities Board, Hospital Revenue Bonds, 6.50% (Methodist Healthcare)/(United States Treasury PRF 9/1/2012@100)/(Original Issue Yield: 6.57%), 9/1/2021		2,168,787
	1,120,000		Shelby County, TN Health Education & Housing Facilities Board, Hospital Revenue Bonds, 6.50% (Methodist Healthcare)/(United States Treasury PRF 9/1/2012@100)/(Original Issue Yield: 6.57%), 9/1/2021		1,292,043
	935,000		Sullivan County, TN Health Educational & Housing Facilities Board, Revenue Bonds, 6.25% (Wellmont Health System)/(United States Treasury PRF 9/1/2012@101)/(Original Issue Yield: 6.45%), 9/1/2022		1,074,652
	1,565,000		Sullivan County, TN Health Educational & Housing Facilities Board, Revenue Bonds, 6.25% (Wellmont Health System)/(United States Treasury PRF 9/1/2012@101)/(Original Issue Yield: 6.45%), 9/1/2022		1,798,748
			TOTAL		6,334,230
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Texas--8.3%
$	150,000		Brazoria County Texas Municipal Utility District NO 26, UT GO Bonds, 4.125% (FGIC & MBIA Insurance Corp. INS)/(Original Issue Yield: 4.22%), 9/1/2018	$	126,988
	225,000		Brazoria County Texas Municipal Utility District NO 26, UT GO Bonds, 4.50% (FGIC & MBIA Insurance Corp. INS)/(Original Issue Yield: 4.53%), 9/1/2024		175,306
	330,000		Cameron County TX, LT GO Certificates of Obligation, 5.50% (United States Treasury PRF 2/15/2010@100)/(Original Issue Yield: 5.64%), 2/15/2020		344,312
	2,000,000		Comal County, TX HFDC, Revenue Bonds (Series 2002A), 6.125% (McKenna Memorial Hospital)/(United States Treasury PRF 2/1/2013@100)/(Original Issue Yield: 6.28%), 2/1/2022		2,314,940
	375,000		Corpus Christi, TX Business & Job Development Corp., Revenue Bonds, 5.375% (AMBAC INS), 3/1/2018		379,984
	500,000		Corpus Christi, TX Business & Job Development Corp., Revenue Bonds, 5.375% (AMBAC INS), 3/1/2020		503,970
	3,000,000		Dallas, TX, Revenue Refunding Bonds (Series 2007), 4.50% (Dallas, TX Waterworks & Sewer System)/(AMBAC INS)/(Original Issue Yield: 4.56%), 10/1/2036		2,745,360
	2,200,000		Harris County, TX HFDC, Hospital Revenue Bonds, (Series 1997A), 6.00% (Memorial Hospital System)/(MBIA Insurance Corp. INS), 6/1/2011		2,258,828
	4,000,000		Harris County, TX HFDC, Hospital Revenue Bonds, (Series 1997A), 6.00% (Memorial Hospital System)/(MBIA Insurance Corp. INS), 6/1/2012		4,148,440
	2,000,000		Harris County, TX, Toll Road Senior Lien Revenue & Refunding Bonds (Series 2008B), 5.00% (Original Issue Yield: 5.08%), 8/15/2033		1,915,660
	500,000		Harris County-Houston, TX Sports Authority, Sr. Lien Revenue Bonds (Series G), 5.25% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.47%), 11/15/2021		451,085
	600,000		Houston, TX Water Conveyance System, COP (Series H), 7.50% (AMBAC INS), 12/15/2011		661,884
	1,000,000		Humble, TX ISD, UT GO Bonds, 5.00% (FGIC & MBIA Insurance Corp. INS), 2/15/2024		1,025,560
	1,000,000		La Feria, TX ISD, School Building UT GO Bonds, 5.00% (GTD by PSFG), $2/15/2037		996,960
	250,000		Laredo, TX ISD, Revenue Bonds (Series A), 5.00% (AMBAC INS), 8/1/2019		257,305
	250,000		Lower Colorado River Authority, TX, Revenue Bonds, 6.00% (United States Treasury COL)/(Original Issue Yield: 6.619%), 1/1/2017		301,333
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Texas--continued
$	600,000		Matagorda County, TX Navigation District No. 1, COL Refunding Revenue Bonds, 5.60% (CenterPoint Energy Houston Electric LLC), 3/1/2027	$	494,226
	30,000		North Texas Municipal Water District, Revenue Bonds, 4.20% (AMBAC INS), 6/1/2020		30,299
	2,300,000		Port of Corpus Christi, TX IDC, Revenue Refunding Bonds (Series C), 5.40% (Valero Energy Corp.), 4/1/2018		1,877,835
	2,165,000		Richardson, TX Hospital Authority, Refunding & Improvement Hospital Revenue Bonds, 5.875% (Richardson Regional Medical Center)/(Original Issue Yield: 6.05%), 12/1/2024		1,646,850
	1,000,000		Sam Rayburn, TX Municipal Power Agency, Refunding Revenue Bonds (Series 2002A), 6.00%, 10/1/2021		903,700
	3,515,000		San Antonio, TX Electric & Gas System, Revenue Refunding Bonds (Series 2009A), 5.25%, 2/1/2027		3,618,130
	5,000		San Antonio, TX Water System, Revenue Bonds, 6.50% (United States Treasury PRF 5/15/2009@100)/(Original Issue Yield: 6.67%), 5/15/2010		5,062
	1,000,000		Socorro, TX ISD, School Building UT GO Bonds (Series 2006A), 5.00% (GTD by PSFG), 8/15/2026		1,034,190
	1,250,000	^1,2	Spring Branch, TX ISD, JPMorgan Chase DRIVERs (Series 3377), 15.00%, 2/1/2015		1,336,350
	200,000		Texas Public Building Authority, Revenue Refunding Bonds, 6.00% (United States Treasury COL), 8/1/2014		229,262
	1,525,000		Texas State Public Finance Authority, GO Bonds (Series 2007), 5.00% (Texas State), 10/1/2027		1,563,201
	5,000,000		Texas State Transportation Commission, Mobility Fund Revenue Bonds (Series 2007), 4.75% (Texas State), 4/1/2027		5,029,750
	325,000		Wichita Falls Texas, LT GO Refunding Bonds, 5.25% (MBIA Insurance Corp. INS), 9/1/2016		348,858
			TOTAL		36,725,628
			Utah--2.9%
	395,000		Murray City, UT Municipal Building Authority, Revenue Bonds (Series A), 5.30% (United States Treasury PRF 12/1/2011@100)/(Original Issue Yield: 5.37%), 12/1/2021		438,209
	8,875,000		Salt Lake City, UT Hospital Authority, Hospital Revenue Refunding Bonds (Series A), 8.125% (IHC Hospitals Inc., UT)/(Escrowed In Treasuries COL)/(Original Issue Yield: 8.17%), 5/15/2015		10,363,426
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Utah--continued
