LIBERTY MUNICIPAL SECURITIES FUND INC
N-30D, 1995-05-23
Previous: MERRILL LYNCH CAPITAL FUND INC, N-30D, 1995-05-23
Next: SYSTEM ENERGY RESOURCES INC, 35-CERT, 1995-05-23



FEDERATED INVESTORS

Liberty
Municipal
Securities
Fund, Inc.

18th Annual Report
March 31, 1995

Established 1976

MUNICIPAL

President's Message

Dear Fellow Shareholder:

Liberty Municipal Securities Fund, Inc. was established in 1976, and I am
pleased to present the 18th Annual Report for the fund.

This report covers the 12-month period from April 1, 1994 to March 31, 1995. It
contains an interview with the fund's portfolio manager, Jonathan C. Conley,
Vice President of Federated Advisers. Following the interview is a series of
investment record performance charts, a complete listing of the fund's
portfolio of tax-free municipal securities, and its Financial Statements.

Although the increases in interest rates by the Federal Reserve Board (the
``Fed'') made 1994 a difficult year for municipal funds, we are happy to note
that interest rates did decline in January and February of 1995. In addition,
many indicators point to a slow-down in the economy, and the Fed met recently
and decided against another rate hike. These are all very positive signs for
municipal investors.

Over the past six months, there were many stories in the news about
municipalities and their investment techniques. Happily, we are able to report
that Liberty Municipal Securities Fund, Inc. did not own issues of the
municipalities in California, Florida, Texas and Oklahoma that caused such a
stir in the press.

Founded nearly 20 years ago, Liberty Municipal Securities Fund, Inc. continues
to seek relief for you and other tax-sensitive Americans, in the form of
monthly income that's exempt from federal regular income taxes.* To do so, the
fund invests in a diversified portfolio of municipal securities issued by more
than 70 municipalities across the country.

The fund's total net assets as of this report are $749.3 million. The fund's
net asset value (share price) stands at $10.92, up slightly from our last
report, and distributions paid to shareholders totaled $0.90 per share.**

Thank you for selecting Liberty Municipal Securities Fund, Inc. If you have any
questions concerning the fund's portfolio or your account, please do not
hesitate to write.

Very sincerely yours,


J. Christopher Donahue
President
May 15, 1995

*Income may be subject to the federal alternative minimum tax and state and
local taxes.

**These figures are for Class A Shares; refer to the portfolio manager
Investment Review that immediately follows this letter for Class B Shares and
Class C Shares figures.

Investment Review
------------------------------------------------------------------------------

Jonathan, can you tell us what has occurred in the long-term fixed-income
markets during the 12-month period ending March 31, 1995?

Interest rates in these markets exhibited considerable volatility during the
past 12 months. On April 1, 1994, the yield for the ``current'' 30-year U.S.
Treasury bond (6.25% due August 15, 2023) stood at 7.09%. From there, the
yield rose to 8.23% by November 7, 1994, before dropping to 7.50% as of March
31, 1995.

As for the long-term municipal market, the Bond Buyer 40 Index* (representing
on a daily basis ``A'' to ``AAA'' long-term municipal yields) registered 6.36%
on April 1, 1994. It then climbed to 7.37% by November 22, 1994, and fell
thereafter to 6.37% by March 31, 1995.

How have these interest rate changes translated to bond price movements?

From April 1, 1994 to November 7, 1994, the price of the bellwether U.S.
Treasury bond declined from $89.69 to $78.25. By March 31, 1995, the price
recovered substantially, climbing to $85.38. From April 1, 1994 to November
22, 1994, the Municipal Bond Index* plummeted from $91.56 to $80.13, then
climbed to $91.19 by March 31, 1995.

Why was the municipal bond market more volatile than its Treasury counterpart?

First, many issues in the municipal secondary market had been quoted at prices
representing discounts to face value in excess of IRS provisions allowing for
capital gains treatment. Excess discounts were, and continue to be, treated as
ordinary income, taxable at ordinary income rates. Such issues trade at lower
prices to allow the incremental investor to achieve a market after-tax yield.

*This index is unmanaged.

What have investors in Liberty Municipal Securities Fund, Inc. experienced
during this period?

For the 12 months ending March 31, 1995, investors in the fund (Class A Shares)
experienced a total return based on Net Asset Value (``NAV'') of 5.90%, or of
1.11% based on offering price.* Investors in Class A Shares received $0.67 per
share in tax-exempt dividend interest and $0.23 in capital gains distributions,
while the NAV fell-in part due to such distributions-from $11.20 on April 1,
1994 to $10.92 on March 31, 1995.

Investors in Class B Shares experienced a total return of 3.49% based on NAV,
or of (2.17%) based on offering price for the period from July 26, 1994 (date
of initial public offering) to March 31, 1995.* These investors received $0.40
per share in tax-exempt dividend interest and $0.11 in capital gains
distributions; the NAV for Class B Shares stands at $10.92 as of this report.

Investors in Class C Shares experienced a total return of 4.96% based on NAV,
or of 3.91% based on the offering price.* These investors received $0.58 per
share in tax-exempt dividend interest and $0.23 in capital gains
distributions, while the NAV fell from $11.20 to $10.92.

How do you control the volatility of the NAV per share?

I favor, in a variety of interest rate environments, issues which have coupons
or yields greater than the Bond Buyer 40 Index. For equal credit quality and
maturity, the bond with the higher coupon rate or market yield will be less
price sensitive with respect to market rate changes. The fund, therefore,
would swap into higher coupon (or yield) issues to secure coupon-price
protection and to seek attractive income for distribution to shareholders. On
April 1, 1994, the average coupon rate of the holdings in the fund was 7.33%;
on March 31, 1995, the average coupon rate of fund holdings stood at 7.43%.
These coupon rates helped to keep the portfolio duration of the fund rather
low, averaging 5.75 years versus 13.10 years for the Bond Buyer 40 Index over
the past twelve months.

*Past performance does not guarantee future results. Investment return and
principal value will fluctuate, so when shares are redeemed they may be worth
more or less than their original cost.

What is the composition of the fund's investments by credit quality?

The credit quality of the fund's portfolio of investments is as
follows:

<TABLE>
<CAPTION>
                          March 31, 1995     March 31, 1994
<S>                       <C>                <C>
AAA                       20.7%              38.6%
AA                        24.2%              31.9%
A                         11.7%              10.1%
BBB                       27.4%              13.0%
NR                        16.0%               6.4%
                         ------             ------
                         100.0%             100.0%
</TABLE>

Could you explain the rationale for downgrading the portfolio holdings?

Medium and lower-grade issues tend to outperform higher-grade issues during
periods of economic recovery. As state and local governments receive greater
tax revenue-from sales, income, business use, and property-and as corporations,
on the whole, increase profitability and cashflow generation, the potential for
credit rating upgrading increases. This bodes well for medium/lower-grade
issues as a class of debt instruments. As a result, the fund has been investing
over the past year in what it considers upgrade candidates.

Because of their ``higher-than-general-market'' coupons (yields) at issue, many
medium/lower-grade bonds have shorter durations than their higher grade
counterparts. Furthermore, medium/lower-grade issues tend to be ``core''
holdings; municipal bond portfolio managers typically accommodate shareholder
purchases in and redemptions from a fund through transactions involving
higher-grade issues. So, assuming stable credit quality, ``secondary'' market
pricing for medium/lower-grade bonds is less volatile than that for
higher-grade issues. A portfolio which holds a diversified mix of the former
types of issues should display the attributes of those issues.

Two Ways You May Seek to Invest for Success in
Liberty Municipal Securities Fund, Inc.
-------------------------------------------------------------------------------

Initial Investment:

If you had made an initial investment of $19,000 in the Class A Shares of
Liberty Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends
and capital gains, and didn't redeem any shares, your account would be worth
$59,854 on 3/31/95. You would have earned a 6.40%* average annual total return
for the 19-year investment life span.

One key to investing wisely is to reinvest all tax-free distributions in fund
shares. This increases the number of shares on which you can earn future
tax-free dividends, and you gain the benefit of compounding tax-free.

As of 3/31/95, the Class A Shares' average annual one-year, five-year and
ten-year total returns were 1.11%, 6.68%, and 8.86%, respectively. Class B
Shares' total return since inception on 7/26/94 was -2.17%. Class C
Shares'average annual one-year and since inception on 4/21/93 total returns
were 3.91% and 2.61%, respectively.

[Graphic Representation A1 omitted.  See Appendix.]

* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 4.50% sales load applicable to an initial investment in Class A Shares.

Data quoted represent past performance and do not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.

Liberty Municipal Securities Fund, Inc.
------------------------------------------------------------------------------

One Step at a Time:

$1,000 invested each year for 19 years (reinvesting all dividends and capital
gains) grew to $41,683.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of Liberty
Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends and
capital gains and didn't redeem any shares, you would have invested only
$19,000 but your account would have reached a total value of $41,683* by
3/31/95. You would have earned an average annual total return of 7.70%.

A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all tax-free earnings. An investment plan works for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time, money and compounding to work!

[Graphic Representation A2 omitted.  See Appendix.]

* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor. Because such a plan
involves continuous investment, regardless of changing price levels, the
investor should consider whether or not to continue purchases through periods
of low price levels.

Liberty Municipal Securities Fund, Inc.-
Hypothetical Investors Profile: Investing for Tax-Free Income
------------------------------------------------------------------------------

Larry and Barbara Bartlett are a fictional couple who, like all other
tax-sensitive shareholders, want to keep more of what they earn.

