0001623632-15-000805.txt : 20150526 0001623632-15-000805.hdr.sgml : 20150525 20150526091811 ACCESSION NUMBER: 0001623632-15-000805 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20150331 FILED AS OF DATE: 20150526 DATE AS OF CHANGE: 20150526 EFFECTIVENESS DATE: 20150526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL SECURITIES FUND INC CENTRAL INDEX KEY: 0000201801 IRS NUMBER: 251304971 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02677 FILM NUMBER: 15888213 BUSINESS ADDRESS: STREET 1: 4000 ERICSSON DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7561 BUSINESS PHONE: 8003417400 MAIL ADDRESS: STREET 1: 4000 ERICSSON DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7561 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY MUNICIPAL SECURITIES FUND INC DATE OF NAME CHANGE: 19930517 FORMER COMPANY: FORMER CONFORMED NAME: FEDERATED TAX FREE INCOME FUND INC DATE OF NAME CHANGE: 19920703 0000201801 S000009070 FEDERATED MUNICIPAL SECURITIES FUND INC C000024642 Class A Shares LMSFX C000024643 Class B Shares LMSBX C000024644 Class C Shares LMSCX C000051334 Class F Shares LMFFX N-CSR 1 form.htm

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: 03/31/15

 

 

Date of Reporting Period: 03/31/15

 

 

 

 

 

 

 

 

Item 1. Reports to Stockholders

 

Annual Shareholder Report
March 31, 2015
Share Class Ticker
A LMSFX
B LMSBX
C LMSCX
F LMFFX
  
Federated Municipal Securities Fund, Inc.
Fund Established 1976
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from April 1, 2014 through March 31, 2015. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
Not FDIC Insured • May Lose Value • No Bank Guarantee
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Municipal Securities Fund, Inc. (the “Fund”), based on net asset value for the 12-month reporting period ended March 31, 2015, was 7.16% for the Fund's Class A Shares, 6.28% for the Fund's Class B Shares, 6.27% for Class C Shares and 7.17% for the Fund's Class F Shares. The 7.17% total return for the Class F Shares for the reporting period consisted of 3.37% of tax-exempt dividends and reinvestments and 3.80% appreciation in the net asset value of the shares.1 The total return for the S&P Municipal Bond Investment Grade Index (SPMBIGI),2 the Fund's broad-based securities market index, was 6.37% during the same period. The total return for the S&P Municipal Bond Investment Grade, 3-year plus, Non-AMT Index (SPMBIG3)3 was 7.38%. The total return of the Morningstar Municipal National Long Funds Average (MNLFA),4 a peer group average for the Fund, was 7.49%, during the same period. The Fund's and MNLFA's total returns 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 SPMBIGI.
During the reporting period, the most significant factors affecting the Fund's performance relative to the SPMBIGI were: (a) the effective duration of its portfolio (which indicates the portfolio's sensitivity to changes in interest rates);5,6 (b) the allocation of the portfolio among securities of similar issuers (referred to as “sectors”); and (c) the credit rating of portfolio securities.7
The following discussion will focus on the performance of the Fund's Class F Shares.
MARKET Overview
During the 12-month reporting period, 10-year Treasury yields decreased from a high of 2.81% in April of 2014 to 1.64% in December of 2015 and averaged 2.34%. Economic activity expanded at a solid pace over most of the reporting period, and labor market conditions continued to improve as reflected by the unemployment rate's steady decline. Price inflation moved further away from the Federal Reserve's (the “Fed”) longer run objective of two percent and continued to be held down by continuing large decreases in energy prices while longer term market-based measures of inflation compensation declined. Continued weakness in core inflation and headline inflation indicated that it could take longer to reach the Fed's inflation targets than anticipated. The collapse in the price of oil supported the fixed income markets by further reducing price pressures and by generating concerns that the drop in oil prices might be reflecting declining demand in a weakening global economy.
The support to household spending from lower energy prices was offset by the restraint implied by the appreciation of the U.S. dollar.
Annual Shareholder Report
1
During the 12-month reporting period, developments in Europe continued to be a focus for investors which indirectly affected interest rate levels in the tax-exempt municipal bond market. With regard to Europe, there continued to be downside risks to growth emanating from the region, given its unresolved imbalances, weak economic growth and continued deflationary risks. The U.S. dollar strengthened against the currencies of most advanced economies amid concerns about growth in those countries as well as several central banks announcing monetary policy actions. The European Central Bank announced that it would expand its asset purchase program and the Swiss national bank ended its policy of defending its exchange rate floor. Sovereign yields abroad moved lower reflecting the expected and actual easing of monetary policy by the foreign central banks. The stronger U.S. dollar was also a persistent source of restraint on U.S. exports. Other overseas concerns included the slowdown of growth in China, tensions in the Middle East and Ukraine and financial uncertainty in Greece. This resulted in intervening periods of lower U.S. Treasury yields that pushed municipal yields lower.
Some positive news about the fiscal position of the states became available. In some cases: revenues rose sufficiently to enable increases in state government spending and employment. These positive events allowed the spread between “AAA” and “BBB”-rated general obligation debt to narrow by 96 basis points for 30 year maturities during the period. The municipal yield curve also flattened significantly as yields on shorter maturities declined less than yields on longer maturities leading to better total return performance for longer dated municipal bonds.
Detroit's high profile bankruptcy and the increased erosion in the Puerto Rican economy and its related entities resulted in increased volatility in municipal credit spreads near the end of the reporting period. Also, in Illinois, Chicago continued to be unable to come to political terms over a solution for underfunded pensions and revenue shortfalls. The risk of additional municipal issuers becoming distressed continued to exist. Some state and local governments have turned to the courts for assistance in lowering their onerous pension liabilities but responses from the courts have generally not been particularly favorable, as yet. Any workouts of these concerns is likely to take many years which will continue to constrain state and local government budgets and limit their capacity to deal with severe infrastructure needs. The ongoing pressures on public pension plans and their unfunded liabilities continued to receive significant scrutiny and this issue will continue to be watched by Fund management.
Annual Shareholder Report
2
Investor flows into municipal bond funds over the reporting period were consistently positive which helped to offset the increased issuance of municipal debt in the subdued interest rate environment. The key factor in the upward surprise in municipal bond issuance was the drop in municipal yields and the implications for additional refunding issuance by state and local governments. This helped to create a favorable technical environment of supply and demand within the municipal bond market that led to positive price returns over the period.
DURATION
As determined at the end of the 12-month reporting period, the Fund's dollar- weighted average duration for the reporting period was 4.9 years. Duration management continued to be a significant component of the Fund's investment strategy. The Fund's duration was maintained at less than that of the SPMBIGI during the reporting period. Tax-exempt municipal bond yields decreased during most of the reporting period and decreased more for bonds with longer maturities as the yield curve significantly flattened during the reporting period. Bonds with a longer duration outperformed bonds with a shorter duration due to their differences in interest rate volatility. The Fund's allocation to bonds with shorter duration than those included in the SPMBIGI, negatively affected performance relative to the SPMBIGI. As a result of the Fund's allocation to bonds with shorter durations than those included in the SPMBIGI, the Fund had negative performance relative to the SPMBIGI. The Fund utilized 10-year Treasury futures contracts8 to adjust duration which provided negative excess return over the reporting period.
SECTOR
During the 12-month reporting period the Fund received a positive contribution to excess return from sector allocations. The Fund maintained a higher portfolio allocation to airport, toll road and industrial development revenue bonds. These allocations helped the Fund's performance due to the outperformance of these sectors relative to the SPMBIGI. The Fund also had less of an allocation to state general obligation bonds than the SPMBIGI. These sectors underperformed the SPMBIGI during the reporting period, and the Fund's lesser allocation enhanced Fund performance relative to the SPMBIGI.
The Fund also maintained an overweight allocation to pre-refunded, tax-exempt municipal 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). The overweight exposure to pre-refunded bonds negatively affected Fund performance due to lower price volatility exhibited by pre-refunded bonds as compared to other sectors. The Fund's holdings of Puerto Rico Electric Power Authority and the Commonwealth's General Obligation debt over the reporting period had a negative impact on Fund performance as the island's debt declined in price as their economy and financial position deteriorated.
Annual Shareholder Report
3
CREDIT QUALITY
During the 12-month reporting period investor appetite for yield in the low interest rate environment and increased municipal bond fund inflows resulted in outperformance of bonds rated “A” and “BBB” (or unrated bonds of comparable quality) relative to bonds rated in the higher rating categories (or unrated bonds of comparable quality). Bonds in the noninvestment-grade category (below “BBB”) also outperformed the higher rating categories.9 With the decrease in credit spreads in “A” and “BBB” (or unrated comparable quality) debt during the reporting period, and to a lesser extent for “AAA” and “AA” rated (or unrated comparable quality) debt, the Fund's overweight position, relative to the SPMBIGI, in “A” and “BBB” (or unrated comparable quality) debt during the reporting period had a positive impact on the Fund's performance, as the yield on “A” and “BBB” (or unrated comparable quality) debt decreased to a greater extent than for other investment-grade securities. The Fund's exposure to noninvestment-grade debt (an out-of-index position) added positive excess return as these securities also experienced spread tightening versus higher quality debt over the reporting period.
1 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, interest from the Fund's investments may be subject to the AMT.
2 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the SPMBIGI.
3 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the SPMBIG3.
4 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the MNLFA.
5 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.
Annual Shareholder Report
4
6 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
7 Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares against market risk.
8 The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional instruments.
9 Investment-grade securities and noninvestment-grade securities may either be: (a) rated by a nationally recognized statistical ratings organization or rating agency; or (b) unrated securities that the Fund's investment adviser (“Adviser”) believes are of comparable quality. The rating agencies that provided the ratings for rated securities include Standard and Poor's, Moody's Investor Services, Inc. and Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or better are considered to be high credit quality; credit ratings of “A” are considered high or medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit quality and the lowest category of investment-grade securities; credit ratings of “BB” and below are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or below are noninvestment-grade securities that have high default risk. Any credit quality breakdown does not give effect to the impact of any credit derivative investments made by the Fund. 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.
Annual Shareholder Report
5
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graphs below illustrate the hypothetical investment of $10,0001 in the Federated Municipal Securities Fund, Inc. (the “Fund”) from March 31, 2005 (or later Start of Performance, if applicable) to March 31, 2015, compared to the S&P Municipal Bond Investment Grade Index (SPMBIGI),2 S&P Municipal Bond Investment Grade, 3-year plus, Non-AMT Index (SPMBIG3)3 and the Morningstar Municipal National Long Funds Average (MNLFA).4 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment–Class A Shares
■  Total returns shown include the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550).
Growth of a $10,000 Investment–Class F Shares
■  Total returns shown include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900) and the maximum contingent deferred sales charge of 1.00% as applicable.
Annual Shareholder Report
6
The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses. See the Average Annual Return table below for the returns of additional classes not shown in the line graphs above.
Average Annual Total Returns for the Period Ended 3/31/2015
(returns reflect all applicable sales charges and contingent deferred sales charge as specified below in footnote #1)
  1 Year 5 Years 10 Years Start of
Performance*
Class A Shares 2.38% 4.03% 3.57% —
Class B Shares 0.78% 3.76% 3.33% —
Class C Shares 5.27% 4.11% 3.16% —
Class F Shares 5.14% 4.78% — 3.91%
SPMBIGI 6.37% 5.07% 4.79% 4.88%
MNLFA 7.49% 5.28% 4.33% 4.37%
SPMBIG3 7.38% 5.76% 5.22% 5.39%