$	2,000,000		Utah County, UT IDA, Environmental Improvement Revenue Bonds, 5.05% TOBs (Marathon Oil Corp.), Mandatory Tender 11/1/2011	$	1,941,160
			TOTAL		12,742,795
			Vermont--0.4%
	1,000,000		Burlington, VT Airport, Revenue Bonds, (Series A), 5.00% (MBIA Insurance Corp. INS), 7/1/2023		916,230
	3,000		Vermont Educational and Health Buildings Financing Agency, Revenue Bond, 1.75% TOBs (Middlebury College), Optional Tender 11/2/2009		3,006
	1,165,000		Vermont Educational and Health Buildings Financing Agency, Revenue Bonds (Series 2003A), 5.375% (Vermont Law School)/(Original Issue Yield: 5.60%), 1/1/2023		945,223
			TOTAL		1,864,459
			Virginia--3.7%
	5,000,000		Richmond, VA, UT GO Bonds, 5.50% (FSA INS)/(Original Issue Yield: 5.58%), 1/15/2018		5,275,900
	3,000,000		Tobacco Settlement Financing Corp., VA, Revenue Bonds, 5.625% (United States Treasury PRF 6/1/2015@100)/(Original Issue Yield: 5.78%), 6/1/2037		3,431,490
	3,900,000		Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 2003), 6.00% (Brinks Co.), 4/1/2033		3,306,498
	4,000,000		Virginia Resources Authority, Clean Water State Revolving Fund Subordinated Revenue Bonds (Series 2008), 5.00%, 10/1/2027		4,162,640
			TOTAL		16,176,528
			Washington--2.4%
	5,595,000		Washington State Convention & Trade Center, Lease Revenue COP, 5.125% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.30%), 7/1/2013		5,635,284
	2,000,000		Washington State Health Care Facilities Authority, Revenue Bonds (Series 2009A), 6.50% (Swedish Health Services)/(Original Issue Yield: 6.73%), 11/15/2033		1,966,080
	1,150,000		Washington State Health Care Facilities Authority, Revenue Bonds, 5.00% (Group Health Cooperative)/(Radian Asset Assurance, Inc. INS), 12/1/2036		845,975
	2,000,000	^1,2	Washington State, UT GO Bonds (ROLs II-R11609), 13.06%, 1/1/2016		2,097,320
			TOTAL		10,544,659
			West Virginia--0.4%
	2,200,000		Pleasants County, WV County Commission, PCR Revenue Refunding Bonds (Series 2007F), 5.25% (Allegheny Energy Supply Company LLC), 10/15/2037		1,630,816
Principal Amount					Value
			MUNICIPAL BONDS--continued
			Wisconsin--6.4%
$	450,000		East Troy, WI, UT GO Bonds, 3.85% (AMBAC INS), 4/1/2017	$	460,444
	1,000,000		Marinette County, WI, UT GO Refunding Bonds, 6.50% (United States Treasury PRF 9/1/2017@100), 9/1/2018		1,080,450
	100,000		Oshkosh, WI Storm Water Utility, Revenue Bond (Series C), 4.50% (Syncora Guarantee, Inc. LOC)/(Original Issue Yield: 4.55%), 5/1/2023		94,116
	20,000		Sauk County, WI, UT GO Bonds, 4.00% (FGIC INS)/(Original Issue Yield: 4.96%), 10/1/2012		20,787
	55,000		Sauk County, WI, UT GO Refunding Bonds (Series A), 4.00% (United States Treasury PRF 10/1/2011@100)/(Original Issue Yield: 4.96%), 10/1/2012		58,993
	400,000		South Milwaukee, WI School District, UT GO Refunding Bonds, 5.20% (United States Treasury PRF 4/1/2012@100), 4/1/2022		446,128
	1,570,000		Wisconsin Housing & EDA, Housing Revenue Bonds (Series 2002C), 5.35% (MBIA Insurance Corp. INS), 11/1/2022		1,589,751
	6,000,000		Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 6.00% (Wisconsin State)/(Original Issue Yield: 6.02%), 5/1/2033		6,145,500
	5,500,000		Wisconsin State HEFA, Refunding Revenue Bonds, 5.75% (Wheaton Franciscan HealthCare)/(United States Treasury PRF 2/15/2012@101)/(Original Issue Yield: 5.96%), 8/15/2025		6,241,565
	300,000		Wisconsin State HEFA, Revenue Bonds (Series 2004), 5.50% (Blood Center of Wisconsin, Inc.)/(Original Issue Yield: 5.583%), 6/1/2024		278,961
	430,000		Wisconsin State HEFA, Revenue Bonds (Series 2004), 5.75% (Blood Center of Wisconsin, Inc.)/(Original Issue Yield: 5.82%), 6/1/2034		378,705
	1,750,000		Wisconsin State HEFA, Revenue Bonds (Series 2004), 5.75% (Fort Healthcare, Inc.)/(Original Issue Yield: 5.84%), 5/1/2029		1,397,830
	1,810,000		Wisconsin State HEFA, Revenue Bonds, 6.00% (SynergyHealth, Inc.)/(Original Issue Yield: 6.10%), 11/15/2023		1,824,896
	1,630,000		Wisconsin State HEFA, Revenue Bonds, 6.00% (Agnesian Healthcare, Inc.)/(Original Issue Yield: 6.15%), 7/1/2030		1,520,660
	1,000,000		Wisconsin State HEFA, Revenue Bonds, (Series 2006A), 5.125% (Marshfield Clinic, WI), 2/15/2026		763,630
	2,000,000	^1,2	Wisconsin State, UT GO Bonds (ROLs II-R11604), 12.16%, 5/1/2016		2,035,820
	4,000,000		Wisconsin State, UT GO Bonds (Series 2008C), 5.00%, 5/1/2028		4,025,960
			TOTAL		28,364,196
			Wyoming--0.2%
	1,000,000		University of Wyoming, University Facilities Improvement Revenue Bonds, 5.50% (MBIA Insurance Corp. INS)/(Original Issue Yield: 5.70%), 6/1/2019		1,005,480
			TOTAL MUNICIPAL BONDS (IDENTIFIED COST $447,142,434)		436,429,712
Principal Amount					Value
			SHORT-TERM MUNICIPALS--1.7%³
			New York--0.4%
$	1,900,000		New York City, NY, (Fiscal 1995 Series B-5) Daily VRDNs (JPMorgan Chase Bank, N.A. LIQ), 0.200%, 4/1/2009	$	1,900,000
			Ohio--1.0%
	4,400,000		Franklin County, OH Hospital Facility Authority, (Series 2008E) Weekly VRDNs (Nationwide Children's Hospital)/(JPMorgan Chase Bank, N.A. LIQ), 0.400%, 4/2/2009		4,400,000
			Texas--0.3%
	1,200,000		Harris County, TX HFDC, (Series 2006C) Daily VRDNs (Methodist Hospital, Harris County, TX), 0.400%, 4/1/2009		1,200,000
			TOTAL SHORT-TERM MUNICIPALS (AT COST)		7,500,000
			TOTAL MUNICIPAL INVESTMENTS--100.1% (IDENTIFIED COST $454,642,434)⁴		443,929,712
			OTHER ASSETS AND LIABILITIES - NET--(0.1)%⁵		(484,964	)
			TOTAL NET ASSETS--100%	$	443,444,748

