FEDERATED MUNICIPAL SECURITIES FUND INC, 485BPOS, 1996-05-28

FEDERATED MUNICIPAL SECURITIES FUND INC
485BPOS, 1996-05-28

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. ..........

Post-Effective Amendment No. 48 .......... X
---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 33 ......................... X

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(formerly, Liberty Municipal Securities Fund, Inc.)

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on May 31, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

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

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

X filed the Notice required by that Rule on May 15, 1996; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED MUNICIPAL
SECURITIES FUND, INC.,(formerly, Liberty Municipal Securities Fund, Inc.),
which is comprised of three classes of shares, Class A Shares (1); Class B
Shares (2); and Class C Shares (3), is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............Cover Page (1-3).
Item 2. Synopsis.................General Information (1-3); Summary of Fund
Expenses (1-3).
Item 3. Condensed Financial
Information..............Financial Highlights (1-3).
Item 4. General Description of
Registrant...............Performance Information (1-3); Investment
Information (1-3); Investment Objective
(1-3); Investment Policies (1-3);
Investment Risks (1-3); Investment
Limitations (1-3);
Item 5. Management of the Fund...Fund Information (1-3); Management of the
Fund (1-3); Distribution of Shares (1-3);
Administration of the Fund (1-3).
Item 6. Capital Stock and Other
Securities...............Shareholder Information (1-3); Voting
Rights (1-3); Tax Information (1-3);
Federal Income Tax (1-3); State and Local
Taxes (1-3).
Item 7. Purchase of Securities Being
Offered..................Net Asset Value (1-3); How to Purchase
Shares (1-3); Investing in the Fund (1-3);
Investing in Class A Shares (l); Investing
in Class B Shares (2); Investing in Class
C Shares (3); Special Purchase Features
(1-3); Exchange Privilege (1-3);
Requirements for Exchange (1-3); Tax
Consequences (1-3); Making an Exchange (1-
3).
Item 8. Redemption or Repurchase.How to Redeem Shares (1-3); Special
Redemption Features (1-3); Contingent
Deferred Sales Charge (1-3); Elimination
of Contingent Deferred Sales Charge (1-3);
Account and Share Information (1-3).
Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............Cover page (1-3).
Item 11. Table of Contents........Table of Contents (1-3).
Item 12. General Information and
History..................General Information About the Fund (1-3);
About Federated Investors 91-3).
Item 13. Investment Objectives and
Policies.................Investment Objective and Policies (1-3).
Item 14. Management of the Fund...Federated Municipal Income Fund Inc.
Management (1-3).
Item 15. Control Persons and Principal
Holders of Securities....Fund Ownership (1-3).
Item 16. Investment Advisory and Other
Services.................Investment Advisory Services (1-3); Other
Services (1-3).
Item 17. Brokerage Allocation.....Brokerage Transactions (1-3).
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............Purchasing Shares (1-3); Determining Net
Asset Value (1-3); Redeeming Shares (1-3).
Item 20. Tax Status...............Tax Status (1-3).
Item 21. Underwriters.............See Part A - Distribution of (Class A, B
or C) Shares (1-3).
Item 22. Calculation of Performance
Data.....................Total Return (1-3); Yield (1-3); Tax-
Equivalent Yield (1-3); Performance
Comparisons (1-3).
Item 23 Financial Statements.....Financial Statements (incorporated by
reference into Part B, to Registrant's
Annual Report dated March 31, 1996; File
Nos. 2-57181 and 811-2677) (1-3).

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS

The shares of Federated Municipal Securities Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) with an investment objective of providing its shareholders a high level of
current income which is exempt from federal regular income tax by investing in a
professionally managed, diversified portfolio primarily limited to municipal
bonds.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information dated May 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4770. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1996

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

TABLE OF CONTENTS

Summary of Fund Expenses--
Class A Shares...............................................................1

Summary of Fund Expenses--
Class B Shares...............................................................2

Summary of Fund Expenses--
Class C Shares...............................................................3

Financial Highlights--Class A Shares...........................................4

Financial Highlights--Class B Shares...........................................5

Financial Highlights--Class C Shares...........................................6

General Information............................................................7

Investment Information.........................................................7
Investment Objective.........................................................7
Investment Policies..........................................................7
Investment Risks............................................................10
Investment Limitations......................................................10

Net Asset Value...............................................................11

Investing in the Fund.........................................................11

How To Purchase Shares........................................................12
Investing In Class A Shares.................................................12
Investing In Class B Shares.................................................15
Investing In Class C Shares.................................................15
Special Purchase Features...................................................16

Exchange Privilege............................................................17
Requirements For Exchange...................................................17
Tax Consequences............................................................17
Making An Exchange..........................................................18

How To Redeem Shares..........................................................18
Special Redemption Features.................................................19
Contingent Deferred Sales Charge............................................20
Elimination of Contingent Deferred
Sales Charge.............................................................21
Account and Share Information.................................................22

Fund Information..............................................................23
Management of the Fund......................................................23
Distribution of Shares......................................................24
Administration of the Fund..................................................25

Shareholder Information.......................................................26
Voting Rights...............................................................26

Tax Information...............................................................27
Federal Income Tax..........................................................27
State and Local
Taxes....................................................................27

Performance Information.......................................................28
Addresses......................................................Inside Back Cover

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

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................... 0.61%
12b-1 Fee........................................................................................................ None
Total Other Expenses............................................................................................. 0.37%
Shareholder Services Fee (after waiver) (2)....................................................... 0.12%
Total Operating Expenses (3)............................................................................ 0.98%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased and redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions
made within one year of purchase.

(2) The maximum shareholder services fee is 0.25%.

(3) The total operating expenses were 1.11% absent the voluntary waiver of a
portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.......................................................... $60 $75 $97 $160
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $55 $75 $97 $160
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)

<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................... 0.61%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.50%
Shareholder Services Fee.......................................................................... 0.25%
Total Class B Shares Operating Expenses (2)............................................................. 1.86%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").

(2) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.......................................................... $76 $102 $124 $195
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $19 $ 58 $101 $195
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

SUMMARY OF FUND EXPENSES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)

<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................... 0.61%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.49%
Shareholder Services Fee (after waiver) (2)....................................................... 0.24%
Total Operating Expenses (3)............................................................................ 1.85%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see "Redeeming
Class C Shares".

(2) The maximum shareholder services fee is 0.25%.

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending March 31, 1997. The total operating
expenses for the fiscal year ended March 31, 1996 were 1.82% and would have
been 1.86% absent the voluntary waiver of a portion of the shareholder
service fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.......................................................... $29 $58 $100 $217
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $19 $58 $100 $217
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated May 17, 1996, on the Fund's financial
statements for the year ended March 31, 1996, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund..

<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
investment 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>
1987
<S> <C>
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
investment 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 load or contingent
deferred sales charge, if applicable.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

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

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
Year Ended
March 31,
----------------------
<S> <C> <C>
1996 1995(A)
- ----------------------------------------------------------------------------------------------------- --------- ----------
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 investment) to March 31, 1995.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

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

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994(A)
- ----------------------------------------------------------------------------------------- --------- --------- ----------
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 investment) to March 31, 1994.]

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

- -------------------------------------------------------
- -------------------------------------------------------
GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. At a meeting of the Board of Directors ("Directors") held on February
26, 1996, the Directors approved an amendment to the Articles of Incorporation
to change the name of Liberty Municipal Securities Fund, Inc. to Federated
Municipal Securities Fund, Inc. The Articles of Incorporation permit the Fund to
offer separate series representing interests in separate portfolios of
securities. As of the date of this prospectus, the Directors have established
three classes of Shares for the Fund, known as Class A Shares, Class B Shares,
and Class C Shares (individually and collectively as the context requires,
"Shares").

Shares of the Fund are designed for individuals and institutions seeking a high
level of current income which is exempt from federal regular income tax by
investing in a professionally managed, diversified portfolio primarily limited
to municipal bonds. The minimum initial investment for Class A Shares is $500.
The minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class
must be in amounts of at least $50. Subsequent investments in any class must be
in amounts of at least $100, except for retirement plans which must be in
amounts of at least $50.

- -------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

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. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests its assets so that at least 80% of its annual interest income
is exempt from federal regular income tax. The Fund pursues its investment
objective by investing at least 65% of its portfolio in municipal bonds.
Municipal bonds are debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies, and instrumentalities, the
interest from which is exempt from federal regular income tax.

CHARACTERISTICS

The municipal bonds which the Fund buys have the same characteristics assigned
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Group ("S&P") to bonds of investment grade quality or better. However, the Fund
is not restricted to buying rated securities. Medium investment grade quality
bonds are rated A and Baa by Moody's or A and BBB by S&P. In certain cases the
Fund's adviser may choose bonds which are unrated if it judges the

bonds to have the same characteristics as medium quality bonds (i.e., an
adequate but not outstanding capacity to service their debt). Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to weaken capacity to make
principal and interest payments than higher rated bonds. If a high-rated bond
loses its rating or has its rating reduced after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will consider
doing so. There is no limit to portfolio maturity. A description of the ratings
categories is contained in the Appendix to the Statement of Additional
Information.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may purchase municipal bonds on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market value of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.

TEMPORARY INVESTMENTS

From time to time on a temporary basis, or when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality. The Fund intends to invest no more than 20% of its assets in
temporary investments.

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.

PORTFOLIO TURNOVER

Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the Fund's
portfolio turnover rate and transaction costs.

MUNICIPAL BONDS

Municipal bonds are generally issued to finance public works, such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities.

Municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith and credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however, are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically classified as
revenue bonds.
Municipal bonds may carry fixed, floating or inverse floating rates of interest.
Fixed rate bonds bear interest at the same rate from issuance until maturity.
The interest rate on floating rate bonds is subject to adjustment based upon
changes in market interest rates or indices, such as a bank's prime rate or a
published market index. The interest rate may be adjusted at specified intervals
or immediately upon any change in the applicable index rate. The interest rate
for most floating rate bonds varies directly with changes in the index rate, so
that the market value of the bond will approximate its stated value at the time
of each adjustment. However, inverse floating rate bonds have interest rates
that vary inversely with changes in the applicable index rate, such that the
bond's interest rate rises when market interest rates fall and fall when market
rates rise. The market value of floating rate bonds is less sensitive than fixed
rate bonds to changes in market interest rates. In contrast, the market value of
inverse floating rate bonds is more sensitive to market rate changes than fixed
or floating rate bonds. The affect of market rate changes on bonds depends upon
a variety of factors, including market expectations as to future changes in
interest rates and, in the case of floating and inverse floating rate bonds, the
frequency with which the interest rate is adjusted and the multiple of the index
rate used in making the adjustment.

Most municipal bonds pay interest in arrears on a semiannual or more frequent
basis. However, certain bonds, variously known as capital appreciation bonds or
zero coupon bonds, do not provide for any interest payments prior to maturity.
Such bonds are normally sold at a discount from their stated value, or provide
for periodic increases in their stated value to reflect a compounded interest
rate. The market value of these bonds is also more sensitive to changes in
market interest rates than bonds that provide for current interest payments.

The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory,
or possession of the United States.
The Fund will not invest 25% or more of its total assets in any one industry.
Governmental issuers of municipal securities are not considered part of any
"industry." However, municipal securities backed only by the assets and revenues
of nongovernmental users may, for this

purpose, be deemed to be related to the industry in which such nongovernmental
users engage, and the 25% limitation would apply to such obligations. It is
nonetheless possible that the Fund may invest more than 25% of its assets in a
broader segment of the municipal securities market, such as revenue obligations
of hospitals and other health care facilities, housing agency revenue
obligations or airport revenue obligations. This would be the case only if the
Fund determines that the yields available from obligations in a particular
segment of the market justified the additional risks associated with a large
investment in such segment. Although such obligations could be supported by the
credit of governmental users or by the credit of nongovernmental users engaged
in a number of industries, economic, business, political and other developments
generally affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of such projects
and market factors affecting the demand for their services or products) may have
a general adverse effect on all municipal securities in such a market segment.
The Fund reserves the right to invest more than 25% of its assets in industrial
development bonds or private activity bonds or in securities of issuers located
in the same state, however, it has no present intention to do so.

INVESTMENT RISKS

Yields on municipal bonds depend on a variety of factors, including: the general
conditions of the money market and the taxable and municipal bond markets; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal bonds to meet
their obligations for the payment of interest and principal when due. The prices
of municipal bonds fluctuate inversely in relation to the direction of interest
rates. The prices of longer term bonds fluctuate more widely in response to
market interest rate changes.

INVESTMENT LIMITATIONS

The Fund will not:

borrow money or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up to
10% of the value of those assets to secure such borrowings;

invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or

invest more than 10% of its total assets in municipal bonds subject to legal or
contractual restrictions on resale, including repurchase agreements maturing in
more than seven days.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

The Fund will not:

invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or

invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within seven
days and repurchase agreements maturing in more than seven days.

- -------------------------------------------------------
NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that it's net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

- -------------------------------------------------------
INVESTING IN THE FUND

The Fund offers investors three classes of Shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing or
Eliminating the Sales Charge." Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time

the investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the 12b-1 fee. Class C Shares have no
conversion feature.

- -------------------------------------------------------
HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has a
sales agreement with the distributor) or by wire or by check directly to the
Fund, with a minimum initial investment of $500 for Class A Shares and $1,500
for Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. (Financial institutions may impose different minimum investment
requirements on their customers.)

In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:

<TABLE>
<CAPTION>
DEALER
SALES CHARGE SALES CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 or
greater 0.00% 0.00% 0.25%*
</TABLE>

See sub-section entitled "Dealer Concession."

No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other fee
by the financial intermediary. Additionally, no sales charge is imposed on
shareholders designated as Liberty Life Members or on Class A Shares purchased
through "wrap accounts" or similar programs, under which clients pay a fee for
services.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING OR ELIMINATING
THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:

. quantity discounts and accumulated purchases;

. concurrent purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege; or

. purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales charge paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at

the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser or
principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A Shares of one of the other Federated Funds with a sales
charge, and $70,000 in this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $100,000 of Shares of Federated
Funds (excluding money market funds) over the next 13 months, the sales charge
may be reduced by signing a letter of intent to that effect. This letter of
intent includes a provision for a sales charge adjustment depending on the
amount actually purchased within the 13-month period and a provision for the
custodian to hold up to 4.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Fund, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales
charge, with the
proceeds from the redemption of shares of an unaffiliated investment company
that were purchased or sold with a sales charge or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program.

If Shares are purchased in this manner, redemptions of those shares will be
subject to a contingent deferred sales charge for one year from the date of
purchase. Shareholders will be notified prior to the implementation of any
special offering as described above.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a fee under the Fund's Distribution Plan
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales charge,
fee or other charge. Class B Shares acquired by exchange from Class B Shares of
another Federated Fund will convert into Class A Shares based on the time of the
initial purchase. For purposes of conversion to Class A Shares, Shares purchased
through the reinvestment of dividends and distributions paid on Class B Shares
will be considered to be held in a separate sub-account. Each time any Class B
Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this
number can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

PURCHASING SHARES BY CHECK

Once an account has been established, Shares may be purchased by mailing a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.

- -------------------------------------------------------
EXCHANGE PRIVILEGE
CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at net asset value. Neither the Fund nor any of the
Federated Funds imposes any additional fees on exchanges.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other Federated Funds. (Not all Federated Funds currently offer Class B
Shares. Contact your financial institution regarding the availability of other
Class B Shares of the other Federated Funds). Exchanges are made at net asset
value without being assessed a contingent deferred sales charge on the exchanged
Shares. To the extent that a shareholder exchanges Shares for Class B Shares in
other Federated Funds, the time for which the exchanged-for Shares are to be
held will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the applicable holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
of other Federated Funds at net asset value without a contingent deferred sales
charge. (Not all Federated Funds currently offer Class C Shares. Contact your
financial institution regarding the availability of Class C Shares of the other
Federated Funds.) To the extent that a shareholder exchanges Shares for Class C
Shares of other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the applicable holding period. For more information,
see "Contingent Deferred Sales Charge."

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-245-5051 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge.

Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any Federated Fund, as long as they maintain a $500 balance in one
of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Shareholder Services Company, 1099 Hingham Street, Rockland,
Massachusetts 02370-3317.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before being
exchanged. Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern
time) and must be received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a Fund will begin receiving
dividends the following business day. This privilege may be modified or
terminated at any time.

- -------------------------------------------------------
HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Investors who redeem Shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below.

REDEEMING SHARES THROUGH
A FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check to the
shareholder's address of record or wire-transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed Shares
purchased by check or through ACH will not be wired until that method of payment
has cleared. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day. Questions
about telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.

The written request should state: the Fund name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually

deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through his financial
institution. Due to the fact that Class A Shares are sold with a sales charge,
it is not advisable for shareholders to continue to purchase Class A Shares
while participating in this program. A contingent deferred sales charge may be
imposed on Class B Shares and Class C Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or sold
with a sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption

which will not be subject to a contingent deferred sales charge. In computing
the amount of the applicable contingent deferred sales charge, redemptions are
deemed to have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and for less than one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection with an
exchange of Fund Shares for Shares of other Federated Funds in the same class
(see "Exchange Privilege"). Any contingent deferred sales charge imposed at the
time the exchanged-for Shares are redeemed is calculated as if the shareholder
had held the Shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, and their immediate
family members; employees of any financial institution that sells Shares of the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or any other financial
institution, to the extent that no payments were advanced for purchases made
through such entities. The Directors reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the termination of
such waiver would have the contingent deferred sales charge eliminated as
provided in the Fund's prospectus at the time of the purchase of the Shares. If
a shareholder making a redemption qualifies for an elimination of the contingent
deferred sales charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that he is entitled to such elimination.

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

ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested in writing to Federated Shareholder Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared daily and paid monthly to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that month's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the Class A Shares required minimum value of $500 or
the required minimum value of $1,500 for Class B Shares and Class C Shares. This
requirement does not apply, however, if the balance falls below the required
minimum value because of changes in the net asset value of the respective Share
class. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to meet
the minimum requirement.

- -------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .30 of 1% of the
Fund's average daily net assets, plus 4.5% of the Fund's gross income (excluding
any capital gains or losses).

The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver at
any time at its sole discretion. The Adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Mary Jo Ochson has been the Fund's portfolio manager since 1996. Ms. Ochson
joined Federated Investors in 1982 and has been a Senior Vice President of the
Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson
served as a Vice President of the Fund's investment adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.

J. Scott Albrecht has been the Fund's portfolio manager since 1966. Mr. Albrecht
joined Federated Investors in 1989 and has been a Vice President of the Fund's
investment adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an
Assistant Vice President of the Fund's investment adviser. In 1991, Mr. Albrecht
acted as an investment analyst. Mr. Albrecht is a Chartered

Financial Analyst and received his M.S. in Public Management from Carnegie
Mellon University.

Jonathan C. Conley has been the Fund's portfolio manager since October 1984. Mr.
Conley joined Federated Investors in 1979 and has been a Senior Vice President
of the Fund's investment adviser since 1995. Mr. Conley was a Vice President of
the Fund's investment adviser from 1982 to 1995. Mr. Conley is a Chartered
Financial Analyst and received his M.B.A. in Finance from the University of
Virginia.

Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution and distribution-related
support services pursuant to the Distribution Plan.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts. Under
the Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS
TO FINANCIAL INSTITUTIONS

With respect to Class A Shares, Class B Shares, and Class C Shares, in addition
to payments made pursuant to the Distribution Plan and Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

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

<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.

Federated Services Company may choose voluntarily to waive a portion of its fee.

- -------------------------------------------------------
SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.

- -------------------------------------------------------
TAX INFORMATION
FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. Shareholders are
not required to pay the federal regular income tax on any dividends received
from the Fund that represent net interest on tax-exempt municipal bonds.
However, under the Tax Reform Act of 1986, dividends representing net interest
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.

The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax-preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

STATE AND LOCAL TAXES

Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.

- -------------------------------------------------------
PERFORMANCE INFORMATION

From time to time the Fund advertises its total return, yield, and
tax-equivalent yield for each class of Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that a
class of Shares would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield does not necessarily
reflect income actually earned by each class of Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares and Class C Shares. Expense differences between Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Municipal Securities Fund, Inc.
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, Pennsylvania 15222-3779
Class C Shares
- ---------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

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

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

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

FEDERATED MUNICIPAL
SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL
SECURITIES FUND, INC.)
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
May 31, 1996

[LOGO OF FEDERATED INVESTORS]
FEDERATED INVESTORS

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 313913105
Cusip 313913204
Cusip 313913303

G00322-01 (5/96) [RECYCLED PAPER LOGO]

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FORMERLY, LIBERTY MUNICIPAL SECURITIES FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Municipal Securities Fund, Inc. (the "Fund") dated
May 31, 1996. This Statement is not a prospectus. You may request a copy
of a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-245-4770.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1996

Federated Securities Corp. is the distributor of the Fund and is a
subsidiary of Federated Investors
CUSIP 313913105
CUSIP 313913204
CUSIP 313913303
8051601B (5/96)

GENERAL INFORMATION ABOUT THE FUND 2

INVESTMENT OBJECTIVE AND POLICIES 2

ACCEPTABLE INVESTMENTS 2
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 3
TEMPORARY INVESTMENTS 3
PORTFOLIO TURNOVER 4
INVESTMENT LIMITATIONS 5
FEDERATED MUNICIPAL SECURITIES FUND, INC. MANAGEMENT9

THE FUNDS 17
FUND OWNERSHIP 18
DIRECTOR COMPENSATION 9
DIRECTOR LIABILITY 9
INVESTMENT ADVISORY SERVICES 20

ADVISER TO THE FUND 20
ADVISORY FEES 20
BROKERAGE TRANSACTIONS 21

OTHER SERVICES 23

FUND ADMINISTRATION 23
CUSTODIAN AND PORTFOLIO ACCOUNTANT 23
TRANSFER AGENT 24
INDEPENDENT AUDITORS 24
PURCHASING SHARES 24

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES
ONLY) AND SHAREHOLDER SERVICES 24
CONVERSION TO FEDERAL FUNDS 25
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS,
AND EMPLOYEES 26
DETERMINING NET ASSET VALUE 26

VALUING MUNICIPAL BONDS 26
REDEEMING SHARES 26

TAX STATUS 27

THE FUND'S TAX STATUS 27
TOTAL RETURN 27

YIELD 28

TAX-EQUIVALENT YIELD 29

TAX-EQUIVALENCY TABLE 29
PERFORMANCE COMPARISONS 31

ECONOMIC AND MARKET INFORMATION15
ABOUT FEDERATED INVESTORS 33

MUTUAL FUND MARKET 34
INSTITUTIONAL 34
TRUST ORGANIZATIONS 35
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES35
FINANCIAL STATEMENTS 35

APPENDIX 36

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on
September 10, 1976. On December 23, 1992, the shareholders of the Fund voted
to permit the Fund to offer separate series and classes of shares. On
January 6, 1993, the Board of Directors ("Directors") approved changing the
name of the Fund from Federated Tax-Free Income Fund, Inc. to Liberty
Municipal Securities Fund, Inc. On February 26, 1996, the Directors approved
an amendment to the Articles of Incorporation to change the name of Liberty
Municipal Securities Fund, Inc. to Federated Municipal Securities Fund, Inc.
Shares of the Fund are offered in three classes, known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred to
as "Shares" as the context may require). This Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax. The
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal bonds.
CHARACTERISTICS AND RISKS
The municipal bonds in which the Fund invests have the characteristics
and risks set forth in the prospectus.
If ratings made by Moody's or S&P change because of changes in those
organizations or in their rating systems, the Fund will try to use
comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend
to engage in when-issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its
assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes. During the last fiscal year, the Fund did not invest in
temporary investments and does not presently intend to do so in the current
fiscal year. The Fund might invest in temporary investments:
o as a reaction to market conditions;
o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally proceeds from sales of shares will be
invested in municipal bonds as quickly as possible; or
o in anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of
the U.S. government, its agencies, or instrumentalities) if, as a result of
the purchase, 25% or more of the value of its total assets would be invested
in any one industry. However, the Fund may, for temporary defensive purposes,
invest more than 25% of the value of its assets in cash or cash items, U.S.
Treasury bills, or securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.

REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. The
Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund may only enter into repurchase agreements with
banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Directors.
From time to time, such as when suitable municipal bonds are not available,
the Fund may invest a portion of its assets in cash. Any portion of the
Fund's assets maintained in cash will reduce the amount of assets in
municipal bonds and thereby reduce the Fund's yield.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any

time when changes in circumstances or conditions make such a move desirable
in light of the investment objective. The Fund will not attempt to achieve or
be limited to a predetermined rate of portfolio turnover, such turnover
always being incidental to transactions undertaken with a view to achieving
the Fund's investment objective. During the fiscal years ended March 31,
1996, and 1995, the portfolio turnover rates were 29% and 41%,
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not make short sales of securities or purchase any
securities on margin, except for such credits as are necessary for the
clearance of transactions.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to one-
third of the value of its total assets, including the amount borrowed,
in order to meet redemption requests without immediately selling any
portfolio securities. This borrowing provision is not for investment
leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
While any such borrowings are outstanding, no net purchases of
investment securities will be made by the Fund.
PLEDGING ASSETS
The Fund will not pledge, mortgage or hypothecate its assets, except to
secure permitted borrowings. In those cases, it may pledge securities

having a market value at the time of pledge not exceeding 10% of the
value of the Fund's total assets.
INVESTING IN COMMODITIES OR MINERALS
The Fund will not purchase or sell commodities, commodity contracts,
oil, gas, or other mineral exploration or development programs.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, but this shall not
prevent the Fund from investing in Municipal Bonds secured by real
estate or interest therein.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933, in
connection with the sale of securities in accordance with its investment
objective, policies and limitations.
MAKING LOANS
The Fund will not make loans except that the Fund may, in accordance
with its investment objective, policies and limitations, acquire
publicly or non-publicly issued Municipal Bonds or temporary investments
or enter into repurchase agreements.
ACQUIRING SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company or investment trust.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase the securities of any one issuer, except in
cash and cash instruments and securities issued by the United States
government, its agencies, and instrumentalities, if as a result more
than 5% of its total assets would be invested in the securities of such
issuer. For purposes of this limitation, each governmental subdivision,

i.e. state, territory, possession of the United States or any political
subdivision of the foregoing including agencies, authorities,
instrumentalities, or similar entities, or of the District of Columbia
shall be considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and revenues
are separate from those of the governmental body creating it and the
security is backed by its own assets and revenues. In the case of an
industrial development bond, if the security is backed only by the
assets and revenues of a non-governmental user, then such non-
governmental user will be deemed to be the sole issuer. If, however, in
the case of an industrial development bond or governmental issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor as well as the other issuer (as above defined), subject to
limited exclusions allowed by the Investment Company Act of 1940, as
amended. For purposes of this limitation, cash instruments do not
include securities issued by banks.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination thereof.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
Fund will not purchase or retain the securities of any issuer other
than the securities of the Fund, if, to the Fund's knowledge, those
officers and directors of the Fund, or of the Adviser, who individually
own beneficially more than 1/2 of 1% of the outstanding securities of
such issuer, together own beneficially more than 5% of such outstanding
securities.

CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase
more than 25% of the value of its assets would be invested in the
securities of governmental subdivisions located in any one state,
territory, or possession of the United States. The Fund may invest more
than 25% of the value of its assets in industrial development bonds. As
to industrial development bonds, the Fund may purchase securities of an
issuer resulting in the ownership of more than 25% of the Fund's assets
in any one industry.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in Municipal Bonds which are subject to legal or contractual
restrictions on resale, including repurchase agreements maturing in more
than seven days.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its net assets in illiquid
securities, including restricted securities which the adviser believes
cannot be sold within seven days and repurchase agreements maturing in
more than seven days.
INVESTING IN NEW OR FOREIGN ISSUERS OR IN SECURITIES NOT READILY MARKETABLE
In order to qualify Shares of the Fund for sale in certain states, the
Fund has agreed with certain state securities administrators not to
invest more than 5% of the value of its total assets in securities of
issuers with records of less than three years of continuous operations,

including the operation of any predecessor. The Fund has also agreed not
to purchase equity securities of any issuer that are not readily
marketable or to invest in securities of any foreign issuer.
In addition, in order to comply with certain state restrictions, the Fund
will not invest in real estate limited partnerships, oil, gas or other
mineral leases.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Fund did not borrow money, pledge securities, invest in municipal bonds
subject to legal or contractual restrictions, invest in issuers whose
securities are owned by officers of the Fund, or invest in securities of
issuers with a record of less than three years of continuous operation in
excess of 5% of the value of its net assets during the last fiscal year and
has no present intent to do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates
of deposits and demand and time deposits issued by a U.S. branch of a
domestic bank or savings association having capital, surplus and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items."
FEDERATED MUNICIPAL SECURITIES FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Municipal Securities Fund, Inc., and principal
occupations.

John F. Donahue@*

Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, President and Director of the Company .

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; Director or Trustee
of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director

President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director or Trustee of the Funds; formerly, President, Naples
Property Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director
or Trustee of the Funds; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Director
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of

some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924

Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee of the Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management
Center; Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board.

THE FUNDS
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.;
High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration

Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment Series,
Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of May 6, 1996, no shareholders of record owned 5% or more of the Class A
Shares and Class B Shares of the Fund.
As of May 6, 1996, the following shareholders of record owned 5% or more of
the Class C Shares of the Fund: Merrill Lynch, Pierce, Fenner & Smith, (a
record owner holding Shares for its clients), Jacksonville, Florida, owned
approximately 638,570 shares (26.62%); James C. Gilman, Butte, Montana, owned
approximately 120,161 shares (5.01%).

DIRECTOR COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +

John F. Donahue, $0 $0 for the Fund and
Chairman and Director 54 other investment companies in the Fund
Complex
J. Christopher Donahue, $0 $0 for the Fund and

President and Director 16 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $1,704 $86,331 for the Fund and
Director 54 other investment companies in the Fund Complex
John T. Conroy, Jr., $1,835 $115,760 for the Fund and
Director 54 other investment companies in the Fund Complex
William J. Copeland, $1,835 $115,760 for the Fund and
Director 54 other investment companies in the Fund Complex
James E. Dowd, $1,835 $115,760 for the Fund and
Director 54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex
Edward L Flaherty, Jr., $1,835 $115,760 for the Fund and
Director 54 other investment companies in the Fund Complex
Peter E. Madden, $1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex
Gregor F. Meyer, Jr., $1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex
John E. Murray, Jr., $1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex
Wesley W. Posvar,$1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,704 $104,898 for the Fund and
Director 54 other investment companies in the Fund Complex

*Information is furnished for the fiscal year ended March 31, 1996.
+The information is provided for the last calendar year.

++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.</R.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a
subsidiary of Federated Investors. All the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or
for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
March 31, 1996, 1995, and 1994, the Fund's Adviser earned $4,644,716,
$4,498,635, and $4,570,573, respectively.

STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the adviser will reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Directors. The Adviser may
select brokers and dealers who offer brokerage and research services. These

services may be furnished directly to the Fund or to the Adviser and may
include: advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates
in advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended March 31, 1996, 1995, and
1994, no brokerage commissions were paid by the Fund.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March 1,
1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended March 31, 1996, 1995, and
1994, the Administrators earned $573,123, $550,028, and $541,113,
respectively.
Dr. Henry J. Gailliot, an officer of Federated Advisers, the adviser to the
Fund, holds approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments. The fee paid for this service is based upon the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.

TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based upon the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP.
PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the combined prospectus under "How To
Purchase Shares."
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options, account
designations, and addresses.

By adopting the Distribution Plan (Class B Shares and Class C Shares
only), the Directors expect that Class B Shares and Class C Shares of the
Fund will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment
objectives. By identifying potential investors whose needs are served by the
Fund's objectives, and properly servicing these accounts, it may be possible
to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; and (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended March 31, 1996, payments in the amount of
$272,251 (Class B Shares), and $177,402 (Class C Shares) were made pursuant
to the Distribution Plan, all of which was paid to financial institutions. In
addition, for the fiscal year ended March 31, 1996, payments in the amount of
$1,743,709 (Class A Shares), $90,750 (Class B Shares), and $59,134 (Class C
Shares) were made pursuant to the Shareholder Services Agreement, of which
$917,995 (Class A Shares), $0 (Class B Shares), and $10,112 (Class C Shares)
was voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders begin
to earn dividends. Federated Shareholder Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates and their
immediate family members, or any investment dealer who has a sales agreement
with Federated Securities Corp. and their spouses and children under 21, may
buy Class A Shares at net asset value without a sales charge. Shares may also
be sold without a sales charge to trusts or pension or profit-sharing plans
for these people.</R.
These sales are made with the purchaser's written assurance that the purchase
is for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS

The Directors use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading characteristics,
special circumstances of a security or trading market, and any other factors
or market data it considers relevant in determining valuations for normal
institutional size trading units of debt securities, and does not rely
exclusively on quoted prices.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in the combined
prospectus under "How To Redeem Shares." Although State Street Bank does not

charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
TOTAL RETURN

The Fund's average annual total return based on offering price for Class A
Shares for the one-year, five-year, and ten-year periods ended March 31,
1996, was .62%, 6.06%, and 6.73%, respectively.
The Fund's average annual total return based on offering price for Class B
Shares for the one-year period ended March 31, 1996, and for the period from
July 26, 1994 (date of initial public offering) to March 31, 1996, was -1.36%
and 1.76%, respectively.
The Fund's one-year average annual total return based on offering price for
Class C Shares for the period ended March 31, 1996 and for the period from

April 20, 1993 (date of initial public offering) to March 31, 1996, was 3.36%
and 3.22%, respectively.
The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
less any applicable sales load adjusted over the period by any additional
Shares, assuming the monthly reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of Shares redeemed.
YIELD

The Fund's yields for the thirty-day period ended March 31, 1996 for Class A
Shares, Class B Shares, and Class C Shares were 5.19%, 4.29%, and 4.30%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the
net investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of
the period. This value is then annualized using semi- annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the

Securities and Exchange Commission and therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yields for the thirty-day period ended March 31,
1996 for Class A Shares, Class B Shares, and Class C Shares were 7.21%,
5.96%, and 5.97%, respectively. The tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Fund would have had to earn to equal its actual yield,
assuming a 28% tax rate and assuming that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax*, and is often free from state
and local taxes as well. As the table on the next page indicates, a "tax-
free" investment can be an attractive choice for investors, particularly in
times of narrow spreads between tax-free and taxable yields.

TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS

The performance of each of the classes of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering

price. The financial publications and/or indices which the Fund uses in
advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the general municipal bond funds category in
advertising and sales literature.
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attribute for the index are calculated semi- monthly.
o LEHMAN SEVEN YEAR STATE GENERAL OBLIGATIONS INDEX is an index of general
obligation bonds rated A or better with 6-8 years to maturity.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These
total returns represent the historic change in the value of an investment in
any of the classes of Shares based on monthly reinvestment of dividends over
a specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any of the classes of Shares using charts, graphs, and
descriptions, compared to federally insured bank products including

certificates of deposit and time deposits and to money market funds using the
Lipper Analytical Services money market instruments average.
Advertisements may quote performance which does not reflect the effect of the
sales charge for Class A Shares.
Advertising and other promotional literature may include charts, graphs
and other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which
in invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect of the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.

The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors. These traders handle trillions
of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors managed
12 bond funds with approximately $2.0 billion in assets and 20 money market
funds with approximately $7.8 billion in total assets. In 1976, Federated
Investors introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The
Tax Foundation and the National Taxpayers Union regarding the tax obligations
of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a

variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated Investors'
service to financial professionals and institutions has earned it high
rankings in several DALBAR Surveys. The marketing effort to these firms is
headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended March 31, 1996, are
incorporated herein by reference to the Annual Report of the Fund dated March
31, 1996 (File Nos. 2-57181 and 811-2677). A copy of this report may be
obtained without charge by contacting the Fund.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB"- rating.
B--Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is

also used for debt subordinated to senior debt that is assigned an actual or
implied "BB "or "BB"- rating.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated BAA are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

BA--Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements. (Incorporated by reference to the
Registrant's Annual Report dated March 3l, l996 pursuant to
Rule 411 under the Securities Act of 1933.) (File Nos. 2-57181
and 811-2677);
(b) Exhibits and Consents:
(1) (i) Conformed copy of Articles of Incorporation of the
Registrant; (14)
(ii) Copy of amendment to Articles of Incorporation; (14)
(2) (i) Copy of By-Laws of the Registrant; (14)

(ii) Copy of Amendment to By-Laws effective August
26, l987; (8)
(iii) Copy of Amendment to By-Laws effective September
30, 1976; (14)
(iv) Copy of Amendment to By-Laws effective February
17, 1984; (14)
(v) Copy of Amendment to By-Laws effective
February 21, 1985; (14)
(vi) Copy of Amendment to By-Laws effective
August 27, 1986; (14)
(vii) Copy of Amendment to By-Laws effective
February 2, 1987; (14)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital Stock
of the Registrant; (14)
(5) Conformed Copy of Investment Advisory Contract of the
Registrant; (9)
(6) (i) Conformed copy of Distributor's Contract of the
Registrant; (12)
(ii) Conformed copy of Exhibit D to the Distributor's
Contract; (13)
(iii) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement from Item
4(b)(6) of the Cash Trust Series II Registration
Statement on Form N-1A, filed with the Commission on July
24, 1995. (File Numbers 33-38550 and 811-6269)

+ All exhibits have been filed electronically.

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed July 27, 1989. (File Nos. 2-57181
and 811-2677)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 36 on Form N-1A filed July 17, 1990. (File Nos. 2-57181
and 811-2677)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 42 on Form N-1A filed May 25, 1994. (File Nos. 2-57181
and 811-2677)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 45 on Form N-1A filed May 25, 1995. (File Nos. 2-57181 and
811-2677)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 46 on Form N-1A filed April 26, 1996. (File Nos. 2-57181
and 811-2677)

(7) Not applicable;
(8) Conformed Copy of Custodian Contract of the Registrant;
(13)
(9) (i) Conformed Copy of Agreement for Fund Accounting,
Shareholder Recordkeeping and Custody Services
Procurement; +
(ii)The responses described in Item 24(b)(6) are hereby
incorporated by reference.
(iii) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between

National Pensions Alliance, Ltd. and Federated
Shareholder Services from Item 24(b)(9)(ii) of the
Federated GNMA Trust Registration Statement on Form N-1A,
filed with the Commission on March 26, 1996. (File Nos.
2-75670 and 811-3375).
(iv) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services from Item
24(b)(9)(iii) of the Federated GNMA Trust Registration
statement on Form N-1A, filed with the Commission on
March 26, 1996. (File Nos. 2-75670 and 811-3375).
(10) Not applicable.
(11) Conformed Copy of Consent of Independent Public Auditors;
+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Conformed Copy of the 12b-1 Distribution Plan of the
Registrant (12);
(ii) Confromed Copy of Exhibit C of the 12b-1
Distribution Plan of the Registrant (13);
(ii) The responses described in Item 24(b)(6) are hereby
incorporated by reference.
(16) Schedule for Computation of Fund Performance Data;(14)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of
the World Investment Series, Inc. Registration Statement

on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed copy of Power of Attorney; +

+ All exhibits have been filed electronically.

12. Respnse is incorporated by reference to Registrant's Post-Effective
Amendment No. 42 on Form N-1A filed May 25, 1994. (File Nos. 2-57181 and
811-2667)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 45 on Form N-1A filed May 25, 1995. (File Nos. 2-57181 and
811-2677)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 46 on Form N-1A filed April 26, 1996. (File Nos. 2-57181
and 811-2677)

Item 25. Persons Controlled by or Under Common Control with Registrant:

None.

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of May 7, 1996

Shares of capital stock
($0.0l per share par value)

Class A Shares 23,680
Class B Shares 1,643
Class C Shares 718

Item 27. Indemnification:(11)

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 38 on Form N-1A filed July 22, 1992. (File Nos. 2-57181
and 811-2677)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment
adviser, see the section entitled "Fund Information - Management of
the Fund" in Part A. The affiliations with the Registrant of four
of the Directors and one of the Officers of the investment adviser
are included in Part B of this Registration Statement under
"Federated Municipal Securities Fund Inc. Management." The
remaining Directors of the investment adviser, his position with
the investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson, Partner, Wilson, Halbrook & Bayard,
107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are: William D.
Dawson, III, Henry A. Frantzen, Mark L. Mallon, and J. Thomas
Madden, Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins, Jonathan
C. Conley, Mark Durbiano, J. Alan Minteer, Mary Jo Ochson, and
Robert J. Ostrowski, Senior Vice Presidents; J. Scott Albrecht,
Joseph M. Balestrino, Randall A. Bauer, David F. Belton, David A.
Briggs, Kenneth J. Cody, Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Duessel, Kathleen Foody-Malus, Thomas M. Franks,
Edward C. Gonzales, Timothy E. Keefe, Stephen A. Keen, Mark S.
Kopinski, Jeff A. Kozemchek, Marian R. Marinack, Susan M. Nason,
Frederick L. Plautz, Jr., Charles A. Ritter, James D. Roberge,
Frank Semack, William F. Stotz, Edward J. Tiedge, Sandra L.
Weber,and Christopher H. Wiles, Vice Presidents; Thomas R. Donahue,
Treasurer, and Stephen A. Keen, Secretary. The business address of
each of the Officers of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals are
also officers of a majority of the investment advisers to the Funds
listed in Part B of this Registration Statement.

Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds;
Automated Government Money Trust; BayFunds; Blanchard Funds; Blanchard

Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.;
High Yield Cash Trust; Independence One Mutual Funds; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds; The
Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst Funds
II; The Virtus Funds; Tower Mutual Funds; Trust for Financial Institutions;

Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary

John B. Fisher President-Institutional Sales, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Assistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

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

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

Registrant hereby undertakes to comply with the provisions of
Section 16 (c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL
SECURITIES FUND, INC. (formerly, Liberty Municipal Securities Fund, Inc.),
certifies that it meets the requirements for effectiveness of this Amendment
to its Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 24th day of
May, 1996.

FEDERATED MUNICIPAL SECURITIES FUND, INC.,
(formerly, Liberty Municipal Securities Fund, Inc.)
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 24, 1996

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

NAME TITLE DATE

By:/s/Charles H. Field
Charles H. Field Attorney In Fact May 24, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

J. Christopher Donahue* President and Director

David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK

INDEPENDENT AUDITORS' CONSENT

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

We consent to the incorporation by reference in Post-Effective Amendment No.
48 to Registration Statement (No. 2-57181) of Federated Municipal Securities
Fund, Inc. (formerly, Liberty Municipal Securities Fund, Inc.) of our report
dated May 17, 1996, appearing in the Annual Report, which is incorporated by
reference in such Registration Statement, and to the reference to us under
the heading "Financial Highlights" in such Prospectus.

