[LOGO OF FEDERATED INVESTORS]
Federated
Municipal
Securities
Fund, Inc.
(formerly, Liberty
Municipal Securities
Fund, Inc.)
19th Annual Report
March 31, 1996
Established 1976
TAX-FREE INCOME
President's Message
- -------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Dear Fellow Shareholder:
I am pleased to present the 19th Annual Report of Federated Municipal
Securities Fund, Inc., formerly known as Liberty Municipal Securities Fund,
Inc. The fund's name begins with "Federated" to make it easy for investors to
locate all Federated Funds in mutual fund listings of newspapers and other
publications.
This Report covers the 12-month period from April 1, 1995, through March 31,
1996. It begins with a discussion with the fund's portfolio manager, Jonathan
C. Conley, Senior Vice President, Federated Advisers, about the municipal
market, the fund's performance, and investment strategy. Following this
discussion are three additional items of shareholder interest. First is a
series of graphs which display the fund's performance with income dividends
reinvested and the investment results of making additional investments in the
fund shares with dividends reinvested. Second is a complete listing of the
fund's municipal bond holdings. Third is the publication of the fund's
financial statements.
Consistent with the long-term municipal bond market during the 12-month
reporting period ended March 31, 1996, which was marked by a decreasing
interest rate environment and culminated with a rise in rates during the first
quarter of 1996, the fund's performance was as follows:*
Total Return Income Capital Gain
Class A Shares 5.32% $0.66 $0.014
Class B Shares 4.40% $0.56 $0.014
Class C Shares 4.42% $0.56 $0.014
The fund's 30-day SEC yield on March 31, 1996, was 5.19% based on offering
price**--free of federal regular income tax. The fund's total net assets stood
at $747.7 million on March 31, 1996.
Since 1976, Federated Municipal Securities Fund, Inc. has provided tax-free
income from a quality portfolio of long-term municipal issues.*** At the end
of the reporting period, the fund's portfolio included more than 60
* Performance quoted is based on net asset value. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the period based on offering
price for Class A Shares, Class B Shares, and Class C Shares were 0.62%,
-1.36%, and 3.36%, respectively.
** The 30-day current net yield is calculated by dividing the net investment
income per share for the prior 30 days by the maximum offering price per
share on that date. The figure is compounded and annualized.
***State, local, and federal alternative minimum taxes may apply.
securities with an average rating of A+ issued by municipalities across 25
states. The fund's effective average maturity was 14.75 years. The top five
holdings consisted of:
1. Indiana Indianapolis Airport Authority: $35.1 million
2. Massachusetts--Industrial Finance Authority: $32.7 million
3. California--Long Beach Harbor: $32.4 million
4. District of Columbia--Georgetown University: $23.7 million
5. Pennsylvania--EDFA Wastewater Treatment: $22.6 million
Thank you for selecting Federated Municipal Securities Fund, Inc. as a
convenient way to invest in a broad list of municipal securities. You can
pursue tax-free income directly from the fund or seek additional wealth by
reinvesting your dividends and compounding tax-free.
Sincerely yours,
J. Christopher Donahue
President
May 15, 1996
Investment Review
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[PHOTO APPEARS HERE]
Jonathan C. Conley
Senior Vice President
Federated Advisers
Q
Jonathan, please comment on developments in the long-term municipal bond market
over the past year?
A
During the 12-month reporting period, interest rates for fixed-income issues
staged overall declines that were punctuated by intervening upward spikes.
From March 31, 1995 to December 31, 1995, yields on 30-year Treasury bonds
cascaded from 7.43% to 5.95%. During the first quarter of 1996, perceptions of
accelerated economic growth and larger-than-expected increases in non-farm
payroll prompted a dramatic ascent in rates. As a result, the 30-year Treasury
bond rate stood at 6.67% on March 31, 1996. The pattern traced by the Municipal
Bond Index was similar. On March 31, 1995, the Municipal Bond Index read
6.37%; fell to 5.56% by December 31, 1995; and climbed to 5.96% by March 31,
1996.*
Q
With the presidential campaign in full swing, the issue of tax reform--notably
a flat tax--continues to make the news. What is the response of the municipal
bond market to such conditions?
A
The municipal bond market experienced relative deterioration to the Treasury
issue market over the past 12 months. On a week-to-week basis, relative
performance was partially governed by the outlook for agreement upon, passage
of, and implementation of a flat tax system. On March 31, 1995, 30-year
municipal yields were 85.7% of comparable Treasury issues. At the close of
1995, a 93.4% yield relationship prevailed. By March 31, 1996, with the
resurgence of Senator Dole as the Republican presidential candidate and with
flat tax passage appearing less probable, long-term municipal yields offered
89.4% of long-term Treasury yields.
*The Municipal Bond Index consists of forty actively traded and quoted
long-term municipal bonds A-rated or better. It is updated twice monthly and is
maintained by the Chicago Board of Trade.
Q
In this environment, how did shareholders of Federated Municipal Securities
Fund, Inc. perform with respect to investment return over the past 12 months?
A
For the 12-month reporting period ended March 31, 1996, an investor in
Federated Municipal Securities Fund, Inc. Class A Shares experienced a total
return of 5.32% based on net asset value. The net asset value per share of the
fund descended by 0.92%, from $10.92 to $10.82. The total return reflected a
long-term capital gain distribution of $0.014 per share, paid in September,
1995. Regular dividends on Class A Shares totalled $0.66, equating to an
income yield of 5.98% on daily average net asset value. In comparison, the
Lipper General Municipal Debt Fund Average exhibited a total return of 7.17%
based on net asset value, while the income yield was 5.03%.
The total return based on net asset value for the Class B Shares was 4.40% on
March 31, 1996. Long-term capital gains distributions for Class B Shares were
$0.014 per share, while regular dividends totalled $0.56 per share producing an
income yield of 5.11%.
On March 31, 1996, the total return based on net asset value for the Class C
Shares was 4.42%. Long-term capital gains distributions for Class C Shares
were $0.014 per share, while regular dividends totalled $0.56 per share,
resulting in an income yield of 5.12%.*
Q
Jonathan, could you describe your primary investment strategies for the fund
during the past fiscal year?
A
I sought to augment the fund's total return potential by lowering the average
coupon rate of issues held and by extending the average call protection
embodied within the holdings. This effort was undertaken particularly with the
turn of the calendar year. From March 31, 1995, to September 30, 1995, the
average issue coupon rate hovered at 7.45%; by March 31, 1996, the coupon rate
was lowered to 6.90% through new issue purchases.