Larry owns a successful architectural firm and Barbara is a marketing
executive. Their combined income puts them in the 39.6% federal tax bracket. On
March 31, 1985, the Bartletts invested $25,000 in the Class A Shares of Liberty
Municipal Securities Fund, Inc.

As this chart shows, in 10 years, their original $25,000 investment has grown
to $58,435-that's $27,920 in tax-free income.* This represents an 8.86% average
annual total return. As far as the Bartletts are concerned, this fund has made
all the difference.

*Income may be subject to the federal alternative minimum tax and state and
local taxes.

[Graphic Representation A3 omitted.  See Appendix.]

This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder.

Past performance does not guarantee future results.

Liberty Municipal Securities Fund, Inc.-
A History of Tax Free Investing-Ten 10-Year Periods
------------------------------------------------------------------------------

$10,000 Invested With Distributions Reinvested

How a $10,000 investment grew during each 10-year period since fund inception.

This chart shows what your account would be worth had you invested $10,000 at
the beginning of these consecutive decades.

Over every 10-year period since the Fund's inception, a $10,000 investment in
its Class A Shares (with all dividends and capital gains reinvested) grew in
value. There was never a decade in which an investor would have lost money.

[Graphic Representation A4 omitted.  See Appendix.]

* This 10-year period is October 4, 1976 through March 31, 1986.

Liberty Municipal Securities Fund, Inc.-
Serving a Wide Range of Investors
------------------------------------------------------------------------------

Liberty Municipal Securities Fund, Inc. appeals to a broad range of
tax-sensitive investors seeking tax-free current income.

The fund invests primarily in a diversified portfolio of quality municipal
bonds. Fund shares are not guaranteed, and the value of your investment may
fluctuate in value. Mutual funds involve risk, including possible loss of
principal.

[Graphic Representation A5 omitted.  See Appendix.]

Liberty Municipal Securities Fund, Inc._
Portfolio Update
-------------------------------------------------------------------------------

[Graphic Representation A6 omitted.  See Appendix.]

  Liberty Municipal Securities Fund, Inc.
(Class A Shares)
-------------------------------------------------------------------------------

Growth of $10,000 Invested in Liberty Municipal Securities Fund, Inc. (Class A
Shares)

The graph below illustrates the hypothetical investment of $10,000 in the
Liberty Municipal Securities Fund, Inc. (Class A Shares) from March 31, 1985 to
March 31, 1995, compared to the Lehman Brothers Revenue Bond Index (LBRBI)++

[Graphic Representation A7 omitted.  See Appendix.]

Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.

* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales load of 4.50%($10,000 investment minus $450 sales charge =
$9,550). The fund's performance assumes the reinvestment of all dividends and
distributions. The LBRBI has been adjusted to reflect reinvestment of dividends
on securities in the index.

**Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.

+The LBRBI is not adjusted to reflect sales loads, expenses, or other fees that
the SEC requires to be reflected in the fund's performance. This index is
unmanaged.

Liberty Municial Securities Fund, Inc.
(Class B Shares and Class C Shares)
-------------------------------------------------------------------------------

Growth of $10,000 Invested in Liberty Municipal Securities Fund, Inc.

The graphs below illustrate the hypothetical investment of $10,000 in the
Liberty Municipal Securities Fund, Inc. from the start of performance to March
31, 1995, compared to the Lehman Brothers Revenue Bond Index (LBRBI).++

[Graphic Representation A8 omitted.  See Appendix.]

[Graphic Representation A9 omitted.  See Appendix.]

Liberty Municipal Securities Fund, Inc.
(Class B Shares and Class C Shares)
------------------------------------------------------------------------------

Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost.

* Represents a hypothetical investment of $10,000 in the fund. The ending value
of the fund reflects a 5.50% contingent deferred sales charge on any redemption
made within one full year from the purchase date. The fund's performance
assumes the reinvestment of all dividends and distributions. The LBRBI has been
adjusted to reflect reinvestment of dividends on securities in the index.

**Represents a hypothetical investment of $10,000 in the fund. The ending value
of the fund reflects a 1.00% contingent deferred sales charge on any redemption
made within one full year from the purchase date. The fund's performance
assumes the reinvestment of all dividends and distributions. The LBRBI has been
adjusted to reflect reinvestment of dividends on securities in the index.

+Total return quoted reflects all applicable sales loads and contingent deferred
sales charges.

++The LBRBI is not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the fund's performance.
This index is unmanaged.


Liberty Municipal Securities Fund, Inc.
Portfolio of Investments
--------------------------------------------------------------------------------
March 31, 1995

