FEDERATED MUNICIPAL SECURITIES FUND INC, 485BPOS, 1998-07-28

FEDERATED MUNICIPAL SECURITIES FUND INC
485BPOS, 1998-07-28

Previous: FRONTIER OIL CORP /NEW/, 10-Q, 1998-07-28

Next: PRO FAC COOPERATIVE INC, 8-K, 1998-07-28

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. 52 .................... X
------- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 36 ................................... X
------- ---

FEDERATED MUNICIPAL SECURITIES FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

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

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

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
x on July 30, 1998, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
_ on __________________ pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

Copies to:

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

CROSS-REFERENCE SHEET

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

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page....................(1-3) Cover Page.
Item 2. Synopsis......................(1-3) Summary of Fund Expenses.
Item 3. Condensed Financial
Information...................(1-3) Financial Highlights; (1-3)
Performance Information.
Item 4. General Description of
Registrant....................(1-3) General Information; (1-3)
Investment Information; (1-3)
Investment Objective; (1-3) Investment
Policies; (1-3)Investment Risks;
(1-3) Reducing Risks of Lower-Rated
Securities; (1-3) Investment
Limitations.
Item 5. Management of the Fund........(1-3) Fund Information; (1-3)
Management of the Fund; (1-3)
Distribution of Shares; (1-3)
Administration of the Fund.
----------------------
Item 6. Capital Stock and Other
Securities....................(1-3) Shareholder Information; (1-3)
Calling the Fund; (1-3) Account and
Share Information; (1-3) Confirmations
and Account Statements; (1-3)
Dividends and Distributions; (1-3) Tax
Information; (1-3) Federal Income Tax;
(1-3) State and Local Taxes.
Item 7. Purchase of Securities Being
Offered.......................(1-3) 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) Class A Shares;
(2) Class B Shares; (3) Class C
Shares.

<PAGE>

Item 8. Redemption or Repurchase (1-3)
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)
Systematic Withdrawal Program("SWP")
on Class B Shares; (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.
Item 9. Pending Legal Proceedings.....None.

<PAGE>

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

Item 10. Cover Page....................(1-3) Cover page.
Item 11. Table of Contents (1-3) Table of Contents.
Item 12. General Information and
History.......................(1-3) General Information About the
Fund; (1-3) About Federated Investors.
Item 13. Investment Objectives and
Policies......................(1-3) Investment Objective and
Policies; (1-3) Investment Limitations.
Item 14. Management of the Fund (1-3) Federated Municipal Securities
Fund, Inc. Management; (1-3) Director
Compensation.
Item 15. Control Persons and Principal
Holders of Securities (1-3) Fund Ownership.
Item 16. Investment Advisory and Other
Services......................(1-3) Investment Advisory Services;
(1-3) Other Services.
Item 17. Brokerage Allocation..........(1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.................(1-3) Purchasing Shares; (1-3)
Determining Net Asset Value; (1-3)
Redeeming Shares.
-------------
Item 20. Tax Status....................Tax Status.
----------
Item 21. Underwriters..................(1-3) See Part A - Distribution of
Shares.
------------
Item 22. Calculation of Performance
Data..........................(1-3) Total Return; (1-3) Yield;
(1-3) Tax-Equivalent Yield; (1-3)
Performance Comparisons.
Item 23 Financial Statements..........(1-3) Financial Statements
(Incorporated by reference into Part
B, to Registrant's Annual Report dated
March 31, 1998.)
(File Nos. 2-57181 and 811-2677).

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 July 31,
1998, 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 are 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 July 31, 1998

TABLE OF CONTENTS

<TABLE>
<S> <C> 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 Year 2000 Statement 5 Investment
Information 5 Investment Objective 5 Investment Policies 5 Investment Risks 8
Reducing Risks of Lower-Rated Securities 9 Investment Limitations 9 Net Asset
Value 9 Investing in the Fund 10 Purchasing Shares 10 Purchasing Shares Through
a Financial Intermediary 10 Purchasing Shares by Wire 11 Purchasing Shares by
Check 11 Systematic Investment Program 11 Class A Shares 11 Class B Shares 12
Class C Shares 12 Redeeming and Exchanging Shares 12 Redeeming or Exchanging
Shares Through a Financial Intermediary 12 Redeeming or Exchanging Shares by
Telephone 12 Redeeming or Exchanging Shares by Mail 12 Requirements for
Redemption 13 Requirements for Exchange 13 Systematic Withdrawal Program 13
Systematic Withdrawal Program ("SWP") on Class BShares 13 Contingent Deferred
Sales Charge 13 Eliminating the Contingent Deferred Sales Charge 13 Account and
Share Information 14 Confirmations and Account Statements 14 Dividends and
Distributions 14 Accounts with Low Balances 14 Fund Information 14 Management
of the Fund 14 Distribution of Shares 15 Administration of the Fund 16
Shareholder Information 16 Tax Information 17 Federal Income Tax 17 State and
Local Taxes 17 Performance Information 17 Appendix 18
</TABLE>

SUMMARY OF FUND 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 None 5.50%(1) 1.00%(1)
original purchase price or redemption proceeds, as
applicable)
Redemption Fee (as a percentage of amount redeemed, if
applicable) None None None
Exchange Fee None None None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fee 0.55% 0.55% 0.55%
12b-1 Fee None 0.75% 0.75%
Total Other Expenses (after waiver) 0.32%(2) 0.46% 0.45%(2)
Shareholder Services Fee (after waiver) 0.11%(3) 0.25% 0.24%(3)
Total Operating Expenses 0.87%(4) 1.76%(5) 1.75%(4)
</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) Total other expenses for Class AShares and Class CShares have been reduced
to reflect the voluntary waivers of portions of the shareholder services fee
described in Note (3) below. Total other expenses are expected to be 0.46% and
0.46%, respectively for Class AShares and Class CShares absent the waivers
described in Note (3).