In the process, the effective (or call-adjusted) maturity moved from 9.59 years
to 9.22 years to 14.75 years on March 31, 1995, September 30, 1995, and March
31, 1996, respectively. The combination of coupon reduction
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so when shares
are redeemed, they may be worth more or less than the original cost. On March
31, 1996, total returns based on offering price for Class A Shares, Class B
Shares, and Class C Shares of the fund were 0.62%, -1.36% and 3.36%,
respectively.
and effective maturity extension produced an increase in portfolio duration
from 5.66 years on March 31, 1995, to 8.16 years on March 31, 1996. Over the
12-month reporting period $209,940,000 par amount of municipal issues were sold
in order to purchase $221,435,000 par amount of other municipal issues. The
coupon rate on issues sold averaged 7.56%, while that of issues bought
averaged 5.80%. Bonds were sold from the portfolio at an average price of
103.25% of face value, while issues were acquired at 97.88% of face value.
Q
Have there been significant changes to portfolio composition or to credit
quality over the reporting period?
A
The above activity resulted in a modest reduction in the variable rate demand
obligation (VRDO) part of the portfolio. There was a corresponding small
increase in the BBB-rated component of the portfolio. This resulted, in part,
from the exit of market-timing investment advisory shareholders of the fund,
whose redemptions were financed by the sale of VRDOs and short-call,
high-coupon issues approaching early retirement dates. Sectors where the
fund's exposure was augmented were: insured port/terminal facilities, insured
water/sewer systems, and pollution control issues for forest product/paper
companies.
Fund exposure was reduced in the college/university, municipal electric system,
and stand-alone hospital sectors. The table below illustrates the change in
credit quality of the fund's portfolio over the reporting period.
March 31, 1995 March 31, 1996
-------------- --------------
AAA 21% 21%
AA 24% 22%
A 12% 9%
BBB 27% 34%
non-rated 16% 14%
Two Ways You May Seek to Invest for Success in
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
- ------------------------------------------------------------------------------
Initial Investment:
If you had made an initial investment of $20,000 in the Class A Shares of
Federated 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 $66,354 on 3/31/96. You would have earned a 6.35%* average annual
total return for the 20-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 3/31/96, the Class A Shares' average annual one-year, five-year and
ten-year total returns were 0.62%, 6.06%, and 6.73%, respectively. Class B
Shares' average annual one-year and since inception (7/26/94) total returns
were (1.36%) and 1.76%, respectively. Class C Shares' average annual one-year
and since inception (4/20/93) total returns were 3.36% and 3.22%, respectively.
[CHART APPEARS HERE-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 charge applicable to an initial investment in Class A Shares.
Data quoted represent past performance and does 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.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
- ------------------------------------------------------------------------------
One Step at a Time:
$1,000 invested each year for 20 years (reinvesting all dividends and capital
gains) grew to $44,866.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
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
$20,000 but your account would have reached a total value of $44,866* by
3/31/96. You would have earned an average annual total return of 7.49%.
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!
[CHART APPEARS HERE-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.
Federated Municipal Securities Fund, Inc.
(formerly, 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, 1986, the Bartletts invested $25,000 in the Class A Shares of
Federated Municipal Securities Fund, Inc.
As this chart shows, in 10 years, their original $25,000 investment has grown
to $47,967--that's $22,368 in tax-free income.* This represents an 6.73%
average annual total return. As far as the Bartletts are concerned, this fund
has made all the difference.
[CHART APPEARS HERE-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.
*Income may be subject to the federal alternative minimum tax and state and
local taxes.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
A History of Tax Free Investing--Eleven 10-Year Periods
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$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 in
Class A Shares 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. At the end of each decade, no investor would have lost money.
[CHART APPEARS HERE-SEE APPENDIX]
*This 10-year period is October 4, 1976 through March 31, 1986.
For each time period shown, share price fluctuated.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Serving a Wide Range of Investors
- ------------------------------------------------------------------------------
Federated 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. Mutual funds involve risk, including possible loss of principal.
[CHART APPEARS HERE-SEE APPENDIX]
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Portfolio Update
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[CHART APPEARS HERE-SEE APPENDIX]
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
(Class A Shares)
- -------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Municipal Securities Fund, Inc.
(Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") from
March 31, 1986 to March 31, 1996 compared to the Lehman Brothers Revenue Bond
Index (LBRBI).+
[CHART APPEARS HERE-SEE APPENDIX]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The fund's performance assumes the reinvestment of all dividends
and distributions. The LBRBI has been adjusted to reflect reinvestment of
dividends on securities in the index. This index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBRBI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the fund's performance.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
(Class B Shares)
- -------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Municipal Securities Fund, Inc.
(Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") from
July 26, 1994 (start of performance) to March 31, 1996 compared to the Lehman
Brothers Revenue Bond Index (LBRBI).+
[CHART APPEARS HERE-SEE APPENDIX]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* 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 less than one 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. This index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBRBI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
(Class C Shares)
- -------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Municipal Securities Fund, Inc.
(Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") from
April 20, 1993 (start of performance) to March 31, 1996, compared to the Lehman
Brothers Revenue Bond Index (LBRBI).+
[CHART APPEARS HERE-SEE APPENDIX]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* 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 less than one 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. This index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBRBI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the fund's performance.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Portfolio of Investments
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March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------- ----------------------------------------------------------------------- --------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--0.4%
- --------------------------------------------------------------------------------------
GEORGIA--0.1%
-----------------------------------------------------------------------
$ 1,000,000 Gwinnett County, GA IDA Daily VRDNs (Volvo)/(Union Bank of Switzerland,