<TABLE>
<CAPTION>
                                                                                        CREDIT
                                                                                       RATING:
  PRINCIPAL                                                                            MOODY'S
   AMOUNT                                                                              OR S&P*        VALUE
<C>            <S>                                                                    <C>         <C>
-------------  ---------------------------------------------------------------------  ----------  --------------
SHORT-TERM MUNICIPAL SECURITIES--4.3%
------------------------------------------------------------------------------------
               ALABAMA--0.2%
               ---------------------------------------------------------------------
$   1,500,000  Birmingham, AL, Medical Clinic Board Daily VRDNs (University of
               Alabama Health System)/(Morgan Guaranty Trust Co. LOC)                 A-1+        $    1,500,000
               ---------------------------------------------------------------------              --------------
               ILLINOIS--3.9%
               ---------------------------------------------------------------------
   29,000,000  Illinois Development Finance Authority Weekly VRDNs (Series
               1994)/(Chicago Symphony Orchestra)/(Northern Trust Co. and Sanwa Bank
               Ltd. LOCs)                                                             A-1+            29,000,000
               ---------------------------------------------------------------------              --------------
               PUERTO RICO--0.1%
               ---------------------------------------------------------------------
    1,250,000  Government Development Bank of Puerto Rico Weekly VRDNs (Credit
               Suisse and Sumitomo Bank Ltd. LOCs)                                    A-1              1,250,000
               ---------------------------------------------------------------------              --------------
               TEXAS--0.1%
               ---------------------------------------------------------------------
      800,000  Harris County, TX, HFDC Daily VRDNs (Series 1994)/ (Methodist
               Hospital Guaranty)                                                     A-1+               800,000
               ---------------------------------------------------------------------              --------------
               TOTAL SHORT-TERM MUNICIPAL SECURITIES
               (AT AMORTIZED COST)                                                                    32,550,000
               ---------------------------------------------------------------------              --------------
LONG-TERM MUNICIPAL SECURITIES--93.6%
------------------------------------------------------------------------------------
               ARIZONA--3.3%
               ---------------------------------------------------------------------
   12,000,000  Salt River Project, AZ, Agriculture Improvement & Power District
               Electric Systems, 7.875% Revenue Bonds (Series A)/(Prerefunded),
               1/1/98 (@ 102%)                                                        Aaa             13,162,320
               ---------------------------------------------------------------------
   10,500,000  Salt River Project, AZ, Agriculture Improvement & Power District
               Electric Systems, 8.25% OID Revenue Bonds (Series E)/(Original Issue
               Yield: 8.40%)/(Prerefunded),
               1/1/98 (@ 102%)                                                        Aaa             11,438,490
               ---------------------------------------------------------------------              --------------
               Total                                                                                  24,600,810
               ---------------------------------------------------------------------              --------------
               CALIFORNIA--0.3%
               ---------------------------------------------------------------------
$   2,000,000  Southern California Public Power Authority, 7.875% Revenue Bonds
               (Southern Transmission Project)/ (Prerefunded), 7/1/96 (@ 103%)        AAA         $    2,142,020
               ---------------------------------------------------------------------              --------------
               COLORADO--1.3%
               ---------------------------------------------------------------------
    7,810,000  Colorado Springs, CO, Utilities System, 8.00% Revenue Bonds (Series
               A)/(Prerefunded), 11/15/97 (@ 100%)                                    Aaa              8,333,895
               ---------------------------------------------------------------------
    1,500,000  Colorado Springs, CO, Utilities System, 9.50% Revenue Bonds (Series
               A), 11/15/2015                                                         Aa               1,548,660
               ---------------------------------------------------------------------              --------------
               Total                                                                                   9,882,555
               ---------------------------------------------------------------------              --------------
               DISTRICT OF COLUMBIA--5.7%
               ---------------------------------------------------------------------
   22,250,000  District of Columbia, 7.15% OID Revenue Bonds (Series
               1990B)/(Georgetown University)/(Original Issue Yield: 7.19%),
               4/1/2021                                                               Aa              23,474,863
               ---------------------------------------------------------------------
    2,000,000  District of Columbia, 7.00% Hospital Revenue Refunding Bonds
               (Medlantic HealthCare Group)/(Original Issue Yield: 7.282%),
               8/15/2015                                                              BBB              1,886,240
               ---------------------------------------------------------------------
   12,775,000  District of Columbia, 7.125% Hospital Revenue Refunding Bonds
               (Medlantic-Washington Hospital Center)/(Original Issue Yield: 7.30%),
               8/15/2019                                                              BBB             12,449,621
               ---------------------------------------------------------------------
    4,765,000  District of Columbia, 8.25% Revenue Bonds (Georgetown University),
               4/1/2018                                                               Aa               5,220,486
               ---------------------------------------------------------------------              --------------
               Total                                                                                  43,031,210
               ---------------------------------------------------------------------              --------------
               FLORIDA--6.3%
               ---------------------------------------------------------------------
    3,000,000  Broward County, FL, 10.00% GO Bonds, 7/1/2014                          Aa               4,421,700
               ---------------------------------------------------------------------
    4,335,000  Florida Board of Education, 9.125% Capital Outlay Bonds, 6/1/2014      Aa               6,020,361
               ---------------------------------------------------------------------
      665,000  Florida Board of Education, 9.125% Capital Outlay Bonds, 6/1/2014      Aa                 924,510
               ---------------------------------------------------------------------
$  10,500,000  Jacksonville, FL, Electric Authority, 7.70% Revenue Bonds
               (Prerefunded), 10/1/96 (@ 101.5%)                                      Aaa         $   11,142,075
               ---------------------------------------------------------------------
    1,050,000  Leesburg, FL, 5.625% Hospital Revenue Bonds (Series 1993B)/(Leesburg
               Regional Medical Center)/(Original Issue Yield: 5.75%), 7/1/2013       BBB+               935,046
               ---------------------------------------------------------------------
   15,000,000  Orlando and Orange County, FL, Expressway Authority, 7.50% Junior
               Lien Revenue Bonds, 7/1/2016                                           A               15,840,150
               ---------------------------------------------------------------------
    7,500,000  Tampa, FL, 8.12% Utilities Tax & Special Revenue Bonds (AMBAC
               Insured), 10/1/2015                                                    Aaa              8,246,850
               ---------------------------------------------------------------------              --------------
               Total                                                                                  47,530,692
               ---------------------------------------------------------------------              --------------
               GEORGIA--3.1%
               ---------------------------------------------------------------------
    5,000,000  Georgia State Municipal Electric Authority, 8.125% Power Supply
               Revenue Bonds (Series O), 1/1/2017                                     AA-              5,447,050
               ---------------------------------------------------------------------
    5,000,000  Georgia State Municipal Electric Authority, 8.375% Power Supply
               Revenue Bonds (Series A), 1/1/2020                                     AA-              5,380,100
               ---------------------------------------------------------------------
    4,200,000  Georgia State Municipal Electric Authority, 8.375% Power Supply
               Revenue Bonds (Series M), 1/1/2020                                     AA-              4,494,336
               ---------------------------------------------------------------------
    2,500,000  Georgia State Municipal Electric Authority, 8.375% Power Supply
               Revenue Bonds (Series Q), 1/1/2016                                     AA-              2,750,825
               ---------------------------------------------------------------------
    5,000,000  Metropolitan Atlanta Rapid Transit Authority, 8.00% Sales Tax Revenue
               Bonds (Series J)/(FGIC Insured)/ (Prerefunded), 7/1/98 (@ 102%)        Aaa              5,558,100
               ---------------------------------------------------------------------              --------------
               Total                                                                                  23,630,411
               ---------------------------------------------------------------------              --------------
               ILLINOIS--5.9%
               ---------------------------------------------------------------------
    5,000,000  Illinois Development Finance Authority, 6.10% Revenue Bonds (Series
               1993C)/(Catholic Charities Housing Development Corp.)/(Archdiocese of
               Chicago Guaranty), 1/1/2020                                            NR               4,357,750
               ---------------------------------------------------------------------
$  14,500,000  Illinois Health Facilities Authority, 9.25% Revenue Refunding Bonds
               (Series 1994A)/(Edgewater Hospital & Medical Center), 7/1/2024         NR          $   14,935,580
               ---------------------------------------------------------------------
    2,860,000  Illinois Health Facilities Authority, 6.125% Refunding Revenue Bonds
               (Lutheran Social Services)/(Original Issue Yield: 6.27%), 8/15/2010    NR               2,502,042
               ---------------------------------------------------------------------
   10,250,000  Illinois Health Facilities Authority, 7.00% Revenue Bonds (Trinity
               Medical Center)/(Original Issue Yield: 7.24%),
               7/1/2012                                                               Baa             10,352,500
               ---------------------------------------------------------------------
    4,565,000  Illinois State, 7.625% Sales Tax Revenue Bonds (Series B)/ (Build
               Illinois Program), 6/15/2015                                           AAA              4,822,192
               ---------------------------------------------------------------------
    6,250,000  Illinois State, 7.625% Sales Tax Revenue Bonds (Series H)/ (Build
               Illinois Program), 6/15/2018                                           AAA              6,867,625
               ---------------------------------------------------------------------              --------------
               Total                                                                                  43,837,689
               ---------------------------------------------------------------------              --------------
               INDIANA--6.6%
               ---------------------------------------------------------------------
    6,200,000  Indiana State Health Facilities Authority, 6.625% Revenue Bonds
               (Floyd Memorial Hospital Project)/(Original Issue Yield: 6.90%),
               2/15/2022                                                              A                6,199,318
               ---------------------------------------------------------------------
   33,000,000  Indianapolis, IN, Airport Authority, 7.10% Special Facility Revenue
               Bonds (Series 1994)/(Federal Express Corp.)/ (Original Issue Yield:
               7.178%)/(Subject to AMT), 1/15/2017                                    BBB             34,108,140
               ---------------------------------------------------------------------
   10,000,000  Kokomo, IN, 6.35% Hospital Revenue Bonds (Original Issue Yield:
               6.40%), 8/15/2013                                                      Baa              9,332,700
               ---------------------------------------------------------------------              --------------
               Total                                                                                  49,640,158
               ---------------------------------------------------------------------              --------------
               LOUISIANA--3.3%
               ---------------------------------------------------------------------
    6,000,000  Louisiana State, Parish of De Soto, 7.70% Environmental Improvement
               Revenue Bonds (Series 1994A)/(International Paper Company)/(Subject
               to AMT), 11/1/2018                                                     A-               6,563,100
               ---------------------------------------------------------------------
$   3,550,000  Louisiana State, Parish of St. Charles, 7.00% Revenue Bonds
               (Louisiana Power & Light Co.)/(Original Issue Yield: 7.04%)/(Subject
               to AMT), 12/1/2022                                                     BBB+        $    3,586,707
               ---------------------------------------------------------------------
    5,000,000  Louisiana State, Parish of St. James, 6.20% Revenue Bonds (Series
               1993A)/(Louisiana Power & Light Co.)/(Original Issue Yield:
               6.25%)/(Subject to AMT), 5/1/2023                                      BBB+             4,510,950
               ---------------------------------------------------------------------
   10,000,000  Louisiana State, Parish of St. James, 7.70% Revenue Bonds
               (Freeport-McMoran)/(Original Issue Yield: 7.75%)/(Subject to AMT),
               10/1/2022                                                              NR              10,080,200
               ---------------------------------------------------------------------              --------------
               Total                                                                                  24,740,957
               ---------------------------------------------------------------------              --------------
               MARYLAND--2.0%
               ---------------------------------------------------------------------
   12,230,000  Maryland State Department of Housing & Community Development, 6.75%
               SFH Mortgage Revenue Bonds (Subject to AMT), 4/1/2026                  Aa              12,419,565
               ---------------------------------------------------------------------
    3,000,000  Maryland State HEFA, 5.50% Revenue Bonds (Series 1993)/(Howard
               General Hospital Issue)/(Original Issue Yield: 5.80%), 7/1/2025        BBB              2,371,590
               ---------------------------------------------------------------------              --------------
               Total                                                                                  14,791,155
               ---------------------------------------------------------------------              --------------
               MASSACHUSETTS--5.3%
               ---------------------------------------------------------------------
   33,800,000  Massachusetts State, IFA, 9.00% Solid Waste Disposal Revenue Bonds
               (Series 1994A)/(Sr. Lien-Massachusetts Recycling
               Association)/(Subject to AMT), 8/1/2016                                NR              35,249,682
               ---------------------------------------------------------------------
    4,700,000  Massachusetts State HEFA, 6.50% Revenue Bonds
               (Series B)/(Holyoke Hospital)/(Original Issue Yield: 6.75%),
               7/1/2015                                                               Baa1             4,360,848
               ---------------------------------------------------------------------              --------------
               Total                                                                                  39,610,530
               ---------------------------------------------------------------------              --------------
               MICHIGAN--0.1%
               ---------------------------------------------------------------------
$     500,000  Michigan State Hospital Finance Authority, 7.00% Revenue Bonds
               (Series 1991)/(Daughters of Charity National Health System Providence
               Hospital)/(Original Issue Yield: 7.04%), 11/1/2021                     Aa          $      523,905
               ---------------------------------------------------------------------              --------------
               MINNESOTA--1.5%
               ---------------------------------------------------------------------
   11,900,000  Saint Paul, MN, Housing & Redevelopment Authority, 6.625% Refunding
               Revenue Bonds (Series A)/(Healtheast Project)/(Original Issue Yield:
               6.50%), 11/1/2017                                                      BBB-            11,331,656
               ---------------------------------------------------------------------              --------------
               NEW JERSEY--1.0%
               ---------------------------------------------------------------------
    8,000,000  New Jersey State Educational Facilities Authority, 6.625% Revenue
               Bonds (Series 1993C)/(Fairleigh Dickinson University Issue)/(Original
               Issue Yield: 6.703%), 7/1/2023                                         NR               7,410,320
               ---------------------------------------------------------------------              --------------
               NEW MEXICO--0.7%
               ---------------------------------------------------------------------
    5,000,000  City of Farmington, NM, 7.20% Pollution Control Revenue Bonds