At March 31, 2009, the Fund holds no securities that are subject to the federal alternative minimum tax (AMT).

1 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At March 31, 2009, these restricted securities amounted to $9,586,390, which represented 2.2% of total net assets.

2 Denotes a restricted security that may be resold without restriction to "qualified institutional buyers" as defined in Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Directors (the "Directors"). At March 31, 2009, these liquid restricted securities amounted to $9,586,390, which represented 2.2% of total net assets.

3 Current rate and next reset date shown for Variable Rate Demand Notes.

4 The cost of investments for federal tax purposes amounts to $454,620,617.

5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.

Note: The categories of investments are shown as a percentage of total net assets at March 31, 2009.

Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:

Level 1--quoted prices in active markets for identical securities

Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used, as of March 31, 2009, in valuing the Fund's assets carried at fair value:

Valuation Inputs		Investments in Securities
Level 1--Quoted Prices and Investments in Mutual Funds		$ --
Level 2--Other Significant Observable Inputs		443,929,712
Level 3--Significant Unobservable Inputs		--
TOTAL		$443,929,712

The following acronyms are used throughout this portfolio:

AMBAC	--American Municipal Bond Assurance Corporation
COL	--Collateralized
COP	--Certificate of Participation
DRIVERs	--Derivative Inverse Tax-Exempt Receipts
EDA	--Economic Development Authority
EDRBs	--Economic Development Revenue Bonds
FGIC	--Financial Guaranty Insurance Company
FHA	--Federal Housing Administration
FSA	--Financial Security Assurance
GNMA	--Government National Mortgage Association
GO	--General Obligation
GTD	--Guaranteed
HEFA	--Health and Education Facilities Authority
HFA	--Housing Finance Authority
HFDC	--Health Facility Development Corporation
IDA	--Industrial Development Authority
IDB	--Industrial Development Bond
IDC	--Industrial Development Corporation
INS	--Insured
ISD	--Independent School District
LID	--Local Improvement District
LIQ	--Liquidity Agreement
LT	--Limited Tax
PCR	--Pollution Control Revenue
PCRBs	--Pollution Control Revenue Bonds
PRF	--Prerefunded
PSFG	--Permanent School Fund Guarantee
TOBs	--Tender Option Bonds
USD	--Unified School District
UT	--Unlimited Tax
VRDNs	--Variable Rate Demand Notes

