[Graphic]
Federated Municipal Securities Fund, Inc.
21ST SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
ESTABLISHED 1976
President's Message
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Dear Fellow Shareholder:
Federated Municipal Securities Fund, Inc. was established in 1976, and I am
pleased to present the 21st semi-annual report for the fund. This report covers
the six-month reporting period from April 1, 1997, to September 30, 1997, which
is the first half of the fund's fiscal year.
This report begins with an interview with J. Scott Albrecht, Vice President,
Federated Advisers, who co-manages the fund with Mary Jo Ochson, Senior Vice
President, Federated Advisers. Following the interview are the financial
statements and a complete listing of the tax-free municipal securities that
comprise the fund's holdings.
Federated Municipal Securities Fund, Inc. has provided tax-free income from a
broad list of long-term municipal issues since 1976.* On September 30, 1997, the
fund's $707.8 million portfolio was invested in 113 tax-free securities issued
by municipalities across our country. The fund's weighted average effective
maturity was 11.25 years.
During the six-month reporting period, municipal bonds performed relatively well
due to a combination of lower interest rates, a stable demand, and a relatively
limited supply of bonds. For the six-month reporting period ended September 30,
1997, the performance of each share class was as follows:**
INCOME NET ASSET VALUE
TOTAL RETURN DISTRIBUTIONS INCREASE
Class A Shares 6.86% $0.26 $10.31 to $10.75 = 4.25%
Class B Shares 6.39% $0.21 $10.31 to $10.75 = 4.25%
Class C Shares 6.40% $0.21 $10.31 to $10.75 = 4.25%
Thank you for investing a portion of your wealth in Federated Municipal
Securities Fund, Inc. The fund is a convenient way to invest in a broad list of
municipal securities. You can receive any monthly income from the fund or help
increase your wealth by reinvesting your dividends so they may compound tax
free.
Sincerely yours,
[Graphic]
J. Christopher Donahue
President
November 15, 1997
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
** Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the period
based on offering price for Class A, B, and C Shares were 2.01%, 0.77%, and
5.41%, respectively.
Investment Review
[Graphic]
J. Scott Albrecht
Vice President
Federated Advisers
[Graphic]
Mary Jo Ochson
Senior Vice President
Federated Advisers
[Graphic]
WHAT IS YOUR REVIEW OF THE MUNICIPAL BOND MARKET ENVIRONMENT DURING THE FUND'S
REPORTING PERIOD?
The market environment for fixed-income investments in general, and municipal
bonds in particular, has been relatively favorable. Inflation and inflation
expectations, which are the major determinants of nominal interest rates,
continued to be very well behaved. Municipal bond yields, as represented by the
Bond Buyer 40 Index*, which have trended lower since their peak at 6.06%, stood
at 5.47% on September 30, 1997.
The greatest potential threat to the municipal bond market recently was the
Taxpayer Relief Act of 1997. Fortunately, the impact on the municipal bond
market from this new tax legislation is much more benign than was originally
anticipated. Municipal bonds emerged essentially unscathed. This favorable
legislative treatment--combined with lower interest rates, stable demand and a
relatively limited supply of municipal bonds--provided a firm market
environment.
[Graphic]
WHY HAVE MUNICIPALS BEEN AMONG THE BETTER PERFORMING FIXED-INCOME MARKETS?
There are several reasons for the municipal bond market's strong relative
performance. They have to do primarily with the municipal market's technical
position, or the supply and demand for municipal bonds. The demand for municipal
bonds was relatively stable, mostly due to strong institutional demand from
commercial banks, property and casualty insurers, and arbitrageurs. Retail
buyers or individuals are the primary component of municipal bond demand. Their
participation in the market has been mixed, but has been stable enough to
provide an important foundation for municipal bond prices.
* The Bond Buyer 40 Index is a standard against which municipal bonds are
measured.
[Graphic]
IN THIS ENVIRONMENT, HOW DID FEDERATED MUNICIPAL SECURITIES FUND, INC.
PERFORM WITH RESPECT TO INVESTMENT RETURN OVER THE FIRST SIX MONTHS OF ITS
FISCAL YEAR?
For the six-month reporting period ended September 30, 1997, investors in
Federated Municipal Securities Fund, Inc. Class A, B, and C Shares received
competitive total returns of 6.86%, 6.39%, and 6.40%, respectively, based on net
asset value.* In comparison, the Lipper General Municipal Debt Fund Average
total return for the six-month reporting period was 6.55%.**
The fund's performance over the reporting period was driven by its neutral
duration target relative to its benchmark. The fund's core position in premium,
high-coupon securities also provided positive incremental return over the
reporting period. Also, sector selection was a very important factor which had a
positive impact on performance. Bonds from the electric utility, health care,
and transportation sectors provided the best relative performance over the
reporting period.
[Graphic]
MONTHLY INCOME IS A PRIMARY CONSIDERATION FOR MANY INVESTORS. HOW DID THE
FUND PERFORM IN TERMS OF INCOME AND YIELD?
Tax-free dividends totaled $0.26 per share for Class A Shares, and $0.21 per
share for Class B Shares and Class C Shares. The 30-day current net yield on
September 30, 1997, was 4.02% for Class A Shares, 3.33% for Class B Shares, and
3.34% for Class C Shares based on offering price.+ The fund's Class A Shares'
yield of 4.02% has taxable yield equivalents of 6.66%, 6.28%, and 5.83%,
respectively, for investors in the 39.6%, 36%, and 31% federal tax brackets.++
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C Shares were 2.01%, 0.77%, and 5.41%, respectively.
** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
+ Thirty-day current net yield is calculated by dividing the net investment
income per share for the 30 days ended on the date specified by the maximum
offering price per share on that date. Then, the figure is compounded and
annualized.
++ The taxable yield equivalents, based on offering price, for investors in the
39.6%, 36%, and 31% federal tax brackets are as follows: Class B
Shares--5.51%, 5.20%, and 4.83%, respectively; Class C Shares--5.53%, 5.22%,
and 4.84%, respectively.