               (Southern California Edison)/(Four Corners)/(Series 1991A)/(Original
               Issue Yield: 7.30%), 4/1/2021                                          AA               5,334,300
               ---------------------------------------------------------------------              --------------
               NEW YORK--5.9%
               ---------------------------------------------------------------------
    3,000,000  Municipal Assistance Corp. of New York, 7.625% Bonds (Series 67),
               7/1/2008                                                               Aa               3,314,820
               ---------------------------------------------------------------------
   13,000,000  New York State Power Authority, 8.00% Revenue Bonds, 1/1/2017          Aa              14,166,620
               ---------------------------------------------------------------------
    2,000,000  New York State Mortgage Agency, 6.65% Revenue Bonds (Series
               30B)/(Subject to AMT), 10/1/2025                                       Aa               2,008,480
               ---------------------------------------------------------------------
    2,750,000  Triborough Bridge and Tunnel Authority, NY, 7.875% Revenue Bonds
               (Series N)/(Prerefunded), 1/1/98 (@ 102%)                              Aaa              3,002,780
               ---------------------------------------------------------------------
    7,000,000  Triborough Bridge and Tunnel Authority, NY, 7.625% Revenue Bonds
               (Series I)/(Prerefunded), 1/1/96 (@ 102%)                              Aaa              7,303,800
               ---------------------------------------------------------------------
$   9,000,000  Triborough Bridge and Tunnel Authority, NY, 7.70% Revenue Bonds
               (Series O)/(Prerefunded), 1/1/99
               (@ 101.5%)                                                             Aaa         $    9,988,110
               ---------------------------------------------------------------------
    4,300,000  Triborough Bridge and Tunnel Authority, NY, 8.125% Revenue Bonds
               (Series L), 1/1/2012                                                   Aa               4,730,430
               ---------------------------------------------------------------------              --------------
               Total                                                                                  44,515,040
               ---------------------------------------------------------------------              --------------
               NORTH CAROLINA--3.3%
               ---------------------------------------------------------------------
    4,000,000  North Carolina Eastern Municipal Power Agency, 5.75% Revenue Bonds
               (Series A)/(Original Issue Yield: 6.734%), 1/1/2019                    A-               3,577,000
               ---------------------------------------------------------------------
   13,500,000  North Carolina Municipal Power Agency Pound1, 7.875% Revenue Bonds
               (Catawba Electric), 1/1/2019                                           A               14,807,610
               ---------------------------------------------------------------------
    6,000,000  North Carolina Municipal Power Agency Pound1, 8.50% Revenue Bonds
               (Series B)/(Catawba Electric), 1/1/2017                                A                6,306,480
               ---------------------------------------------------------------------              --------------
               Total                                                                                  24,691,090
               ---------------------------------------------------------------------              --------------
               OHIO--2.0%
               ---------------------------------------------------------------------
    1,200,000  Cuyahoga County, OH, 8.00% Revenue Bonds (Cleveland Clinic
               Foundation)/(Original Issue Yield: 8.045%),
               12/1/2015                                                              Aa               1,291,692
               ---------------------------------------------------------------------
    1,000,000  Franklin County, OH, 7.25% Revenue Refunding and Improvement Bonds
               (Riverside United Methodist Hospital)/(MBIA Insured)/(Original Issue
               Yield: 7.29%),
               5/15/2020                                                              Aaa              1,085,710
               ---------------------------------------------------------------------
   14,000,000  Ohio State Air Quality Development Authority, 5.95% Revenue Bonds
               (Ohio Edison Co.), 5/15/2029                                           BBB-            12,245,100
               ---------------------------------------------------------------------              --------------
               Total                                                                                  14,622,502
               ---------------------------------------------------------------------              --------------
               OKLAHOMA--1.6%
               ---------------------------------------------------------------------
$   4,585,000  Jackson County, OK, Memorial Hospital Authority, 7.30% Revenue Bonds
               (Original Issue Yield: 7.40%), 8/1/2015                                BBB-        $    4,379,271
               ---------------------------------------------------------------------
    7,500,000  Tulsa, OK, Municipal Airport, 7.60% Revenue Bonds (American Airlines
               Corp.)/(Original Issue Yield: 7.932%)/ (Subject to AMT), 12/1/2030     Baa              7,737,600
               ---------------------------------------------------------------------              --------------
               Total                                                                                  12,116,871
               ---------------------------------------------------------------------              --------------
               PENNSYLVANIA--9.5%
               ---------------------------------------------------------------------
      750,000  Geisinger, PA Health System, 7.625% Revenue Bonds (Original Issue
               Yield: 7.695%), 7/1/2009                                               AA                 840,450
               ---------------------------------------------------------------------
    1,300,000  Latrobe, PA, 6.75% IDA Revenue Bonds (Series 1994)/(St. Vincent
               College Project)/(Original Issue Yield: 7.00%),
               5/1/2024                                                               Baa1             1,323,231
               ---------------------------------------------------------------------
    5,000,000  Montgomery County, PA, Higher Education & Health Facilities
               Authority, 9.375% Revenue Bonds (Bryn Mawr Hospital)/(Prerefunded),
               12/1/97 (@102)                                                         AAA              5,651,000
               ---------------------------------------------------------------------
    6,250,000  Pennsylvania EDA, 7.60% Exempt Facilities Revenue Bonds (Series
               1995)/(MacMillan Bloedel Clarion L.P.)/ (Original Issue Yield:
               7.65%)/(Subject to AMT), 12/1/2020                                     BBB-             6,576,813
               ---------------------------------------------------------------------
   20,500,000  Pennsylvania EDA, 7.60% Wastewater Treatment Revenue Bonds (Series
               1994A)/(Sun Company)/(Original Issue Yield: 7.653%)/(Subject to AMT),
               12/1/2024                                                              BBB-            21,695,150
               ---------------------------------------------------------------------
   12,865,000  Pennsylvania HEFA, 7.375% Revenue Bonds (Medical College of
               Pennsylvania)/(Original Issue Yield: 7.45%),
               3/1/2021                                                               Baa1            12,943,991
               ---------------------------------------------------------------------
   12,000,000  Pennsylvania HFA, 6.875% SFM Revenue Bonds (Series
               1994-39-B)/(Subject to AMT), 10/1/2024                                 AA              12,349,680
               ---------------------------------------------------------------------
    4,000,000  Pennsylvania Higher Educational Facilities Authority, 7.25% Revenue
               Bonds (Series 1991A)/(Allegheny General Hospital)/(Original Issue
               Yield: 7.40%), 9/1/2017                                                Aa               4,231,600
               ---------------------------------------------------------------------
$   5,000,000  Sayre, PA, Health Care Facilities Authority, 7.10% Revenue Bonds
               (Guthrie Healthcare System)/(AMBAC Insured), 3/1/2017                  Aaa         $    5,326,050
               ---------------------------------------------------------------------              --------------
               Total                                                                                  70,937,965
               ---------------------------------------------------------------------              --------------
               SOUTH CAROLINA--2.5%
               ---------------------------------------------------------------------
    3,685,000  South Carolina Public Service Authority, 7.875% Revenue Bonds
               (Prerefunded), 1/1/96 (@ 102%)                                         Aaa              3,854,436
               ---------------------------------------------------------------------
   13,925,000  South Carolina, 7.875% Electric Revenue System (Prerefunded), 1/1/96
               (@ 102%)                                                               Aaa             14,551,707
               ---------------------------------------------------------------------              --------------
               Total                                                                                  18,406,143
               ---------------------------------------------------------------------              --------------
               TENNESSEE--2.7%
               ---------------------------------------------------------------------
    5,000,000  Springfield, TN, HEFA, 8.25% Revenue Bonds (Jesse Holman Jones
               Hospital)/(Original Issue Yield: 8.50%),
               4/1/2012                                                               NR               5,116,100
               ---------------------------------------------------------------------
   15,000,000  Springfield, TN, HEFA, 8.50% Revenue Bonds (Jesse Holman Jones
               Hospital)/(Original Issue Yield: 8.875%),
               4/1/2024                                                               NR              15,093,600
               ---------------------------------------------------------------------              --------------
               Total                                                                                  20,209,700
               ---------------------------------------------------------------------              --------------
               TEXAS--10.0%
               ---------------------------------------------------------------------
    4,000,000  Brazos River Authority, TX, 7.875% PCR Bonds (Texas Utilities
               Electric Company)/(Subject to AMT), 3/1/2021                           Baa2             4,288,400
               ---------------------------------------------------------------------
   14,500,000  Brazos River Authority, TX, 8.10% PCR Bonds (Houston Light & Power
               Co.)/ (BIG Insured), 5/1/2019                                          Aaa             16,039,755
               ---------------------------------------------------------------------
   12,750,000  Dallas-Fort Worth, TX, International Airport Facilities Improvement
               Corp., 7.25% Revenue Bonds (American Airlines, Inc.)/(Original Issue
               Yield: 7.428%)/(Subject to AMT), 11/1/2030                             Baa2            12,897,773
               ---------------------------------------------------------------------
$   3,700,000  Red River Authority, TX, PCR, 6.875% Revenue Bonds (Hoechst Celanese
               Corp.)/(Original Issue Yield: 6.939%)/ (Subject to AMT), 4/1/2017      AA-         $    3,813,738
               ---------------------------------------------------------------------
    1,000,000  Richardson, TX, 6.75% Hospital Authority Revenue Refunding &
               Improvement Bonds (Richardson Medical Center)/(Original Issue Yield:
               6.82%), 12/1/2023                                                      Baa                940,990
               ---------------------------------------------------------------------
   16,500,000  Sabine River Authority, TX, 8.20% PCR Bonds (Southwestern Electric
               Power), 7/1/2014                                                       Aa3             17,337,045
               ---------------------------------------------------------------------
      495,000  Texas HFA, 9.375% SFM Revenue Bonds (Series B),
               9/1/2015                                                               Aa                 514,389
               ---------------------------------------------------------------------
    3,000,000  Texas Veterans Housing Assistance Program, 7.00% GO Bonds (Series
               DD)/(Subject to AMT), 12/1/2025                                        AA               3,108,540
               ---------------------------------------------------------------------
   12,505,000  Travis County, TX, Housing Finance Corporation, 7.10% SFM Revenue
               Bonds (GNMA & FNMA Mortgage Backed Securities)/(Subject to AMT),
               10/1/2027                                                              AAA             13,166,139
               ---------------------------------------------------------------------
    3,000,000  Tyler, TX, HFDC, 6.75% Revenue Bonds (Series A)/(East Texas Medical
               Center)/(Original Issue Yield: 7.00%),
               11/1/2025                                                              Baa              2,798,940
               ---------------------------------------------------------------------              --------------
               Total                                                                                  74,905,709
               ---------------------------------------------------------------------              --------------
               UTAH--4.3%
               ---------------------------------------------------------------------
    1,000,000  Intermountain Power Agency, UT, 7.50% Power Supply Revenue Bonds,
               Callable 7/1/96 (@102)                                                 AA               1,041,290
               ---------------------------------------------------------------------
    2,000,000  Intermountain Power Agency, UT, 7.875% Special Obligations Crossover
               Refunding Revenue Bonds, Callable 7/1/96 (@102)                        AA               2,098,700
               ---------------------------------------------------------------------
    9,500,000  Intermountain Power Agency, UT, 8.625% Power Supply Revenue Bonds,
               7/1/2021                                                               AA              10,322,890
               ---------------------------------------------------------------------
   13,500,000  Salt Lake City, UT, 8.125% Hospital Revenue Bonds (Series
               A)/(Intermountain Health Care), 5/15/2015                              Aa              16,078,365
               ---------------------------------------------------------------------
$   2,500,000  Salt Lake City, UT, 8.125% Hospital Revenue Bonds (Series
               B)/(Intermountain Health Care), 5/15/2015 (Escrowed to Maturity)       Aa          $    2,755,925
               ---------------------------------------------------------------------              --------------
               Total                                                                                  32,297,170
               ---------------------------------------------------------------------              --------------
               VIRGINIA--0.6%
               ---------------------------------------------------------------------
    2,000,000  West Point, VA, 6.25% IDA Solid Waste Revenue Bonds (Series
               B)/(Chesapeake Corp. Project)/(Original Issue Yield: 6.33%), 3/1/2019  BBB-             1,930,200
               ---------------------------------------------------------------------
    2,500,000  West Point, VA, 6.375% IDA Solid Waste Revenue Bonds (Series
               A)/(Chesapeake Corp. Project)/(Original Issue Yield: 6.435%)/(Subject
               to AMT), 3/1/2019                                                      BBB-             2,397,875
               ---------------------------------------------------------------------              --------------
               Total                                                                                   4,328,075
               ---------------------------------------------------------------------              --------------
               WASHINGTON--0.8%
               ---------------------------------------------------------------------
    6,900,000  Pilchuck Public Development Corp., WA, 6.00% Revenue Bonds (Special
               Facilities Airport)/(Tramco, Inc.)/(BF Goodrich Guaranty)/(Subject to
               AMT), 8/1/2023                                                         BBB              5,993,202
               ---------------------------------------------------------------------              --------------
               WEST VIRGINIA--3.0%
               ---------------------------------------------------------------------
   20,000,000  Marion County, WV, 7.75% Solid Waste Disposal Revenue Bonds (Series
               1993)/(American Power Paper Recycling)/ (Subject to AMT), 12/1/2011    NR              18,756,600
               ---------------------------------------------------------------------
    3,800,000  Marion County, WV, 8.25% Solid Waste Disposal Revenue Bonds (American
               Power Paper Recycling)/(Subject to AMT), 12/1/2011                     NR               3,735,286
               ---------------------------------------------------------------------              --------------
               Total                                                                                  22,491,886
               ---------------------------------------------------------------------              --------------
               WYOMING--1.0%
               ---------------------------------------------------------------------
$   7,460,000  Sweetwater County, WY, 7.00% Solid Waste Disposal Revenue Bonds
               (Series 1994A)/(FMC Corp. Project)/ (Subject to AMT), 6/1/2024         BBB         $    7,545,342
               ---------------------------------------------------------------------              --------------
               TOTAL LONG-TERM MUNICIPAL SECURITIES
               (IDENTIFIED COST $674,145,167)                                                        701,099,063
               ---------------------------------------------------------------------              --------------
               TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $706,695,167)                          $  733,649,063(A)
               ---------------------------------------------------------------------              --------------
</TABLE>