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

March 31, 2009

Assets:
Total investments in securities, at value (identified cost $454,642,434)			$	443,929,712
Cash				83,194
Income receivable				7,029,521
Receivable for investments sold				8,718,959
Receivable for shares sold				288,030
TOTAL ASSETS				460,049,416
Liabilities:
Payable for investments purchased	$	15,335,749
Payable for shares redeemed		384,999
Payable for Directors'/Trustees' fees		1,487
Payable for distribution services fee (Note 5)		22,360
Payable for shareholder services fee (Note 5)		164,484
Income distribution payable		529,706
Accrued expenses		165,883
TOTAL LIABILITIES				16,604,668
Net assets for 47,101,561 shares outstanding			$	443,444,748
Net Assets Consist of:
Paid-in capital			$	474,889,190
Net unrealized depreciation of investments				(10,712,722	)
Accumulated net realized loss on investments, futures contracts and swap contracts				(20,662,831	)
Distributions in excess of net investment income				(68,889	)
TOTAL NET ASSETS			$	443,444,748
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Class A Shares:
Net asset value per share ($396,603,024 ÷ 42,125,851 shares outstanding), $0.01 par value, 375,000,000 shares authorized				$9.41
Offering price per share (100/95.50 of $9.41)				$9.85
Redemption proceeds per share				$9.41
Class B Shares:
Net asset value per share ($15,104,577 ÷ 1,604,405 shares outstanding), $0.01 par value, 250,000,000 shares authorized				$9.41
Offering price per share				$9.41
Redemption proceeds per share (94.50/100 of $9.41)				$8.89
Class C Shares:
Net asset value per share ($20,376,480 ÷ 2,164,591 shares outstanding), $0.01 par value, 375,000,000 shares authorized				$9.41
Offering price per share				$9.41
Redemption proceeds per share (99.00/100 of $9.41)				$9.32
Class F Shares:
Net asset value per share ($11,360,667 ÷ 1,206,714 shares outstanding), $0.01 par value, 150,000,000 shares authorized				$9.41
Offering price per share (100/99.00 of $9.41)				$9.51
Redemption proceeds per share (99.00/100 of $9.41)				$9.32

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended March 31, 2009

Investment Income:
Interest							$	23,467,091
Expenses:
Investment adviser fee (Note 5)				$	2,388,575
Administrative personnel and services fee (Note 5)					346,261
Custodian fees					23,353
Transfer and dividend disbursing agent fees and expenses					303,934
Directors'/Trustees' fees					16,358
Auditing fees					23,300
Legal fees					10,767
Portfolio accounting fees					162,484
Distribution services fee--Class B Shares (Note 5)					122,270
Distribution services fee--Class C Shares (Note 5)					130,906
Shareholder services fee--Class A Shares (Note 5)					980,148
Shareholder services fee--Class B Shares (Note 5)					40,757
Shareholder services fee--Class C Shares (Note 5)					43,264
Shareholder services fee--Class F Shares (Note 5)					16,736
Account administration fee--Class A Shares					11,653
Share registration costs					77,372
Printing and postage					50,886
Insurance premiums					3,091
Taxes					31,768
Miscellaneous					10,884
TOTAL EXPENSES					4,794,767
Waivers, Reduction and Reimbursements:
Waiver of investment adviser fee (Note 5)	$	(46,945	)
Waiver of administrative personnel and services fee (Note 5)		(8,186	)
Reduction of custodian fees (Note 6)		(298	)
Reimbursement of shareholder services fee--Class A Shares (Note 5)		(543,250	)
Reimbursement of shareholder services fee--Class F Shares (Note 5)		(8,149	)
TOTAL WAIVERS, REDUCTION AND REIMBURSEMENTS					(606,828	)
Net expenses								4,187,939
Net investment income								19,279,152
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Swap Contracts:
Net realized loss on investments								(14,009,793	)
Net realized gain on futures contracts								46,824
Net realized loss on swap contracts								(1,480,116	)
Net change in unrealized depreciation of investments								(12,200,476	)
Net change in unrealized depreciation of swap contracts								50,852
Net realized and unrealized loss on investments, futures contracts and swap contracts								(27,592,709	)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS							$	(8,313,557	)

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended March 31		2009			2008
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	19,279,152		$	20,444,339
Net realized loss on investments, futures contracts and swap contracts		(15,443,085	)		(4,416,478	)
Net change in unrealized appreciation/depreciation of investments and swap contracts		(12,149,624	)		(22,578,870	)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		(8,313,557	)		(6,551,009	)
Distributions to Shareholders:
Distributions from net investment income
Class A Shares		(17,712,593	)		(19,321,273	)
Class B Shares		(573,558	)		(733,374	)
Class C Shares		(615,844	)		(429,776	)
Class F Shares		(350,135	)		(49,475	)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(19,252,130	)		(20,533,898	)
Share Transactions:
Proceeds from sale of shares		82,002,379			72,912,334
Proceeds from shares issued in connection with tax-free transfer of assets from Suburban Common Trust Fund		26,909,721			--
Proceeds from shares issued in connection with tax-free transfer of assets from Federated Vermont Municipal Income Fund		--			23,354,624
Net asset value of shares issued to shareholders in payment of distributions declared		12,851,857			13,735,534
Cost of shares redeemed		(119,799,079	)		(114,583,741	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		1,964,878			(4,581,249	)
Change in net assets		(25,600,809	)		(31,666,156	)
Net Assets:
Beginning of period		469,045,557			500,711,713
End of period (including distributions in excess of net investment income of $(68,889) and $(79,595), respectively)	$	443,444,748		$	469,045,557

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

March 31, 2009

1. ORGANIZATION

Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares and Class F Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. 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. Interest income from the Fund's investments normally will not be subject to federal AMT for individuals and corporations, but may be subject to state and local taxes.