* 		The Fund's Class F Shares commenced operations on May 31, 2007.
   
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.
Annual Shareholder Report
7
1 Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: For Class A Shares, the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550); For Class B Shares, the maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date; For Class C Shares, a 1.00% contingent deferred sales charge would be applied to any redemption less than one year from the purchase date; For Class F Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900) and the maximum contingent deferred sales charge is 1.00% on any redemption less than four years from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The SPMBIGI, SPMBIG3 and the MNLFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2 The SPMBIGI is the investment-grade component of the S&P Municipal Bond Index (“Main Index”). The Main Index is a broad, comprehensive, market value-weighted index composed of approximately 55,000 bond issues that are exempt from U.S. federal income taxes or subject to the alternative minimum tax (AMT). Eligibility criteria for inclusion in the Main Index include, but are not limited to: the bond issuer must be a state (including the Commonwealth of Puerto Rico and U.S. territories) or a local government or a state or local government entity where interest on the bond is exempt from U.S. federal income taxes or subject to the AMT; the bond must be held by a mutual fund for which Standard & Poor's Securities Evaluations, Inc. provides prices; it must be denominated in U.S. dollars and have a minimum par amount of $2 million; and the bond must have a minimum term to maturity and/or call date greater than or equal to one calendar month. The Main Index is rebalanced monthly. The SPMBIGI 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. Unlike the Fund, the SPMBIGI is unmanaged and is not affected by cash flows. It is not possible to invest directly in this index.
3 The SPMBIG3 represents the portion of the SPMBIGI composed solely of bonds with remaining maturities of three years or more that are not subject to AMT. The SPMBIG3 is not adjusted to reflect sales charges, expenses and other fees that the SEC requires to be reflected in the Fund's performance. Unlike the Fund, the SPMBIG3 is unmanaged and is not affected by cash flows. It is not possible to invest directly in this index.
4 Morningstar figures represent the average of the total returns reported by all the mutual funds designated by Morningstar as falling into the respective category indicated.
Annual Shareholder Report
8
Portfolio of Investments Summary Table (unaudited)
At March 31, 2015, the Fund's sector composition1 was as follows:
Sector Composition Percentage of
Total Net Assets
Toll Road 14.4%
Hospital 12.5%
Education 10.2%
General Obligation—State 7.7%
Airport 7.0%
Dedicated Tax 6.8%
Industrial Development Bond/Pollution Control Revenue Bond 6.6%
Public Power 5.1%
Pre-refunded 5.1%
Water & Sewer 4.9%
Other2 19.4%
Other Assets and Liabilities—Net3 0.3%
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, including bond insurers and banks, sector classifications are based upon the economic sector and/or revenue source of the underlying obligor, as determined by the Fund's Adviser.
2 For purposes of this table, sector classifications constitute 80.3% 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.
Annual Shareholder Report
9
Portfolio of Investments
March 31, 2015
Principal
Amount 		    Value
    MUNICIPAL BONDS—97.7%  
    Alabama—0.4%  
$1,250,000   Selma, AL IDB, Gulf Opportunity Zone Bonds (Series 2010A), 5.80% (International Paper Co.), 5/1/2034 $1,441,350
    Arizona—2.8%  
4,000,000   Arizona Board of Regents, System Revenue & Refunding Bonds (Series 2015A Green Bonds), 5.00% (Arizona State University), 7/1/2041 4,628,560
1,000,000   Arizona Board of Regents, System Revenue Bonds (Series 2008C), 6.00% (Arizona State University)/(United States Treasury PRF 7/1/2018@100)/(Original Issue Yield: 6.12%), 7/1/2028 1,160,520
2,000,000   Arizona Transportation Board—Excise Tax Revenue, Transportation Excise Tax Revenue Bonds (Series 2009), 5.00% (Maricopa County, AZ Regional Area Road Fund)/(United States Treasury PRF 7/1/2019@100), 7/1/2023 2,313,940
1,690,000   Salt Verde Financial Corp., AZ, Senior Gas Revenue Bonds (Series 2007), 5.00% (Citigroup, Inc. GTD), 12/1/2032 1,953,893
1,000,000   Salt Verde Financial Corp., AZ, Senior Gas Revenue Bonds (Series 2007), 5.00% (Citigroup, Inc. GTD), 12/1/2037 1,167,800
    TOTAL 11,224,713
    California—11.8%  
3,000,000   Bay Area Toll Authority, CA, San Francisco Bay Area Subordinate Toll Bridge Revenue Bonds (Series 2010 S-2), 5.00%, 10/1/2042 3,415,890
1,000,000   Bay Area Toll Authority, CA, San Francisco Bay Area Toll Bridge Revenue Bonds (Series 2009F-1), 5.625% (United States Treasury PRF 4/1/2019@100), 4/1/2044 1,179,830
1,500,000 1 Bay Area Toll Authority, CA, San Francisco Bay Area Toll Bridge Revenue Bonds (SIFMA Index Rate Bonds Series 2001A), 1.27% TOBs, 4/1/2027 1,538,805
1,000,000   California Health Facilities Financing Authority, Revenue Bonds (Series 1998), 5.40% (Northern California Presbyterian Homes, Inc.)/(Original Issue Yield: 5.417%), 7/1/2028 1,003,060
2,000,000   California Health Facilities Financing Authority, Revenue Bonds (Series 2014B), 5.00% (Providence Health & Services), 10/1/2044 2,282,340
2,000,000   California State, Various Purpose GO Bonds, 6.00%, 11/1/2039 2,425,860
4,000,000   California State, Various Purpose UT GO Bonds, 5.75% (Original Issue Yield: 5.85%), 4/1/2029 4,672,880
1,000,000   California State, Various Purpose UT GO Bonds, 6.50%, 4/1/2033 1,212,940
90,000   Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2028 102,942
340,000   Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2029 387,352
Annual Shareholder Report
10
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    California—continued  
$170,000   Irvine, CA Reassessment District No. 13-1, LO Improvement Bonds, 5.00%, 9/2/2030 $193,363
1,000,000   Los Angeles, CA Department of Airports, Subordinate Revenue Refunding Bonds (Series 2015C), 5.00%, 5/15/2038 1,164,900
2,000,000   Los Angeles, CA Department of Water & Power (Water Works/System), Water System Revenue Bonds (Series 2013B), 5.00%, 7/1/2033 2,320,440
1,000,000   Los Angeles, CA Wastewater System, Revenue Refunding Bonds (Series 2009A), 5.75%, 6/1/2034 1,173,720
1,000,000   M-S-R Energy Authority, CA, Gas Revenue Bonds (Series 2009A), 7.00% (Citigroup, Inc. GTD), 11/1/2034 1,414,870
1,000,000   Metropolitan Water District of Southern California, Water Revenue Refunding Bonds (Series 2009C), 5.00%, 7/1/2031 1,146,910
6,000,000   Regents of the University of California Medical Center, Pooled Revenue Bonds (Series 2008D), 5.00%, 5/15/2024 6,363,360
3,000,000   Roseville, CA Natural Gas Financing Authority, Gas Revenue Bonds, 5.00% (Bank of America Corp. GTD), 2/15/2025 3,487,020
1,500,000   Sacramento County, CA Airport System, Airport System Senior Revenue Bonds (Series 2009B), 5.50% (Assured Guaranty Corp. INS)/(Original Issue Yield: 5.60%), 7/1/2034 1,684,275
349,000 2 San Bernardino County, CA Housing Authority, Subordinated Revenue Bonds, 7.25% (Glen Aire Park & Pacific Palms), 4/15/2042 171,453
2,000,000   San Francisco, CA City & County Airport Commission, Second
Series Revenue Bonds (Series 2014B), 5.00%, 5/1/2044 		2,285,160
1,000,000   Torrance, CA Hospital Revenue Bonds, (Series 2001 A), 5.50% (Torrance Memorial Medical Center)/(Original Issue Yield: 5.65%), 6/1/2031 1,003,040
1,000,000   Trustees of the California State University, Systemwide Revenue Bonds (Series 2009A), 6.00%, 11/1/2040 1,182,670
3,000,000   Trustees of the California State University, Systemwide Revenue Bonds (Series 2011A), 5.00%, 11/1/2037 3,361,650
1,000,000   University of California (The Regents of), General Revenue Bonds (Series 2009O), 5.75% (United States Treasury PRF 5/15/2019@100), 5/15/2034 1,187,450
    TOTAL 46,362,180
    Colorado—2.3%  
1,445,000   Denver (City & County), CO, Revenue Bonds (Series 2012B), 5.00% (Denver, CO City & County Airport Authority), 11/15/2037 1,644,786
4,250,000   University of Colorado Hospital Authority, Revenue Bonds (Series 2012A), 5.00%, 11/15/2036 4,751,457
2,500,000   University of Colorado, University Enterprise Revenue Bonds (Series 2011A), 5.25%, 6/1/2036 2,865,925
    TOTAL 9,262,168
Annual Shareholder Report
11
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Connecticut—1.2%  
$2,000,000   Connecticut State Transportation Infrastructure Authority, Special Tax Obligation Revenue Bonds (Series 2013A), 5.00%, 10/1/2026 $2,397,680
2,000,000   Connecticut State, UT GO Refunding Bonds (Series 2010C), 5.00%, 12/1/2019 2,318,040
    TOTAL 4,715,720
    Delaware—0.7%  
2,380,000   Delaware EDA, Gas Facilities Refunding Bonds, 5.40% (Delmarva Power and Light Co.), 2/1/2031 2,681,475
    Florida—7.0%  
1,250,000   Alachua County, FL Health Facilities Authority, Health Facilities Revenue Bonds (Series 2014A), 5.00% (UFHealth Shands Hospital), 12/1/2044 1,398,238
2,000,000   Atlantic Beach, FL Health Care Facilities, Revenue & Refunding Bonds (Series 2013A), 5.00% (Fleet Landing Project, FL), 11/15/2037 2,149,080
1,500,000   Broward County, FL Airport System, Airport System Revenue Bonds (Series 2012Q-1), 5.00%, 10/1/2037 1,673,475
2,000,000   Lee County, FL IDA, Healthcare Facilities Revenue Bonds (Series 2014), 5.50% (Cypress Cove at Healthpark), 10/1/2047 2,132,520
3,000,000   Miami-Dade County, FL Aviation, Revenue Bonds (Series 2008B), 5.00% (Assured Guaranty Corp. INS), 10/1/2028 3,364,170
1,250,000   Miami-Dade County, FL Expressway Authority, Toll System Revenue Bonds (Series 2010), 5.00% (Original Issue Yield: 5.10%), 7/1/2040 1,388,025
1,500,000   Miami-Dade County, FL Expressway Authority, Toll System Revenue Refunding Bonds (Series 2013A), 5.00%, 7/1/2022 1,793,340
2,875,000   Miami-Dade County, FL Transit System, Sales Surtax Revenue Bonds (Series 2012), 5.00%, 7/1/2042 3,233,081
1,000,000   Miami-Dade County, FL, Seaport Revenue Bonds (Series 2013A), 5.75% (Miami-Dade County, FL Seaport), 10/1/2030 1,184,380
1,000,000   Miami-Dade County, FL, Seaport Revenue Bonds (Series 2013A), 5.75% (Miami-Dade County, FL Seaport), 10/1/2032 1,186,830
5,000,000   Orlando & Orange County Expressway Authority, FL, Revenue Bonds (Series 2010A), 5.00%, 7/1/2035 5,658,600
2,000,000   St. Johns County, FL IDA, Revenue Bonds (Series 2010A), 5.875% (Presbyterian Retirement Communities)/(Original Issue Yield: 5.98%), 8/1/2040 2,255,080
    TOTAL 27,416,819
    Georgia—3.9%  
2,190,000   Atlanta, GA Airport General Revenue, Airport General Revenue Bonds (Series 2010A), 5.00%, 1/1/2035 2,473,495
2,000,000   Atlanta, GA Water & Wastewater, Revenue Bonds (Series 2009A), 6.00%, 11/1/2019 2,409,260
4,000,000   Atlanta, GA Water & Wastewater, Revenue Refunding Bonds (Series 2015), 5.00%, 11/1/2040 4,605,080
Annual Shareholder Report
12
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Georgia—continued  
$1,000,000   Georgia State, UT GO Bonds (Series 2009B), 5.00%, 1/1/2026 $1,136,160
1,000,000   Municipal Electric Authority of Georgia, Project One Subordinated Bonds (Series 2008A), 5.25%, 1/1/2021 1,190,030