(a) The cost of investments for federal tax purposes amounts to $707,103,777.
    The net unrealized appreciation of investments on a federal tax basis
    amounts to $26,545,286 which is comprised of $35,390,601 appreciation and
    $8,845,315 depreciation at March 31, 1995.

  * Please refer to the Appendix of the Statement of Additional Information for
    an explanation of the credit ratings. Current credit ratings are unaudited.

Note: The categories of investments are shown as a percentage of net assets
      ($749,301,968) at March 31, 1995.

The following abbreviation(s) are used throughout this portfolio:

AMBAC-- American Municipal Bond
         Assurance Corporation
AMT--Alternative Minimum Tax
BIG--Bond Investors Guaranty
EDA--Economic Development Authority
FGIC-- Financial Guaranty Insurance Company
FNMA--Federal National Mortgage Association
GNMA-- Government National Mortgage Association
GO--General Obligation
HEFA-- Health and Education Facilities Authority
HFA--Housing Finance Authority
HFDC-- Health Facility Development Corporation
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
LOCs--Letter(s) of Credit
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
OID--Original Issue Discount
PCR--Pollution Control Revenue
SFH--Single Family Housing
SFM--Single Family Mortgage
UT--Unlimited Tax
VA--Virginia/Veterans Administration
VRDNs--Variable Rate Demand Notes

(See Notes which are an integral part of the Financial Statements.)

Liberty Municipal Securities Fund, Inc.
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
March 31, 1995

<TABLE>
<S>                                                                                     <C>          <C>
ASSETS:
---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost, $706,695,167 and tax cost, $707,103,777)       $ 733,649,063
---------------------------------------------------------------------------------------------------
Cash                                                                                                       173,521
---------------------------------------------------------------------------------------------------
Income receivable                                                                                       15,710,864
---------------------------------------------------------------------------------------------------
Receivable for shares sold                                                                               1,587,162
---------------------------------------------------------------------------------------------------
Other assets                                                                                               149,119
---------------------------------------------------------------------------------------------------  -------------
    Total assets                                                                                       751,269,729
---------------------------------------------------------------------------------------------------
LIABILITIES:
---------------------------------------------------------------------------------------------------
Income distribution payable                                                             $ 1,389,544
--------------------------------------------------------------------------------------
Payable for shares redeemed                                                                 454,264
--------------------------------------------------------------------------------------
Accrued expenses                                                                            123,953
--------------------------------------------------------------------------------------  -----------
    Total liabilities                                                                                    1,967,761
---------------------------------------------------------------------------------------------------  -------------
NET ASSETS for 68,621,999 shares outstanding                                                         $ 749,301,968
---------------------------------------------------------------------------------------------------  -------------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------
Paid in capital                                                                                      $ 721,791,660
---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments                                               26,953,896
---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments                                                               556,412
---------------------------------------------------------------------------------------------------  -------------
    Total Net Assets                                                                                 $ 749,301,968
---------------------------------------------------------------------------------------------------  -------------
CLASS A SHARES:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($708,711,921 / 64,904,435 shares outstanding)                                    $10.92
---------------------------------------------------------------------------------------------------  -------------
Offering Price Per Share (100/95.5 of $10.92)*                                                              $11.43
---------------------------------------------------------------------------------------------------  -------------
Redemption Proceeds Per Share**                                                                             $10.92
---------------------------------------------------------------------------------------------------  -------------
CLASS C SHARES:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($22,388,592 / 2,050,571 shares outstanding)                                      $10.92
---------------------------------------------------------------------------------------------------  -------------
Offering Price Per Share*                                                                                   $10.92
---------------------------------------------------------------------------------------------------  -------------
Redemption Proceeds Per Share (99/100 of $10.92)**                                                          $10.81
---------------------------------------------------------------------------------------------------  -------------
CLASS B SHARES:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($18,201,455 / 1,666,993 shares outstanding)                                      $10.92
---------------------------------------------------------------------------------------------------  -------------
Offering Price Per Share*                                                                                   $10.92
---------------------------------------------------------------------------------------------------  -------------
Redemption Proceeds Per Share (94.5/100 of $10.92)**                                                        $10.32
---------------------------------------------------------------------------------------------------  -------------
</TABLE>

 *See "How To Purchase Shares" in the prospectus.
**See "How To Redeem Shares" in the prospectus.