Zurich LOC) NR $ 1,000,000
----------------------------------------------------------------------- --------------
PUERTO RICO--0.0%
-----------------------------------------------------------------------
100,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse,
Zurich LOC) AA+ 100,000
----------------------------------------------------------------------- --------------
TEXAS--0.3%
-----------------------------------------------------------------------
600,000 Harris County, TX HFDC Daily VRDNs (St. Luke's Episcopal Hospital) AA 600,000
-----------------------------------------------------------------------
1,300,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist Hospital,
Houston, TX) AA 1,300,000
----------------------------------------------------------------------- --------------
Total 1,900,000
----------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 3,000,000
----------------------------------------------------------------------- --------------
LONG-TERM MUNICIPALS--97.6%
- --------------------------------------------------------------------------------------
ALABAMA--3.6%
-----------------------------------------------------------------------
7,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue Bonds (Series A),
6.375% (Champion International Corp.)/(Original Issue Yield: 6.52%),
3/1/2029 Baa1 6,918,800
-----------------------------------------------------------------------
20,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue Bonds (Series A), 6.50%
(Champion International Corp.)/(Original Issue Yield: 6.654%), 9/1/2025 Baa1 20,027,400
----------------------------------------------------------------------- --------------
Total 26,946,200
----------------------------------------------------------------------- --------------
ALASKA--3.8%
-----------------------------------------------------------------------
10,500,000 Valdez, AK Marine Terminal, Refunding Revenue Bonds (Series C), 5.65%
(BP Pipeline Inc.), 12/1/2028 AA- 9,896,670
-----------------------------------------------------------------------
20,000,000 Valdez, AK Marine Terminal, Revenue Refunding Bonds (Series B), 5.50%
(BP Pipeline Inc.), 10/1/2028 AA- 18,523,600
----------------------------------------------------------------------- --------------
Total 28,420,270
----------------------------------------------------------------------- --------------
ARIZONA--1.7%
-----------------------------------------------------------------------
$ 12,000,000 Salt River Project, AZ Agricultural Improvement & Power District,
Electric System Revenue Bonds (Series A), 7.875% (United States
Treasury PRF)/(Original Issue Yield: 7.916%), 1/1/1998 (@102) Aaa $ 13,012,080
----------------------------------------------------------------------- --------------
CALIFORNIA--8.0%
-----------------------------------------------------------------------
15,000,000 East Bay Municipal Utility District, CA, Water System Subordinated
Refunding Revenue Bonds (Series 1996), 5.00% (FGIC INS)/(Original Issue
Yield: 5.39%), 6/1/2026 Aaa 13,250,100
-----------------------------------------------------------------------
13,800,000 Foothill/Eastern Transportation Corridor Agency, CA, (Series 1995A)
Senior Lien Toll Road Revenue Bonds, 6.50% (Original Issue Yield:
6.78%), 1/1/2032 BBB- 13,803,450
-----------------------------------------------------------------------
35,000,000 Long Beach California Harbor, Revenue Bonds, 5.375% (MBIA Insurance
Corporation INS)/(Original Issue Yield: 5.75%), 5/15/2020 Aaa 32,415,950
----------------------------------------------------------------------- --------------
Total 59,469,500
----------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--5.9%
-----------------------------------------------------------------------
12,775,000 District of Columbia Hospital Authority, Revenue Refunding Bonds
(Series A), 7.125% (Medlantic Healthcare Group)/(Original Issue Yield:
7.30%), 8/15/2019 Baa1 13,241,543
-----------------------------------------------------------------------
2,000,000 District of Columbia Hospital Authority, Revenue Refunding Bonds
(Series B), 7.00% (Medlantic Healthcare Group)/(Original Issue Yield:
7.282%), 8/15/2015 Baa1 2,050,400
-----------------------------------------------------------------------
22,250,000 District of Columbia, Revenue Bonds (Series B), 7.15% (Georgetown
University)/(Original Issue Yield: 7.191%),
4/1/2021 A+ 23,782,580
-----------------------------------------------------------------------
4,765,000 District of Columbia, 8.25% Revenue Bonds (Georgetown University),
4/1/2018 AA- 5,178,221
----------------------------------------------------------------------- --------------
Total 44,252,744
----------------------------------------------------------------------- --------------
FLORIDA--1.5%
-----------------------------------------------------------------------
$ 4,335,000 Florida State Board of Education Administration, UT GO Capital Outlay
Bonds, 9.125% (Florida State)/(Original Issue Yield: 9.173%), 6/1/2014 AA $ 6,010,347
-----------------------------------------------------------------------
665,000 Florida State Board of Education Administration, UT GO Capital Outlay
Bonds, 9.125% (Florida State)/(United States Treasury COL)/(Original
Issue Yield: 9.173%), 6/1/2014 Aaa 936,207
-----------------------------------------------------------------------
3,000,000 Florida State, UT GO Bonds, Broward County Expressway Authority, 10.00%
(Original Issue Yield: 10.105%), 7/1/2014 AA 4,458,180
----------------------------------------------------------------------- --------------
Total 11,404,734
----------------------------------------------------------------------- --------------
GEORGIA--1.8%
-----------------------------------------------------------------------
5,000,000 Georgia Municipal Electric Authority, Power Revenue Bonds (Series O),
8.125%, 1/1/2017 A+ 5,371,200
-----------------------------------------------------------------------
2,500,000 Georgia Municipal Electric Authority, Revenue Refunding Bonds (Series
Q), 8.375% (Original Issue Yield: 8.397%),
1/1/2016 AA- 2,701,750
-----------------------------------------------------------------------
5,000,000 Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue Bonds
(Series J), 8.00% (United States Treasury PRF)/(Original Issue Yield:
8.043%), 7/1/1998 (@102) Aaa 5,507,950
----------------------------------------------------------------------- --------------
Total 13,580,900
----------------------------------------------------------------------- --------------
ILLINOIS--3.6%
-----------------------------------------------------------------------
5,000,000 Illinois Development Finance Authority, Housing Revenue Bonds, 6.10%
(Catholic Charities Housing Development Corp), 1/1/2020 NR 4,747,450
-----------------------------------------------------------------------
14,500,000 Illinois Health Facilities Authority, Hospital Revenue Bonds (Series
A), 9.25% (Edgewater Hospital & Medical Center), 7/1/2024 NR 14,980,675
-----------------------------------------------------------------------
6,250,000 Illinois State Sales Tax, Revenue Bonds (Series H), 7.625% (United
States Treasury PRF)/(Original Issue Yield: 7.645%), 6/15/1998 (@102) Aaa 6,827,688
----------------------------------------------------------------------- --------------
Total 26,555,813
----------------------------------------------------------------------- --------------
INDIANA--7.4%
-----------------------------------------------------------------------
$ 6,200,000 Indiana Health Facilities Finance Authority, Hospital Revenue Bonds,
6.625% (Floyd Memorial Hospital)/ (Original Issue Yield: 6.902%),
2/15/2022 A $ 6,282,770
-----------------------------------------------------------------------
33,000,000 Indianapolis, IN Airport Authority, Special Facilities Revenue Bonds,
7.10% (Federal Express Corp.)/(Original Issue Yield: 7.178%), 1/15/2017 BBB 35,101,770
-----------------------------------------------------------------------
10,000,000 Kokomo, IN Hospital Authority, Revenue Refunding Bonds, 6.35% (St.