3,000,000   Municipal Electric Authority of Georgia, Project One Subordinated Bonds (Series 2008D), 5.50% (Original Issue Yield: 5.80%), 1/1/2026 3,416,730
    TOTAL 15,230,755
    Illinois—5.0%  
1,875,000   Chicago, IL O'Hare International Airport, General Airport Third Lien Revenue Bonds (Series 2011C), 6.50%, 1/1/2041 2,287,762
2,000,000   Chicago, IL O'Hare International Airport, Passenger Facility Charge Revenue Refunding Bonds (Series 2012A), 5.00%, 1/1/2031 2,245,280
1,500,000   Chicago, IL Sales Tax, Revenue Bonds (Series 2011A), 5.25%, 1/1/2038 1,644,240
750,000   Chicago, IL Water Revenue, Second Lien Water Revenue Bonds (Series 2014), 5.00%, 11/1/2044 835,733
215,000   Illinois Finance Authority, Revenue Refunding Bonds (Series 2007), 5.00% (Loyola University of Chicago)/(United States Treasury PRF 7/1/2017@100), 7/1/2022 235,651
4,000,000   Illinois State Toll Highway Authority, Toll Highway Senior Revenue Refunding Bonds (Series 2010 A-1), 5.25%, 1/1/2030 4,586,160
5,000,000   Illinois State, GO Refunding Bonds (Series February 2010), 5.00%, 1/1/2024 5,384,300
1,000,000   Illinois State, UT GO Bonds (Series June 2013), 5.25% (Original Issue Yield: 5.28%), 7/1/2028 1,097,730
1,375,000   Illinois State, UT GO Refunding Bonds (Series May 2012), 5.00%, 8/1/2025 1,517,931
    TOTAL 19,834,787
    Indiana—5.4%  
1,300,000   Indiana Municipal Power Agency, Power Supply System Revenue Bonds (Series 2013A), 5.25%, 1/1/2030 1,525,797
1,625,000   Indiana Municipal Power Agency, Power Supply System Revenue Refunding Bonds (Series 2012A), 5.00%, 1/1/2028 1,860,333
1,500,000   Indiana State Finance Authority Environmental, Revenue Refunding Bonds (Series 2010), 6.00% (United States Steel Corp.), 12/1/2026 1,646,535
2,000,000   Indiana State Finance Authority Hospital Revenue, Hospital Revenue Bonds (Series 2014A), 5.00% (Major Hospital), 10/1/2044 2,144,400
4,565,000   Indiana State Finance Authority Midwestern Relief, Midwestern Disaster Relief Revenue Bonds (Series 2012A), 5.00% (Ohio Valley Electric Corp.)/(Original Issue Yield: 5.05%), 6/1/2039 4,893,771
585,000   Indiana State Office Building Commission Capitol Complex, Revenue Bonds (Series 1990A: Senate Avenue Parking Facility), 7.40% (United States Treasury COL)/(Original Issue Yield: 7.488%), 7/1/2015 595,278
Annual Shareholder Report
13
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Indiana—continued  
$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 $4,591,080
1,664,024 2,3 St. Joseph County, IN Hospital Authority, Health Facilities Revenue Bonds (Series 2005), 5.375% (Madison Center Obligated Group), 2/15/2034 83,218
4,000,000   Whiting, IN Environmental Facilities, Revenue Bonds (Series 2009), 5.00% (BP PLC), 1/1/2016 4,138,240
    TOTAL 21,478,652
    Iowa—1.1%  
2,000,000   Iowa Finance Authority, Midwestern Disaster Area Revenue Bonds (Series 2013), 5.25% (Iowa Fertilizer Co.)/(Original Issue Yield: 5.30%), 12/1/2025 2,234,880
2,330,000   Tobacco Settlement Authority, IA, Tobacco Settlement Asset-Backed Bonds (Series 2005C), 5.50% (Original Issue Yield: 5.78%), 6/1/2042 2,058,578
    TOTAL 4,293,458
    Kansas—0.8%  
1,010,000   Kansas State Development Finance Authority, Health Facilities Revenue Bonds (Series 2007L), 5.125% (Stormont-Vail HealthCare, Inc.)/(National Public Finance Guarantee Corporation INS), 11/15/2032 1,077,923
1,600,000   Wyandotte County, KS Unified Government Utility System, Improvement & Revenue Refunding Bonds (Series 2014-A), 5.00%, 9/1/2022 1,911,840
    TOTAL 2,989,763
    Kentucky—0.6%  
2,000,000   Louisville & Jefferson County, KY Metropolitan Government, Revenue Bonds (Series 2012A), 5.00% (Catholic Health Initiatives), 12/1/2031 2,228,840
    Maryland—0.3%  
1,060,000   Maryland State EDC, Port Facilities Revenue Refunding Bonds (Series 2010), 5.75% (CONSOL Energy, Inc.), 9/1/2025 1,182,642
    Massachusetts—4.2%  
4,000,000   Massachusetts Bay Transportation Authority General Transportation System, Assessment Bonds (Series 2008A), 5.25%, 7/1/2034 4,486,880
4,330,000   Massachusetts Department of Transportation, Metropolitan Highway System Revenue Bonds (Series 2010B), 5.00%, 1/1/2032 4,865,534
3,000,000   Massachusetts Development Finance Agency, Revenue Bonds (Series 2010B-2), 5.00% (Harvard University), 10/15/2020 3,575,700
2,000,000   Massachusetts School Building Authority, Sales Tax Revenue Refunding Bonds (Series 2012A), 5.00%, 8/15/2022 2,444,860
1,000,000   Massachusetts School Building Authority, Senior Dedicated Sales Tax Bonds (Series 2011B), 5.25%, 10/15/2035 1,177,040
    TOTAL 16,550,014
Annual Shareholder Report
14
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Michigan—1.1%  
$1,000,000   Michigan State Finance Authority Revenue, Senior Lien Revenue Bonds (Series 2014 C-3), 5.00% (Detroit, MI Sewage Disposal System)/(AGM INS), 7/1/2033 $1,115,100
1,000,000   Royal Oak, MI Hospital Finance Authority, Revenue Refunding Bonds (Series 2014D), 5.00% (Beaumont Health Credit Group), 9/1/2039 1,116,450
2,000,000   Wayne County, MI Airport Authority, Revenue Bonds (Series 2012A), 5.00%, 12/1/2037 2,202,940
    TOTAL 4,434,490
    Minnesota—0.3%  
1,000,000   University of Minnesota (The Regents of), GO Bonds (Series 2011A), 5.25%, 12/1/2030 1,187,550
    Mississippi—0.3%  
940,000   Warren County, MS Gulf Opportunity Zone, Gulf Opportunity Zone Bonds (Series 2011A), 5.375% (International Paper Co.), 12/1/2035 1,058,760
    Nebraska—1.4%  
2,000,000   Central Plains Energy Project, Gas Project Revenue Bonds (Project No. 3) (Series 2012), 5.00% (Goldman Sachs & Co. GTD)/(Original Issue Yield: 5.05%), 9/1/2042 2,197,160
2,800,000   Nebraska Public Power District, General Revenue Bonds (Series 2012A), 5.00%, 1/1/2027 3,243,492
    TOTAL 5,440,652
    Nevada—0.8%  
3,000,000   Clark County, NV School District, LT GO Building Bonds (Series 2008A), 5.00%, 6/15/2025 3,335,970
    New Jersey—4.7%  
3,000,000   New Jersey EDA, Cigarette Tax Revenue Refunding Bonds (Series 2012), 5.00% (NJ Dedicated Cigarette Excise Tax), 6/15/2020 3,426,510
1,250,000   New Jersey Health Care Facilities Financing Authority, Revenue Bonds (Series 2014A), 5.00% (Robert Wood Johnson University Hospital), 7/1/2043 1,399,100
5,000,000   New Jersey State Transportation Trust Fund Authority, Transportation System Bonds (Series 2011A), 5.50% (New Jersey State), 6/15/2041 5,645,350
2,000,000   New Jersey Turnpike Authority, Revenue Bonds (Series 2009H), 5.00% (Original Issue Yield: 5.069%), 1/1/2036 2,214,140
1,000,000   New Jersey Turnpike Authority, Turnpike Revenue Bonds (Series 2012A), 5.00%, 1/1/2035 1,118,100
1,000,000   New Jersey Turnpike Authority, Turnpike Revenue Bonds (Series 2013A), 5.00%, 1/1/2023 1,203,210
1,000,000   New Jersey Turnpike Authority, Turnpike Revenue Bonds (Series 2013A), 5.00%, 1/1/2024 1,183,730
2,000,000   Rutgers, The State University of New Jersey, GO Refunding Bonds (Series 2013J), 5.00%, 5/1/2030 2,335,160
    TOTAL 18,525,300
Annual Shareholder Report
15
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    New Mexico—0.6%  
$2,000,000   Albuquerque Bernalillo County, NM Water Utility Authority, Joint Water & Sewer System Improvment Revenue Bonds (Series 2009A-1), 5.25% (Original Issue Yield: 5.34%), 7/1/2034 $2,299,200
    New York—5.6%  
1,500,000   Brooklyn Arena Local Development Corporation, NY, Pilot Revenue Bonds (Series 2009), 6.375% (Original Issue Yield: 6.476%), 7/15/2043 1,775,610
4,000,000   New York City, NY IDA, CPI PILOT Revenue Bonds (Series 2006), 0.731% (Yankee Stadium LLC)/(FGIC INS), 3/1/2021 3,884,240
4,000,000   New York City, NY, UT GO Bonds (Series 2009I-1), 5.375% (Original Issue Yield: 5.55%), 4/1/2036 4,591,640
2,470,000   New York Liberty Development Corporation, Revenue Refunding Bonds (Series 2012 Class 2), 5.00% (7 World Trade Center LLC), 9/15/2043 2,756,668
2,780,000   New York State Thruway Authority, General Revenue Bonds (Series 2012I), 5.00% (New York State Thruway Authority - General Revenue), 1/1/2028 3,210,984
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 2,753,825
3,000,000   Triborough Bridge & Tunnel Authority, NY, General Revenue Bonds (Series 2008A), 5.00% (Original Issue Yield: 5.10%), 11/15/2037 3,308,610
    TOTAL 22,281,577
    North Carolina—2.7%  
1,000,000   Charlotte, NC Water & Sewer System, Water & Sewer Revenue Bonds (Series 2009), 5.25%, 7/1/2030 1,151,600
500,000   Charlotte-Mecklenburg Hospital Authority, NC, Health Care Revenue & Refunding Bonds (Series 2007A), 5.00% (Carolinas HealthCare System)/(Original Issue Yield: 5.09%), 1/15/2031 530,305
500,000   Charlotte-Mecklenburg Hospital Authority, NC, Health Care Revenue Refunding Bonds (Series 2008A), 5.25% (Carolinas HealthCare System), 1/15/2024 548,725
2,000,000   North Carolina Capital Facilities Finance Agency, Educational Facilities Revenue Bonds (Series 2009), 5.00% (Wake Forest University), 1/1/2038 2,237,200
5,000,000   North Carolina Capital Facilities Finance Agency, Revenue Bonds (Series 2009B), 5.00% (Duke University), 10/1/2038 5,642,200
500,000   North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series 2009A), 5.50%, 1/1/2026 574,230
    TOTAL 10,684,260
    Ohio—3.2%  
3,000,000   Buckeye Tobacco Settlement Financing Authority, OH, Tobacco Settlement Asset-Backed Bonds (Series 2007A-2), 5.875% (Original Issue Yield: 5.95%), 6/1/2030 2,541,030
Annual Shareholder Report
16
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Ohio—continued  
$4,000,000   Ohio State Turnpike & Infrastructure Commission, Revenue Refunding Bonds (Series 2010A), 5.00%, 2/15/2031 $4,555,400
1,000,000   Ohio State University, Special Purpose General Receipts Bonds (Series 2013A), 5.00%, 6/1/2038 1,139,210
1,800,000   Ohio State, Hospital Revenue Refunding Bonds (Series 2008A), 5.25% (Cleveland Clinic)/(Original Issue Yield: 5.37%), 1/1/2033 1,969,398
1,290,000   Ohio State, Infrastructure Improvement UT GO Bonds (Series 2008A), 5.375% (United States Treasury PRF 3/1/2018@100)/(Original Issue Yield: 5.50%), 9/1/2028 1,448,476
710,000   Ohio State, Infrastructure Improvement UT GO Bonds (Series 2008A), 5.375% (United States Treasury COL 3/1/2018@100)/(Original Issue Yield: 5.50%), 9/1/2028 801,931
    TOTAL 12,455,445
    Pennsylvania—10.2%  
3,890,000   Allegheny County, PA HDA, Hospital Revenue Bonds (Series 2008A), 5.00% (UPMC Health System), 6/15/2018 4,358,473
1,280,000   Allegheny County, PA HDA, Revenue Refunding Bonds (Series 1998A), 5.125% (Jefferson Regional Medical Center, PA)/(Original Issue Yield: 5.40%), 5/1/2029 1,286,950
1,085,000   Allegheny County, PA IDA, Environmental Improvement Revenue Refunding Bonds (Series 2005), 5.50% (United States Steel Corp.), 11/1/2016 1,136,060
2,570,000   Allegheny County, PA Port Authority, Special Revenue Transportation Refunding Bonds (Series 2011), 5.75%, 3/1/2029 3,059,148
2,600,000   Beaver County, PA IDA, PCR Refunding Bonds (Series 2006-A), 3.50% TOBs (FirstEnergy Solutions Corp.), Mandatory Tender 6/1/2020 2,703,818
4,935,000   Commonwealth of Pennsylvania, UT GO Bonds (Second
Series 2010A), 5.00%, 5/1/2017 		5,369,922
2,000,000   Delaware River Port Authority, Revenue Bonds (Series 2013), 5.00%, 1/1/2030 2,304,080
1,045,000   Montgomery County, PA IDA, Retirement Communities Revenue Refunding Bonds (Series 2012), 5.00% (ACTS Retirement Life Communities, Inc), 11/15/2029 1,131,369
4,000,000   Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (First Series of 2012), 5.00% (Temple University), 4/1/2042 4,509,800
1,500,000   Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2009A), 5.25% (University of Pennsylvania Health System), 8/15/2022 1,748,640
1,000,000   Pennsylvania State Higher Education Facilities Authority, Revenue Bonds (Series 2012), 5.00% (LaSalle University), 5/1/2042 1,080,440
3,000,000   Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2008 B-1), 5.50%, 6/1/2033 3,332,850
1,000,000   Pennsylvania State Turnpike Commission, Turnpike Subordinate Revenue Bonds (Series 2008A), 5.00% (Assured Guaranty Corp. INS), 6/1/2033 1,091,780
Annual Shareholder Report
17
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Pennsylvania—continued  
$2,000,000   Pennsylvania State Turnpike Commission-Motor License Fund Enhanced, Motor License Fund-Enhanced Turnpike Subordinate Special Revenue Bonds (Series 2011A), 6.00%, 12/1/2036 $2,381,600
1,000,000   Philadelphia, PA Water & Wastewater System, Water and Wastewater Revenue Bonds (Series 2009A), 5.25% (Original Issue Yield: 5.29%), 1/1/2032 1,113,760
2,195,000   Southeastern, PA Transportation Authority, Capital Grant Receipts Bonds (Series 2011), 5.00%, 6/1/2025 2,517,094
1,000,000   University of Pittsburgh, University Capital Project Bonds (Series 2009B), 5.50%, 9/15/2024 1,164,700
    TOTAL 40,290,484
    Puerto Rico—0.9%  
1,000,000   Commonwealth of Puerto Rico, Public Improvement GO Bonds (Series 2008A), 5.50%, 7/1/2018 851,260
4,300,000   Commonwealth of Puerto Rico, Public Improvement Refunding UT GO Bonds (Series 2012A), 5.00% (Original Issue Yield: 5.32%), 7/1/2041 2,806,094
    TOTAL 3,657,354
    Rhode Island—1.0%  
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 2,727,475
1,000,000   Tobacco Settlement Financing Corp., RI, Tobacco Settlement Asset-Backed Bonds (Series 2015A), 5.00%, 6/1/2040 1,078,470
    TOTAL 3,805,945
    South Carolina—2.2%  
2,000,000   Greenville, SC Health System, Hospital Revenue Bonds (Series 2014B), 5.00%, 5/1/2034 2,280,080
615,000   Greenville, SC Health System, Hospital Revenue Bonds (Series 2014B), 5.00%, 5/1/2039 694,403
2,000,000   Lexington County, SC Health Services District, Inc., Revenue Refunding Bonds, 5.00%, 11/1/2026 2,312,240
3,000,000   Piedmont Municipal Power Agency, SC, Electric Revenue Refunding Bonds (Series 2009A-3), 5.00%, 1/1/2018 3,318,600
    TOTAL 8,605,323
    Tennessee—0.3%  
1,000,000   Metropolitan Government Nashville & Davidson County, TN Water & Sewer, Subordinate Lien Water & Sewer Revenue Refunding Bonds (Series 2012), 5.00%, 7/1/2021 1,195,540
    Texas—6.8%  
2,795,000   Bexar County, Health Facilities Development Corp., Revenue Bonds (Series 2010), 6.20% (Army Retirement Residence Foundation), 7/1/2045 3,213,132
Annual Shareholder Report
18
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Texas—continued  
$4,000,000   Dallas-Fort Worth, TX International Airport, Joint Revenue Refunding Bonds (Series 2012B), 5.00%, 11/1/2035 $4,515,040
2,000,000   Harris County, TX Cultural Education Facilities Finance Corp., Hospital Revenue Bonds (Series 2014A), 5.00% (Memorial Hermann Health System), 12/1/2029 2,353,620
2,000,000   Harris County, TX, Toll Road Senior Lien Revenue & Refunding Bonds (Series 2008B), 5.00% (Harris County, TX Toll Road Authority)/(Original Issue Yield: 5.08%), 8/15/2033 2,222,280
2,000,000   Houston, TX Airport System, Senior Lien Revenue & Refunding Bonds (Series 2009A), 5.50% (Original Issue Yield: 5.67%), 7/1/2034 2,262,000
2,500,000   North Texas Tollway Authority, System First Tier Revenue Refunding Bonds (Series 2011B), 5.00% (Original Issue Yield: 5.12%), 1/1/2038 2,722,175
1,965,000   Tarrant County, TX Cultural Education Facilities Finance Corp., Retirement Facility Revenue Bonds (Series 2007), 5.125% (Air Force Village), 5/15/2037 1,986,713
2,500,000   Tarrant County, TX Cultural Education Facilities Finance Corp., Revenue Bonds, Series 2006A, 6.00% (Northwest Senior Housing Corp. Edgemere Project), 11/15/2036 2,621,450
2,030,000   Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Senior Lien Revenue Bonds (Series 2006A), 5.25% (Bank of America Corp. GTD), 12/15/2026 2,426,946
2,145,000   Texas State Transportation Commission, Second Tier Revenue Refunding Bonds (Series 2015-C), 5.00% (Central Texas Turnpike System), 8/15/2042 2,360,487
    TOTAL 26,683,843
    Virginia—1.9%  
2,650,000   Route 460 Funding Corporation of Virginia, Toll Road Senior Lien Revenue Bonds (Series 2012), 5.00%, 7/1/2052 2,826,808
4,000,000   Virginia Resources Authority, Subordinated Revenue Bonds (Series 2008), 5.00% (Virginia State Clean Water Revolving Fund)/(United States Treasury PRF 10/1/2018@100), 10/1/2027 4,537,120
    TOTAL 7,363,928
    Washington—1.1%  
2,570,000   Energy Northwest, WA, Project 3 Electric Revenue Refunding Bonds (Series 2014-C), 5.00%, 7/1/2028 3,083,486
1,250,000   Washington State Health Care Facilities Authority, Health Care Facilities Revenue Bonds (Series 2014C), 5.00% (Providence Health & Services), 10/1/2044 1,422,088
    TOTAL 4,505,574
    West Virginia—0.7%  
2,500,000   West Virginia University Board of Governors, Refunding and Improvement Revenue Bonds (Series 2013A), 5.00% (West Virginia University), 10/1/2035 2,862,475
Annual Shareholder Report
19
Principal
Amount 		    Value
    MUNICIPAL BONDS—continued  
    Wisconsin—4.1%  
$6,000,000   Wisconsin State General Fund Appropriation, Revenue Bonds (Series 2009A), 6.00% (Wisconsin State)/(Original Issue Yield: 6.02%), 5/1/2033 $7,109,160
3,000,000   Wisconsin State HEFA, Revenue Bonds (Series 2009), 6.625% (ProHealth Care, Inc.)/(United States Treasury PRF 2/15/2019@100)/(Original Issue Yield: 6.87%), 2/15/2039 3,615,840
800,000   Wisconsin State HEFA, Revenue Refunding Bonds (Series 2015), 5.00% (ProHealth Care, Inc.), 8/15/2039 892,440
4,000,000   Wisconsin State, UT GO Bonds (Series 2008C), 5.00% (United States Treasury PRF 5/1/2018@100), 5/1/2028 4,488,520
    TOTAL 16,105,960
    Wyoming—0.3%  
1,000,000   Laramie County, WY, Hospital Revenue Bonds (Series 2012), 5.00% (Cheyenne Regional Medical Center), 5/1/2032 1,129,410
    TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $357,907,483) 		384,802,376
    SHORT-TERM MUNICIPALS—2.0%4  
    New York—1.2%  
4,800,000   New York City, NY, (Series 2013D-3) Daily VRDNs (JPMorgan Chase Bank, N.A. LIQ), 0.03%, 4/1/2015 4,800,000
    Ohio—0.8%  
2,900,000   Allen County, OH, (Series 2010C) Daily VRDNs (Catholic Healthcare Partners)/(MUFG Union Bank, N.A. LOC), 0.03%, 4/1/2015 2,900,000
    TOTAL SHORT-TERM MUNICIPALS—2.0%
(AT AMORTIZED COST) 		7,700,000
    TOTAL MUNICIPAL INVESTMENTS—99.7%
(IDENTIFIED COST $365,607,483)5 		392,502,376
    OTHER ASSETS AND LIABILITIES - NET—0.3%6 1,208,257
    TOTAL NET ASSETS—100% $393,710,633
At March 31, 2015, the Fund holds no securities that are subject to the federal alternative minimum tax (AMT) (unaudited).
1 Floating rate note with current maturity or tender date shown.
2 Non-income-producing security.
3 Security in default.
4 Current rate and next reset date shown for Variable Rate Demand Notes.
5 The cost of investments for federal tax purposes amounts to $365,482,417.
6 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, 2015.
Annual Shareholder Report
20
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.). Also includes securities valued at amortized cost.
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.
As of March 31, 2015, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
AGM —Assured Guaranty Municipal Corp.
AMT —Alternative Minimum Tax
COL —Collateralized
EDA —Economic Development Authority
FGIC —Financial Guaranty Insurance Company
GO —General Obligation
GTD —Guaranteed
HDA —Hospital Development Authority
HEFA —Health and Education Facilities Authority
IDA —Industrial Development Authority
IDB —Industrial Development Bond
INS —Insured
LIQ —Liquidity Agreement
LO —Limited Obligation
LOC —Letter of Credit
LT —Limited Tax
PCR —Pollution Control Revenue
PRF —Pre-refunded
SIFMA —Securities Industry and Financial Markets Association
TOBs —Tender Option Bonds
UT —Unlimited Tax
VRDNs —Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
21
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended March 31 2015 2014 2013 2012 2011
Net Asset Value, Beginning of Period $10.27 $10.73 $10.42 $9.56 $9.99
Income From Investment Operations:          
Net investment income1 0.34 0.35 0.36 0.38 0.42
Net realized and unrealized gain (loss) on investments and futures contracts 0.39 (0.46) 0.30 0.86 (0.44)
TOTAL FROM INVESTMENT OPERATIONS 0.73 (0.11) 0.66 1.24 (0.02)
Less Distributions:          
Distributions from net investment income (0.34) (0.35) (0.35) (0.38) (0.41)
Net Asset Value, End of Period $10.66 $10.27 $10.73 $10.42 $9.56
Total Return2 7.16% (0.97)% 6.43% 13.21% (0.24)%
Ratios to Average Net Assets:          
Net expenses 0.87% 0.87% 0.87% 0.87% 0.87%
Net investment income 3.23% 3.42% 3.33% 3.79% 4.16%
Expense waiver/reimbursement3 0.08% 0.08% 0.07% 0.09% 0.10%
Supplemental Data:          
Net assets, end of period (000 omitted) $346,803 $355,711 $454,722 $437,968 $438,344
Portfolio turnover 16% 8% 22% 14% 21%
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 This expense decrease is reflected in both the net expense and net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
22
Financial Highlights–Class B Shares
(For a Share Outstanding Throughout Each Period)
Year Ended March 31 2015 2014 2013 2012 2011
Net Asset Value, Beginning of Period $10.27 $10.73 $10.42 $9.56 $9.99
Income From Investment Operations:          
Net investment income1 0.25 0.27 0.27 0.30 0.33
Net realized and unrealized gain (loss) on investments and futures contracts 0.39 (0.47) 0.31 0.86 (0.43)
TOTAL FROM INVESTMENT OPERATIONS 0.64 (0.20) 0.58 1.16 (0.10)
Less Distributions:          
Distributions from net investment income (0.25) (0.26) (0.27) (0.30) (0.33)
Net Asset Value, End of Period $10.66 $10.27 $10.73 $10.42 $9.56
Total Return2 6.28% (1.79)% 5.57% 12.25% (1.12)%
Ratios to Average Net Assets:          
Net expenses 1.70% 1.71% 1.69% 1.72% 1.73%
Net investment income 2.40% 2.59% 2.52% 2.95% 3.31%
Expense waiver/reimbursement3 0.00% 0.00% 0.00%4 0.00%4 0.00%4
Supplemental Data:          
Net assets, end of period (000 omitted) $7,303 $8,292 $11,434 $11,174 $13,402
Portfolio turnover 16% 8% 22% 14% 21%
1 Per share number has 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 This expense decrease is reflected in both the net expense and net investment income ratios shown above.
4 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
23
Financial Highlights–Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended March 31 2015 2014 2013 2012 2011
Net Asset Value, Beginning of Period $10.27 $10.73 $10.42 $9.56 $9.99
Income From Investment Operations:          
Net investment income1 0.25 0.27 0.27 0.30 0.33
Net realized and unrealized gain (loss) on investments and futures contracts 0.39 (0.47) 0.31 0.86 (0.43)
TOTAL FROM INVESTMENT OPERATIONS 0.64 (0.20) 0.58 1.16 (0.10)
Less Distributions:          
Distributions from net investment income (0.25) (0.26) (0.27) (0.30) (0.33)
Net Asset Value, End of Period $10.66 $10.27 $10.73 $10.42 $9.56