[Graphic]
WHAT WERE THE FUND'S TOP HOLDINGS?
At the end of the reporting period, the top five holdings were:
PERCENTAGE
NAME RATING OF PORTFOLIO
District of Columbia, A+ 3.32%
Georgetown University;
7.15% due 4/1/2021
Indianapolis, IN BBB 3.01%
Airport Authority
Special Facilities
Revenue Bonds;
7.10% due 1/15/2017
Long Beach, CA AAA 2.62%
Harbor Revenue Bonds;
5.37% due 5/15/2020
Salt Lake City, UT AAA 2.43%
Hospital Authority;
8.12% due 5/15/2015
New York State BBB+ 2.43%
Dormitory Authority;
5.375% due 2/15/2026
[Graphic]
AS WE NEAR THE END OF 1997, DO YOU FORESEE A FAVORABLE ENVIRONMENT AHEAD FOR
MUNICIPAL BOND INVESTORS?
In general, yes. Inflation should continue to be negligible as a result of a
high level of productivity in the U.S. economy, international competition, new
technology, and the assistance provided by a relatively strong dollar. This
reality should continue to provide a relatively favorable environment for
fixed-income investments. Also, the supply of municipal bonds should continue to
be somewhat constrained by historical standards, which should provide a
favorable technical situation for the municipal market.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED MUNICIPAL SECURITIES
FUND, INC.
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $21,000 IN THE CLASS A SHARES OF
FEDERATED MUNICIPAL SECURITIES FUND, INC. ON 10/4/76, REINVESTED YOUR DIVIDENDS
AND CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$76,178 ON 9/30/97. YOU WOULD HAVE EARNED A 6.33%* AVERAGE ANNUAL TOTAL RETURN
FOR THE 21-YEAR INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all tax-free distributions in fund
shares. This increases the number of shares on which you can earn future
tax-free dividends, and you gain the benefit of compounding tax free.
As of 9/30/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 3.46%, 4.54%, and 7.44%, respectively. Class B
Shares' average annual one-year and since-inception (7/26/94) total returns were
1.58% and 3.79%, respectively. Class C Shares' average annual one-year and
since-inception (4/21/93) total returns were 6.37% and 3.78%, respectively.**
[Graphic representation "A1" omitted - see appendix.]
* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 4.50% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than their original cost.
** The total returns take into account the 4.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1.00% contingent deferred sales charge for Class C Shares.
FEDERATED MUNICIPAL SECURITIES FUND, INC.
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 21 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $49,921.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends and
capital gains and didn't redeem any shares, you would have invested only $21,000
but your account would have reached a total value of $49,921* by 9/30/97. You
would have earned an average annual total return of
7.36%.
A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all tax-free earnings. An investment plan works for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time, money, and compounding to work.
[Graphic representation "A2" omitted - see appendix.]
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares
at lower prices, and all accumulated shares have the ability to pay income to
the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED MUNICIPAL SECURITIES FUND, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR TAX-FREE INCOME
Larry and Barbara Bartlett are a fictional couple who, like all other
tax-sensitive shareholders, want to keep more of what they earn.
Larry owns a successful architectural firm and Barbara is a marketing executive.
Their combined income puts them in the 39.6% federal tax bracket. On October 31,
1987, the Bartletts invested $25,000 in the Class A Shares of Federated
Municipal Securities Fund, Inc.
As this chart shows, in 10 years, their original $25,000 investment has grown to
$50,674.* This represents a 7.38% average annual total return. As far as the
Bartletts are concerned, this fund has made all the difference.
[Graphic representation "A3" omitted - see appendix.]
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED MUNICIPAL SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--1.0%
CALIFORNIA--0.6%
$ 4,000,000 California State, Trust Receipts (Series 1997) Daily
VRDNs (Bank of New York, New York LIQ) A-1+ $ 4,000,000
KENTUCKY--0.0%
200,000 Kentucky Pollution Abatement & Water Resource Finance
Authority Daily VRDNs (Toyota Motor Credit Corp.) AAA 200,000
PENNSYLVANIA--0.3%
600,000 New Castle, PA Area Hospital Authority, (Series 1996)
Weekly VRDNs (Jameson Memorial Hospital)/
(FSA INS)/(PNC Bank, N.A. LIQ) AAA 600,000
1,500,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series A of 1996)
Daily VRDNs (Children's Hospital of Philadelphia)/
(Morgan Guaranty Trust Co., New York LIQ) AA 1,500,000
Total 2,100,000
TEXAS--0.0%
200,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs
(Methodist Hospital, Harris County, TX) AA 200,000
VIRGINIA--0.1%
300,000 Virginia Peninsula Port Authority, (Series 1997) Daily
VRDNs (Ziegler Coal Holding Co.)/(Bank of America
NT and SA, San Francisco LOC) A-1+ 300,000
TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 6,800,000
LONG-TERM MUNICIPALS--99.7%
ALABAMA--3.2%
10,000,000 Alabama State Docks Department, Docks Facilities
Refunding Revenue Bonds, 5.50% (MBIA INS)/(Original
Issue Yield: 5.75%), 10/1/2022 AAA 9,920,700
2,000,000 Courtland, AL IDB, Solid Waste Disposal Revenue Bonds
(Series A), 6.50% (Champion International Corp.)/
(Original Issue Yield: 6.654%), 9/1/2025 BBB 2,140,960
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
ALABAMA--CONTINUED
$ 3,620,000 Jefferson County, AL, Sewer Revenue Refunding
Warrants (Series 1997-A), 5.625% (FGIC INS)/(Original
Issue Yield: 5.68%), 2/1/2018 AAA $ 3,715,894
6,260,000 Jefferson County, AL, Sewer Revenue Warrants
(Series 1997D), 5.70% (FGIC INS)/(Original Issue
Yield: 5.73%), 2/1/2018 AAA 6,460,070
Total 22,237,624
CALIFORNIA--7.5%
1,000,000 Anaheim, CA Public Financing Authority, Lease Revenue
Bonds (Series 1997C), 6.00% (Anaheim Public
Improvements Project)/(FSA INS), 9/1/2010 AAA 1,118,590
1,000,000 Anaheim, CA Public Financing Authority, Lease Revenue
Bonds (Series 1997C), 6.00% (Anaheim Public
Improvements Project)/(FSA INS), 9/1/2011 AAA 1,119,690
1,600,000 Anaheim, CA Public Financing Authority, Lease Revenue
Bonds (Series 1997C), 6.00% (Anaheim Public
Improvements Project)/(FSA INS), 9/1/2016 AAA 1,770,288
9,400,000 California PCFA, Refunding Revenue Bonds (Series A),
5.90% (San Diego Gas & Electric)/(Original Issue Yield:
5.934%), 6/1/2014 A 10,187,156
19,000,000 Long Beach California Harbor, Revenue Bonds, 5.375%
(MBIA INS)/(Original Issue Yield: 5.75%), 5/15/2020 AAA 18,525,380
1,820,000 Los Angeles County, CA Unified School District, UT GO
Bonds (Series A), 6.00% (FGIC INS), 7/1/2011 AAA 2,028,117
9,105,000 Sacramento, CA Municipal Utility District, Electric
Revenue Bonds (Series 1997K), 5.70% (AMBAC INS),
7/1/2017 AAA 9,726,234
8,000,000 Sacramento, CA Municipal Utility District, Revenue
Refunding Bonds, Series L, 5.20% (MBIA INS)/(Original
Issue Yield: 5.35%), 7/1/2017 AAA 7,926,240
Total 52,401,695
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
DISTRICT OF COLUMBIA--7.0%
$ 12,775,000 District of Columbia Hospital Authority, Revenue
Refunding Bonds (Series A), 7.125% (Medlantic
Healthcare Group)/(Original Issue Yield: 7.30%),
8/15/2019 BBB+ $ 14,472,158
2,000,000 District of Columbia Hospital Authority, Revenue
Refunding Bonds (Series B), 7.00% (Medlantic Healthcare
Group)/(Original Issue Yield: 7.282%), 8/15/2015 BBB+ 2,254,860
22,250,000 District of Columbia, Revenue Bonds (Series B), 7.15%
(Georgetown University)/(Original Issue Yield: 7.191%),
4/1/2021 A+ 23,470,412
4,000,000 District of Columbia, Revenue Bonds, 5.625% (American
University)/(AMBAC INS)/(Original Issue Yield: 5.90%),
10/1/2026 AAA 4,040,840
4,765,000 Georgetown University, 8.25%, 4/1/2018 A+ 4,958,221
Total 49,196,491
FLORIDA--3.5%
4,335,000 Florida State Board of Education Administration, UT GO
Capital Outlay Bonds, 9.125% (Florida State)/(Original
Issue Yield: 9.173%), 6/1/2014 AA+ 6,185,308
665,000 Florida State Board of Education Administration, UT GO
Capital Outlay Bonds, 9.125% (Florida State)/(United
States Treasury COL)/(Original Issue Yield: 9.173%),
6/1/2014 AAA 938,142
6,635,000 Florida State Department of Transportation, Right of Way
Acquisition & Bridge Construction Bonds (Series 1997A),
5.00% (Original Issue Yield: 5.10%), 7/1/2014 AA+ 6,604,678
3,000,000 Florida State, UT GO Bonds, Broward County
Expressway Authority, 10.00% (Original Issue Yield:
10.105%), 7/1/2014 AA+ 4,547,940
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 6,000,000 Orlando, FL Utilites Commission, Water & Electric
Refunding Revenue Bonds, 5.90% (Original Issue Yield:
6.00%), 10/1/2008 AA $ 6,684,060
Total 24,960,128
GEORGIA--2.3%
3,000,000 Dalton, GA, Combined Utility Revenue Bonds
(Series 1997), 6.00% (MBIA INS), 1/1/2008 AAA 3,327,060
5,000,000 Georgia State, GO UT Bonds (Series F), 6.50%, 12/1/2007 AAA 5,804,050
6,000,000 Georgia State, UT GO, 6.00%, 9/1/2007 AAA 6,708,420
Total 15,839,530
ILLINOIS--8.2%
2,080,000 Chicago, IL, GO Library Bonds (Series 1997), 5.25%
(FGIC
INS)/(Original Issue Yield: 5.55%), 1/1/2012 AAA 2,087,280
2,200,000 Chicago, IL, Motor Fuel Tax Refunding Revenue Bonds,
6.125% (AMBAC INS), 1/1/2009 AAA 2,455,046
5,380,000 Cook County, IL, Refunding GO Bonds (Series 1997A),
6.25% (MBIA INS), 11/15/2010 AAA 6,127,174
8,295,000 Cook County, IL, Refunding GO Bonds (Series 1997A),
6.25% (MBIA INS), 11/15/2013 AAA 9,467,747
5,000,000 Illinois Development Finance Authority, Housing
Revenue Bonds, 6.10% (Catholic Charities Housing
Development Corp.), 1/1/2020 NR 5,004,550
11,340,000 Illinois Health Facilities Authority, Hospital Revenue
Bonds (Series A), 9.25% (Edgewater Hospital & Medical
Center, IL), 7/1/2024 NR 13,564,568
1,000,000 Illinois Health Facilities Authority, Revenue Bonds
(Series 1997A), 6.00% (Loyola University Health System)/
(MBIA INS), 7/1/2012 AAA 1,097,340
1,000,000 Illinois Health Facilities Authority, Revenue Bonds
(Series 1997A), 6.00% (Loyola University Health System)/
(MBIA INS), 7/1/2013 AAA 1,095,980
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
ILLINOIS--CONTINUED
$ 16,000,000 Illinois State, UT GO Bonds, 5.125% (FGIC INS), 12/1/2004 AAA $ 16,635,840
Total 57,535,525
INDIANA--6.1%
6,200,000 Indiana Health Facilty Financing Authority, Hospital
Revenue Bonds, 6.625% (Floyd Memorial Hospital, IN)/
(Original Issue Yield: 6.902%), 2/15/2022 A 6,546,456
19,000,000 Indianapolis, IN Airport Authority, Special Facilities
Revenue Bonds, 7.10% (Federal Express Corp.)/(Original
Issue Yield: 7.178%), 1/15/2017 BBB 21,282,850
10,000,000 Kokomo, IN Hospital Authority, Revenue Refunding
Bonds, 6.35% (St. Joseph Hospital, IN)/(Original Issue
Yield: 6.40%), 8/15/2013 BBB 10,433,400
4,500,000 LaPorte County, IN Hospital Authority, Hospital Facility
Revenue Refunding Bonds, 6.25% (LaPorte Hospital, Inc.,
IN)/(Original Issue Yield: 6.35%), 3/1/2012 Baa1 4,669,830
Total 42,932,536
LOUISIANA--3.1%
6,000,000 De Soto Parish, LA Environmental Improvement
Authority, Revenue Bonds, 7.70% (International Paper
Co.), 11/1/2018 A- 7,040,040
3,550,000 St. Charles Parish, LA, Solid Waste Disposal Revenue
Bonds (Series A), 7.00% (Louisiana Power & Light Co.)/
(Original Issue Yield: 7.04%), 12/1/2022 BBB 3,841,384
10,000,000 St. James Parish, LA, Solid Waste Disposal Revenue
Bonds, 7.70% (Freeport McMoRan, Inc.)/(Original Issue
Yield: 7.75%), 10/1/2022 NR 10,815,500
Total 21,696,924
MARYLAND--1.9%
12,220,000 Maryland State Community Development Administration,
SFM Revenue Bonds (5th Series), 6.75%, 4/1/2026 Aa 13,032,752
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
MASSACHUSETTS--4.3%
$ 10,000,000 Commonwealth of Massachusetts, UT GO Bonds (Series
1997C), 5.00% (Original Issue Yield: 5.30%), 8/1/2017 A+ $ 9,598,200
33,800,000 (a)Massachusetts IFA, Solid Waste Disposal Sr. Lien
Revenue Bonds (Series A), 9.00% (Massachusetts
Recycling Association), 8/1/2016 NR 12,844,000
2,200,000 Massachusetts State HFA, Rental Housing Mortgage
Revenue Bonds, 1995 Series E, 5.90% (AMBAC INS),
7/1/2025 AAA 2,240,414
6,000,000 Nantucket, MA, UT GO Bonds, 5.00% (MBIA INS)/
(Original Issue Yield: 5.28%), 7/15/2017 AAA 5,794,800
Total 30,477,414
MINNESOTA--3.1%
8,000,000 St. Paul, MN Housing & Redevelopment Authority,
Hospital Revenue Refunding Bonds (Series A), 6.625%
(Healtheast, MN)/(Original Issue Yield: 6.687%),
11/1/2017 BBB 8,500,240
12,000,000 VRDC/IVRC Trust, GO Inverse Variable Rate Certificates,
6.873% (Regents of University of Minnesota), 5/18/2012 AA 13,650,000
Total 22,150,240
MISSISSIPPI--1.4%
9,875,000 Mississippi State, UT GO Bonds (Series A), 5.125%
(Original Issue Yield: 5.35%), 7/1/2015 AA 9,855,941
MISSOURI--1.3%
9,010,000 Kansas City, MO, UT GO Bonds, Series B, 5.125%
(Original Issue Yield: 5.25%), 2/1/2017 AA 8,916,747
NEW MEXICO--0.8%
5,000,000 Farmington, NM, PCR Refunding Bonds (Series A),
7.20% (Southern California Edison Co.)/(Original
Issue Yield:
7.30%), 4/1/2021 A+ 5,446,750
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
NEW YORK--12.1%
$ 3,000,000 Municipal Assistance Corp. of New York, Revenue Bonds
(Series 67), 7.625% (Original Issue Yield: 7.698%), 7/1/2008 AA $ 3,244,170
7,500,000 New York City, NY, Residual Interest Tax-Exempt
Securities (Series PA-147), 6.5197%, 8/1/2007 NR 8,240,625
15,115,000 New York State Dormitory Authority, Educational
Facilities Revenue Bonds, 5.50% (State University of
New York)/(Original Issue Yield: 6.106%), 5/15/2026 BBB+ 14,963,397
17,800,000 New York State Dormitory Authority, Revenue Bonds
(Series B), 5.375% (New York State Department of Mental
Hygiene)/(Original Issue Yield: 5.97%), 2/15/2026 BBB+ 17,208,328
12,055,000 New York State Local Government Assistance Corp.,
Refunding Revenue Bonds (Series A), 6.00% (AMBAC
INS), 4/1/2007 AAA 13,362,003
10,100,000 New York State Local Government Assistance Corp.,
Refunding Revenue Bonds (Series A), 6.00%
(AMBAC INS), 4/1/2008 AAA 11,231,705
2,000,000 New York State Mortgage Agency, Mortgage Revenue
Bonds ( Series 30-B), 6.65% (FHA GTD), 10/1/2025 Aa 2,123,460
6,300,000 Port Authority of New York and New Jersey, Special
Project Bonds (Series 6), 6.00% (JFK International Air
Terminal LLC)/(MBIA INS), 12/1/2006 AAA 6,886,782
7,000,000 Port Authority of New York and New Jersey, Special
Project Bonds (Series 6), 6.00% (JFK International Air
Terminal LLC)/(MBIA INS), 12/1/2007 AAA 7,672,070
Total 84,932,540
NORTH CAROLINA--1.3%
9,000,000 Martin County, NC IFA, (Series 1995) Solid Waste
Disposal Revenue Bonds, 6.00% (Weyerhaeuser Co.),
11/1/2025 A 9,341,460
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
OHIO--0.2%
$ 1,000,000 Franklin County, OH Hospital Facility Authority, Hospital
Revenue Refunding & Improvement Bonds, 7.25%
(Riverside United Methodist Hospital)/(MBIA INS)/
(Original Issue Yield: 7.29%), 5/15/2020 AAA $ 1,095,160
OKLAHOMA--1.7%
3,780,000 Enid, OK Municipal Authority, Sales Tax & Utility
Refunding Revenue Bonds, 5.50% (AMBAC INS),
2/1/2004 AAA 3,988,278
7,500,000 Tulsa, OK Municipal Airport, Revenue Bonds, 7.60%
(American Airlines)/(Original Issue Yield: 7.931%),
12/1/2030 BBB- 8,270,775
Total 12,259,053
PENNSYLVANIA--8.8%
700,000 Easton, PA, GO UT, 6.40% accrual (FGIC INS)/(Original
Issue Yield: 6.40%), 6/1/2012 AAA 327,299
2,210,000 Elizabeth Forward, PA School District, GO UT Bonds,
6.75% accrual (MBIA INS)/(Original Issue Yield: 6.75%),
9/1/2018 AAA 716,857
2,210,000 Elizabeth Forward, PA School District, GO UT, 6.75%
accrual (MBIA INS)/(Original Issue Yield: 6.75%),
9/1/2019 AAA 676,415
1,300,000 Latrobe, PA Industrial Development Authority, College
Revenue Bonds, 6.75% (St. Vincent College, PA)/(Original
Issue Yield: 7.00%), 5/1/2024 Baa1 1,402,375
1,010,000 Mars, PA Area School District, Series B GO UT, 6.60%
accrual (FGIC INS)/(Original Issue Yield: 6.60%),
9/1/2021 AAA 274,579
800,000 Millcreek Township School District, PA, GO UT Bonds,
7.15% accrual (FGIC INS)/(Original Issue Yield: 7.15%),
8/15/2002 AAA 645,520
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--CONTINUED
$ 1,080,000 Northeastern York County, PA, GO UT Refunding Bonds,
6.35% accrual (FGIC INS)/(Original Issue Yield: 6.35%),
9/1/2012 AAA $ 498,474
560,000 Penn Hills Township, PA, GO UT Bonds (Series B), 5.30%
accrual (AMBAC INS)/(Original Issue Yield: 5.30%),
6/1/2007 AAA 353,326
500,000 Penn Hills Township, PA, GO UT Bonds, 5.20% accrual
(AMBAC INS)/(Original Issue Yield: 5.20%), 12/1/2006 AAA 325,980
490,000 Penn Hills Township, PA, GO UT Bonds, 5.20% accrual
(AMBAC INS)/(Original Issue Yield: 5.20%), 6/1/2006 AAA 327,002
7,250,000 Pennsylvania EDFA, Revenue Bonds, 7.60% (Macmillan
Bloedel LTD Partnership)/(Original Issue Yield: 7.65%),
12/1/2020 BBB- 8,401,155
8,000,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 39B), 6.875%, 10/1/2024 AA+ 8,634,000
4,000,000 Pennsylvania State Higher Education Facilities Authority,
Hospital Revenue Bonds (Series A), 7.25% (Allegheny
General Hospital)/(Original Issue Yield: 7.40%), 9/1/2017 A+ 4,409,560
12,865,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds (Series A), 7.375% (Medical College of
Pennsylvania)/(United States Treasury PRF)/(Original
Issue Yield: 7.45%), 3/1/2021 AAA 14,379,596
1,000,000 Philadelphia, PA Gas Works, Refunding Revenue Bonds
(Series C), 7.00% accrual (AMBAC INS)/(Original Issue
Yield: 7.00%), 1/1/2001 AAA 867,990
15,000,000 Philadelphia, PA School District, UT GO (Series B), 5.50%
(AMBAC INS)/(Original Issue Yield: 5.95%), 9/1/2025 AAA 15,056,100
1,000,000 Philadelphia, PA Water & Sewer, Revenue Bonds (MBIA
INS)/(Original Issue Yield: 7.00%), 10/1/2008 AAA 582,660
650,000 Philadelphia, PA Water & Sewer, Revenue Bonds, 7.00%
accrual (MBIA INS)/(Original Issue Yield: 7.00%),
10/1/2006 AAA 425,211
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--CONTINUED
$ 1,115,000 Reading, PA, GO UT Bonds (Series B), 7.05%
(MBIA INS)/(Original Issue Yield: 7.05%), 3/1/2010 AAA $ 594,027
2,000,000 Sayre, PA, Health Care Facilities Authority, Revenue
Bonds (Series A), 7.10% (Guthrie Healthcare System, PA)/
(AMBAC INS)/(Original Issue Yield: 7.175%), 3/1/2017 AAA 2,193,220
1,000,000 State Public School Building Authority, PA, Refunding
Revenue Bonds (Series B), 6.65% accrual (Reading, PA
School District)/(MBIA INS)/(Original Issue Yield: 6.65%),
7/15/2007 AAA 627,280
Total 61,718,626
TENNESSEE--3.5%
13,000,000 Springfield, TN Health & Educational Facilities Board,
Hospital Revenue Bonds, 8.50% (NorthCrest Medical
Center)/(Original Issue Yield: 8.875%), 4/1/2024 NR 14,370,590
10,000,000 Tennessee State, Refunding UT GO Bonds (Series B),
5.50%, 5/1/2003 AA+ 10,625,600
Total 24,996,190
TEXAS--10.8%
4,000,000 Brazos River Authority, TX, PCR Revenue Bonds
(Series A), 7.875% (Texas Utilities Electric Co.), 3/1/2021 BBB+ 4,423,080
12,750,000 Dallas-Fort Worth, TX International Airport Facilities,
Revenue Bonds, 7.25% (American Airlines)/(Original
Issue Yield: 7.428%), 11/1/2030 BBB- 14,161,170
2,000,000 Gulf Coast, TX Waste Disposal Authority, Revenue Bonds
(Series A), 6.875% (Champion International Corp.)/
(Original Issue Yield: 7.15%), 12/1/2028 BBB 2,183,300
2,200,000 Harris County, TX HFDC, Hospital Revenue Bonds,
Series 1997A, 6.00% (Memorial Hospital System)/
(MBIA LOC), 6/1/2011 AAA 2,434,234
4,000,000 Harris County, TX HFDC, Hospital Revenue Bonds,
Series 1997A, 6.00% (Memorial Hospital System)/(MBIA
LOC), 6/1/2012 AAA 4,423,000
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
TEXAS--CONTINUED
$ 5,200,000 Harris County, TX, UT GO Subordiate Lien Toll Road
Revenue Bond, 7.00%, 8/15/2010 AA $ 6,272,084
3,360,000 Houston, TX Hotel Occupancy Tax, Sr. Lien Refunding
Revenue Bonds, 6.00% (FSA INS), 7/1/2004 AAA 3,658,570
3,700,000 Red River Authority, TX, PCR Bonds, 6.875% (Hoechst
Celanese Corp.)/(Original Issue Yield: 6.939%), 4/1/2017 A+ 4,018,385
6,925,000 Richardson, TX Hospital Authority, Hospital Refunding &
Improvement Bonds, 6.50% (Richardson Medical Center,
TX)/(Original Issue Yield: 6.72%), 12/1/2012 BBB- 7,259,131
1,000,000 Richardson, TX Hospital Authority, Hospital Refunding &
Improvement Bonds, 6.75% (Richardson Medical Center,
TX)/(Original Issue Yield: 6.82%), 12/1/2023 BBB- 1,064,360
12,450,000 San Antonio, TX Electric & Gas, Revenue Refunding
Bonds, 5.00% (Original Issue Yield: 6.10%), 2/1/2017 AA 11,971,547
5,000,000 Tarrant County, TX Health Facilities Development Corp.,
System Revenue Bonds (Series 1997A), 5.75% (Texas
Health Resources System)/(MBIA INS), 2/15/2015 AAA 5,320,600
6,555,000 Texas A & M University Permanent University Fund,
Revenue Bonds, 5.40%, 7/1/2003 AAA 6,932,240
1,500,000 Texas State, UT GO Veterans Housing Assistance, 7.00%,
12/1/2025 AA 1,615,845
Total 75,737,546
UTAH--2.4%
13,500,000 Salt Lake City, UT Hospital Authority, Hospital
Revenue Refunding Bonds (Series A), 8.125% (IHC
Hospitals Inc., UT)/(United States Treasury
COL)/(Original Issue Yield:
8.17%), 5/15/2015 AAA 17,230,860
WASHINGTON--2.3%
5,900,000 Washington State, Refunding UT GO Bonds (Series R-96C),
6.00%, 7/1/2004 AA+ 6,435,071
</TABLE>
Federated Municipal Securities Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
WASHINGTON--CONTINUED
$ 9,665,000 Washington State, UT GO (Series A), 5.75% (Original
Issue Yield: 5.875%), 7/1/2014 AA+ $ 10,040,969
Total 16,476,040
WEST VIRGINIA--1.6%
3,800,000 (a)Marion County, WV County Commission, Solid Waste
Disposal Facility Revenue Bonds, 8.25% (American Power
Paper Recycling), 12/1/2011 NR 1,786,000
20,000,000 (a)Marion County, WV County Commission, Solid Waste
Facility Revenue Bonds (Series 1993), 7.75% (American
Power Paper Recycling), 12/1/2011 NR 9,400,000
Total 11,186,000
WYOMING--1.3%
8,460,000 Sweetwater County, WY IDA, Solid Waste Disposal
Revenue Bonds (Series A), 7.00% (FMC Corp.), 6/1/2024 BBB 9,333,918
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $686,583,248)
700,987,690
TOTAL INVESTMENTS (IDENTIFIED COST $693,383,248)(B) $ 707,787,690
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 26.9% of the
portfolio as calculated based upon total portfolio market value.
(a) Non-income producing security.
(b) The cost of investments for federal tax purposes amounts to $696,727,565.
The net unrealized appreciation of investments on a federal tax basis
amounts to $11,060,125 which is comprised of $43,425,925 appreciation and
$32,365,800 depreciation at September 30, 1997.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($702,942,882) at September 30, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation COL --Collateralized EDFA
- --Economic Development Financing Authority FGIC --Financial Guaranty Insurance
Company FHA --Federal Housing Administration FSA --Financial Security Assurance
GO --General Obligation GTD --Guaranty HFA --Housing Finance Authority HFDC
- --Health Facility Development Corporation IDA --Industrial Development Authority
IDB --Industrial Development Bond IFA --Industrial Finance Authority INS
- --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond
Investors Assurance PCR --Pollution Control Revenue PCFA --Pollution Control
Finance Authority PRF --Prerefunded SFM --Single Family Mortgage UT --Unlimited
Tax VRDNs --Variable Rate Demand Notes
MASSACHUSETTS IFA, SOLID WASTE DISPOSAL SR. LIEN REVENUE BONDS (SERIES A),
9.00% (MASSACHUSETTS RECYCLING ASSOCIATION)
There are $173 million face amount of these Senior Lien Revenue Bonds currently
outstanding. On August 12, 1997, the obligor filed a petition for relief under
Chapter 11 of the Federal Bankruptcy Code. On September 30, 1997, the Bankruptcy
Court approved the terms of a settlement under which a new owner would acquire
the facility subject to a portion of the Senior Lien Revenue Bonds. The new
owner will then enter into a 15-year lease guaranteed by the company that built
the facility. The settlement calls for the transfer and lease to take place
before October 31, 1997. The settlement also anticipates that the Senior Lien
Revenue Bonds may be replaced with refunding bonds in the face amount of $56.3
million by July 31, 1998. The Senior Lien Revenue Bonds will not produce any
income until exchanged for such refunding bonds.
MARION COUNTY, WV COUNTY COMMISSION, SOLID WASTE FACILITY REVENUE BONDS
(SERIES 1993), 7.75% - 8.25% (AMERICAN POWER PAPER RECYCLING)
There are $210.4 million face amount of these Revenue Bonds currently
outstanding. On March 27, 1997, certain holders of the Revenue Bonds entered
into a settlement agreement with the obligor, its partners, and certain of their
affiliates. In accordance with the settlement agreement, on May 30, 1997, the
obligor filed a petition for relief under Chapter 7 of the Federal Bankruptcy
Code. At the same time, one of the obligor's limited partners filed a petition
for relief under Chapter 11 of the Federal Bankruptcy Code. On July 1, 1997, the
Bankruptcy Court approved the transfer of the facility to the obligor's limited
partner subject to the Revenue Bonds. Counsel to the bondholders has indicated
that this transfer should take place by October 31, 1997. The settlement
agreement anticipates that, not less than six-months after the transfer, the
limited partnership will be acquired by a new owner subject to the issuance of
refunding bonds in the aggregate face amount of $110 million. The Revenue Bonds
will not produce any income until exchanged for such refunding bonds.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $693,383,248, and $ 707,787,690
tax cost $696,727,565)
Cash 27,246
Income receivable 13,023,066
Receivable for shares sold 257,826
Total assets 721,095,828
LIABILITIES:
Payable for investments purchased $ 14,991,588
Payable for shares redeemed 127,896
Income distribution payable 2,773,463
Accrued expenses 259,999
Total liabilities 18,152,946
NET ASSETS for 65,382,372 shares outstanding $ 702,942,882
NET ASSETS CONSIST OF:
Paid in capital $ 688,686,889
Net unrealized appreciation of investments 14,404,442
Accumulated net realized gain on investments 3,177,096
Distributions in excess of net investment income (3,325,545)
Total Net Assets $ 702,942,882
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($598,193,047 / 55,639,338 shares outstanding) $10.75
Offering Price Per Share (100/95.50 of $10.75)* $11.26
Redemption Proceeds Per Share $10.75
CLASS B SHARES:
Net Asset Value Per Share ($86,694,085 / 8,063,641 shares outstanding) $10.75
Offering Price Per Share $10.75
Redemption Proceeds Per Share (94.50/100 of $10.75)* $10.16
CLASS C SHARES:
Net Asset Value Per Share ($18,055,750 / 1,679,393 shares outstanding) $10.75
Offering Price Per Share $10.75
Redemption Proceeds Per Share (99.00/100 of $10.75)* $10.64
</TABLE>
* See "Investing in the Fund" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 20,398,572
EXPENSES:
Investment advisory fee $ 2,095,479
Administrative personnel and services fee 266,584
Custodian fees 36,660
Transfer and dividend disbursing agent fees and expenses 256,362
Directors'/Trustees' fees 10,827
Auditing fees 9,243
Legal fees 2,052
Portfolio accounting fees 75,412
Distribution services fee--Class B Shares 309,280
Distribution services fee--Class C Shares 73,814
Shareholder services fee--Class A Shares 755,031
Shareholder services fee--Class B Shares 103,093
Shareholder services fee--Class C Shares 24,605
Share registration costs 27,450
Printing and postage 30,681
Insurance premiums 2,850
Taxes 48,669
Miscellaneous 3,618
Total expenses 4,131,710
Waivers--
Waiver of shareholder services fee--Class A Shares (422,818)
Waiver of shareholder services fee--Class C Shares (984)
Total waivers (423,802)
Net expenses 3,707,908
Net investment income 16,690,664
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,211,891
Net change in unrealized appreciation (depreciation) of investments 26,415,082
Net realized and unrealized gain on investments 29,626,973
Change in net assets resulting from operations $ 46,317,637
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 16,690,664 $ 38,070,897
Net realized gain (loss) on investments ($3,211,891 and $(439,197),
respectively,
as computed for federal tax purposes) 3,211,891 (30,587)
Net change in unrealized appreciation/depreciation 26,415,082 (25,442,823)
Change in net assets resulting from operations 46,317,637 12,597,487
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (14,661,236) (33,864,603)
Class B Shares (1,639,284) (3,157,991)
Class C Shares (390,144) (1,067,075)
Distributions in excess of net investment income
Class A Shares -- (2,893,224)
Class B Shares -- (332,555)
Class C Shares -- (99,766)
Distributions from net realized gains
Class A Shares -- (5,887,308)
Class B Shares -- (554,488)
Class C Shares -- (229,139)
Change in net assets resulting from distributions to shareholders (16,690,664) (48,086,149)
SHARE TRANSACTIONS--
Proceeds from sale of shares 71,403,257 161,534,404
Net asset value of shares issued to shareholders in payment of distributions 8,797,670 30,227,698
declared
Cost of shares redeemed (100,479,866) (210,426,834)
Change in net assets resulting from share transactions (20,278,939) (18,664,732)
Change in net assets 9,348,034 (54,153,394)
NET ASSETS:
Beginning of period 693,594,848 747,748,242
End of period $ 702,942,882 $ 693,594,848
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.20 $11.62 $10.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.55 0.66 0.67 0.66 0.66
Net realized and unrealized gain (loss)
on investments 0.44 (0.36) (0.09) (0.05) (0.40) 0.64
Total from investment operations 0.70 0.19 0.57 0.62 0.26 1.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.55) (0.66) (0.67) (0.66) (0.66)
Distributions in excess of net investment
income(a) -- (0.05) -- -- -- --
Total distributions from net investment
income (0.26) (0.60) (0.66) (0.67) (0.66) (0.66)
Distributions from net realized gain on
investments -- (0.10) (0.01) (0.23) (0.02) --
Total distributions (0.26) (0.70) (0.67) (0.90) (0.68) (0.66)
NET ASSET VALUE, END OF PERIOD $10.75 $10.31 $10.82 $10.92 $11.20 $11.62
TOTAL RETURN(B) 6.86% 1.84% 5.32% 5.90% 2.10% 12.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.92%* 0.93% 0.98% 0.92% 0.84% 0.80%
Net investment income 4.85%* 5.37% 5.97% 6.17% 5.59% 5.81%
Expense waiver/reimbursement(c) 0.14%* 0.14% 0.13% -- -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $598,193 $595,515 $663,538 $708,712 $714,384 $706,126
Portfolio turnover 35% 33% 29% 41% 27% 13%
</TABLE>
* Computed on an annualized basis.
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal tax purposes.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.47 0.56 0.40
Net realized and unrealized gain (loss)
on investments 0.44 (0.37) (0.09) (0.03)
Total from investment operations 0.65 0.10 0.47 0.37
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.47) (0.56) (0.40)
Distributions in excess of net investment
income(b) -- (0.04) -- --
Total distributions from net investment income (0.21) (0.51) (0.56) (0.40)
Distributions from net realized gain
on investments -- (0.10) (0.01) (0.11)
Total distributions (0.21) (0.61) (0.57) (0.51)
NET ASSET VALUE, END OF PERIOD $10.75 $10.31 $10.82 $10.92
TOTAL RETURN(C) 6.39% 0.94% 4.40% 3.49%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.81%* 1.82% 1.86% 1.84%*
Net investment income 3.98%* 4.50% 5.23% 5.94%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $86,694 $77,536 $58,296 $18,201
Portfolio turnover 35% 33% 29% 41%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 26, 1994 (date of initial
public offering) to March 31, 1995.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.20 $11.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.20 0.46 0.56 0.58 0.52
Net realized and unrealized gain (loss)
on investments 0.45 (0.36) (0.09) (0.05) (0.48)
Total from investment operations 0.65 0.10 0.47 0.53 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.46) (0.56) (0.58) (0.52)
Distributions in excess of net investment income(b) -- (0.05) -- -- --
Total distributions from net investment income (0.21) (0.51) (0.56) (0.58) (0.52)
Distributions from net realized gain on investments -- (0.10) (0.01) (0.23) (0.02)
Total distributions (0.21) (0.61) (0.57) (0.81) (0.54)
NET ASSET VALUE, END OF PERIOD $10.75 $10.31 $10.82 $10.92 $11.20
TOTAL RETURN(C) 6.40% 0.95% 4.42% 4.96% 0.17%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80%* 1.81% 1.82% 1.81% 1.80%*
Net investment income 3.96%* 4.51% 5.16% 5.28% 4.70%*
Expense waiver/reimbursement(d) 0.01%* 0.01% 0.04% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $18,056 $20,544 $25,914 $22,389 $22,066
Portfolio turnover 35% 33% 29% 41% 27%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 21, 1993 (date of initial
public offering) to March 31, 1994.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MUNICIPAL SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares, and Class C Shares. The investment objective of
the Fund is to provide for its shareholders a high level of current income which
is exempt from federal regular income tax.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS --Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of 60 days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS --Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
FEDERAL TAXES --It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At March 31, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $30,587, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted
by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2005 $30,587
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS --The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
USE OF ESTIMATES --The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER --Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At September 30, 1997, par value shares ($0.01 per share) authorized were as
follows:
PERCENTAGE OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 375,000,000
Class B Shares 250,000,000
Class C Shares 375,000,000
Total shares authorized 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,418,039 $ 57,101,848 11,574,693 $121,849,621
Shares issued to shareholders in payment
of distributions declared 748,809 7,909,291 2,586,707 27,181,535
Shares redeemed (8,300,730) (87,688,017) (17,732,936) (185,898,913)
Net change resulting from Class A Share
transactions (2,133,882) $(22,676,878) (3,571,536) $ (36,867,757)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<C> <C> <C> <C> <C>
Shares sold 1,337,195 $ 14,107,695 3,354,939 $ 35,239,171
Shares issued to shareholders in payment
of distributions declared 64,403 680,340 203,345 2,136,903
Shares redeemed (859,497) (9,057,125) (1,426,287) (14,965,753)
Net change resulting from Class B Share
transactions 542,101 $ 5,730,910 2,131,997 $ 22,410,321
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<C> <C> <C> <C> <C>
Shares sold 19,875 $ 193,714 423,472 $ 4,445,612
Shares issued to shareholders in payment
of distributions declared 19,706 208,039 86,450 909,260
Shares redeemed (353,225) (3,734,724) (912,686) (9,562,168)
Net change resulting from Class C Share
transactions (313,644) $ (3,332,971) (402,764) $ (4,207,296)
Net change resulting from share
transactions (1,905,425) $(20,278,939) (1,842,303) $ (18,664,732)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE --Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to (a) a maximum of 0.30% of the average daily net assets of the Fund,
and (b) 4.50% of the gross income of the Fund, excluding capital gains or
losses.
ADMINISTRATIVE FEE --Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE --The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class B Shares and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS
Class B Shares 0.75%
Class C Shares 0.75%
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE --Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of each class of shares for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any portion
of its fee. FSS can modify or terminate this voluntary waiver at any time at
its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES --FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC"), serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL --Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1997, were as follows:
PURCHASES $244,793,264
SALES $250,132,711
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Cusip 313913105
Cusip 313913204
Cusip 313913303
8110104 (11/97) [Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 2/26/69
to 9/30/97. The "y" axis is measured in increments of $100,000 ranging from $0
to $700,000 and indicates that the ending value of hypothetical initial
investment of $29,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends,would have grown to $606,799 on 9/30/97.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 2/26/69
to 9/30/97. The "y" axis is measured in increments of $40,000 ranging from $0 to
$320,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends,would have grown to $301,288 on 9/30/97.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from
9/30/82 to 9/30/97. The "y" axis is measured in increments of $25,000 ranging
from $0 to $225,000 and indicates that the ending value of a hypothetical
initial investment of $5,000 and subsequent monthly investments of $250 over 15
years in the fund's Class A Shares would have grown to $211,829 on 9/30/97.