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Statement of Operations
--------------------------------------------------------------------------------
Year Ended March 31, 1995

<TABLE>
<S>                                                                                  <C>            <C>
INVESTMENT INCOME:
--------------------------------------------------------------------------------------------------
Interest                                                                                            $   51,529,349
--------------------------------------------------------------------------------------------------
EXPENSES:
--------------------------------------------------------------------------------------------------
Investment advisory fee                                                              $   4,498,635
-----------------------------------------------------------------------------------
Administrative personnel and services fee                                                  550,028
-----------------------------------------------------------------------------------
Custodian fees                                                                             181,873
-----------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses                             363,028
-----------------------------------------------------------------------------------
Director's/Trustee's fees                                                                   11,977
-----------------------------------------------------------------------------------
Auditing fees                                                                               18,967
-----------------------------------------------------------------------------------
Legal fees                                                                                  17,978
-----------------------------------------------------------------------------------
Portfolio accounting fees                                                                   70,744
-----------------------------------------------------------------------------------
Distribution services fee--Select Shares                                                     1,448
-----------------------------------------------------------------------------------
Distribution services fee--Class C Shares                                                  166,386
-----------------------------------------------------------------------------------
Distribution services fee--Class B Shares                                                   38,166
-----------------------------------------------------------------------------------
Shareholder services fee--Class A Shares                                                   659,513
-----------------------------------------------------------------------------------
Shareholder services fee--Select Shares                                                        483
-----------------------------------------------------------------------------------
Shareholder services fee--Class C Shares                                                    55,984
-----------------------------------------------------------------------------------
Shareholder services fee--Class B Shares                                                    12,722
-----------------------------------------------------------------------------------
Share registration costs                                                                    49,674
-----------------------------------------------------------------------------------
Printing and postage                                                                        84,244
-----------------------------------------------------------------------------------
Insurance premiums                                                                          16,755
-----------------------------------------------------------------------------------
Taxes                                                                                       97,638
-----------------------------------------------------------------------------------
Miscellaneous                                                                                4,827
-----------------------------------------------------------------------------------  -------------
     Total expenses                                                                                      6,901,070
--------------------------------------------------------------------------------------------------  --------------
          Net investment income                                                                         44,628,279
--------------------------------------------------------------------------------------------------  --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments                                                                  7,819,630
--------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments                                    (10,931,022)
--------------------------------------------------------------------------------------------------  --------------
     Net realized and unrealized gain (loss) on investments                                             (3,111,392)
--------------------------------------------------------------------------------------------------  --------------
          Change in net assets resulting from operations                                            $   41,516,887
--------------------------------------------------------------------------------------------------  --------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Statement of Changes in Net Assets
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED MARCH 31,
                                                                                      1995             1994
<S>                                                                              <C>              <C>
INCREASE (DECREASE) IN NET ASSETS:
-------------------------------------------------------------------------------
OPERATIONS--
-------------------------------------------------------------------------------
Net investment income                                                            $    44,628,279  $    43,122,210
-------------------------------------------------------------------------------
Net realized gain (loss) on investments ($8,228,240 and $11,496,140 net gain,
respectively, as computed for federal income tax purposes)                             7,819,630       11,496,140
-------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments                  (10,931,022)     (38,359,833)
-------------------------------------------------------------------------------  ---------------  ---------------
     Change in assets resulting from operations                                       41,516,887       16,258,517
-------------------------------------------------------------------------------  ---------------  ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
-------------------------------------------------------------------------------
Distributions from net investment income:
-------------------------------------------------------------------------------
Class A Shares                                                                       (43,126,423)     (42,577,953)
-------------------------------------------------------------------------------
Select Shares                                                                             (9,592)          (2,853)
-------------------------------------------------------------------------------
Class C Shares                                                                        (1,190,042)        (541,404)
-------------------------------------------------------------------------------
Class B Shares                                                                          (302,222)               0
-------------------------------------------------------------------------------
Distributions from net realized gains:
-------------------------------------------------------------------------------
Class A Shares                                                                       (14,957,324)      (1,289,936)
-------------------------------------------------------------------------------
Select Shares                                                                             (6,166)               0
-------------------------------------------------------------------------------
Class C Shares                                                                          (461,364)         (30,507)
-------------------------------------------------------------------------------
Class B Shares                                                                          (100,862)               0
-------------------------------------------------------------------------------  ---------------  ---------------
     Change in net assets resulting from distributions
     to shareholders                                                                 (60,153,995)     (44,442,653)
-------------------------------------------------------------------------------  ---------------  ---------------
SHARE TRANSACTIONS--
-------------------------------------------------------------------------------
Proceeds from sale of Shares                                                         299,314,879      294,116,244
-------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in
payment of distributions declared                                                     38,127,189       28,065,973
-------------------------------------------------------------------------------
Cost of Shares redeemed                                                             (306,549,262)    (263,078,057)
-------------------------------------------------------------------------------  ---------------  ---------------
     Change in net assets resulting from share transactions                           30,892,806       59,104,160
-------------------------------------------------------------------------------  ---------------  ---------------
          Change in net assets                                                        12,255,698       30,920,024
-------------------------------------------------------------------------------
NET ASSETS:
-------------------------------------------------------------------------------
Beginning of period                                                                  737,046,270      706,126,246
-------------------------------------------------------------------------------  ---------------  ---------------
End of period                                                                    $   749,301,968  $   737,046,270
-------------------------------------------------------------------------------  ---------------  ---------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Financial Highlights--Class A Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                               1995       1994       1993       1992       1991       1990       1989       1988       1987
<S>                          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
NET ASSET VALUE, BEGINNING
OF PERIOD                    $   11.20  $   11.62  $   10.98  $   10.61  $   10.47  $   10.26  $   10.03  $   10.80  $   10.51
---------------------------
INCOME FROM INVESTMENT
OPERATIONS
---------------------------
 Net investment income            0.67       0.66       0.66       0.67       0.71       0.72       0.72       0.73       0.75
---------------------------
 Net realized and
 unrealized gain (loss)
 on investments                  (0.05)     (0.40)      0.64       0.37       0.14       0.21       0.23      (0.77)      0.29
---------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 Total from investment
 operations                       0.62       0.26       1.30       1.04       0.85       0.93       0.95      (0.04)      1.04
---------------------------
LESS DISTRIBUTIONS
---------------------------
 Distributions from net
 investment income               (0.67)     (0.66)     (0.66)     (0.67)     (0.71)     (0.72)     (0.72)     (0.73)     (0.75)
---------------------------
 Distributions from net
 realized gain on invest-
 ment transactions               (0.23)     (0.02)      0.00       0.00       0.00       0.00       0.00       0.00       0.00
---------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 Total distributions             (0.90)     (0.68)     (0.66)     (0.67)     (0.71)     (0.72)     (0.72)     (0.73)     (0.75)
---------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
NET ASSET VALUE, END OF
PERIOD                       $   10.92  $   11.20  $   11.62  $   10.98  $   10.61  $   10.47  $   10.26  $   10.03  $   10.80
---------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
TOTAL RETURN (a)                  5.90%      2.10%     12.13%     10.05%      8.42%      9.20%      9.76%    (0.17%)     10.28%
---------------------------
RATIOS TO AVERAGE NET
ASSETS
---------------------------
 Expenses                         0.92%      0.84%      0.80%      0.84%      0.89%      0.90%      0.95%      0.95%      0.95%
---------------------------
 Net investment income            6.17%      5.59%      5.81%      6.17%      6.77%      6.80%      7.07%      7.28%      7.07%
---------------------------
 Expense waiver/
 reimbursement (b)                  --         --         --         --         --         --         --         --         --
---------------------------
SUPPLEMENTAL DATA
---------------------------
 Net assets, end of period
 (000 omitted)                $708,712   $714,384   $706,126   $590,118   $511,611   $474,797   $440,445   $388,916   $424,655
---------------------------
 Portfolio turnover                 41%        27%        13%         8%        45%        25%        58%        55%        13%
---------------------------

<CAPTION>
<S>                          <C>
                               1986
NET ASSET VALUE, BEGINNING
OF PERIOD                    $    8.91
---------------------------
INCOME FROM INVESTMENT
OPERATIONS
---------------------------
 Net investment income            0.80
---------------------------
 Net realized and
 unrealized gain (loss)
 on investments                   1.60
---------------------------  ---------
 Total from investment
 operations                       2.40
---------------------------
LESS DISTRIBUTIONS
---------------------------
 Distributions from net
 investment income               (0.80)
---------------------------
 Distributions from net
 realized gain on invest-
 ment transactions                0.00
---------------------------  ---------
 Total distributions             (0.80)
---------------------------  ---------
NET ASSET VALUE, END OF
PERIOD                       $   10.51
---------------------------  ---------
TOTAL RETURN (a)                 28.25%
---------------------------
RATIOS TO AVERAGE NET
ASSETS
---------------------------
 Expenses                         0.93%
---------------------------
 Net investment income            8.39%
---------------------------
 Expense waiver/
 reimbursement (b)                0.23%
---------------------------
SUPPLEMENTAL DATA
---------------------------
 Net assets, end of period
 (000 omitted)                $248,710
---------------------------
 Portfolio turnover                  2%
---------------------------
</TABLE>

(a) Based on net asset value, which does not reflect the sales load or
    contingent deferred sales charge, if applicable.

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

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Financial Highlights--Class B Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
                                                                                                 PERIOD ENDED
                                                                                               MARCH 31, 1995(A)
<S>                                                                                          <C>
NET ASSET VALUE, BEGINNING OF PERIOD                                                               $   11.06
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------
  Net investment income                                                                                 0.40
-------------------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investments                                               (0.03)
-------------------------------------------------------------------------------------------          -------
  Total from investment operations                                                                      0.37
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------------------------------------
  Distributions from net investment income                                                             (0.40)
-------------------------------------------------------------------------------------------
  Distributions from net realized gain on investment transactions                                      (0.11)
-------------------------------------------------------------------------------------------          -------
  Total distributions                                                                                  (0.51)
-------------------------------------------------------------------------------------------          -------
NET ASSET VALUE, END OF PERIOD                                                                     $   10.92
-------------------------------------------------------------------------------------------          -------
TOTAL RETURN (B)                                                                                        3.49%
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------
  Expenses                                                                                              1.84%(c)
-------------------------------------------------------------------------------------------
  Net investment income                                                                                 5.94%(c)
-------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------
  Net assets, end of period (000 omitted)                                                            $18,201
-------------------------------------------------------------------------------------------
  Portfolio turnover                                                                                      41%
-------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from July 26, 1994 (date of initial
    public offering) to March 31, 1995.