/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania

Exhibit 9(I) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania corporation, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf
of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
if so indicated on Exhibit, and the Company desires to accept such
appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer
agency services (as herein defined) if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the
Company desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment
Company with regard to fund accounting for the Investment Company, and/or the
Funds, and/or the Classes, and in connection therewith undertakes to perform
the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the board;
secondarily, if a designated pricing service does not provide a price
for a security which the Company believes should be available by market
quotation, the Company may obtain a price by calling brokers designated
by the investment adviser of the fund holding the security, or if the
adviser does not supply the names of such brokers, the Company will
attempt on its own to find brokers to price those securities; thirdly,
for securities for which no market price is available, the Pricing
Committee of the Board will determine a fair value in good faith.
Consistent with Rule 2a-4 of the 40 Act, estimates may be used where
necessary or appropriate. The Company's obligations with regard to the
prices received from outside pricing services and designated brokers or
other outside sources, is to exercise reasonable care in the
supervision of the pricing agent. The Company is not the guarantor of
the securities prices received from such agents and the Company is not
liable to the Fund for potential errors in valuing a Fund's assets or
calculating the net asset value per share of such Fund or Class when
the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser
the securities prices used in calculating the net asset value of the
fund, for its use in preparing exception reports for those prices on
which the adviser has comment. Further, upon receipt of the exception
reports generated by the adviser, the Company diligently pursues
communication regarding exception reports with the designated pricing
agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
One, shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company. Out-of-
pocket disbursements shall include, but shall not be limited to, the
items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to
federal, state and other governmental agencies; fees of Trustees or
Directors of the Investment Company; independent auditors expenses;
legal and audit department expenses billed to the Company for work
performed related to the Investment Company, the Funds, or the Classes;
law firm expenses; organizational expenses; or other expenses not
specified in this Article 3 which may be properly payable by the Funds
and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing Fund Accounting Services. Such person or persons may be
affiliates of the Company, third-party service providers, or they may
be officers and employees who are employed by both the Company and the
Investment Company; provided, however, that the Company shall be as
fully responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no
obligation shall be incurred on behalf of the Investment Company, the
Funds, or the Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth
in Article 5 of this Agreement in return for the compensation set forth in
Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its
portfolios:
A. prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter (which has
already been prepared and filed), the By-laws and minutes of meetings
of the Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements
for the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous
offering of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who
will be responsible for the management of certain of the Investment
Company's affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section 4,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the
Investment Company. Where applicable, such records shall be maintained by
the Company for the periods and in the places required by Rule 31a-2 under
the 1940 Act. The books and records pertaining to the Investment Company
which are in the possession of the Company shall be the property of the
Investment Company. The Investment Company, or the Investment Company's
authorized representatives, shall have access to such books and records at
all times during the Company's normal business hours. Upon the reasonable
request of the Investment Company, copies of any such books and records shall
be provided promptly by the Company to the Investment Company or the
Investment Company's authorized representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any
other laws, rules and regulations of government authorities having
jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Investment Company, including the
compensation of the Company employees who serve as trustees or directors or
officers of the Investment Company. The Investment Company shall be
responsible for all other expenses incurred by the Company on behalf of the
Investment Company, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing fees,
fees of outside counsel and independent auditors, or other professional
services, organizational expenses, insurance premiums, fees payable to
persons who are not the Company's employees, trade association dues, and
other expenses properly payable by the Funds and/or the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation
for its services rendered hereunder an administrative fee at an annual rate
per Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The Company
will maintain detailed information about the compensation and out of pocket
expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in
this Article 9 may increase annually upon each March 1 anniversary of this
Agreement over the minimum fee during the prior 12 months, as calculated
under this agreement, in an amount equal to the increase in Pennsylvania
Consumer Price Index (not to exceed 6% annually) as last reported by the U.S.
Bureau of Labor Statistics for the twelve months immediately preceding such
anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Company in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement. The Company
shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Investment Company) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant
to such advice. Any person, even though also an officer, director,
trustee, partner, employee or agent of the Company, who may be or
become an officer, director, trustee, partner, employee or agent of the
Investment Company, shall be deemed, when rendering services to the
Investment Company or acting on any business of the Investment Company
(other than services or business in connection with the duties of the
Company hereunder) to be rendering such services to or acting solely
for the Investment Company and not as an officer, director, trustee,
partner, employee or agent or one under the control or direction of the
Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall in
such situation initiate no further legal or other expenses for which it
shall seek indemnification under this Article. the Company shall in no
case confess any claim or make any compromise in any case in which the
Investment Company will be asked to indemnify the Company except with
the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for each
Fund's Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund ("Shareholder(s)"),
including without limitation any periodic investment plan or periodic
withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company
as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer books
of the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, the Company shall, on or before the payment date
of any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution which is
payable in cash and request the Custodian to make available
sufficient funds for the cash amount to be paid out. The Company
shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to the
Shareholder's account, for certificated Funds and/or Classes,
delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the classification
of transactions for each state on the system prior to
activation and thereafter monitor the daily activity for each
state. The responsibility of the Company for each Fund's
(and/or Class's) state blue sky registration status is
limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky
compliance and the reporting of such transactions and
accounts to the Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Investment Company shall supply the Company with a sufficient
supply of blank Share certificates and from time to time shall renew
such supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized by
the Investment Company and shall bear the seal of the Investment
Company or facsimile thereof; and notwithstanding the death,
resignation or removal of any officer of the Investment Company
authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Investment Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as
agreed upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject to
written agreement between the Investment Company and the Company.
Pursuant to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The Company
will charge the Fund the same fees for each such Class or sub-component
the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a custodian
(the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has
been approved by the Board as being eligible for selection by the
Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature
and amount of disbursements made on account of the each Fund with
respect to each custodial agreement; and (iii) such other information
as the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940 Act
and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter
be referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Four of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Investment Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Company, or the Fund, and the Company
are satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or
(2) such other provider of services duly registered as a transfer
agent under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent
on the part of the Investment Company subcontract for the performance
of such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with
an Agent selected by the Investment Company, other than as described in
B. and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the Board
of the Investment Company with a certificate of the Secretary of
the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing
the original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of any
Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and
in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;
(4) all requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements and
in good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on
all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice, provided that such action is
not in violation of applicable federal or state laws or regulations,
and is in good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by the Investment Company of Fund for use in
the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment Company
or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the
offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal or state laws or regulations.
The Company, its agents and subcontractors shall be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Investment Company or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a co-
transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 23 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue
for 18 month terms. The Agreement can be terminated by either party upon 18
months notice to be effective as of the end of such 18 month period. In the
event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right
to terminate the Agreement upon 60 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard
of its duties within 60 days. The termination date for all original or
after-added Investment companies which are, or become, a party to this
Agreement. shall be coterminous. Investment Companies that merge or dissolve
during the Term, shall cease to be a party on the effective date of such
merger or dissolution.
Should the Investment Company exercise its rights to terminate, all out-of-
pocket expenses associated with the movement of records and materials will be
borne by the Investment Company or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing signed
by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Charter. No interpretive or
additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779,
or to such other address as the Investment Company or the Company may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
ARTICLE 30. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Company, but bind only the appropriate
property of the Fund, or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all properties
of the Investment Company held by it hereunder. If no such successor agent
shall be appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all
of or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 34 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Investment Company, but bind
only the property of the Fund, or Class, as provided in the Declaration of
Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

By: /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary

FEDERATED SERVICES COMPANY

By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary

EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes

March 1, 1996 FEDERATED MUNICIPAL SECURITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

FEDERATED SERVICES COMPANY provides the following services:

Administrative Services
Fund Accounting Services
Shareholder Recordkeeping Services

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED
MUNICIPAL SECURITIES FUND, INC. and the Deputy General Counsel of Federated
Investors, and each of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for them and in
their names, place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to sign and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ John F. Donahue Chairman May 3, 1996
John F. Donahue (Chief Executive Officer)

/s/ J. Christopher Donahue President May 3, 1996
J. Christopher Donahue

/s/ David M. Taylor Treasurer May 3, 1996
David M. Taylor (Principal Financial and
Accounting Officer)

/s/ Thomas G. Bigley Director May 3, 1996
Thomas G. Bigley

/s/ John T. Conroy, Jr. Director May 3, 1996
John T. Conroy, Jr.

SIGNATURES TITLE DATE

/s/ William J. Copeland Director May 3, 1996
William J. Copeland

/s/ James E. Dowd Director May 3, 1996
James E. Dowd

/s/ Lawrence D. Ellis, M.D. Director May 3, 1996
Lawrence D. Ellis, M.D.

/s/ Edward L. Flaherty, Jr. Director May 3, 1996
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Director May 3, 1996
Peter E. Madden

/s/ Gregor F. Meyer Director May 3, 1996
Gregor F. Meyer

/s/ John E. Murray, Jr. Director May 3, 1996
John E. Murray, Jr.

/s/ Wesley W. Posvar Director May 3, 1996
Wesley W. Posvar

/s/ Marjorie P. Smuts Director May 3, 1996
Marjorie P. Smuts

Sworn to and subscribed before me this 3rd day of May, 1996

/s/ Marie M. Hamm

Notarial Seal
Marie M. Hamm Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated Municipal Securities Fund, Inc.
Class A Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-END> Mar-31-1996
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<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated Municipal Securities Fund, Inc.
Class B Shares

<PERIOD-TYPE> 12-MOS
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<ASSETS-OTHER> 100,273
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<OTHER-ITEMS-LIABILITIES> 2,207,170
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<SHARES-COMMON-STOCK> 5,389,543
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<DISTRIBUTIONS-OF-GAINS> 44,667
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<NUMBER-OF-SHARES-SOLD> 4,157,827
<NUMBER-OF-SHARES-REDEEMED> 526,969
<SHARES-REINVESTED> 91,690
<NET-CHANGE-IN-ASSETS> (1,553,724)
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<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Federated Municipal Securities Fund, Inc.
Class C Shares

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<DISTRIBUTIONS-OF-GAINS> 30,361
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</TABLE>