Effective May 31, 2007, the Fund began offering Class F Shares.

On August 17, 2007, the Fund received assets from Federated Vermont Municipal Income Fund as the result of a tax-free reorganization, as follows:

Shares of the Fund Issued		Federated Vermont Municipal Income Fund Net Assets Received		Unrealized Depreciation¹		Net Assets of the Fund Immediately Prior to Combination		Net Assets of the Fund Immediately After Combination
2,298,683		$23,354,624		$631,496		$463,269,803		$486,624,427

1 Unrealized Depreciation is included in the Federated Vermont Municipal Income Fund Net Assets Received amount shown above.

On December 19, 2008, the Fund received assets from Suburban Common Trust Fund as the result of a tax-free reorganization, as follows:

Shares of the Fund Issued		Suburban Common Trust Fund Net Assets Received		Unrealized Appreciation²		Net Assets of the Fund Immediately Prior to Combination		Net Assets of the Fund Immediately After Combination
2,973,450		$26,909,721		$522,610		$402,063,122		$428,972,843

2 Unrealized Appreciation is included in the Suburban Common Trust Fund Net Assets Received amount shown above.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).

Investment Valuation

In calculating its net asset value (NAV), the Fund generally values investments as follows:

Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Directors.
Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
Shares of other mutual funds are valued based upon their reported NAVs.
Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Directors.

If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.

Fair Valuation and Significant Events Procedures

The Directors have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Directors.

The Directors also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:

With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.

The Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Directors.

Investment Income, Gains and Losses, Expenses and Distributions

Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as account administration, distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization

All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.

Federal Taxes

It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." As of and during the year ended March 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of March 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America, the state of Maryland and the Commonwealth of Pennsylvania.

Other Taxes

As an open-end management investment company incorporated in the state of Maryland but domiciled in the Commonwealth of Pennsylvania, the Fund is subject to the Pennsylvania Franchise Tax. This franchise tax is assessed annually on the value of the Fund, as represented by average net assets for the tax year.

When-Issued and Delayed Delivery Transactions

The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

Swap and Interest Rate Lock Contracts

Swap contracts involve two parties that agree to exchange the returns (or the differential in rates of return) earned or realized on particular predetermined investments, instruments, indices or other measures. The gross returns to be exchanged or "swapped" between parties are generally calculated with respect to a "notional amount" for a predetermined period of time. The Fund may enter into interest rate, total return, credit default and other swap or rate lock agreements. Interest rate swap agreements generally involve the agreement by the Fund to pay a counterparty a fixed or floating interest rate on a fixed notional amount and to receive a fixed or floating rate on a fixed notional amount, but may also involve the agreement to pay or receive payments derived from changes in interest rates. Periodic payments are generally made during the life of the swap agreement according to the terms and conditions of the agreement and at termination or maturity. Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract from unanticipated changes in the value of the swap agreement.

Upfront payments received or paid by the Fund will be reflected as an asset or liability on the Statement of Assets and Liabilities. Changes in the value of swap contracts are included in "Swaps, at value" on the Statement of Assets and Liabilities, and periodic payments are reported as "Net realized gain or loss on swap contracts" in the Statement of Operations. For the year ended March 31, 2009, the Fund had a net realized loss on swap contracts of $1,480,116.

At March 31, 2009, the Fund had no outstanding swap contracts.

Inverse Floater Structures

The Fund may participate in Secondary Inverse Floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the Fund are transferred to a trust. The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security, which is transferred to the Fund, is also created by the trust and pays interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.

The Fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the Fund's investments, and the related floating rate notes reflected as Fund liabilities under the caption, "Payable for floating rate certificate securities," in the Statement of Assets and Liabilities. At March 31, 2009, the Fund held no investments in secondary inverse floater structures. The Fund recorded no interest and trust expenses for these investments for the year ended March 31, 2009.

While these inverse floater structures are accounted for as secured borrowings, the Fund's Adviser has determined that they do not constitute borrowings for purposes of any fundamental limitation on borrowings that may be applicable to the Fund.

Futures Contracts

The Fund may periodically purchase or sell financial futures contracts to manage duration and cashflows, enhance yield, and to potentially reduce transaction costs. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the year ended March 31, 2009, the Fund had a net realized gain on futures contracts of $46,824.

At March 31, 2009, the Fund had no outstanding futures contracts.

Restricted Securities

Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer's expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in accordance with procedures established by and under the general supervision of the Directors.

Other

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.