Total Return2 6.27% (1.79)% 5.57% 12.25% (1.12)%
Ratios to Average Net Assets:          
Net expenses 1.70% 1.71% 1.69% 1.72% 1.73%
Net investment income 2.40% 2.59% 2.52% 2.95% 3.31%
Expense waiver/reimbursement3 0.00% 0.00% 0.00%4 0.00%4 0.00%4
Supplemental Data:          
Net assets, end of period (000 omitted) $19,001 $18,047 $27,246 $25,267 $24,635
Portfolio turnover 16% 8% 22% 14% 21%
1 Per share number has 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 This expense decrease is reflected in both the net expense and net investment income ratios shown above.
4 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
24
Financial Highlights–Class F Shares
(For a Share Outstanding Throughout Each Period)
Year Ended March 31 2015 2014 2013 2012 2011
Net Asset Value, Beginning of Period $10.27 $10.73 $10.42 $9.56 $9.99
Income From Investment Operations:          
Net investment income1 0.34 0.35 0.36 0.38 0.42
Net realized and unrealized gain (loss) on investments and futures contracts 0.39 (0.46) 0.30 0.86 (0.44)
TOTAL FROM INVESTMENT OPERATIONS 0.73 (0.11) 0.66 1.24 (0.02)
Less Distributions:          
Distributions from net investment income (0.34) (0.35) (0.35) (0.38) (0.41)
Net Asset Value, End of Period $10.66 $10.27 $10.73 $10.42 $9.56
Total Return2 7.17% (0.97)% 6.43% 13.21% (0.24)%
Ratios to Average Net Assets:          
Net expenses 0.87% 0.87% 0.87% 0.87% 0.87%
Net investment income 3.23% 3.42% 3.33% 3.79% 4.17%
Expense waiver/reimbursement3 0.08% 0.08% 0.07% 0.09% 0.11%
Supplemental Data:          
Net assets, end of period (000 omitted) $20,604 $19,359 $25,420 $19,575 $17,739
Portfolio turnover 16% 8% 22% 14% 21%
1 Per share number has 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 This expense decrease is reflected in both the net expense and net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
25
Statement of Assets and Liabilities
March 31, 2015
Assets:    
Total investment in securities, at value (identified cost $365,607,483)   $392,502,376
Cash   51,384
Income receivable   5,405,699
Receivable for investments sold   1,000,000
Receivable for shares sold   386,937
TOTAL ASSETS   399,346,396
Liabilities:    
Payable for investments purchased $4,582,520  
Payable for shares redeemed 607,900  
Income distribution payable 177,365  
Payable for other service fees (Notes 2 and 5) 129,991  
Payable for distribution services fee (Note 5) 16,777  
Accrued expenses (Note 5) 121,210  
TOTAL LIABILITIES   5,635,763
Net assets for 36,931,131 shares outstanding   $393,710,633
Net Assets Consists of:    
Paid-in capital   $379,439,691
Net unrealized appreciation of investments   26,894,893
Accumulated net realized loss on investments and futures contracts   (12,481,875)
Distributions in excess of net investment income   (142,076)
TOTAL NET ASSETS   $393,710,633
Annual Shareholder Report
26
Statement of Assets and Liabilities–continued
Net Asset Value, Offering Price and Redemption Proceeds Per Share:    
Class A Shares:    
Net asset value per share ($346,802,952 ÷ 32,531,506 shares outstanding) $0.01 par value, 375,000,000 shares authorized   $10.66
Offering price per share (100/95.50 of $10.66)   $11.16
Redemption proceeds per share   $10.66
Class B Shares:    
Net asset value per share ($7,303,069 ÷ 684,832 shares outstanding) $0.01 par value, 250,000,000 shares authorized   $10.66
Offering price per share   $10.66
Redemption proceeds per share (94.50/100 of $10.66)   $10.07
Class C Shares:    
Net asset value per share ($19,000,835 ÷ 1,781,823 shares outstanding) $0.01 par value, 375,000,000 shares authorized   $10.66
Offering price per share   $10.66
Redemption proceeds per share (99.00/100 of $10.66)   $10.55
Class F Shares:    
Net asset value per share ($20,603,777 ÷ 1,932,970 shares outstanding) $0.01 par value, 150,000,000 shares authorized   $10.66
Offering price per share (100/99.00 of $10.66)   $10.77
Redemption proceeds per share (99.00/100 of $10.66)   $10.55
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
27
Statement of Operations
Year Ended March 31, 2015
Investment Income:      
Interest     $16,459,911
Expenses:      
Investment adviser fee (Note 5)   $1,937,593  
Administrative fee (Note 5)   313,523  
Custodian fees   18,929  
Transfer agent fees   245,047  
Directors'/Trustees' fees (Note 5)   9,712  
Auditing fees   26,450  
Legal fees   13,966  
Distribution services fee (Note 5)   199,909  
Other service fees (Notes 2 and 5)   995,210  
Portfolio accounting fees   115,270  
Share registration costs   54,331  
Printing and postage   36,899  
Taxes   35,250  
Miscellaneous (Note 5)   16,727  
TOTAL EXPENSES   4,018,816  
Reimbursement of other operating expenses (Notes 2 and 5)   (290,838)  
Net expenses     3,727,978
Net investment income     12,731,933
Realized and Unrealized Gain (Loss) on Investments and
Futures Contracts: 		     
Net realized gain on investments     3,840,264
Net realized loss on futures contracts     (184,624)
Net change in unrealized appreciation of investments     11,298,959
Net realized and unrealized gain on investments and futures contracts     14,954,599
Change in net assets resulting from operations     $27,686,532
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
28
Statement of Changes in Net Assets
Year Ended March 31 2015 2014
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $12,731,933 $14,891,420
Net realized gain (loss) on investments and futures contracts 3,655,640 (934,333)
Net change in unrealized appreciation/depreciation of investments and futures contracts 11,298,959 (23,306,016)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 27,686,532 (9,348,929)
Distributions to Shareholders:    
Distributions from net investment income    
Class A Shares (11,354,373) (13,285,154)
Class B Shares (187,907) (238,813)
Class C Shares (442,756) (567,225)
Class F Shares (637,894) (713,166)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (12,622,930) (14,804,358)
Share Transactions:    
Proceeds from sale of shares 23,265,918 17,624,517
Net asset value of shares issued to shareholders in payment of distributions declared 10,414,257 12,235,788
Cost of shares redeemed (56,442,104) (123,120,127)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (22,761,929) (93,259,822)
Change in net assets (7,698,327) (117,413,109)
Net Assets:    
Beginning of period 401,408,960 518,822,069
End of period (including distributions in excess of net investment income of $(142,076) and $(144,949), respectively) $393,710,633 $401,408,960
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
29
Notes to Financial Statements
March 31, 2015
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 the federal AMT for individuals and corporations, but may be subject to state and local taxes.
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 Fund's Board of Directors (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) unless the issuer's creditworthiness is impaired or other factors indicate that amortized cost is not an accurate estimate of the investment's fair value, in which case it would be valued in the same manner as a longer-term security.
■  Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
■  Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
■  Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Directors.
■  For securities that are fair valued in accordance with procedures established by and under the general supervision of the Directors, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
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If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, or if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, 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 obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Directors have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Directors have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Directors have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Directors. The Directors periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
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 any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any 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.
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. Dividend income and 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 Class A Shares, Class B Shares, Class C Shares and Class F Shares may bear distribution services fees and other service fees unique to those classes.
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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.
Other Service Fees
The Fund may pay other 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 unaffiliated 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 other service fees. For the year ended March 31, 2015, other service fees for the Fund were as follows:
  Other
Service Fees
Incurred 		Other
Service Fees
Reimbursed
Class A Shares $878,762 $(275,086)
Class B Shares 19,828 —
Class C Shares 46,809 —
Class F Shares 49,811 (15,752)
TOTAL $995,210 $(290,838)
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted using the effective-interest-rate method.
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. As of and during the year ended March 31, 2015, 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, 2015, tax years 2012 through 2015 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.
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32
Futures Contracts
The Fund purchases and sells financial futures contracts to increase return and manage duration. 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 which is shown as Restricted Cash in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures are exchange-traded and the exchange's clearing house, as counterparty to all exchange-traded futures, guarantees the futures against default.
At March 31, 2015, the Fund had no outstanding futures contracts.
The average notional value of short futures contracts held by the Fund throughout the period was $1,737,692. This is based on amounts held as of each month-end throughout the fiscal period.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended March 31, 2015
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
  Futures
Contracts
Interest rate contracts $(184,624)
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. The Fund applies Investment Company accounting and reporting guidance.
3. CAPITAL STOCK
The following tables summarize capital stock activity:
Year Ended March 31 2015 2014
Class A Shares: Shares Amount Shares Amount
Shares sold 1,712,537 $18,142,144 1,170,749 $12,028,948
Shares issued to shareholders in payment of distributions declared 874,794 9,251,993 1,064,729 10,862,954
Shares redeemed (4,700,679) (49,622,834) (9,959,156) (100,785,676)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (2,113,348) $(22,228,697) (7,723,678) $(77,893,774)
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Year Ended March 31 2015 2014
Class B Shares: Shares Amount Shares Amount
Shares sold 46,022 $485,803 81,653 $834,826
Shares issued to shareholders in payment of distributions declared 16,784 177,501 21,676 221,232
Shares redeemed (185,353) (1,958,804) (361,232) (3,687,109)
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS (122,547) $(1,295,500) (257,903) $(2,631,051)
    
Year Ended March 31 2015 2014
Class C Shares: Shares Amount Shares Amount
Shares sold 208,366 $2,197,994 174,212 $1,780,827
Shares issued to shareholders in payment of distributions declared 33,998 359,662 44,493 454,130
Shares redeemed (217,996) (2,299,766) (999,905) (10,082,926)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 24,368 $257,890 (781,200) $(7,847,969)
    
Year Ended March 31 2015 2014
Class F Shares: Shares Amount Shares Amount
Shares sold 231,293 $2,439,977 289,414 $2,979,916
Shares issued to shareholders in payment of distributions declared 59,119 625,101 68,344 697,472
Shares redeemed (243,102) (2,560,700) (840,411) (8,564,416)
NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS 47,310 $504,378 (482,653) $(4,887,028)
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS (2,164,217) $(22,761,929) (9,245,434) $(93,259,822)
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 to differing treatments for discount accretion/premium amortization on debt securities.
For the year ended March 31, 2015, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Undistributed
Net Investment
Income (Loss) 		  Accumulated
Net Realized
Gain (Loss)
$(106,130)   $106,130
Net investment income (loss), net realized gains (losses) and net assets were not affected by the reclassification.
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34
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended March 31, 2015 and 2014, was as follows:
  2015 2014
Tax-exempt income $12,622,930 $14,738,885
Ordinary income $— $65,473
As of March 31, 2015, the components of distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income $84,925
Net unrealized appreciation $26,792,958
Capital loss carryforwards and deferrals $(12,606,941)
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, 2015, the cost of investments for federal tax purposes was $365,482,417. The net unrealized appreciation of investments for federal tax purposes was $27,019,959. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $29,264,239 and net unrealized depreciation from investments for those securities having an excess of cost over value of $2,244,280.
At March 31, 2015, the Fund had a capital loss carryforward of $12,601,940 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, thereby reducing 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, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2011, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
Expiration Year Short-Term Long-Term Total
2017 $5,553,481 NA $5,553,481
2018 $7,068,459 NA $7,068,459
The Fund used capital loss carryforwards of $3,713,024 to offset taxable gains realized during the year ended March 31, 2015.
Under current tax rules, capital losses on securities transactions realized after October 31 may be deferred, in whole or in part, and treated as occurring on the first day of the following fiscal year. As of March 31, 2015, for federal income tax purposes, post-October losses of $5,001 were deferred to April 1, 2015.
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35
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
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.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended March 31, 2015, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
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%
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36
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended March 31, 2015, distribution services fees for the Fund were as follows:
  Distribution
Service Fees
Incurred
Class B Shares $59,482
Class C Shares 140,427
TOTAL $199,909
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, 2015, FSC retained $51,792 of fees paid by the Fund.
Other Service Fees
For the year ended March 31, 2015, FSSC received $318,932 and reimbursed $290,838 of the other service fees disclosed in Note 2.
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, 2015, FSC retained $20,937 in sales charges from the sale of Class A Shares and $417 from the sale of Class F Shares. FSC also retained $10,134, $1,140 and $7,950 of CDSC relating to redemptions of Class B Shares, Class C Shares and Class F Shares, respectively.
Interfund Transactions
During the year ended March 31, 2015, 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 $87,600,000 and $83,640,000, respectively.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Class A Shares and Class F Shares (after the voluntary waivers and reimbursements) will not exceed 0.87% and 0.87% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) June 1, 2016; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Directors.
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37
General
Certain Officers and Directors of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. Such expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended March 31, 2015, were as follows:
Purchases $ 63,361,301
Sales $ 87,358,020
7. 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 offered to the Fund by PNC Bank at the time of the borrowing. As of March 31, 2015, there were no outstanding loans. During the year ended March 31, 2015, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, 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 Fund to borrow from other participating affiliated funds. As of March 31, 2015, there were no outstanding loans. During the year ended March 31, 2015, the program was not utilized.
9. SUBSEQUENT EVENTS
Effective June 1, 2015, the Fund's Class B Shares will be closed to new accounts and new investors.
Effective August 1, 2015, the Fund's Class B Shares will be closed to exchanges from Class B Shares of other Federated Funds and to new purchases made by existing shareholders (excluding reinvestment of dividends and capital gains).
Management has evaluated subsequent events through the date the financial statements were issued, and determined that no additional events have occurred that require disclosure.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended March 31, 2015, 100% of distributions from net investment income is exempt from federal income tax, other than the federal AMT.
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Report of Independent Registered Public Accounting Firm
TO THE Board OF Directors AND Shareholders 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, 2015, 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 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, 2015, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others 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, 2015, 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 the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
May 21, 2015
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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 other service 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, 2014 to March 31, 2015.
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.
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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
10/1/2014 		Ending
Account Value
3/31/2015 		Expenses Paid
During Period1
Actual:      
Class A Shares $1,000 $1,023.40 $4.39
Class B Shares $1,000 $1,019.20 $8.56
Class C Shares $1,000 $1,019.20 $8.56
Class F Shares $1,000 $1,023.40 $4.39
Hypothetical (assuming a 5% return
before expenses): 		     
Class A Shares $1,000 $1,020.59 $4.38
Class B Shares $1,000 $1,016.45 $8.55
Class C Shares $1,000 $1,016.45 $8.55
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 1.70%
Class C Shares 1.70%
Class F Shares 0.87%
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Board of Directors and Fund Officers
The Board of Directors 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 Director and the senior officers of the Fund. Where required, the tables separately list Directors who are “interested persons” of the Fund (i.e., “Interested” Directors) and those who are not (i.e., “Independent” Directors). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Directors listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2014, the Fund comprised one portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 131 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Director oversees all portfolios in the Federated Fund Family 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
Indefinite Term
Began serving: September 1976 		Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee.
Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling.
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Director
Indefinite Term
Began serving: December 1986 		Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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.
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INDEPENDENT DIRECTORS Background
Name
Birth Date
Positions Held with Fund
Date Service Began 		Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Director
Indefinite Term
Began serving: October 2013 		Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and CEO, The Collins Group, Inc. (a private equity firm).
Other Directorships Held: Director, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director, FleetBoston Financial Corp.; Director and Audit Committee Member, Bank of America Corp. and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
Maureen Lally-Green
Birth Date: July 5, 1949
Director
Indefinite Term
Began serving: August 2009 		Principal Occupations: Director or Trustee of the Federated Fund Family; Associate General Secretary, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law.
Other Directorships Held: Director, CONSOL Energy Inc.
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as Professor of Law, Duquesne University School of Law and was a member of the Superior Court of Pennsylvania. Judge Lally-Green also holds the positions of: Member, Pennsylvania State Board of Education; Director, Saint Vincent College; Director and Chair, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Our Campaign for the Church Alive!, Inc.; Director, Pennsylvania Bar Institute; and Director, Catholic High Schools of the Diocese of Pittsburgh, Inc. Judge Lally-Green has held the positions of: Director, Auberle; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; and Director Cardinal Wuerl Catholic High School.
Peter E. Madden
Birth Date: March 16, 1942
Director
Indefinite Term
Began serving: August 1991 		Principal Occupation: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; Retired.
Other Directorships Held: None.
Qualifications: Mr. Madden has served in several business management, mutual fund services and directorship positions throughout his career. Mr. Madden previously served as President, Chief Operating Officer and Director, State Street Bank and Trust Company (custodian bank) and State Street Corporation (financial services). He was Director, VISA USA and VISA International and Chairman and Director, Massachusetts Bankers Association. Mr. Madden served as Director, Depository Trust Corporation and Director, The Boston Stock Exchange. Mr. Madden also served as a Representative to the Commonwealth of Massachusetts General Court.
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Name
Birth Date
Positions Held with Fund
Date Service Began 		Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Director
Indefinite Term
Began serving: June 1999 		Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served in several banking, business management and educational roles and directorship positions throughout his career. Mr. Mansfield previously served as 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).
Thomas M. O'Neill
Birth Date: June 14, 1951
Director
Indefinite Term
Began serving: October 2006 		Principal Occupations: Director or Trustee, Vice Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as 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; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Director
Indefinite Term
Began serving: October 2013 		Principal Occupations: Director or Trustee of the Federated Fund Family; General Counsel, University of Pittsburgh.
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey serves as Board Member, Epilepsy Foundation of Western Pennsylvania and Board member, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CONSOL Energy Inc. and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
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Name
Birth Date
Positions Held with Fund
Date Service Began 		Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John S. Walsh
Birth Date: November 28, 1957
Director

Indefinite Term
Began serving: January 1999 		Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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
Officer since: September 1976 		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; 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.
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013 		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
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Name
Birth Date
Positions Held with Fund
Date Service Began 		Principal Occupation(s) for Past Five Years
and Previous Position(s)
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER
Officer since: January 2005 		Principal Occupations: Mr. Germain is Chief Legal Officer of the Federated Fund Family. He is General Counsel and Vice President, Federated Investors, Inc.; President, Federated Administrative Services and Federated Administrative Services, Inc.; Vice President, Federated Securities Corp.; Secretary, Federated Private Asset Management, Inc.; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: January 1985 		Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
Brian P. Bouda
Birth Date: February 28, 1947
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: August 2004 		Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain 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.
Previous Positions: Served in Senior Management positions with a large regional banking organization.
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: February 2010 		Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
J. Scott Albrecht
Birth Date: June 1, 1960
VICE PRESIDENT
Officer since: May 2004
Portfolio Manager since: May 1996 		Principal Occupations: J. Scott Albrecht has been the Fund's portfolio manager since May 1996. He is Vice President of the Corporation with respect to 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 has received the Chartered Financial Analyst designation and holds an M.S. in Public Management from Carnegie Mellon University.
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Evaluation and Approval of Advisory Contract–May 2014
Federated Municipal Securities Fund, Inc. (the “Fund”)
Following a review and recommendation of approval by the Fund's independent directors, the Fund's Board reviewed and approved at its May 2014 meetings the Fund's investment advisory contract for an additional one-year term. 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 “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
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 to a fund and its shareholders, including the performance and expenses of the fund and of comparable funds; the Adviser's cost of providing the services, including the profitability to the Adviser of providing advisory services to a fund; the extent to which the Adviser may realize “economies of scale” as a fund grows larger and, if such economies exist, whether they have been shared with a fund and its shareholders or the family of funds; any “fall-out financial benefits” that accrue to the Adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of the Adviser for services rendered to a fund); comparative fee structures, including a comparison of fees paid to the Adviser with those paid by similar funds; and the extent of care, conscientiousness and independence with which the Board members perform their duties and their expertise, including whether they are fully informed about all facts the Board deems relevant to its consideration of the Adviser's services and fees. The Board noted that SEC disclosure requirements regarding the basis for the Board's approval of the Fund's advisory contract generally track the factors listed above. Consistent with these judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to
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institutional and other clients of the Adviser for what might be viewed as like 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, and in connection with its May meetings, the Board 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 substantial information in connection with the May meeting at which the Board's formal review of the advisory contract occurred. At this May meeting, senior management of the Adviser also met with the independent directors and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the directors. 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 information 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; the entrepreneurial risk assumed by the Adviser in sponsoring the funds; 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
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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.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates and total expense ratios relative to a fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that 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 relevant indicator of what consumers have found to be reasonable in the precise marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, and other expenses of the Fund and noted the position of the Fund's fee rates relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements and 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 in the context of the other factors considered relevant by the Board.
By contrast, 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 and sub-adviser services). 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 and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory fees.
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The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program, which in turn was one of the Board's considerations 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.
The Senior Officer reviewed information 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 may be helpful, though not conclusive, in judging the reasonableness of proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
For the periods covered by the Evaluation, the Fund's performance for the one-year period was above the median of the relevant peer group, at the median of the relevant peer group for the three-year period, and the Fund's performance fell below the median of the relevant peer group for the five-year period. 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 in the context of the other factors considered relevant by the Board.
The Board also received financial information about Federated, including information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information 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 information also detailed 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. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers. In addition, following discussions regarding the Senior Officer's May 2013 recommendations, Federated made meaningful reductions to gross advisory fees for several funds. At the Board meeting in May 2014, the Senior Officer proposed, and the Board approved, reductions in the contractual advisory fees of certain other funds.
Federated furnished information, 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, while these cost allocation
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reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive.
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 family of funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit, 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 family 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 noted that, subject to the comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds were reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract.
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 many 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 concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the advisory contract was appropriate.
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51
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.
Annual Shareholder Report
52
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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
Annual Shareholder Report
53
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 Municipal Securities Fund, 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 (5/15)
Federated is a registered trademark of Federated Investors, Inc.
2015 ©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.

(c) There was no amendment to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(d) There was no waiver granted, either actual or implicit, from a provision to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(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:   John T. Collins, Thomas M. O'Neill and John S. Walsh. 

 

Item 4. Principal Accountant Fees and Services

 

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

Fiscal year ended 2015 - $26,450

Fiscal year ended 2014 - $26,450

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

Fiscal year ended 2015 - $15

Fiscal year ended 2014 - $0

Travel to Audit Committee Meeting.

Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $84 and $0 respectively. Fiscal year ended 2015- Travel expenses for attendance at Audit Committee meeting.

(c) Tax Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2015 - $0

Fiscal year ended 2014 - $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 2015 - $0

Fiscal year ended 2014 - $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.

(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 2015 – 0%

Fiscal year ended 2014 - 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 2015 – 0%

Fiscal year ended 2014 – 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(d)

Fiscal year ended 2015 – 0%

Fiscal year ended 2014 – 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.

(f)NA

 

(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 2015 - $72,733

Fiscal year ended 2014 - $92,657

(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

 

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

 

(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.

 

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

 

No Changes to Report

 

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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Exhibits

 

(a)(1) Code of Ethics- Not Applicable to this Report.

 

(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.

 

(a)(3) Not Applicable.

 

(b) Certifications pursuant to 18 U.S.C. Section 1350.

 

 

 

 

 

 

 

 

 

 

 

 

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/ Lori A. Hensler

 

Lori A. Hensler, Principal Financial Officer

 

Date May 21, 2015

 

 

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, 2015

 

 

By /S/ Lori A. Hensler

 

Lori A. Hensler, Principal Financial Officer

 

Date May 21, 2015

 

 

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N-CSR Item 12(a)(2) - Exhibits: Certifications

 

 

I, J. Christopher Donahue, certify that:

 

  1. I have reviewed this report on Form N-CSR of Federated Municipal Securities Fund, Inc. ("registrant");

 

  1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  1. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

    1. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

    1. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

    1. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  1. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

    1. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

    1. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: May 21, 2015

/S/ J. Christopher Donahue

J. Christopher Donahue, President - Principal Executive Officer

 

 

 

N-CSR Item 12(a)(2) - Exhibits: Certifications

 

 

I, Lori A. Hensler, certify that:

 

  1. I have reviewed this report on Form N-CSR of Federated Municipal Securities Fund, Inc. ("registrant");

 

  1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  1. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

    1. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

    1. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

    1. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  1. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

    1. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

    1. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: May 21, 2015

/S/ Lori A. Hensler

Lori A. Hensler, Treasurer - Principal Financial Officer

 

 

 EX-99.906CERT 9 cert906.htm

N-CSR Item 12(b) - Exhibits: Certifications

 

SECTION 906 CERTIFICATION

 

Pursuant to 18 U.S.C.§ 1350, the undersigned officers of Federated Municipal Securities Fund, Inc. (the “Registrant”), hereby certify, to the best of our knowledge, that the Registrant’s Report on Form N-CSR for the period ended March 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

Dated: May 21, 2015

 

/s/ J. Christopher Donahue

J. Christopher Donahue

Title: President, Principal Executive Officer

 

 

 

Dated: May 21, 2015

 

/s/ Lori A. Hensler

Lori A. Hensler

Title: Treasurer, Principal Financial Officer

 

This certification is being furnished solely pursuant to 18 U.S.C.§ 1350 and is not being filed as part of the Report or as a separate disclosure document.