Joseph Hospital)/(Original Issue Yield: 6.40%),
8/15/2013 BBB 9,803,500
-----------------------------------------------------------------------
4,500,000 LaPorte County, IN Hospital Authority, Hospital Facility Revenue
Refunding Bonds, 6.25% (LaPorte Hospital, Inc.)/ (Original Issue Yield:
6.35%), 3/1/2012 BBB 4,352,355
----------------------------------------------------------------------- --------------
Total 55,540,395
----------------------------------------------------------------------- --------------
LOUISIANA--3.4%
-----------------------------------------------------------------------
6,000,000 De Soto Parish, LA Environmental Improvement Authority, Revenue Bonds,
7.70% (International Paper Co.), 11/1/2018 A- 6,768,060
-----------------------------------------------------------------------
5,000,000 St. Charles Parish, LA, Environmental Improvement Revenue Bonds (Series
A), 6.20% (Louisiana Power & Light Co.)/(Original Issue Yield: 6.25%),
5/1/2023 BBB+ 4,809,050
-----------------------------------------------------------------------
3,550,000 St. Charles Parish, LA, Solid Waste Disposal Revenue Bonds (Series A),
7.00% (Louisiana Power & Light Co.)/ (Original Issue Yield: 7.04%),
12/1/2022 BBB+ 3,662,251
-----------------------------------------------------------------------
10,000,000 St. James Parish, LA, Solid Waste Disposal Revenue Bonds, 7.70%
(Freeport McMoRan, Inc.)/(Original Issue Yield: 7.75%), 10/1/2022 NR 10,221,600
----------------------------------------------------------------------- --------------
Total 25,460,961
----------------------------------------------------------------------- --------------
MARYLAND--2.0%
-----------------------------------------------------------------------
12,230,000 Maryland State Community Development Administration, SFM Revenue Bonds
(5th Series), 6.75%, 4/1/2026 Aa 12,533,549
-----------------------------------------------------------------------
$ 3,000,000 Maryland State Health & Higher Educational Facilities, Revenue Bonds,
5.50% (Howard County General Hospital, MD)/(Original Issue Yield:
5.80%), 7/1/2025 Baa1 $ 2,651,790
----------------------------------------------------------------------- --------------
Total 15,185,339
----------------------------------------------------------------------- --------------
MASSACHUSETTS--4.7%
-----------------------------------------------------------------------
33,800,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series
A), 9.00% (Massachusetts Recycling Association), 8/1/2016 NR 32,783,972
-----------------------------------------------------------------------
2,200,000 Massachusetts State HFA, Rental Housing Mortgage Revenue Bonds, 1995
Series E, 5.90% (AMBAC INS),
7/1/2025 Aaa 2,151,798
----------------------------------------------------------------------- --------------
Total 34,935,770
----------------------------------------------------------------------- --------------
MICHIGAN--2.0%
-----------------------------------------------------------------------
15,455,000 Michigan State Hospital Finance Authority, Revenue Bonds, 5.25% (St.
John Hospital)/(AMBAC LOC)/(Original Issue Yield: 5.65%), 5/15/2026 Aaa 14,096,969
-----------------------------------------------------------------------
500,000 Michigan State Hospital Finance Authority, Revenue Bonds, Providence
Hospital, 7.00% (Daughters of Charity)/(Original Issue Yield: 7.04%),
11/1/2021 Aa 535,895
----------------------------------------------------------------------- --------------
Total 14,632,864
----------------------------------------------------------------------- --------------
MINNESOTA--2.2%
-----------------------------------------------------------------------
16,900,000 St. Paul, MN Housing & Redevelopment Authority, Hospital Revenue
Refunding Bonds (Series A), 6.625% (Healtheast)/(Original Issue Yield:
6.687%), 11/1/2017 BBB- 16,793,191
----------------------------------------------------------------------- --------------
NEW MEXICO--0.7%
-----------------------------------------------------------------------
5,000,000 Farmington, NM PCA, PCR Refunding Bonds (Series A), 7.20% (Southern
California Edison Co.)/(Original Issue Yield: 7.30%), 4/1/2021 Aa3 5,463,300
----------------------------------------------------------------------- --------------
NEW YORK--6.3%
-----------------------------------------------------------------------
$ 3,000,000 Municipal Assistance Corp of New York, Revenue Bonds (Series 67),
7.625% (Original Issue Yield: 7.698%), 7/1/2008 AA- $ 3,307,080
-----------------------------------------------------------------------
13,600,000 New York City, NY IDA, Special Facility Revenue Bonds, 6.00% (Terminal
One Group Association)/(Original Issue Yield: 6.45%), 1/1/2019 A 13,116,656
-----------------------------------------------------------------------
2,000,000 New York State Mortgage Agency, Mortgage Revenue Bonds (Series 30-B),
6.65% (FHA GTD) 10/1/2025 Aa 2,063,600
-----------------------------------------------------------------------
13,000,000 New York State Power Authority, Revenue Bonds (Series V), 8.00% (United
States Treasury PRF), 1/1/1998 (@102) AA 14,123,720
-----------------------------------------------------------------------
9,000,000 Triborough Bridge & Tunnel Authority, NY, General Purpose Revenue Bonds
(Series O), 7.70% (United States Treasury PRF), 1/1/1999 (@101.5) Aaa 9,936,090
-----------------------------------------------------------------------
4,300,000 Triborough Bridge & Tunnel Authority, NY, Revenue Refunding Bonds
(Series L), 8.125% (Original Issue Yield: 8.22%), 1/1/2012 Aa 4,645,075
----------------------------------------------------------------------- --------------
Total 47,192,221
----------------------------------------------------------------------- --------------
NORTH CAROLINA--3.2%
-----------------------------------------------------------------------
9,000,000 Martin County, NC IFA, (Series 1995) Solid Waste Disposal Revenue
Bonds, 6.00% (Weyerhauser Co.), 11/1/2025 A 8,993,250
-----------------------------------------------------------------------
13,500,000 North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue
Refunding Bonds, 7.875% (United States Treasury PRF), 1/1/1998 (@102) Aaa 14,650,740
----------------------------------------------------------------------- --------------
Total 23,643,990
----------------------------------------------------------------------- --------------
OHIO--1.9 %
-----------------------------------------------------------------------
$ 1,000,000 Franklin County, OH Hospital Facility Authority, Hospital Revenue
Refunding & Improvement Bonds, 7.25% (Riverside United Methodist
Hospital)/(MBIA Insurance Corporation INS)/(Original Issue Yield:
7.29%), 5/15/2020 Aaa $ 1,093,130
-----------------------------------------------------------------------
14,000,000 Ohio State Air Quality Development Authority, PCR Refunding Bonds
(Series A), 5.95% (Ohio Edison Co.),
5/15/2029 Baa2 12,876,780
----------------------------------------------------------------------- --------------
Total 13,969,910
----------------------------------------------------------------------- --------------
OKLAHOMA--1.7%
-----------------------------------------------------------------------
4,585,000 Jackson County, OK Hospital Authority, Hospital Revenue Refunding
Bonds, 7.30% (Jackson County Memorial Hospital)/(Original Issue Yield:
7.40%), 8/1/2015 BBB- 4,466,432
-----------------------------------------------------------------------
7,500,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60% (American
Airlines)/(Original Issue Yield: 7.931%),
12/1/2030 Baa2 8,067,000
----------------------------------------------------------------------- --------------
Total 12,533,432
----------------------------------------------------------------------- --------------
PENNSYLVANIA--8.5%
-----------------------------------------------------------------------
750,000 Geisinger Authority, PA Health System, Revenue Bonds, 7.625% (United
States Treasury PRF)/(Original Issue Yield: 7.697%), 7/1/1999 (@102) AA 838,238
-----------------------------------------------------------------------
1,300,000 Latrobe, PA Industrial Development Authority, College Revenue Bonds,
6.75% (St. Vincent College)/(Original Issue Yield: 7.00%), 5/1/2024 Baa1 1,308,866
-----------------------------------------------------------------------
6,250,000 Pennsylvania EDA, Revenue Bonds, 7.60% (Macmillan Bloedel LTD
Partnership)/(Original Issue Yield: 7.65%),
12/1/2020 Baa2 6,950,250
-----------------------------------------------------------------------
20,500,000 Pennsylvania EDA, Wastewater Treatment Revenue Bonds (Series A), 7.60%
(Sun Co., Inc.)/(Original Issue Yield: 7.653%), 12/1/2024 Baa1 22,649,015
-----------------------------------------------------------------------
$ 12,000,000 Pennsylvania Housing Finance Authority, SFM Revenue Bond Bonds (Series
39B), 6.875%, 10/1/2024 AA $ 12,407,400
-----------------------------------------------------------------------
4,000,000 Pennsylvania State Higher Education Facilities Authority, Hospital
Revenue Bonds (Series A), 7.25% (Allegheny General Hospital)/(Original
Issue Yield: 7.40%), 9/1/2017 AA- 4,264,280
-----------------------------------------------------------------------
12,865,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series A), 7.375% (Medical College of Pennsylvania)/(Original Issue
Yield: 7.45%), 3/1/2021 Baa1 13,238,471
-----------------------------------------------------------------------
2,000,000 Sayre, PA, Health Care Facilities Authority, Revenue Bonds (Series A),
7.10% (Guthrie Healthcare System)/(AMBAC INS)/(Original Issue Yield:
7.175%), 3/1/2017 Aaa 2,192,740
----------------------------------------------------------------------- --------------
Total 63,849,260
----------------------------------------------------------------------- --------------
TENNESSEE--2.8%
-----------------------------------------------------------------------
5,000,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue
Bonds, 8.25% (Jesse Holman Jones Hospital Corp.)/(Original Issue Yield:
8.50%), 4/1/2012 NR 5,248,900
-----------------------------------------------------------------------
15,000,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue
Bonds, 8.50% (Jesse Holman Jones Hospital Corp.)/(Original Issue Yield:
8.875%), 4/1/2024 NR 15,501,600
----------------------------------------------------------------------- --------------
Total 20,750,500
----------------------------------------------------------------------- --------------
TEXAS--11.1%
-----------------------------------------------------------------------
4,000,000 Brazos River Authority, TX, PCR Revenue Bonds (Series A), 7.875% (Texas
Utilities Electric Co.) 3/1/2021 BBB 4,415,640
-----------------------------------------------------------------------
12,750,000 Dallas-Fort Worth, TX International Airport Facilities, Revenue Bonds,
7.25% (American Airlines)/(Original Issue Yield: 7.428%), 11/1/2030 Baa2 13,586,528
-----------------------------------------------------------------------
2,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds (Series A),
6.875% (Champion International Corp.)/(Original Issue Yield: 7.15%),
12/1/2028 Baa1 2,085,800
-----------------------------------------------------------------------
$ 20,000,000 Houston, TX Water & Sewer System, Junior Lien Refunding Revenue Bonds
(Series A), 5.25% (FGIC INS)/ (Original Issue Yield: 5.60%), 12/1/2025 Aaa $ 18,489,200
-----------------------------------------------------------------------
3,700,000 Red River Authority, TX, PCR Bonds, 6.875% (Hoechst Celanese
Corp.)/(Original Issue Yield: 6.939%), 4/1/2017 AA- 3,923,924
-----------------------------------------------------------------------
7,220,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement
Bonds, 6.50% (Richardson Medical Center)/ (Original Issue Yield:
6.72%), 12/1/2012 BBB- 7,125,274
-----------------------------------------------------------------------
1,000,000 Richardson, TX Hospital Authority, Hospital Refunding & Improvement
Bonds, 6.75% (Richardson Medical Center)/ (Original Issue Yield:
6.82%), 12/1/2023 BBB- 988,760
-----------------------------------------------------------------------
2,250,000 Texas State, UT GO Veterans Housing Assistance, 7.00%, 12/1/2025 AA 2,349,428
-----------------------------------------------------------------------
16,000,000 Texas State, Veterans Land UT GO Bonds (Series 1996), 5.25% (Original
Issue Yield: 5.50%), 12/1/2026 AA 14,232,960
-----------------------------------------------------------------------
12,505,000 Travis County, Texas Housing Finance Corp., SFM Revenue Bonds, 7.10%
(GNMA COL), 10/1/2027 AAA 13,068,350
-----------------------------------------------------------------------
3,000,000 Tyler, TX Health Facilities Development Corp., Revenue Bonds, 6.75%
(East Texas Medical Center)/(Original Issue Yield: 7.00%), 11/1/2025 NR 2,921,190
----------------------------------------------------------------------- --------------
Total 83,187,054
----------------------------------------------------------------------- --------------
UTAH--5.3%
-----------------------------------------------------------------------
20,000,000 Intermountain Power Agency, UT, Power Supply Refunding Revenue Bonds
(Series 1996D), 5.00% (Original Issue Yield: 5.40%), 7/1/2021 AA- 17,666,600
-----------------------------------------------------------------------
13,500,000 Salt Lake City, UT Hospital Authority, Hospital Revenue Refunding Bonds
(Series A), 8.125% (IHC Hospitals Inc.)/ (United States Treasury
COL)/(Original Issue Yield: 8.17%), 5/15/2015 AA 16,324,335
-----------------------------------------------------------------------
$ 2,500,000 Salt Lake City, UT Hospital Authority, Hospital Revenue Refunding Bonds
(Series B), 8.125% (IHC Hospitals Inc.)/ (Original Issue Yield: 8.17%),
5/15/2015 AA $ 2,722,925
-----------------------------------------------------------------------
2,650,000 Utah State HFA, Single Family Mortgage Bonds, 1995 Issue I, 5.95%,
1/1/2024 Aaa 2,576,118
----------------------------------------------------------------------- --------------
Total 39,289,978
----------------------------------------------------------------------- --------------
WASHINGTON--0.6%
-----------------------------------------------------------------------
5,000,000 Pilchuck Development Public Corp., WA, Special Facilities Airport
Revenue Bonds (Series 1993), Tramco, Inc. Project, 6.00% (Goodrich
(B.F.) Co.), 8/1/2023 Baa1 4,679,949
----------------------------------------------------------------------- --------------
WEST VIRGINIA--2.7%
-----------------------------------------------------------------------
3,800,000 Marion County, WV County Commission, Solid Waste Disposal Facility
Revenue Bonds, 8.25% (American Power Paper Recycling), 12/1/2011 NR 3,347,420
-----------------------------------------------------------------------
20,000,000 Marion County, WV County Commission, Solid Waste Facility Revenue Bonds
(Series 1993), 7.75% (American Power Paper Recycling) 12/1/2011 NR 16,823,000
----------------------------------------------------------------------- --------------
Total 20,170,420
----------------------------------------------------------------------- --------------
WYOMING--1.2%
-----------------------------------------------------------------------
8,460,000 Sweetwater County, WY IDA, Solid Waste Disposal Revenue Bonds (Series
A), 7.00% (FMC Corp.), 6/1/2024 BBB 8,859,988
----------------------------------------------------------------------- --------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $716,348,580) 729,780,763
----------------------------------------------------------------------- --------------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $719,348,580)(A) $ 732,780,763
----------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 45.4% of the
portfolio as calculated based upon total portfolio market value.
(a) The cost of investments for federal tax purposes amounts to $719,348,580.
The net unrealized appreciation of investments on a federal tax basis
amounts to $13,432,183 which is comprised of $29,795,691 appreciation and
$16,363,508 depreciation at March 31, 1996.
* 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
($747,748,242) at March 31, 1996.
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
AMBAC-- American Municipal Bond
Assurance Corporation
COL--Collateralized
EDA--Economic Development Authority
EDFA-- Economic Development Financing Authority
FGIC-- Financial Guaranty Insurance Company
FHA--Federal Housing Administration
GNMA-- Government National Mortgage Association
GO--General Obligation
GTD--Guaranty
HFA--Housing Finance Authority
HFDC-- Health Facility Development Corporation
IDA--Industrial Development Authority
IDB--Industrial Development Bond
IFA--Industrial Finance Authority
INS--Insured
LOC--Letter of Credit
MBIA-- Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCR--Pollution Control Revenue
PRF--Prerefunded
SFM--Single Family Mortgage
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
March 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $719,348,580) $ 732,780,763
- ---------------------------------------------------------------------------------------------------
Cash 100,273
- ---------------------------------------------------------------------------------------------------
Income receivable 15,004,342
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 2,070,036
- --------------------------------------------------------------------------------------------------- -------------
Total assets 749,955,414
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------
Income distribution payable $ 1,319,083
- --------------------------------------------------------------------------------------
Payable for shares redeemed 551,932
- --------------------------------------------------------------------------------------
Capital gain distribution payable 63
- --------------------------------------------------------------------------------------
Accrued expenses 336,094
- -------------------------------------------------------------------------------------- -----------
Total liabilities 2,207,172
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS FOR 69,130,100 shares outstanding $ 747,748,242
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 727,630,560
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 13,432,183
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 6,666,727
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 18,772
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 747,748,242
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($663,537,985 / 61,344,756 shares outstanding) $10.82
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/95.50 of $10.82)* $11.33
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share $10.82
- --------------------------------------------------------------------------------------------------- -------------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($58,296,233 / 5,389,543 shares outstanding) $10.82
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $10.82
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (94.50/100 of $10.82)** $10.22
- --------------------------------------------------------------------------------------------------- -------------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($25,914,024 / 2,395,801 shares outstanding) $10.82
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $10.82
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (99/100 of $10.82)** $10.71
- --------------------------------------------------------------------------------------------------- -------------
</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)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended March 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 52,709,355
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $ 4,644,716
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 573,123
- --------------------------------------------------------------------------------------
Custodian fees 80,609
- --------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 686,927
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 16,293
- --------------------------------------------------------------------------------------
Auditing fees 18,574
- --------------------------------------------------------------------------------------
Legal fees 15,520
- --------------------------------------------------------------------------------------
Portfolio accounting fees 146,509
- --------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 272,251
- --------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 177,402
- --------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 1,743,709
- --------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 90,750
- --------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 59,134
- --------------------------------------------------------------------------------------
Share registration costs 78,919
- --------------------------------------------------------------------------------------
Printing and postage 140,852
- --------------------------------------------------------------------------------------
Insurance premiums 13,414
- --------------------------------------------------------------------------------------
Taxes 119,704
- --------------------------------------------------------------------------------------
Miscellaneous 9,759
- -------------------------------------------------------------------------------------- -----------
Total expenses 8,888,165
- --------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares $ (917,995)
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (10,112)
- -------------------------------------------------------------------------- ----------
Total waivers (928,107)
- -------------------------------------------------------------------------------------- -----------
Net expenses 7,960,058
- --------------------------------------------------------------------------------------------------- ------------
Net investment income 44,749,297
- --------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments 7,079,845
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (13,521,713)
- --------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized loss on investments (6,441,868)
- --------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 38,307,429
- --------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
Operations--
- ----------------------------------------------------------------------------------
Net investment income $ 44,749,297 $ 44,628,279
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($6,671,235 net gain and $8,228,240 net
gain, respectively, as computed for federal tax purposes) 7,079,845 7,819,630
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (13,521,713) (10,931,022)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 38,307,429 41,516,887
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------------
Class A Shares (41,611,908) (43,126,423)
- ----------------------------------------------------------------------------------
Class B Shares (1,898,925) (302,222)
- ----------------------------------------------------------------------------------
Class C Shares (1,219,692) (1,190,042)
- ----------------------------------------------------------------------------------
Select Shares -- (9,592)
- ----------------------------------------------------------------------------------
Distributions from net realized gains
- ----------------------------------------------------------------------------------
Class A Shares (894,502) (14,957,324)
- ----------------------------------------------------------------------------------
Class B Shares (44,667) (100,862)
- ----------------------------------------------------------------------------------
Class C Shares (30,361) (461,364)
- ----------------------------------------------------------------------------------
Select Shares -- (6,166)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions
to shareholders (45,700,055) (60,153,995)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 314,593,464 299,314,879
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 27,833,467 38,127,189
- ----------------------------------------------------------------------------------
Cost of shares redeemed (336,588,031) (306,549,262)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 5,838,900 30,892,806
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets (1,553,726) 12,255,698
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 749,301,968 737,046,270
- ---------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $18,772 and $0,
respectively) $ 747,748,242 $ 749,301,968
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.92 $ 11.20 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------
Net investment income 0.66 0.67 0.66 0.66 0.67 0.71 0.72 0.72 0.73
- ---------------------------
Net realized and
unrealized gain
(loss) on investments (0.09) (0.05) (0.40) 0.64 0.37 0.14 0.21 0.23 (0.77)
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.57 0.62 0.26 1.30 1.04 0.85 0.93 0.95 (0.04)
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------
Distributions from net
investment income (0.66) (0.67) (0.66) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73)
- ---------------------------
Distributions from net
realized gain on invest-
ment transactions (0.01) (0.23) (0.02) 0.00 0.00 0.00 0.00 0.00 0.00
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.67) (0.90) (0.68) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73)
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 10.82 $ 10.92 $ 11.20 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (a) 5.32% 5.90% 2.10% 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%)
- ---------------------------
RATIOS TO AVERAGE NET
ASSETS
- ---------------------------
Expenses 0.98% 0.92% 0.84% 0.80% 0.84% 0.89% 0.90% 0.95% 0.95%
- ---------------------------
Net investment income 5.97% 6.17% 5.59% 5.81% 6.17% 6.77% 6.80% 7.07% 7.28%
- ---------------------------
Expense waiver/
reimbursement (b) 0.13% -- -- -- -- -- -- -- --
- ---------------------------
SUPPLEMENTAL DATA
- ---------------------------
Net assets, end of period
(000 omitted) $663,538 $708,712 $714,384 $706,126 $590,118 $511,611 $474,797 440,445 $388,916
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Portfolio turnover 29% 41% 27% 13% 8% 45% 25% 58% 55%
- ---------------------------
<CAPTION>
<S> <C>
1987
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.51
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------
Net investment income 0.75
- ---------------------------
Net realized and
unrealized gain
(loss) on investments 0.29
- --------------------------- ---------
Total from investment
operations 1.04
- --------------------------- ---------
LESS DISTRIBUTIONS
- ---------------------------
Distributions from net
investment income (0.75)
- ---------------------------
Distributions from net
realized gain on invest-
ment transactions 0.00
- --------------------------- ---------
Total distributions (0.75)
- --------------------------- ---------
NET ASSET VALUE,
END OF PERIOD $ 10.80
- --------------------------- ---------
TOTAL RETURN (a) 10.28%
- ---------------------------
RATIOS TO AVERAGE NET
ASSETS
- ---------------------------
Expenses 0.95%
- ---------------------------
Net investment income 7.07%
- ---------------------------
Expense waiver/
reimbursement (b) --
- ---------------------------
SUPPLEMENTAL DATA
- ---------------------------
Net assets, end of period
(000 omitted) $424,655
- ---------------------------
Portfolio turnover 13%
- ---------------------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge 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)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------------
1996 1995(a)
- ---------------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.92 $ 11.06
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.56 0.40
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09) (0.03)
- ---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.47 0.37
- ---------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Distributions from net investment income (0.56) (0.40)
- ----------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.01) (0.11)
- ---------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.57) (0.51)
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 10.92
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (b) 4.40% 3.49%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.86% 1.84%*
- ----------------------------------------------------------------------------------------------
Net investment income 5.23% 5.94%*
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $58,296 $18,201
- ----------------------------------------------------------------------------------------------
Portfolio turnover 29% 41%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1996 1995 1994(a)
- ------------------------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.92 $ 11.20 $ 11.70
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.56 0.58 0.52
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09) (0.05) (0.48)
- ------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 0.47 0.53 0.04
- ------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Distributions from net investment income (0.56) (0.58) (0.52)
- ------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.01) (0.23) (0.02)
- ------------------------------------------------------------------------------ --------- --------- -----------
Total distributions (0.57) (0.81) (0.54)
- ------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 10.92 $ 11.20
- ------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (b) 4.42% 4.96% 0.17%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 1.82% 1.81% 1.80%*
- ------------------------------------------------------------------------------
Net investment income 5.16% 5.28% 4.70%*
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.04% -- --
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $25,914 $22,389 $22,066
- ------------------------------------------------------------------------------
Portfolio turnover 29% 41% 27%
- ------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) 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)
Federated Municipal Securities Fund, Inc.
(formerly, 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 investments (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%* 1.80%*
- -----------------------------------------------------------------------------------------
Net investment income 5.01%* 5.08%*
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $-- $596
- -----------------------------------------------------------------------------------------
Portfolio turnover 41% 27%
- -----------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 1, 1994 to July 29, 1994
(date Select Shares ceased operations and were converted to Class C
Shares).
(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 charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
March 31, 1996
1. ORGANIZATION
Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, (the "Act"), as a diversified, open-end
management investment company. The Fund offers three classes of shares: Class A
Shares, Class B Shares, and Class C Shares.
The investment objective of the fund is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax.
Effective March 31, 1996, the Board of Directors ("Directors") changed the name
of the Fund from Liberty Municipal Securities Fund, Inc., to Federated Municipal
Securities Fund, Inc.
Effective July 29, 1994, the Select Shares ceased operations and were
reclassified as 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. Short-term securities are valued at the
prices provided by an independent pricing service. However, 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.
INVESTMENT RISK--Although the Fund has a diversified portfolio, the Fund
has 21% of its portfolio invested in lower rated and comparable quality
unrated high yield securities.
Investments in higher yield securities are accomplished by a greater degree
of credit risk and the risk tends to be more sensitive to economic
conditions than higher rated securities. The risk of loss due to default by
the issuer may be significantly greater for the holders of high yielding
securities because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. The Fund held no defaulted
securities at
March 31, 1996.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At March 31, 1996, par value ($0.01) shares authorized were as follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
- ---------- ------------------------
<S> <C>
Class A 375,000,000
Class B 250,000,000
Class C 375,000,000
-------------
Total shares authorized 1,000,000,000
-------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 23,530,576 $ 259,873,935 25,045,927 $ 272,914,437
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 2,377,750 26,169,718 3,400,590 37,033,517
- -------------------------------------------------
Shares redeemed (29,468,002) (325,138,363) (27,342,942) (297,338,150)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from
Class A share transactions (3,559,676) $ (39,094,710) 1,103,575 $ 12,609,804
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1996 1995(a)
------------------------- -------------------------
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 4,157,827 $ 45,890,492 1,680,837 $ 18,106,451
- ---------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 91,690 1,011,056 21,290 227,134
- ---------------------------------------------------------
Shares redeemed (526,969) (5,813,110) (35,134) (380,059)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from
Class B share transactions 3,722,548 $ 41,088,438 1,666,993 $ 17,953,526
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1996 1995
------------------------- -------------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 797,328 $ 8,829,037 754,199 $ 8,274,060
- ---------------------------------------------------------
Shares reclassified from Select Shares -- -- 49,365 548,045
- ---------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 59,235 652,693 78,551 854,825
- ---------------------------------------------------------
Shares redeemed (511,334) (5,636,558) (752,853) (8,175,228)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from
Class C share transactions 345,229 $ 3,845,172 79,897 $ 953,657
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1996 1995(b)
------------------------- -------------------------
SELECT SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold -- -- 1,790 $ 19,931
- ---------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared -- -- 1,048 11,713
- ---------------------------------------------------------
Shares redeemed -- -- (6,696) (107,780)
- ---------------------------------------------------------
Shares reclassified to Class C Shares -- -- (49,365) (548,045)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from
Select share transactions -- -- (53,223) (624,181)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from
Shares transactions 508,101 $ 5,838,900 2,797,242 $ 30,892,806
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
(a) Reflects operations for the period from July 26, 1994 (date of initial
public offering) to March 31, 1996.
(b) Reflects operations for the period from April 1, 1994 to July 29, 1994 (date
Select Shares ceased operations and were converted to Class C Shares).
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) a maximum of 0.30% of the Funds average daily net assets,
and (b) 4.50% of the gross income of the Fund, excluding capital gains or
losses.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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., the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Corporation's Class B and Class C shares. The
Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of each class of shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ,
through its registered transfer and dividend disbursing agent subsidiary,
Federated Shareholder Services Company , maintains all necessary
shareholder records and receives a fee based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended March 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $309,900,000 and $315,146,495, 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
fiscal year ended March 31, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------
PURCHASES $ 247,725,665
- --------------------------------------------------------------- --------------
SALES $ 212,571,388
- --------------------------------------------------------------- --------------
</TABLE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
FEDERATED MUNICIPAL SECURITIES FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Municipal Securities Fund, Inc.
(formerly, Liberty Municipal Securities Fund, Inc.) as of March 31, 1996, and
the related statements of operations for the year then ended, the statements of
changes in net assets for the years ended March 31, 1996 and March 31, 1995 and
the financial highlights for the periods presented. 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 as of
March 31, 1996 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the 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 Federated Municipal
Securities Fund, Inc. as of March 31, 1996, 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 17, 1996
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 Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar 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 OF FEDERATED INVESTORS]
Cusip 313913105
Cusip 313913204
Cusip 313913303
8042830 (5/96)
APPENDIX
A. The graphic representation here displayed entitled "Initial Investment of
$20,000," consists of a boxed legend in the upper left quadrant indicating
the components of the corresponding mountain chart. The darker shaded portion
represents Reinvested Income and the lighter shaded portion represents the
Principal Value of $20,000 Investment (1,528 Shares). The color-coded
mountain chart is a visual representation of the narrative text above it,
which shows that an initial investment of $20,000 in the Class A Shares of
Federated Municipal Securities Fund, Inc. on 10/4/76, would have a reinvested
total worth of $66,354/6,132 Shares on 3/31/96. The "x" axis reflects bi-
annual computation periods from 10/4/76 to 3/31/96. The right margin of the
chart reflects the ending values of a hypothetical investment of $20,000 in
the Fund measured in increments of $10,000 ranging from $0 to $70,000.
B. The graphic representation here displayed entitled "Yearly Investments of
$1,000," consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The darker shaded portion
represents Reinvested Income and the lighter shaded portion represents the
Principal Value of all your $1,000 Investments (totalling $20,000 by
3/31/96). The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that if you had started investing $1,000
annually in the Class A Shares of Federated Municipal Securities Fund, Inc.
on 10/4/76 you would have a reinvested total worth of $44,866/4,147 Shares on
3/31/96. The "x" axis reflects bi-annual computation periods from 10/4/76
through 3/31/96. The right margin reflects the ending values of a
hypothetical annual investment of $1,000 in the Fund measured in increments
of $10,000 ranging from $0 to $50,000.
C. The graphic representation here displayed, entitled "Income Over Time,"
consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The darker shaded portion
represents the value of Reinvested Income the lighter shaded portion
represents the Principal Value of $25,000 Investment (2,271 Shares). The
color-coded mountain chart is a visual representation of the narrative text
above it which shows that an original $25,000 investment in the Class A
Shares of Federated Municipal Securities Fund, Inc. on 3/31/86, would have a
reinvested total worth of $47,967/4,433 Shares on 3/31/96. the "x" axis
reflects bi-annual computation periods from 3/31/86 to 3/31/96. The right
margin reflects the ending values of a hypothetical investment of $25,000 in
the Fund measured in $10,000 increments ranging from $0 to $60,000.
D. The graphic representation here displayed, consists of a chart entitled "A
History of Investment Growth." The following chart shows what an account
would be worth had an investor invested $10,000 in Class A Shares at the
beginning of these consecutive decades:
April 1- Initial Number Dividends and Total Ending Value
March 31 of Shares Capital Gains Shares of Shares
Reinvested
1976-1986 764 $8,477 1,571 $16,506
1977-1987 739 9,176 1,588 17,152
1978-1988 729 8,705 1,596 16,005
1979-1989 790 9,944 1,760 18,055
1980-1990 1087 14,025 2,426 25,405
1981-1991 1135 14,561 2,507 26,605
1982-1992 1328 16,462 2,827 31,044
1983-1993 1021 12,694 2,114 24,563
1984-1994 1049 11,936 2,115 23,689
1985-1995 1072 11,778 2,150 23,482
1986-1996 908 9,359 1,773 19,187
E. The graphic representation here displayed consists of a list entitled
"Some of the Fund's Major Shareholder Groups." The list includes the
following investment groups and their dollar amounts invested in Federated
Municipal Securities Fund, Inc.:
Individuals and Joint Tenants $448,134,916
Trusts 117,870,197
Corporations 3,537,481
Custodians (under Uniform Gift
to Minors Act) 3,048,723
Clubs/Fraternal Organizations 2,215,184
F. The graphic representation here displayed consists of a pie chart entitled
"Rating Distribution as of March 31, 1996." The color-coded chart shows the
following portfolio rating distributions:
BBB 34%
NonRated 14%
AAA 21%
AA 22%
A 9%
G. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") is
represented by a solid black line. Lehman Brothers Revenue Bond Index (the
"LBRBI") is represented by a broken line. The line graph is a visual
representation of a comparison of a change in value of a hypothetical $10,000
investment in the Fund and the LBRBI. The "x" axis reflects annual
computation periods from 3/31/86 to 3/31/96. The "y" axis reflects the cost
of investment in $3,000 increments ranging from $8,000 to $26,000. The right
margin reflects the ending values of the hypothetical investment in the Fund
as compared to the LBRBI; the ending values are $19,199 and $22,524,
respectively. Below the legend is the Average Annual Total Returns for the 1
Year, 5 Year, 10 Year, and Start of Performance (10/4/76) periods ended March
31, 1996; the total returns listed are 0.62%, 6.06%, 6.73%, and 6.35%,
respectively.
H. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") is
represented by a solid black line. Lehman Brothers Revenue Bond Index (the
"LBRBI") is represented by a broken line. The line graph is a visual
representation of a comparison of a change in value of a hypothetical $10,000
investment in the Fund and in the LBRBI. The "x" axis reflects annual
computation periods from 7/26/94 to 3/31/96. The "y" axis reflects the cost
of investment in $1,000 increments ranging from $9,000 to $13,000. The right
margin reflects the ending values of the hypothetical investment in the Fund
as compared to the LBRBI; the ending values are $10,297 and $11,702,
respectively. Below the legend is the Average Annual Total Returns for the 1
Year and Start of Performance (7/26/94) periods ended March 31, 1996; the
total returns listed are -1.36% and 1.76%, respectively.
I. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") is
represented by a solid black line. Lehman Brothers Revenue Bond Index (the
"LBRBI") is represented by a broken line. The line graph is a visual
representation of a comparison of a change in value of a hypothetical $10,000
investment in the Fund and in the LBRBI. The "x" axis reflects annual
computation periods from 4/21/93 to 3/31/96. The "y" axis reflects the cost
of investment in $1,000 increments ranging from $9,000 to $14,000. The right
margin reflects the ending values of the hypothetical investment in the Fund
as compared to the LBRBI; the ending values are $10,997 and $11,952,
respectively. Below the legend is the Average Annual Total Returns for the 1
Year and Start of Performance (4/21/93) periods ended March 31, 1996; the