3. CAPITAL STOCK

The following tables summarize capital stock activity:

Year Ended March 31	2009					2008
Class A Shares:	Shares			Amount		Shares			Amount
Shares sold	5,942,751		$	57,406,758		5,678,057		$	58,781,068
Shares issued in connection with tax-free transfer of assets from Suburban Common Trust Fund	2,973,450			26,909,721		--			--
Shares issued in connection with tax-free transfer of assets from Federated Vermont Municipal Income Fund	--			--		2,298,683			23,354,624
Shares issued to shareholders in payment of distributions declared	1,228,825			11,816,952		1,255,635			12,973,035
Shares redeemed	(10,908,909	)		(105,682,712	)	(9,839,642	)		(102,076,518	)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS	(763,883	)	$	(9,549,281	)	(607,267	)	$	(6,967,791	)

Year Ended March 31	2009					2008
Class B Shares:	Shares			Amount		Shares			Amount
Shares sold	510,445		$	4,861,915		275,262		$	2,850,404
Shares issued to shareholders in payment of distributions declared	41,751			401,292		46,508			480,981
Shares redeemed	(763,224	)		(7,357,757	)	(866,691	)		(8,999,169	)
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS	(211,028	)	$	(2,094,550	)	(544,921	)	$	(5,667,784	)

Year Ended March 31	2009					2008
Class C Shares:	Shares			Amount		Shares			Amount
Shares sold	1,107,288		$	10,583,973		659,824		$	6,775,108
Shares issued to shareholders in payment of distributions declared	33,481			320,668		22,673			234,002
Shares redeemed	(511,738	)		(4,795,594	)	(321,941	)		(3,336,487	)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS	629,031		$	6,109,047		360,556		$	3,672,623

	Year Ended 3/31/2009					Period Ended 3/31/2008¹
Class F Shares:	Shares			Amount		Shares			Amount
Shares sold	950,975		$	9,149,733		439,087		$	4,505,754
Shares issued to shareholders in payment of distributions declared	32,814			312,945		4,684			47,516
Shares redeemed	(204,027	)		(1,963,016	)	(16,819	)		(171,567	)
NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS	779,762		$	7,499,662		426,952		$	4,381,703
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS	433,882		$	1,964,878		(364,680	)	$	(4,581,249	)

1 Reflects operations for the period from May 31, 2007 (date of initial public investment) to March 31, 2008.

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for discount accretion/premium amortization on debt securities and expiration of capital loss carryforwards.

For the year ended March 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital	Undistributed Net Investment Income (Loss)		Accumulated Net Realized Gain (Loss)
$(652,265)	$(16,316	)	$668,581

Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended March 31, 2009 and 2008, was as follows:

		2009		2008
Tax-exempt income		$19,252,130		$20,533,898

As of March 31, 2009, the components of distributable earnings on a tax basis were as follows:

Distributions in excess of net investment income	$	(68,889)
Net unrealized depreciation	$	(10,690,905)
Capital loss carryforwards and deferrals	$	(20,684,648)

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.

At March 31, 2009, the cost of investments for federal tax purposes was $454,620,617. The net unrealized depreciation of investments for federal tax purposes was $10,690,905. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,254,899 and net unrealized depreciation from investments for those securities having an excess of cost over value of $23,945,804.

At March 31, 2009, the Fund had a capital loss carryforward of $14,077,518 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2014		$ 286,453
2015		$ 419,369
2016		$ 1,292,988
2017		$12,078,708

As a result of the tax-free transfer of assets from Federated Vermont Municipal Income Fund and Sentinel Tax-Free Income Fund, the use of certain capital loss carryforwards listed above may be limited.

Capital loss carryforwards of $650,715 expired during the year ended March 31, 2009.

Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of March 31, 2009, for federal income tax purposes, post October losses of $6,607,130 were deferred to April 1, 2009.

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to: (a) 0.30% of the Fund's average daily net assets; and (b) 4.50% of the gross income of the Fund, excluding capital gains or losses. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended March 31, 2009, the Adviser voluntarily waived $46,945 of its fee.

Administrative Fee

Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:

Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended March 31, 2009, the net fee paid to FAS was 0.076% of average daily net assets of the Fund. FAS waived $8,186 of its fee.

Distribution Services Fee

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class B Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:

Share Class Name		Percentage of Average Daily Net Assets of Class
Class B Shares		0.75%
Class C Shares		0.75%

Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended March 31, 2009, FSC retained $29,315 of fees paid by the Fund.

Sales Charges

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended March 31, 2009, FSC retained $34,839 in sales charges from the sale of Class A Shares. FSC also retained $4,156 of CDSC relating to redemptions of Class A Shares, $4,496 relating to redemptions of Class C Shares and $2,929 relating to redemptions of Class F Shares.

Shareholder Services Fee

The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended March 31, 2009, FSSC voluntarily reimbursed $551,399 of shareholder services fees. For the year ended March 31, 2009, FSSC did not receive any fees paid by the Fund.

Interfund Transactions

During the year ended March 31, 2009, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $167,385,000 and $200,320,000, respectively.

Expense Limitation

The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Class A Shares, Class B Shares, Class C Shares and Class F Shares (after the voluntary waivers and reimbursements) will not exceed 0.87%, 1.76%, 1.76% and 0.87%, respectively, for the fiscal year ending March 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through May 31, 2010.

General

Certain Officers and Directors of the Fund are Officers and Directors or Trustees of the above companies.

6. EXPENSE REDUCTION

Through arrangements with the Fund's custodian, net credits realized as a result of uninvested cash balances were used to reduce custody expenses. For the year ended March 31, 2009, the Fund's expenses were reduced by $298 under these arrangements.

7. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended March 31, 2009, were as follows:

Purchases		$	223,139,268
Sales		$	241,835,921

8. LINE OF CREDIT

The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.65% over the federal funds rate. As of March 31, 2009, there were no outstanding loans. During the year ended March 31, 2009, the Fund did not utilize the LOC.

9. INTERFUND LENDING

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of March 31, 2009, there were no outstanding loans. During the year ended March 31, 2009, the program was not utilized.

10. LEGAL PROCEEDINGS

Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2008, FASB released Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (FAS 161). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management has concluded that the adoption of FAS 161 is not expected to have a material impact on the Fund's net assets or results of operations.

In addition, in April 2009, FASB released Staff Position No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP FAS 157-4), which is effective for interim and annual reporting periods ending after June 15, 2009. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements . Management has concluded that the adoption of FSP FAS 157-4 is not expected to have a material impact on the Fund's net assets or results of operations.

12. FEDERAL TAX INFORMATION (UNAUDITED)

For the year ended March 31, 2009, 100.00% of the distributions from net investment income is exempt from federal income tax, other than the federal AMT.

Report of Independent Registered Public Accounting Firm

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
FEDERATED MUNICIPAL SECURITIES FUND, INC.

We have audited the accompanying statement of assets and liabilities of Federated Municipal Securities Fund, Inc. (the "Fund"), including the portfolio of investments, as of March 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Municipal Securities Fund, Inc. at March 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP

Boston, Massachusetts
May 19, 2009

Board of Directors and Fund Officers

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 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Fund Directors and is available, without charge and upon request, by calling 1-800-341-7400.

INTERESTED DIRECTORS BACKGROUND


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 DIRECTOR Began serving: September 1976		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling.

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

* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.

INDEPENDENT DIRECTORS BACKGROUND


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John T. Conroy, Jr. Birth Date: June 23, 1937 DIRECTOR Began serving: August 1991		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 DIRECTOR Began serving: February 1998		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 DIRECTOR Began serving: July 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); 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.

Peter E. Madden Birth Date: March 16, 1942 DIRECTOR Began serving: August 1991		Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of 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.


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 DIRECTOR Began serving: July 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant. Other Directorships Held: Chairman, Audit Committee. Previous Positions: Chief Executive Officer, PBTC 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; Executive Vice President DVC Group, Inc. (marketing, communications and technology).

R. James Nicholson Birth Date: February 4, 1938 DIRECTOR Began serving: January 2008		Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado.

Thomas M. O'Neill Birth Date: June 14, 1951 DIRECTOR Began serving: October 2006		Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting); Consultant, EZE Castle Software (investment order management software); Partner, Midway Pacific (lumber). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Director, EZE Castle Software. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; and Credit Analyst and Lending Officer, Fleet Bank.


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John S. Walsh Birth Date: November 28, 1957 DIRECTOR Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

James F. Will Birth Date: October 12, 1938 DIRECTOR Began serving: April 2006		Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation.

OFFICERS


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1976		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.

Richard A. Novak Birth Date: December 25, 1963 TRESURER Began serving: January 2006		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co.


Name Birth Date Positions Held with Fund Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: January 1985		Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. 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.

Brian P. Bouda Birth Date: February 28, 1947 CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT Began serving: August 2004		Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.

Mary Jo Ochson Birth Date: September 12, 1953 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mary Jo Ochson was named Chief Investment Officer of tax-exempt fixed-income products in 2004. She joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996. Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

J. Scott Albrecht Birth Date: June 1, 1960 VICE PRESIDENT Began serving: May 2004		Principal Occupations: J. Scott Albrecht has been the Fund's Portfolio Manager since May 1996. He is Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He became a Senior Vice President of the Fund's Adviser in January 2005 and served as a Vice President of the Fund's Adviser from 1994 through 2004. He has been a Senior Portfolio Manager since 1997 and 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.

Evaluation and Approval of Advisory Contract - May 2008

FEDERATED MUNICIPAL SECURITIES FUND, INC. (THE "FUND")

The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2008. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.

In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.

During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the 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 Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: 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 a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.

The Board considered and weighed 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 was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; 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 (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.

With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because, simply put, they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; and different portfolio management techniques made necessary by different cash flows. The Senior Officer did not consider these fee schedules to be significant in determining the appropriateness of mutual fund advisory contracts.

The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees.

The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods ending December 31, 2007. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.

The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered 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). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate.

Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.

The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.

The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.

It was noted in the materials for the Board meeting that for the Fund's most recently completed fiscal year, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.

The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.

In its decision to continue an existing investment advisory contract, the Board was 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 recognized that most shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.

The Board based its decision to approve the 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 were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.

Voting Proxies on Fund Portfolio Securities

A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.

Quarterly Portfolio Schedule

The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.

Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.

This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.

Federated
World-Class Investment Manager

Federated Municipal SecuritiesFund, Inc.
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.

Federated Securities Corp., Distributor

Cusip 313913105
Cusip 313913204
Cusip 313913303
Cusip 313913402

8042830 (5/09)

Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.

Item 2. Code of Ethics

(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.

(d) Not Applicable

(e) Not Applicable

(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.

Item 3. Audit Committee Financial Expert

The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item: Nicholas P. Constantakis, Charles F. Mansfield, Jr. and Thomas M. O’Neill.

Item 4. Principal Accountant Fees and Services

(a) Audit Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2009 - $23,500

Fiscal year ended 2008 - $22,200

(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2009 - $0

Fiscal year ended 2008 - $0

Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $7,227 respectively. Fiscal year ended 2008- Fees for review of N-14 merger documents and restatement of 2006 financial statements.

Fiscal year ended 2009 - $0

Fiscal year ended 2008 - $0

Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.

(d) All Other Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2009 - $0

Fiscal year ended 2008 - $0

Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $9,858 respectively. Fiscal year ended 2008- Discussions related to accounting for swaps.

(e)(1) Audit Committee Policies regarding Pre-approval of Services.

The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.

Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate its responsibilities to pre-approve services performed by the independent auditor to management.

The Audit Committee has delegated pre-approval authority to its Chairman. The Chairman will report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.

AUDIT SERVICES

The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee must approve any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.

In addition to the annual Audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other Audit Services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain Audit services, all other Audit services must be specifically pre-approved by the Audit Committee.

AUDIT-RELATED SERVICES

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor, and has pre-approved certain Audit-related services, all other Audit-related services must be specifically pre-approved by the Audit Committee.

TAX SERVICES

The Audit Committee believes that the independent auditor can provide Tax services to the Company such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain Tax services, all Tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.

ALL OTHER SERVICES

With respect to the provision of services other than audit, review or attest services the pre-approval requirement is waived if:

(1)

The aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant to its accountant during the fiscal year in which the services are provided;

(2)

Such services were not recognized by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant at the time of the engagement to be non-audit services; and

(3)

Such services are promptly brought to the attention of the Audit Committee of the issuer and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee.

The Audit Committee may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, and would not impair the independence of the auditor.

The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of prohibited non-audit services and the applicability of exceptions to certain of the prohibitions.

PRE-APPROVAL FEE LEVELS

Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.

PROCEDURES

Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Principal Accounting Officer and/or Internal Auditor, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:

4(b)

Fiscal year ended 2009 – 0%

Fiscal year ended 2008 - 0%

Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.

4(c)

Fiscal year ended 2009 – 0%

Fiscal year ended 2008 – 0%

4(d)

Fiscal year ended 2009 – 0%

Fiscal year ended 2008 – 0%

(f)

(g)	Non-Audit Fees billed to the registrant, the registrant’s investment adviser, and certain entities controlling, controlled by or under common control with the investment adviser:

Fiscal year ended 2009 - $148,860

Fiscal year ended 2008 - $157,894

(h) The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants

Not Applicable

Item 6. Schedule of Investments

Not Applicable

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not Applicable

Item 8.

Portfolio Managers of Closed-End Management Investment Companies

Not Applicable

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not Applicable

Item 10. Submission of Matters to a Vote of Security Holders

Not Applicable

Item 11. Controls and Procedures

(a) The registrant’s President and Treasurer have concluded that the

registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Act) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-(2) under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in rule 30a-3(d) under the Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant	Federated Municipal Securities Fund, Inc.

By	/S/ Richard A. Novak
	Richard A. Novak
	Principal Financial Officer
Date	May 19, 2009


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By	/S/ J. Christopher Donahue
	J. Christopher Donahue
	Principal Executive Officer
Date	May 21, 2009


By	/S/ Richard A. Novak
	Richard A. Novak
	Principal Financial Officer
Date	May 19, 2009

Federated World-Class Investment Manager

Federated Municipal SecuritiesFund, Inc.

ANNUAL SHAREHOLDER REPORT

Class A SharesClass B SharesClass C SharesClass F Shares

Financial Highlights - Class A Shares

Financial Highlights - Class B Shares

Financial Highlights - Class C Shares

Financial Highlights - Class F Shares

Shareholder Expense Example (unaudited)

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

Management's Discussion of Fund Performance (unaudited)

MARKET OVERVIEW

DURATION 4

SECTOR

CREDIT QUALITY 6

GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES

GROWTH OF A $10,000 INVESTMENT - CLASS B SHARES

GROWTH OF A $10,000 INVESTMENT- CLASS C SHARES

GROWTH OF A $10,000 INVESTMENT - CLASS F SHARES

Portfolio of Investments Summary Table (unaudited)

Portfolio of Investments

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

1. ORGANIZATION

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Fair Valuation and Significant Events Procedures

Investment Income, Gains and Losses, Expenses and Distributions

Premium and Discount Amortization

Federal Taxes

Other Taxes

When-Issued and Delayed Delivery Transactions

Swap and Interest Rate Lock Contracts

Inverse Floater Structures

Futures Contracts

Restricted Securities

Other

3. CAPITAL STOCK

4. FEDERAL TAX INFORMATION

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Distribution Services Fee

Sales Charges

Shareholder Services Fee

Interfund Transactions

Expense Limitation

General

6. EXPENSE REDUCTION

7. INVESTMENT TRANSACTIONS

8. LINE OF CREDIT

9. INTERFUND LENDING

10. LEGAL PROCEEDINGS

11. RECENT ACCOUNTING PRONOUNCEMENTS

12. FEDERAL TAX INFORMATION (UNAUDITED)

Report of Independent Registered Public Accounting Firm

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OFFEDERATED MUNICIPAL SECURITIES FUND, INC.

Board of Directors and Fund Officers

INTERESTED DIRECTORS BACKGROUND

INDEPENDENT DIRECTORS BACKGROUND

OFFICERS

Evaluation and Approval of Advisory Contract - May 2008

FEDERATED MUNICIPAL SECURITIES FUND, INC. (THE "FUND")

Voting Proxies on Fund Portfolio Securities

Quarterly Portfolio Schedule

Federated World-Class Investment Manager

Federated
World-Class Investment Manager

Federated Municipal Securities
Fund, Inc.

Class A Shares
Class B Shares
Class C Shares
Class F Shares

DURATION⁴

CREDIT QUALITY⁶

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
FEDERATED MUNICIPAL SECURITIES FUND, INC.

Federated
World-Class Investment Manager