(b) Based on net asset value, which does not reflect the sales load or
    contingent deferred sales charge, if applicable.

(c) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Financial Highlights--Class C Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
                                                                                                   YEAR ENDED
                                                                                                   MARCH 31,
                                                                                               1995       1994(A)
<S>                                                                                          <C>        <C>
NET ASSET VALUE, BEGINNING OF PERIOD                                                         $   11.20   $    11.70
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------
  Net investment income                                                                           0.58         0.52
-------------------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investments                                         (0.05)       (0.48)
-------------------------------------------------------------------------------------------  ---------  -----------
  Total from investment operations                                                                0.53         0.04
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------------------------------------
  Distributions from net investment income                                                       (0.58)       (0.52)
-------------------------------------------------------------------------------------------
  Distributions from net realized gain on investment transactions                                (0.23)       (0.02)
-------------------------------------------------------------------------------------------  ---------  -----------
  Total distributions                                                                            (0.81)       (0.54)
-------------------------------------------------------------------------------------------  ---------  -----------
NET ASSET VALUE, END OF PERIOD                                                               $   10.92   $    11.20
-------------------------------------------------------------------------------------------  ---------  -----------
TOTAL RETURN (b)                                                                                  4.96%        0.17%
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------
  Expenses                                                                                        1.81%     1.80%(c)
-------------------------------------------------------------------------------------------
  Net investment income                                                                           5.28%     4.70%(c)
-------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------
  Net assets, end of period (000 omitted)                                                      $22,389     $22,066
-------------------------------------------------------------------------------------------
  Portfolio turnover                                                                                41%         27%
-------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from April 20, 1993 (date of initial
    public offering) to March 31, 1994.

(b) Based on net asset value, which does not reflect the sales load or
    contingent deferred sales charge, if applicable.

(c) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)


Liberty Municipal Securities Fund, Inc.
Financial Highlights--Select Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
                                                                                                    YEAR ENDED
                                                                                                     MARCH 31,
                                                                                             1995(A)           1994(B)
<S>                                                                                        <C>               <C>
NET ASSET VALUE, BEGINNING OF PERIOD                                                        $    11.20        $    11.88
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------
  Net investment income                                                                           0.19              0.12
-----------------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investments                                          0.02             (0.68)
-----------------------------------------------------------------------------------------  -----------       -----------
  Total from investment operations                                                                0.21             (0.56)
-----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-----------------------------------------------------------------------------------------
  Distributions from net investment income                                                       (0.19)            (0.12)
-----------------------------------------------------------------------------------------
  Distributions from net realized gain on investment transactions                                (0.12)           --
-----------------------------------------------------------------------------------------  -----------       -----------
  Total distributions                                                                            (0.31)            (0.12)
-----------------------------------------------------------------------------------------  -----------       -----------
NET ASSET VALUE, END OF PERIOD                                                             $     11.10       $     11.20
-----------------------------------------------------------------------------------------  -----------       -----------
TOTAL RETURN (c)                                                                                  1.86%            (4.76%)
-----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------
  Expenses                                                                                        1.82%(d)          1.80%(d)
-----------------------------------------------------------------------------------------
  Net investment income                                                                           5.01%(d)          5.08%(d)
-----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------
  Net assets, end of period (000 omitted)                                                  $       --            $   596
-----------------------------------------------------------------------------------------
  Portfolio turnover                                                                                41%               27%
-----------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from April 1, 1994 to July 29, 1994 (date
    Select Shares ceased operations).

(b) Reflects operations for the period from January 15, 1994 (date of initial
    public offering) to March 31, 1994.

(c) Based on net asset value, which does not reflect the sales load or
    contingent deferred sales charge, if applicable.

(d) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

Liberty Municipal Securities Fund, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
March 31, 1995

1. ORGANIZATION

Liberty 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. Effective July 29, 1994, the Select
Shares ceased operations and were reclassified as Class C Shares. Also,
effective July 26, 1994, the Fund added Class B Shares. Consequently, the Fund
currently offers three classes of shares ("Class A Shares," "Class B Shares,"
and "Class C Shares").

2. SIGNIFICANT ACCOUNTING POLICIES

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

     INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
     service, taking into consideration yield, liquidity, risk, credit, quality,
     coupon, maturity, type of issue, and any other factors or market data the
     pricing service deems relevant in determining valuations for normal
     institutional size trading units of debt securities. The independent
     pricing service does not rely exclusively on quoted prices. Short-term
     securities with remaining maturities of sixty days or less at the time of
     purchase may be valued at amortized cost, which approximates fair market
     value.

     INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
     are accrued daily. Bond premium and discount, if applicable, are amortized
     as required by the Internal Revenue Code, as amended (the "Code").
     Distributions to shareholders are recorded on the ex-dividend date.

     FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
     Code applicable to regulated investment companies and to distribute to
     shareholders each year substantially all of its income. Accordingly, no
     provisions for federal tax are necessary.

     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.

     OTHER--Investment transactions are accounted for on the trade date.


3. CAPITAL STOCK

At March 31, 1995, par value ($0.01) shares authorized were as follows:

<TABLE>
<CAPTION>
                                   NUMBER OF PAR VALUE
          CLASS NAME                SHARES AUTHORIZED
<S>                             <C>
Class A Shares                            375,000,000
Class C Shares                            375,000,000
Class B Shares                            250,000,000
                                --------------------------
  Total shares authorized               1,000,000,000
                                --------------------------
</TABLE>

Transactions in shares were as follows:
<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH 31,
                                                                1995                            1994
CLASS A SHARES                                        SHARES          AMOUNT          SHARES          AMOUNT
<S>                                                <C>            <C>              <C>            <C>
Shares sold                                           25,045,927  $   272,914,437     22,832,885  $   268,781,200
-------------------------------------------------
Shares issued to shareholders in
payment of dividends declared                          3,400,590       37,033,517      2,365,264       27,795,028
-------------------------------------------------
Shares redeemed                                      (27,342,942)    (297,338,150)   (22,182,727)    (261,363,852)
-------------------------------------------------  -------------  ---------------  -------------  ---------------
Net change resulting from
Class A Shares transactions                            1,103,575  $    12,609,804      3,015,422  $    35,212,376
-------------------------------------------------  -------------  ---------------  -------------  ---------------
</TABLE>

<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH 31,
                                                               1995**                          1994*
SELECT SHARES                                         SHARES          AMOUNT          SHARES          AMOUNT
<S>                                                <C>            <C>              <C>            <C>
Shares sold                                                1,790  $        19,931         53,757  $       630,244
-------------------------------------------------
Shares issued to shareholders in
payment of dividends declared                              1,048           11,713            196            2,222
-------------------------------------------------
Shares redeemed                                           (6,696)        (107,780)          (730)          (8,285)
-------------------------------------------------
Shares reclassified to Class C Shares                    (49,365)        (548,045)            --               --
-------------------------------------------------  -------------  ---------------  -------------  ---------------
Net change resulting from
Select Shares transactions                               (53,223) ($      624,181)        53,223  $       624,181
-------------------------------------------------  -------------  ---------------  -------------  ---------------
</TABLE>

 *Reflects operations for the period from January 15, 1994 (date of initial
  public offering) to March 31, 1994.

**Reflects operations for the period from April 1, 1994 to July 29, 1994 (date
  Select Shares ceased operations).

<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31,
                                                                1995                     1994***
CLASS C SHARES                                         SHARES       AMOUNT        SHARES        AMOUNT
<S>                                                   <C>        <C>            <C>         <C>
Shares sold                                             704,834  $   7,726,015   2,092,015  $   24,704,800
----------------------------------------------------
Shares reclassified from Select Shares                   49,365        548,045          --              --
----------------------------------------------------
Shares issued to shareholders in
payment of dividends declared                            78,551        854,825      22,904         268,723
----------------------------------------------------
Shares redeemed                                        (752,853)    (8,175,228)   (144,245)     (1,705,920)
----------------------------------------------------  ---------  -------------  ----------  --------------
Net change resulting from
Class C Shares transactions                              79,897  $     953,657   1,970,674  $   23,267,603
----------------------------------------------------  ---------  -------------  ----------  --------------
</TABLE>

***Reflects operations for the period from April 20, 1993 (date of initial
   public offering) to March 31, 1994.

<TABLE>
<CAPTION>
                                                                    PERIOD ENDED MARCH 31,
                                                             1995****                     1994
CLASS B SHARES                                         SHARES       AMOUNT        SHARES       AMOUNT
<S>                                                  <C>         <C>            <C>         <C>
Shares sold                                           1,680,837  $  18,106,451           0  $           0
---------------------------------------------------
Shares issued to shareholders in
payment of dividends declared                            21,290        227,134           0              0
---------------------------------------------------
Shares redeemed                                         (35,134)      (380,059)          0              0
---------------------------------------------------  ----------  -------------  ----------  -------------
Net change resulting from
Class B Shares transactions                           1,666,993  $  17,953,526           0  $           0
---------------------------------------------------  ----------  -------------  ----------  -------------
Net change resulting from
Fund Shares transactions                              2,797,242  $  30,892,806   5,039,319  $  59,104,160
---------------------------------------------------  ----------  -------------  ----------  -------------
</TABLE>

****Reflects operations for the period from July 26, 1994 (date of initial
    public offering) to March 31, 1995.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

     INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
     (the "Adviser"), receives for its services an annual investment advisory
     fee equal to a maximum of .30 of 1% of the Fund's average daily net assets,
     and 4.50% of the gross income of the Fund, excluding capital gains or
     losses.

     ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
     Administrative Services Agreement, provides the Fund with administrative
     personnel and services. The FAS fee is based on the level of average
     aggregate daily net assets of all funds advised by subsidiaries of
     Federated Investors for the period. The administrative fee received during
     the period of the Administrative Services Agreement shall be at least
     $125,000 per portfolio and $30,000 per each additional class of shares.

     DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
     "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
     the Fund will compensate Federated Securities Corp. ("FSC"), the principal
     distributor, from the net assets of the Fund to finance activities intended
     to result in the sale of the Fund's Class B Shares and Class C Shares. The
     Plan provides that the Fund may incur distribution expenses up to .75 of 1%
     of the average daily net assets of the Class B Shares and Class C Shares,
     annually, to compensate FSC.

     SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
     Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
     FSS up to .25 of 1% of average daily net assets of each class of shares for
     the period. This fee is to obtain certain personal services for
     shareholders and to maintain the shareholder accounts.

     TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as
     transfer and dividend disbursing agent for the Fund. This fee is based on
     the size, type, and number of accounts and transactions made by
     shareholders.

     PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting
     records for which it receives a fee. The fee is based on the level of each
     Fund's average daily net assets for the period plus, out-of-pocket
     expenses.

     INTERFUND TRANSACTIONS--During the year ended March 31, 1995, 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 transactions were made at
     current market value with funds pursuant to Rule 17a-7 under the Act
     amounting to $282,184,260 and $230,100,000, respectively.

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

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 1995 were as follows:

<TABLE>
<S>                                                                                                 <C>
--------------------------------------------------------------------------------------------------
PURCHASES                                                                                           $  291,479,559
--------------------------------------------------------------------------------------------------  --------------
SALES                                                                                               $  310,044,580
--------------------------------------------------------------------------------------------------  --------------
</TABLE>


Independent Auditors' Report

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

To the Board of Directors and Shareholders of
LIBERTY MUNICIPAL SECURITIES FUND, INC.:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Liberty Municipal Securities Fund, Inc. as of
March 31, 1995, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended March 31, 1995 and 1994,
and the financial highlights for each of the periods in the ten-year period
ended March 31, 1995. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
March 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Liberty Municipal
Securities Fund, Inc. as of March 31, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
May 15, 1995


Directors                                              Officers

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

<TABLE>
<S>                                                       <C>
John F. Donahue                                           John F. Donahue
Thomas G. Bigley                                            Chairman
John T. Conroy, Jr.                                       J. Christopher Donahue
William J. Copeland                                         President
J. Christopher Donahue                                    Richard B. Fisher
James E. Dowd                                               Vice President
Lawrence D. Ellis, M.D.                                   Edward C. Gonzales
Edward L. Flaherty, Jr.                                     Vice President and Treasurer
Peter E. Madden                                           John W. McGonigle
Gregor F. Meyer                                             Vice President and Secretary
John E. Murray, Jr.                                       David M. Taylor
Wesley W. Posvar                                            Assistant Treasurer
Marjorie P. Smuts                                         Charles H. Field
                                                            Assistant Secretary
</TABLE>

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

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

[LOGO]
FEDERATED SECURITIES CORP.
-------------------------------------------------------------------------------
Distributor

A Subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA  15222-3779

530900109
530900406
530900208
8042830 (5/95)



A1.  The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart.  The color coded mountain chart is a
visual representation of the narrative text above it, which shows that
an initial investment of $19,000 in the Class A Shares of Liberty
Municipal Securities Fund, Inc. in 1976 would have grown to $59,854.
The "x" axis reflects computation periods from 1976 to 1995, the "y"
axis reflects the cost of the investment, and the right margin reflects
a total investment range from $0 to $70,000.  The chart further
indicates the ending market value attributable to principal, as well as
the ending market value attributable to capital gains and reinvested
dividends.

A2.  The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart.  The color coded mountain chart is a
visual representation of the narrative text above it, which shows that
an initial investment of $1,000 in the Class A Shares of Liberty
Municipal Securities Fund, Inc. in 1976 would have grown to $41,683.
The "x" axis reflects computation periods from 1976 to 1995, the "y"
axis reflects the cost of the investment, and the right margin reflects
a total investment range from $0 to $50,000.  The chart further
indicates the ending value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested
dividends.

A3.  The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart.  The color-coded mountain chart is a
visual representation of the narrative text beneath it, which shows that
an initial investment of $25,000 in the Class A Shares of Liberty
Municipal Securities Fund, Inc. in 1985 would have grown to $58,435.
The "x" axis reflects computation periods from 1985 to 1995, the "y"
axis reflects the cost of the investment, and the right margin reflects
a total investment range from $0 to $60,000.  The chart further
indicates the ending market value attributable to principal, as well as
the ending market value attributable to capital gains and reinvested
dividends.

A4.  The graphic presentation here displayed consists of a five-column
chart outlining the ten 10-year periods of investment growth.  The
columns are as follows:  the 10-year periods from April 1-March 31;
Intial Number of Shares; Dividends and Capital Gains Reinvested; Total
Shares; Ending Value of Shares.  The information is as follows:  1976-
1986; 764; $8,477;1,571; $16,506; 1977-1987; 739; $9,176; 1,588,
$17,152; 1978-1988; 728; $8,705; 1,596; $16,005; 1979-1989; 790; $9,944;
1,760; $18,055; 1980-1990; 1,087; $14,025; 2,426; $25,405; 1981-1991;
1,135; $14,561; 2,507; $26,605; 1982-1992; 1,328; $16,462; 2,827;
$31,044; 1983-1993; 1,021; $12,694; 2,114; $24,563; 1984-1994; 1,049;
$11,936; 2,115; $23,689; 1985-1995; 1,072; $11,778; 2,150; $23,482.

A5.  The graphic presentation here displayed consists of a two-column
chart outlining the Fund's Major Shareholder Groups.  The information is
as follows:  Individuals and Joint Tenants, $467,554,714; Trusts,
$111,144,844; Corporations, $3,943,982; Clubs/Fraternal Organizations,
$2,810,348; Custodians (under Uniform Gift to Minors Act), $1,997,243.

A6.  The bar chart is a visual representation of Liberty Municipal
Securities Fund, Inc. portfolio distribution as of March 31, 1995.  The
information is as follows:  AAA, 20.7%; AA, 24.2%; A, 11.7%; BBB, 27.4%;
No Rating, 16.0%.  Underneath this bar chart is another chart showing
the five largest holdings of Liberty Municipal Securities Fund, Inc.  It
shows two categories entitled, Holdings and Percentage.  The information
listed is as follows:  Massachusetts IFA-9.00%, due 8/1/2016-Fitchburg
Recycling, 4.80%; Indianapolis-Airport Authority 7.10%, due 1/15/2017,
4.65%; Illinois DFA-Chicago Symphony, 3.95%; District of Columbia-7.15%,
due 4/1/2021-Georgetown University, 3.20%; Marion County, WV-7.75%-
8.25%, due 12/1/2011-Recycling Project, 3.07%.

A7.  The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Class A Shares of Liberty Municipal Securities Fund, Inc. are
represented by a solid line, whereas Lehman Brothers Revenue Bond Index
is represented by a broken dotted line.  The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and Lehman
Brothers Revenue Bond Index for the ten-year period from March 31, 1985
to March 31, 1995.  The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the ending value of the
hypothetical investment in Class A Shares of the fund as compared to
Lehman Brothers Revenue Bond Index; the ending values are $23,374 and
$24,908, respectively.  Beneath the list of components that correspond
to the line graph are the following total return data for the Class A
Shares of the fund:  total return figures for the one-year, five-year,
and ten-year periods.  The corresponding total return figures are as
follows:  1.11%; 6.68%; and 8.86%, respectively.  The performance
disclaimer and footnotes are listed directly under the graphic
presentation.

A8.  The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Class B Shares of Liberty Municipal Securities Fund, Inc. are
represented by a solid line, whereas Lehman Brothers Revenue Bond Index
is represented by a broken dotted line.  The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the fund and Lehman
Brothers Revenue Bond Index for the period from July 26, 1994 (start of
performance) to March 31, 1995.  The "y" axis reflects the cost of the
investment.  The "x" axis reflects computation periods from the ending
value of the hypothetical investment in Class B Shares of the fund as
compared to Lehman Brothers Revenue Bond Index; the ending values are
$9,783 and $10,444, respectively.  Beneath the list of components that
correspond to the line graph is the cumulative total return for the
period from July 26, 1994 (start of performance) to March 31, 1995.  The
total return figure is (2.17%).  The performance disclaimer and
footnotes are listed on the page following the graphic presentation.

A9.  The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Class C Shares of Liberty Municipal Securities Fund, Inc. are
represented by a solid line, whereas Lehman Brothers Revenue Bond Index
is represented by a broken dotted line.  The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class C Shares of the fund and Lehman
Brothers Revenue Bond Index for the period from April 21, 1993 (start of
performance) to March 31, 1995.  The "y" axis reflects the cost of the
investment.  The "x" axis reflects computation periods from the ending
value of the hypothetical investment in Class C Shares of the fund as
compared to Lehman Brothers Revenue Bond Index; the ending values are
$10,513 and $10,880, respectively.  Beneath the list of components that
correspond to the line graph is the Average Annual Total Return for the
period ended March 31, 1995, beginning with the start of performance
(April 21, 1993), and the one-year period; the Average Annual Total
Returns are 2.61% and 3.91%, respectively.  The performance disclaimer
and footnotes are listed on the pages following the graphic
presentation.




© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission