FEDERATED MUNICIPAL SECURITIES FUND INC, 485APOS, 1997-05-29

FEDERATED MUNICIPAL SECURITIES FUND INC
485APOS, 1997-05-29

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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. 50 ................. X
------- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---

Amendment No. 34 ..............................................X
------- ---

FEDERATED 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)
on pursuant to paragraph (b)
X 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.

<PAGE>

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, 1997; 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.

Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED
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.
<TABLE>
<CAPTION>
Prospectus Heading
(Rule 404(c) Cross Reference)
<S> <C> <C>
Item 1. Cover Page..................................Cover Page (1-3).
----------
Item 2. Synopsis....................................Summary of Fund Expenses (1-3).
--------
Item 3. Condensed Financial
Information.................................Financial Highlights (1-3); Performance Information
(1-3).
Item 4. General Description of
Registrant..................................General 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);
Calling
the Fund
(1-3);
Account
and
Share
Information
(1-3);
Confirmations
and
Certificates
(1-3);
Dividends
and
Distributions
(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);
Investing
in the
Fund
(1-3);
Purchasing
Shares
(1-3);
Purchasing
Shares
through
a
Financial
Intermediary
(1-3);
Purchasing
Shares
by Wire
(1-3);
Purchasing
Shares
by Check
(1-3);
Systematic
Investment
Program
(1-3);
Retirement
Plans
(1-3);
Class A
Shares
(1);
Class B
Shares
(2);
Class C
Shares
(3).

<PAGE>

Item 8. Redemption or Repurchase Redeeming and Exchanging Shares (1-3); Redeeming or
------------------------
Exchanging Shares through a Financial Intermediary
(1-3); Redeeming or Exchanging Shares by Telephone
(1-3); Redeeming or Exchanging Shares by Mail
(1-3); Requirements for Redemption (1-3);
Requirements for Exchange (1-3); Systematic
Withdrawal Program (1-3); Contingent Deferred Sales
Charge (1-3); Eliminating the Contingent Deferred
Sales Charge (1-3); Account and Share Information
(1-3); Accounts with Low Balances (1-3).
Item 9. Pending Legal Proceedings...................None.
-------------------------

<PAGE>

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 (1-3).
Item 13. Investment Objectives and
Policies....................................Investment Objective and Policies (1-3); Investment
Limitations (1-3).
Item 14. Management of the Fund Federated Municipal Securities Fund, Inc.
Management (1-3); Director Compensation (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 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 to
--------------------
Registrant's Annual Report dated March 31, 1997;
File Nos. 2-57181 and 811-2677) (1-3).

</TABLE>

<PAGE>

Federated 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 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, 1997, with the Securities and Exchange Commission (the "SEC").
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 1-800-341-7400. To obtain other information
or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).

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

Prospectus dated May 31, 1997

TABLE OF CONTENTS

Summary of Fund Expenses 1
Financial Highlights -- Class A Shares 2
Financial Highlights -- Class B Shares 3
Financial Highlights -- Class C Shares 4
General Information 5
Calling the Fund 5
Investment Information 5
Investment Objective 5
Investment Policies 5
Investment Risks 7
Investment Limitations 7
Net Asset Value 8
Investing in the Fund 8
Purchasing Shares 8
Purchasing Shares through a Financial Intermediary 9
Purchasing Shares by Wire 9
Purchasing Shares by Check 9
Systematic Investment Program 9
Retirement Plans 9
Class A Shares 9
Class B Shares 10
Class C Shares 10
Redeeming and Exchanging Shares 10
Redeeming or Exchanging Shares through a
Financial Intermediary 10
Redeeming or Exchanging Shares by Telephone 10
Redeeming or Exchanging Shares by Mail 11
Requirements for Redemption 11
Requirements for Exchange 11
Systematic Withdrawal Program 11
Contingent Deferred Sales Charge 11
Eliminating the Contingent Deferred Sales Charge 12
Account and Share Information 12
Confirmations and Certificates 12
Dividends and Distributions 12
Accounts with Low Balances 12
Fund Information 12
Management of the Fund 12
Distribution of Shares 13
Administration of the Fund 14
Shareholder Information 15
Tax Information 15
Federal Income Tax 15
State and Local Taxes 15
Performance Information 16

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) 4.50% None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, as applicable) None 5.50%(1) 1.00%(1)
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Exchange Fee None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.60% 0.60% 0.60%
12b-1 Fee None 0.75% 0.75%
Shareholder Services Fee 0.11%(2) 0.25% 0.24%(2)
Total Other Expenses 0.33% 0.47% 0.46%
Total Operating Expenses 0.93%(3) 1.82%(4) 1.81%(3)
</TABLE>

(1) For shareholders of Class B Shares, the contingent deferred sales
charge is 5.50% in the first year declining to 1.00% in the sixth
year and 0.00% thereafter. For shareholders of Class C Shares, 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 "Contingent Deferred Sales Charge."

(2) The shareholder services fees for Class A Shares and Class C
Shares have been reduced to reflect the voluntary waivers of
portions of the shareholder services fee. The shareholder service
provider can terminate these voluntary waivers at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(3) The total operating expenses for Class A Shares and Class C Shares
would have been 1.07% and 1.82%, respectively, absent the
voluntary waivers described in note 2 above.

(4) 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 the Fund will
bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in the Fund" 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 CLASS A CLASS B CLASS
C
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period,
and (3) payment of the maximum sales charge.
<S> <C> <C> <C>
1 Year $ 54 $ 75 $ 29
3 Years $ 73 $101 $ 57
5 Years $ 94 $122 $ 98
10 Years $154 $190 $213
You would pay the following expenses on the same investment, assuming
no redemption.
1 Year $ 54 $ 18 $ 18
3 Years $ 73 $ 57 $ 57
5 Years $ 94 $ 99 $ 98
10 Years $154 $190 $213
</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

(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 2, 1997, on the
Fund's financial statements for the year ended March 31, 1997, 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,
1997 1996 1995 1994 1993 1992 1991
1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
NET ASSET $10.82 $10.92 $11.20 $11.62 $10.98 $10.61 $10.47
$10.26 $10.03 $10.80
VALUE,
BEGINNING
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.55 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 (0.36) (0.09) (0.05) (0.40) 0.64 0.37 0.14
0.21 0.23 (0.77)
Total from investment 0.19 0.57 0.62 0.26 1.30 1.04 0.85
0.93 0.95 (0.04)
operations
LESS DISTRIBUTIONS
Distributions from net
investment
income (0.55) (0.66) (0.67) (0.66) (0.66) (0.67) (0.71)
(0.72) (0.72) (0.73)
Distributions in excess
of net
investment income(a) (0.05) -- -- -- -- --
- -- -- -- --
Total distributions from
net investment income (0.60) (0.66) (0.67) (0.66) (0.66) (0.67) (0.71)
(0.72) (0.72) (0.73)
Distributions from net
realized gain
on investments (0.10) (0.01) (0.23) (0.02) -- --
- -- -- -- --
Total distributions (0.70) (0.67) (0.90) (0.68) (0.66) (0.67) (0.71)
(0.72) (0.72) (0.73)
NET $10.31 $10.82 $10.92 $11.20 $11.62 $10.98 $10.61
$10.47 $10.26 $10.03
ASSET
VALUE,
END OF
PERIOD
TOTAL RETURN(B) 1.84% 5.32% 5.90% 2.10% 12.13% 10.05% 8.42%
9.20% 9.76% (0.17)%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.93% 0.98% 0.92% 0.84% 0.80% 0.84% 0.89%
0.90% 0.95% 0.95%
Net investment income 5.37% 5.97% 6.17% 5.59% 5.81% 6.17% 6.77%
6.80% 7.07% 7.28%
Expense 0.14% 0.13% -- -- -- --
- -- -- -- --
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of
period
(000 omitted) $595,515 $663,538 $708,712 $714,384 $706,126 $590,118 $511,611
$474,797 $440,445 $338,916
Portfolio turnover 33% 29% 41% 27% 13% 8%
45% 25% 58% 55%
</TABLE>

(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 income tax purposes.

(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, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS -- CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.82 $10.92 $11.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.47 0.56 0.40
Net realized and unrealized gain (loss) on investments (0.37) (0.09) (0.03)
Total from investment operations 0.10 0.47 0.37
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.56) (0.40)
Distributions in excess of net investment income(b) (0.04) -- --
Total distributions from net investment income (0.51) (0.56) (0.40)
Distributions from net realized gain on investments (0.10) (0.01) (0.11)
Total distributions (0.61) (0.57) (0.51)
NET ASSET VALUE, END OF PERIOD $10.31 $10.82 $10.92
TOTAL RETURN(C) 0.94% 4.40% 3.49%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.82% 1.86% 1.84%*
Net investment income 4.50% 5.23% 5.94%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $77,536 $58,296 $18,201
Portfolio turnover 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 income tax purposes.

(c) 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, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS -- CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.82 $10.92 $11.20 $11.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.56 0.58 0.52
Net realized and unrealized gain (loss) on investments (0.36) (0.09) (0.05) (0.48)
Total from investment operations 0.10 0.47 0.53 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.56) (0.58) (0.52)
Distributions in excess of net investment income(b) (0.05) -- -- --
Total distributions from net investment income (0.51) (0.56) (0.58) (0.52)
Distributions from net realized gain on investments (0.10) (0.01) (0.23) (0.02)
Total distributions (0.61) (0.57) (0.81) (0.54)
NET ASSET VALUE, END OF PERIOD $10.31 $10.82 $10.92 $11.20
TOTAL RETURN(C) 0.95% 4.42% 4.96% 0.17%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.81% 1.82% 1.81% 1.80%*
Net investment income 4.51% 5.16% 5.28% 4.70%*
Expense waiver/reimbursement(d) 0.01% 0.04% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $20,544 $25,914 $22,389 $22,066
Portfolio turnover 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.

(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.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, 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. Class A Shares, Class B Shares and Class C Shares
of the Fund ("Shares") are designed for individuals as a convenient
means of accumulating an interest in a professionally managed,
diversified portfolio primarily limited to municipal bonds.

The Fund's current net asset value and offering price may be found in
the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

CALLING THE FUND

Call the Fund at 1-800-341-7400.

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. Unless
otherwise noted, 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.

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.

FINANCIAL FUTURES

The Fund may purchase and sell interest rate and index financial
futures contracts. These financial futures contracts may be used to
hedge all or a portion of its portfolio against changes in the market
value of portfolio securities and interest rates, provide additional
liquidity, and accomplish its current strategies in a more expeditious
fashion. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.

As a matter of investment policy, which may be changed without
shareholder approval, the Fund may not purchase or sell futures
contracts if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5% of
the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash or cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the
Fund's custodian (or the broker, if legally permitted) to
collateralize the position and thereby insure that the use of such
futures contract is unleveraged.

RISKS

When the Fund uses financial futures, there is a risk that the prices
of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate movements.
In these events, the Fund may lose money on the futures contract. It
is not certain that a secondary market for positions in futures
contracts will exist at all times. Although the investment adviser
will consider liquidity before entering into futures transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract at any
particular time. The Fund's ability to establish and close out futures
positions depends on this secondary market. 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 ("NAV") per Share fluctuates and is based
on the market value of all securities and other assets of the Fund.
The NAV 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.

All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund.
The NAV is determined as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open.

INVESTING IN THE FUND

This prospectus offers three classes of Shares each with the
characteristics described below.

CLASS A CLASS B CLASS C
Minimum and Subsequent $500/$100 $1500/$100 $1500/$100
Investment Amounts
Minimum and Subsequent $50 $50 $50
Investment Amount
for Retirement Plans
Maximum Sales Charge 4.50%* None None
Maximum Contingent None 5.50+ 1.00%#
Deferred Sales
Charge**
Conversion Feature No Yes++ No

* Class A Shares are sold at NAV, plus a sales charge as follows:

SALES CHARGE DEALER
AS A PERCENTAGE OF CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
Less than 4.50% 4.71% 4.00%
$100,000
$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 million 2.00% 2.04% 1.80%
$1 million or 0.00% 0.00% 0.25%
greater

** Computed on the lesser of the NAV of the redeemed Shares at the
time of purchase or the NAV of the redeemed Shares at the time of
redemption.

+ The following contingent deferred sales charge schedule applies to
Class B Shares:

YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%

++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."

# The contingent deferred sales charge is assessed on Shares redeemed
within one year of their purchase date.

PURCHASING SHARES

Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased as described
below, either through a financial intermediary (such as a bank or
broker/dealer) or by sending a wire or check directly to the Fund.
Financial intermediaries may impose different minimum investment
requirements on their customers. An account must be established with a
financial intermediary or by completing, signing, and returning the
new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed
by affiliates of Federated Investors ("Federated Funds") may exchange
their Shares for Shares of the corresponding class of the Fund. The
Fund reserves the right to reject any purchase or exchange request.

In connection with any sale, Federated Securities Corp. may, from time
to time, offer certain items of nominal value to any shareholder or
investor.

PURCHASING SHARES THROUGH A
FINANCIAL INTERMEDIARY

Orders placed through a financial intermediary are considered received
when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a 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 intermediaries must be
received by the financial intermediary 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 intermediary's responsibility to
transmit orders promptly. Financial intermediaries may charge fees for
their services.

The financial intermediary 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 intermediaries may be subject to reclaim by the distributor
for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not
account for share ownership periods.

PURCHASING SHARES BY WIRE

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.

PURCHASING SHARES BY CHECK

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).

SYSTEMATIC INVESTMENT PROGRAM

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. Shareholders should contact
their financial intermediary or the Fund to participate in this
program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or
IRA accounts. For further details, contact the Fund and consult a tax
adviser.

CLASS A SHARES

Class A Shares are sold at NAV, plus a sales charge. However:

NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:

* through financial intermediaries that do not receive sales charge dealer
concessions;

* by Federated Life Members who maintain a $500 minimum balance in at least
one of the Federated Funds; or

* through "wrap accounts" or similar programs under which clients pay
a fee for services.

IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:

* purchasing in quantity and accumulating purchases at the levels in the
table noted above;

* combining concurrent purchases of two or more funds; or

* signing a letter of intent to purchase a specific quantity of shares
within 13 months.

Consult a financial intermediary or Federated Securities Corp. for
details on these programs. In order to eliminate the sales charge or
receive sales charge reductions, Federated Securities Corp. must be
notified by the shareholder in writing or by a financial intermediary
at the time of purchase.

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.

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 establishment of customer accounts
and purchases of Shares.

CLASS B SHARES

Class B Shares are sold at NAV. Under certain circumstances, a
contingent deferred sales charge will be assessed at the time of a
redemption within the first seven years after purchase. Orders for
$250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares after
eight full years from the purchase date. Such conversion will be on
the basis of the relative NAVs per Share, without the imposition of
any charges. 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.

CLASS C SHARES

Class C Shares are sold at NAV. A contingent deferred sales charge of
1.00% will be charged on assets redeemed within the first full 12
months following purchase.

REDEEMING AND EXCHANGING SHARES

Shares of the Fund may be redeemed for cash or exchanged for Shares of
the same class of other Federated Funds on days on which the Fund
computes its NAV. Shares are redeemed at NAV less any applicable
contingent deferred sales charge. Exchanges are made at NAV. Depending
upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged.

REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY

Shares of the Fund may be redeemed or exchanged by contacting your
financial intermediary before 4:00 p.m. (Eastern time). In order for
these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request
to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must
transmit the request to the Fund before 5:00 p.m. (Eastern time). The
financial intermediary is responsible for promptly submitting
transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund.

REDEEMING OR EXCHANGING SHARES BY TELEPHONE

Shares acquired directly from the Fund may be redeemed in any amount,
or exchanged, by calling 1-800-341-7400. Appropriate authorization
forms for these transactions must be on file with the Fund. Shares
held in certificate form must first be returned to the Fund as
described in the instructions under "Redeeming or Exchanging Shares by
Mail." Redemption proceeds will either 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.

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 or
Exchanging Shares by Mail" should be considered. The telephone
transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.

REDEEMING OR EXCHANGING SHARES BY MAIL

Shares may be redeemed in any amount, or exchanged, by mailing a
written request to: Federated Shareholder Services Company, Fund Name,
Fund Class, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they must accompany the written
request. It is recommended that certificates be sent unendorsed by
registered or certified mail.

All written requests should state: Fund Name and the Share Class name;
the account name as registered with the Fund; the account number; and
the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the
Fund into which the exchange is to be made. All owners of the account
must sign the request exactly as the Shares are registered. A check
for redemption proceeds is normally mailed within one business day,
but in no event more than seven days, after receipt of a proper
written redemption request. It is recommended that any share
certificates be sent by registered or certified mail with the written
request. Dividends are paid up to and including the day that a
redemption or exchange request is processed.

REQUIREMENTS FOR REDEMPTION

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 in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary
public.

REQUIREMENTS FOR EXCHANGE

Shareholders must exchange Shares having a NAV equal to the minimum
investment requirements of the fund into which the exchange is being
made. Contact your financial intermediary directly or the Fund for
free information on and prospectuses for the Federated Funds into
which your Shares may be exchanged. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.

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. Signature guarantees will
be required to exchange between fund accounts not having identical
shareholder registrations. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.

SYSTEMATIC WITHDRAWAL PROGRAM

Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. To be
eligible to participate in this program, a shareholder must have an
account value of at least $10,000, other than retirement accounts
subject to required minimum distributions. A shareholder may apply for
participation in this program through his financial intermediary or by
calling the Fund.

Because participation in this program may reduce, and eventually
deplete, the shareholder's investment in the Fund, payments under this
program should not be considered as yield or income. It is not
advisable for shareholders to continue to purchase Class A Shares
subject to a sales charge while participating in this program. A
contingent deferred sales charge may be imposed on Class B and C
Shares.

CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the distributor. 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. The contingent deferred
sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term
capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares
received through an exchange will include the period for which your
original Shares were held.

ELIMINATING THE CONTINGENT DEFERRED
SALES CHARGE

Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:

* following the death or disability, as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, of the last surviving
shareholder;

* representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has
attained the age of 701/2;

* which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;

* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;

* 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; and

* by the Fund of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment
Advisers Act of 1940 or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial
institution, to the extent that no payments were advanced for
purchases made through such entities.

For more information regarding the elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, or any
of the above provisions, contact your financial intermediary or the
Fund. The Fund reserves the right to discontinue or modify these
provisions. Shareholders will be notified of such action.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND CERTIFICATES

Shareholders will receive detailed confirmations of all transactions
and monthly confirmations reporting any dividends paid. Share
certificates are not issued unless requested in writing to Federated
Shareholder Services Company.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared daily and paid monthly to all shareholders
invested in the Fund on the record date. Net long-term capital gains
realized by the Fund, if any, will be distributed at least once every
twelve months. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the
ex-dividend date NAV without a sales charge, unless shareholders
request cash payments on the new account form or by contacting the
transfer agent.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the
Fund may close an account by redeeming all Shares and paying the
proceeds to the shareholder if the account balance falls below the
applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes
will not be closed in this manner. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.

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 0.30% 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.

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 $110 billion invested across more than 300 funds under
management and/or administration by its subsidiaries, as of December
31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide. 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.

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 0.75% 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 0.75% 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 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:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million

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

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.

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.

As of May 7, 1997, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, for the sole benefit of its customers, was the owner of
record of approximately 556,694 shares (28.64%) of the Class C Shares
of the Fund, and, therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
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.

FEDERATED MUNICIPAL SECURITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor

Cusip 313913105
Cusip 313913204
Cusip 313913303
G00322-01 (5/97)

[Graphic]
Federated Municipal Securities Fund, Inc.
Class A Shares, Class B Shares,
Class C Shares

PROSPECTUS
MAY 31, 1997

An Open-End, Diversified
Management Investment Company

<PAGE>

Federated 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, 1997. 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
1-800-341-7400.

Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Statement dated May 31, 1997

Cusip 313913105
Cusip 313913204
Cusip 313913303
8051601B (5/97)

<PAGE>

Table of Contents

General Information About the Fund 1

Investment Objective and Policies 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Temporary Investments 1
Futures Transactions 2
Portfolio Turnover 2

Investment Limitations 3

Federated Municipal Securities Fund, Inc. Management 6
The Funds 9
Fund Ownership 9
Director Compensation 10
Director Liability 10

Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 11

Brokerage Transactions 11

Other Services 11
Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Auditors 12

Purchasing Shares 12
Purchases by Sales Representatives, Fund Directors,
and Employees 13
Distribution Plan (Class B Shares and
Class C Shares Only) and
Shareholder Services 13
Conversion to Federal Funds 14

Determining Net Asset Value 14
Determining Market Value of Securities 14
Valuing Municipal Bonds 14

Redeeming Shares 14
Redemption in Kind 15
Contingent Deferred Sales Charge 15

Tax Status 15
The Fund's Tax Status 15

Total Return 16

Yield 16

Tax-Equivalent Yield 17
Tax-Equivalency Table 17

Performance Comparisons 18
Economic and Market Information 19

About Federated Investors 19
Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 20
Financial Statements 20

Appendix 21

<PAGE>

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.

Futures Transactions

A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future. In the
fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to purchase
securities in the future at a predetermined price (i.e., "go long") to
hedge against a decline in market interest rates.

"Margin" in Futures Transactions

Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in cash or cash equivalents with its
custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from
that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of
funds by the Fund to finance the transactions. Initial margin
is in the nature of a performance bond or good faith deposit
on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied.

A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark-to-market its open futures
positions.
>

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, 1997, and 1996, the
portfolio turnover rates were 33% and 29%, 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

The 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.

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."

<PAGE>

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
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934

Director

Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.

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; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.

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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

<PAGE>

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, 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Director

Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.

<PAGE>

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926

Director

Former Attorney, Member of Miller, Ament, Henny & Kochuba; 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; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University
of Pittsburgh; Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal Emergency Management
Advisory Board and Czech Management Center; Director or Trustee of the
Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Director

Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; 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 , Secretary and Treasurer

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; Treasurer of some 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.

* 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; 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 Investment Portfolios; Federated Investment Trust;
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.; 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
Obligations Trust II; 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; Wesmark Funds; and World Investment Series, Inc.

Fund Ownership

Officers and Directors own less than 1% of the Fund's outstanding
Shares.

As of May 7, 1997, no shareholders of record owned 5% or more of the
Class A Shares and Class B Shares of the Fund.

As of May 7, 1997, the following shareholder 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 556,694 shares (28.64%).

Director Compensation

AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX
<S> <C> <C>

John F. Donahue, $0 $0 for the Fund and 56 investment companies

Chairman and Director

J. Christopher Donahue, $0 $0 for the Fund and 18 investment companies

President and Director

Thomas G. Bigley, $1,697 $108,725 for the Fund and 56 investment companies

Director

John T. Conroy, Jr., $1,867 $119,615 for the Fund and 56 investment companies

Director

William J. Copeland, $1,867 $119,615 for the Fund and 56 investment companies

Director

James E. Dowd, $1,867 $119,615 for the Fund and 56 investment companies

Director

Lawrence D. Ellis, M.D., $1,697 $108,725 for the Fund and 56 investment companies

Director

Edward L Flaherty, Jr., $1,867 $119,615 for the Fund and 56 investment companies

Director

Peter E. Madden, $1,697 $108,725 for the Fund and 56 investment companies

Director

Gregor F. Meyer, Jr., $1,697 $108,725 for the Fund and 56 investment companies

Director

John E. Murray, Jr., $1,697 $108,725 for the Fund and 56 investment companies

Director

Wesley W. Posvar, $1,697 $108,725 for the Fund and 56 investment companies

Director

Marjorie P. Smuts, $1,697 $108,725 for the Fund and 56 investment companies

Director

</TABLE>

* Information is furnished for the fiscal year ended March 31, 1997.

The information is provided for the last calendar year.

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.

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, 1997, 1996, and 1995, the
Fund's Adviser earned $4,379,885, $4,644,716, and $4,498,635,
respectively.

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,
1997, 1996, and 1995, 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.
For purposes of this Statement of Additional Information, Federated
Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal
years ended March 31, 1997, 1996, and 1995, the Administrators earned
$547,583, $573,123, and $550,028, respectively.

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 prospectus
under "Investing in the Fund" and "Purchasing Shares."

Quantity Discounts and Accumulated Purchases. As shown in the table in
the prospectus, 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 the Class A Shares of one of the other Federated
Funds with a sales charge, and $20,000 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
$50,000 of Class A 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 5.50% 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 Funds, 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.

Conversion of Class B Shares. Class B Shares will automatically
convert into Class A Shares after eight full years from the purchase
date. 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
a 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.

Purchases by Sales Representatives, Fund Directors, and Employees

The following individuals and their immediate family members may buy
Class A Shares at net asset value without a sales charge:

oDirectors, employees, and sales representatives of the Fund,
Federated Advisers, and Federated Securities Corp. and its affiliates;

oFederated Life Members; and

oany associated person of an investment dealer who has a sales
agreement with Federated Securities Corp. Shares may also be sold
without a sales charge to trusts, pensions, or profit-sharing plans
for these individuals.

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. 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, 1997, payments in the amounts
of $527,131 (Class B Shares) and $177,337 (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, 1997,
payments in the amounts of $1,576,818 (Class A Shares), $175,710
(Class B Shares), and $59,112 (Class C Shares) were made pursuant to
the Shareholder Services Agreement, of which $883,019 (Class A
Shares), $0 (Class B Shares), and $2,364 (Class C Shares) were
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.

Determining Net Asset Value

The Fund's net asset value per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The net
asset value for each class of Shares may differ due to the variance in
daily net income realized by each class.

Net asset value is not determined on (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities
that its 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.

Determining Market Value of Securities

Market values of the Fund's portfolio securities are determined as
follows:

o according to the last sale price on a national securities exchange,
if available;

oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices and for bonds
and other fixed income securities, as determined by an independent
pricing service; or

ofor short-term obligations, according to the prices as furnished by
an independent pricing service or for short-term obligations with
remaining maturities of 60 days or less at the time of purchase, at
amortized cost or at fair value as determined in good faith by the
Directors.

Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider yield,
quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. 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 after the
Fund receives the redemption request. Shareholder redemptions may be
subject to a contingent deferred sales charge. Redemption procedures
are explained in the respective prospectuses under "Redeeming and
Exchanging Shares." Although the transfer agent 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.

Redemption in Kind

Although the Fund intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.

Redemption in kind will be made in conformity with applicable SEC
rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner
the Directors determine to be fair and equitable.

The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares
for any shareholder in cash up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.

Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their securities
and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain
transaction costs.

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 seven 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;
(3) Shares held for fewer than seven 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 on a first-in, first-out basis.

Elimination of the Contingent Deferred Sales Charge. To qualify for
elimination of the contingent deferred sales charge through a
Systematic Withdrawal Program, the redemptions of Class B Shares must
be from an account that is at least 12 months old, has all Fund
distributions reinvested in Fund Shares, and has an account value of
at least $10,000 when the Systematic Withdrawal Program is
established. Qualifying redemptions may not exceed 1.00% monthly of
the account value as periodically determined by the Fund. The amounts
that a shareholder may withdraw under a Systematic Withdrawal Program
that qualify for elimination of the Contingent Deferred Sales Charge
may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal
Program and then as calculated at the annual valuation date.
Redemptions on a qualifying Systematic Withdrawal Program can be made
at a rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually
with reference to the applicable account valuation amount. Amounts
that exceed the 12.00% annual limit for redemption, as described, may
be subject to the Contingent Deferred Sales Charge. To the extent that
a shareholder exchanges Shares for Class B 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 12-month holding requirement. However, for
purposes of meeting the $10,000 minimum account value requirement,
Class B Share accounts will be not be aggregated. Any Shares purchased
prior to the termination of this program would have the contingent
deferred sales charge eliminated as provided in the Fund's prospectus
at the time of the purchase of the Shares. 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 returns for the following periods
ended March 31, 1997 were:
<TABLE>
<CAPTION>

Share Class Inception Date One-Year Five-Years Ten-Years Since Inception
<S> <C> <C> <C> <C> <C>
Class A 10/4/76 (2.75%) 4.42% 5.89% 6.12%

Class B 7/26/94 (4.62%) N/A N/A 1.74%

Class C 4/21/93 (0.03%) N/A N/A 2.64%

</TABLE>

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, 1997 were:

Share Class Yield

Class A 4.46%

Class B 3.56%

Class C 3.57%

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.

<PAGE>

Tax-Equivalent Yield

The Fund's tax-equivalent yields for the thirty-day period ended March
31, 1997 for Class A Shares, Class B Shares, and Class C Shares were
6.19%, 4.94%, and 4.96%, 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.
<TABLE>
<CAPTION>

TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS

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

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

- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050

SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050

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

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%

</TABLE>

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.

<PAGE>

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, 1996, Federated
Investors managed 12 bond funds with approximately $2.0 billion in
assets and 21 money market funds with approximately $9.5 billion in
total assets. In 1976, Federated 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 and global portfolios.

Mutual Fund Market

Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 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.

Bank Marketing

Other institutional clients include close relationships with more than
1,600 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.

*source: Investment Company Institute

<PAGE>

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Federated funds are available to consumers through major brokerage
firms nationwide--we now have over 2,200 broker/dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement..
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

Financial Statements

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

The Financial Statements for the fiscal year ended March 31, 1997,
are incorporated herein by reference to the Annual Report of the Fund
dated March 31, 1997 (File Nos. 2-57181 and 811-2677). A copy of this
report may be obtained without charge by contacting the Fund.

<PAGE>

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.

<PAGE>

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, l997 pursuant to Rule 411 under the
Securities Act of 1933.) (File Nos. 2-57181 and 811-2677);
(b) Exhibits:
(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) Conformed copies of Specimen
Certificates for Shares of Capital
Stock of the Registrant's Class A
Shares, Class B Shares, and Class
C Shares; +
(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; and Plan Trustee/Mutual Funds
Service Agreement from Item 24(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)

<PAGE>

(7) Not applicable;
(8) Conformed copy of Custodian Contract of the Registrant; (13)
(9) (i) Conformed copy of Agreement for Fund Accounting Services,
Administrative Services,
Transfer Agency Services and Custody Services Procurement;(15)
(ii) The responses described in Item 24(b)(6) are hereby
incorporated by reference.
(iii) The Registrant hereby incorporates by reference 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 25, 1996.
(File Nos. 2-75670 and 811-3375);
(10) Not applicable;
(11) Conformed copy of Independent Auditors' Consent; +
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Conformed copy of the 12b-1 Distribution Plan of the
Registrant; (12)
(ii) Conformed copy of Exhibit C of the 12b-1 Distribution Plan of
the Registrant; (13)
(16) Copy of 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. 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 811-2667)
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)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 48 on Form N-1A filed May 28, 1996.
(File Nos. 2-57181 and 811-2677)

<PAGE>

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, 1997
-------------- -----------------

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

Class A Shares 23,150
Class B Shares 2,390
Class C Shares 652

Item 27. Indemnification:(11)

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 three of the
Trustees and two 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 Trustee of 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, and J. Thomas Madden, Executive Vice
Presidents; Peter R. Anderson, Drew J. Collins, Jonathan C. Conley,
Deborah A. Cunningham, Mark E. Durbiano, J. Alan Minteer, Susan M.
Nason, and Mary Jo Ochson, Senior Vice Presidents; J. Scott Albrecht,
Joseph M. Balestrino, Randall S. Bauer, David F. Belton, Christine A.
Bosio, David A. Briggs, Kenneth J. Cody, Alexandre de Bethmann,
Michael J. Donnelly, Michael P. Donnelly, Linda A. Duessel, Kathleen
M. Foody-Malus, Thomas M. Franks, Edward C. Gonzales, James E.
Grefenstette, Susan R. Hill, Stephen A. Keen, Robert M. Kowit, Jeff A.
Kozemchak, Marian R. Marinack, Sandra L. McInerney, Robert J.
Ostrowski, Charles A. Ritter, Scott B. Schermerhorn, Frank Semack,
Aash M. Shah, William F. Stotz, Tracy P. Stouffer, Edward J. Tiedge,
Paige M. Wilhelm, and Jolanta M. Wysocka, Vice Presidents; Todd A.
Abraham, Stefanie L. Bachhuber, Arthur J. Barry, Michael W. Casey,
John T. Gentry, William R. Jamison, Constantine Kartsonsas, Robert M.
Marsh, Joseph M. Natoli, Keith J. Sabol, Michael W. Sirianni, and
Gregg S. Tenser, Assistant Vice Presidents; Stephen A. Keen,
Secretary; Thomas R. Donahue, Treasurer and Assistant Secretary;
Richard B. Fisher, Assistant Secretary and Assistant Treasurer; and
Christine I. McGonigle, Assistant Secretary. The business address of
each of the Officers of the investment adviser is Federated Investors
Tower, Pittsburgh, Pennsylvania 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. ----------------------

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)

<PAGE>

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; 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 Investment Portfolios; Federated Investment Trust;
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.; 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 Obligations Trust II; 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.; Wesmark Funds; 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.

<PAGE>

(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
<S> <C> <C>
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 Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

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

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.

David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Laura M. Deger 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

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

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

Teresa M. Antoszyk 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

Dale R. Browne 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

R. Leonard Corton, 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

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Doyle 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

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

John K. Goettlicher 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

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy 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

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

J. Michael Miller 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

Thomas A. Peters III 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

Richard A. Recker 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

George D. Riedel 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 Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith 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

John A. Staley 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

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard Suder 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

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John F. Wallin 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

Edward J. Wojnarowski 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

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant 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

Matthew S. Propelka 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

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

</TABLE>

<PAGE>

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.

<PAGE>

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., 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 29th day of May, 1997.

FEDERATED MUNICIPAL SECURITIES FUND, INC.
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
May 29, 1997

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/ J. Crilley Kelly Attorney In Fact May 29, 1997
J. Crilley Kelly For the Persons
ASSISTANT SECRETARY Listed Below

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

J. Christopher Donahue* President and Director

John W. McGonigle* Treasurer, Executive
Vice President and Secretary
(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

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K

INDEPENDENT AUDITORS' CONSENT

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

We consent to the use in Post-Effective Amendment No. 50 to
Registration Statement (No. 2-57181) of Federated Municipal Securities
Fund, Inc. of our report dated May 2, 1997 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
DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
May 28, 1997

Exhibit 4 under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(CLASS A SHARES)

Number Shares
- ----- -----

Account No. Alpha Code Incorporated Under See Reverse Side For
the Laws of the Certain Definitions
State of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP 313913 10 5

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED
MUNICIPAL SECURITIES FUND, INC. (CLASS A SHARES) hereafter called the
"Company," transferable on the books of the Company by the owner, in
person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.

The shares represented hereby are issued and shall be held
subject to the provisions of the Articles of Incorporation and By-Laws
of the Company, and all amendments thereto, to all of which the holder
by acceptance hereof assents.

This Certificate is not valid unless countersigned by the
Transfer Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its Seal.

Dated: FEDERATED MUNICIPAL SECURITIES FUND, INC.
Corporate Seal
Maryland
1976

/s/ David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

<PAGE>

The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations: TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian... TEN ENT - as
tenants by the entirety (Cust) (Minor) JT TEN - as joint tenants with
right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........
in common (State)

Additional abbreviations may also be used though not in the
above list.

The Company will furnish to any stockholder, on request and
without charge, a full statement of designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the corporation is
authorized to issue.

For value received__________ hereby sell, assign, and transfer unto

Please insert social security or other
identifying number of assignee

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

- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)

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

______________________________________________________________________ shares

of common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------
_____________________________________________________________________Attorney
to transfer the said shares on the books of the within named Company
with full power of substitution in the premises.

Dated______________________

NOTICE:________________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.

<PAGE>

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an orange one-half inch border.

B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are
outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

<PAGE>

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(CLASS B SHARES)

Number Shares
- ----- -----

Account No. Alpha Code Incorporated Under See Reverse Side For
the Laws of the Certain Definitions
State of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP 313913 20 4

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED
MUNICIPAL SECURITIES FUND, INC. (CLASS B SHARES) hereafter called the
"Company," transferable on the books of the Company by the owner, in
person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.

This Certificate is not valid unless countersigned by the
Transfer Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its Seal.

Dated: FEDERATED MUNICIPAL SECURITIES FUND, INC.
Corporate Seal
Maryland
1976

/s/ David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

<PAGE>

Additional abbreviations may also be used though not in the
above list.

For value received__________ hereby sell, assign, and transfer unto

Please insert social security or other
identifying number of assignee

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

- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)

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

______________________________________________________________________ shares

Dated______________________

NOTICE:______________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.

<PAGE>

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an orange one-half inch border.

B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

<PAGE>

FEDERATED MUNICIPAL SECURITIES FUND, INC.
(CLASS C SHARES)

Number Shares
- ----- -----

Account No. Alpha Code Incorporated Under See Reverse Side For
the Laws of the Certain Definitions
State of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP 313913 30 3

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED
MUNICIPAL SECURITIES FUND, INC. (CLASS C SHARES) hereafter called the
"Company," transferable on the books of the Company by the owner, in
person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.

This Certificate is not valid unless countersigned by the
Transfer Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its Seal.

Dated: FEDERATED MUNICIPAL SECURITIES FUND, INC.
Corporate Seal
Maryland
1976

/s/ David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

<PAGE>

Additional abbreviations may also be used though not in the
above list.

For value received__________ hereby sell, assign, and transfer unto

Please insert social security or other
identifying number of assignee

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

- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)

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

______________________________________________________________________ shares

Dated______________________

NOTICE:___________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.

<PAGE>

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an orange one-half inch border.

B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

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 Services Company, 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 and Director May 1, 1997
- -----------------------------
John F. Donahue (Chief Executive Officer)

/s/ J. Christopher Donahue President and Director May 1, 1997
- -----------------------------
J. Christopher Donahue

/s/ John W. McGonigle Treasurer, Executive May 1, 1997
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)

/s/ Thomas G. Bigley Director May 1, 1997
- -----------------------------
Thomas G. Bigley

/s/ John T. Conroy, Jr. Director May 1, 1997
- -----------------------------
John T. Conroy, Jr.

<PAGE>

SIGNATURES TITLE DATE

/s/ William J. Copeland Director May 1, 1997
- -----------------------------
William J. Copeland

/s/ James E. Dowd Director May 1, 1997
- -----------------------------
James E. Dowd

/s/ Lawrence D. Ellis, M.D. Director May 1, 1997
Lawrence D. Ellis, M.D.

/s/ Edward L. Flaherty, Jr. Director May 1, 1997
- -----------------------------
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Director May 1, 1997
- -----------------------------
Peter E. Madden

/s/ Gregor F. Meyer Director May 1, 1997
- -----------------------------
Gregor F. Meyer

/s/ John E. Murray, Jr. Director May 1, 1997
- -----------------------------
John E. Murray, Jr.

/s/ Wesley W. Posvar Director May 1, 1997
- -----------------------------
Wesley W. Posvar

/s/ Marjorie P. Smuts Director May 1, 1997
- -----------------------------
Marjorie P. Smuts

Sworn to and subscribed before me this 1st day of May, 1997

/s/ Marie M. Hamm

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

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 692,288,766
<INVESTMENTS-AT-VALUE> 680,278,125
<RECEIVABLES> 16,686,171
<ASSETS-OTHER> 241,903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 697,206,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,611,351
<TOTAL-LIABILITIES> 3,611,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 708,965,828
<SHARES-COMMON-STOCK> 57,773,220
<SHARES-COMMON-PRIOR> 61,344,756
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,325,545)
<ACCUMULATED-NET-GAINS> (34,795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,010,640)
<NET-ASSETS> 595,515,100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 45,675,471
<OTHER-INCOME> 0
<EXPENSES-NET> 7,604,574
<NET-INVESTMENT-INCOME> 38,070,897
<REALIZED-GAINS-CURRENT> (30,587)
<APPREC-INCREASE-CURRENT> (25,442,823)
<NET-CHANGE-FROM-OPS> 12,597,487
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33,864,603
<DISTRIBUTIONS-OF-GAINS> 2,983,224
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,574,693
<NUMBER-OF-SHARES-REDEEMED> 17,732,936
<SHARES-REINVESTED> 2,586,707
<NET-CHANGE-IN-ASSETS> (54,153,394)
<ACCUMULATED-NII-PRIOR> 18,772
<ACCUMULATED-GAINS-PRIOR> 6,666,727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,379,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,489,957
<AVERAGE-NET-ASSETS> 724,853,322
<PER-SHARE-NAV-BEGIN> 10.820
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> (0.360)
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0.100
<RETURNS-OF-CAPITAL> 0.050
<PER-SHARE-NAV-END> 10.310
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

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

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 692,288,766
<INVESTMENTS-AT-VALUE> 680,278,125
<RECEIVABLES> 16,686,171
<ASSETS-OTHER> 241,903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 697,206,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,611,351
<TOTAL-LIABILITIES> 3,611,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 708,965,828
<SHARES-COMMON-STOCK> 7,521,540
<SHARES-COMMON-PRIOR> 5,389,543
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,325,545)
<ACCUMULATED-NET-GAINS> (34,795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,010,640)
<NET-ASSETS> 77,535,846
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 45,675,471
<OTHER-INCOME> 0
<EXPENSES-NET> 7,604,574
<NET-INVESTMENT-INCOME> 38,070,897
<REALIZED-GAINS-CURRENT> (30,587)
<APPREC-INCREASE-CURRENT> (25,442,823)
<NET-CHANGE-FROM-OPS> 12,597,487
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,157,991
<DISTRIBUTIONS-OF-GAINS> 332,555
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,354,939
<NUMBER-OF-SHARES-REDEEMED> 1,426,287
<SHARES-REINVESTED> 203,345
<NET-CHANGE-IN-ASSETS> (54,153,394)
<ACCUMULATED-NII-PRIOR> 18,772
<ACCUMULATED-GAINS-PRIOR> 6,666,727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,379,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,489,957
<AVERAGE-NET-ASSETS> 724,853,322
<PER-SHARE-NAV-BEGIN> 10.820
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> 0.370
<PER-SHARE-DIVIDEND> 0.470
<PER-SHARE-DISTRIBUTIONS> 0.100
<RETURNS-OF-CAPITAL> 0.040
<PER-SHARE-NAV-END> 10.310
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

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

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 692,288,766
<INVESTMENTS-AT-VALUE> 680,278,125
<RECEIVABLES> 16,686,171
<ASSETS-OTHER> 241,903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 697,206,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,611,351
<TOTAL-LIABILITIES> 3,611,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 708,965,828
<SHARES-COMMON-STOCK> 1,993,037
<SHARES-COMMON-PRIOR> 2,395,801
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,325,545)
<ACCUMULATED-NET-GAINS> (34,795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,010,640)
<NET-ASSETS> 20,543,902
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 45,675,471
<OTHER-INCOME> 0
<EXPENSES-NET> 7,604,574
<NET-INVESTMENT-INCOME> 38,070,897
<REALIZED-GAINS-CURRENT> (30,587)
<APPREC-INCREASE-CURRENT> (25,442,823)
<NET-CHANGE-FROM-OPS> 12,597,487
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,067,075
<DISTRIBUTIONS-OF-GAINS> 99,766
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 423,472
<NUMBER-OF-SHARES-REDEEMED> 86,450
<SHARES-REINVESTED> 912,686
<NET-CHANGE-IN-ASSETS> (54,153,394)
<ACCUMULATED-NII-PRIOR> 18,772
<ACCUMULATED-GAINS-PRIOR> 6,666,727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,379,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,489,957
<AVERAGE-NET-ASSETS> 724,853,322
<PER-SHARE-NAV-BEGIN> 10.820
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.360
<PER-SHARE-DIVIDEND> 0.460
<PER-SHARE-DISTRIBUTIONS> 0.100
<RETURNS-OF-CAPITAL> 0.050
<PER-SHARE-NAV-END> 10.310
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>