(3) The shareholder services fee 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%.

(4) The total operating expenses for Class A Shares and Class C Shares are
expected to be 1.01% and 1.76%, respectively, absent the voluntary waivers
described in note 2 above. The Total Operating Expenses for Class A and Class B
Shares were 0.86%, and 1.75%, respectively, for the fiscal year ended March 31,
1998. Class A Shares would have been 1.00%, absent the voluntary waiver of a
portion of the shareholder services fee.

(5) 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 "How to Purchase Shares" and "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

<TABLE>
<CAPTION>
EXAMPLE CLASS A CLASS B CLASS C
<S> <C> <C> <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.
1 Year $ 53 $ 75 $ 28
3 Years $ 72 $ 99 $ 55
5 Years $ 91 $119 $ 95
10 Years $147 $183 $206
</TABLE>

You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C> <C> <C>
1 Year $ 53 $ 18 $ 18
3 Years $ 72 $ 55 $ 55
5 Years $ 91 $ 95 $ 95
10 Years $147 $183 $206
</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 ASHARES
FEDERATED MUNICIPAL SECURITIES FUND, INC.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated May 8, 1998, on the Fund's financial
statements for the year ended March 31, 1998, 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,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $10.31 $10.82 $10.92 $11.20 $11.62 $10.98 $10.61 $10.47 $10.26 $10.03
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.46 0.55 0.66 0.67 0.66 0.66 0.67 0.71 0.72 0.72
Net realized and
unrealized gain (loss)
on investments 0.64 (0.36) (0.09) (0.05) (0.40) 0.64 0.37 0.14 0.21 0.23
Total from investment
operations 1.10 0.19 0.57 0.62 0.26 1.30 1.04 0.85 0.93 0.95
LESS DISTRIBUTIONS
Distributions from net
investment income (0.46) (0.55) (0.66) (0.67) (0.66) (0.66) (0.67) (0.71) (0.72) (0.72)
Distributions in
excess of net investment
income(a) (0.01) (0.05) -- -- -- -- -- -- -- --
Distributions from net
realized gain on
investments (0.03) (0.10) (0.01) (0.23) (0.02) -- -- -- -- --
Total distributions (0.50) (0.70) (0.67) (0.90) (0.68) (0.66) (0.67) (0.71) (0.72) (0.72)
NET ASSET VALUE, END OF
PERIOD $10.91 $10.31 $10.82 $10.92 $11.20 $11.62 $10.98 $10.61 $10.47 $10.26
TOTAL RETURN(B) 11.28% 1.84% 5.32% 5.90% 2.10% 12.13% 10.05% 8.42% 9.20% 9.76%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.86% 0.93% 0.98% 0.92% 0.84% 0.80% 0.84% 0.89% 0.90% 0.95%
Net investment income 4.70% 5.37% 5.97% 6.17% 5.59% 5.81% 6.17% 6.77% 6.80% 7.07%
Expense waiver/
reimbursement(c) 0.14% 0.14% 0.13% -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $591,310 $595,515 $663,538 $708,712 $714,384 $706,126 $590,118 $511,611 $474,797 $440,445
Portfolio turnover 64% 33% 29% 41% 27% 13% 8% 45% 25% 58%
</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, 1998, WHICH CAN BE
OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS--CLASS B SHARES

FEDERATED MUNICIPAL SECURITIES FUND, INC.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.47 0.56 0.40
Net realized and unrealized gain (loss) on investments 0.64 (0.37) (0.09) (0.03)
Total from investment operations 1.02 0.10 0.47 0.37
LESS DISTRIBUTIONS
Distributions from net investment income (0.38) (0.47) (0.56) (0.40)
Distributions in excess of net investment income(b) (0.01) (0.04) -- --
Distributions from net realized gain on investments (0.03) (0.10) (0.01) (0.11)
Total distributions (0.42) (0.61) (0.57) (0.51)
NET ASSET VALUE, END OF PERIOD $10.91 $10.31 $10.82 $10.92
TOTAL RETURN(C) 10.30% 0.94% 4.40% 3.49%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.75% 1.82% 1.86% 1.84%*
Net investment income 3.81% 4.50% 5.23% 5.94%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $87,304 $77,536 $58,296 $18,201
Portfolio turnover 64% 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, 1998, WHICH CAN BE
OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS--CLASS C SHARES

FEDERATED MUNICIPAL SECURITIES FUND, INC.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.82 $10.92 $11.20 $11.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.37 0.46 0.56 0.58 0.52
Net realized and unrealized gain (loss) on investments 0.65 (0.36) (0.09) (0.05) (0.48)
Total from investment operations 1.02 0.10 0.47 0.53 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.37) (0.46) (0.56) (0.58) (0.52)
Distributions in excess of net investment income(b) (0.02) (0.05) -- -- --
Total distributions from net investment income (0.39) (0.51) (0.56) (0.58) (0.52)
Distributions from net realized gain on investments (0.03) (0.10) (0.01) (0.23) (0.02)
Total distributions (0.42) (0.61) (0.57) (0.81) (0.54)
NET ASSET VALUE, END OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20
TOTAL RETURN(C) 10.31% 0.95% 4.42% 4.96% 0.17%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.74% 1.81% 1.82% 1.81% 1.80%*
Net investment income 3.83% 4.51% 5.16% 5.28% 4.70%*
Expense waiver/reimbursement(d) 0.01% 0.01% 0.04% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,616 $20,544 $25,914 $22,389 $22,066
Portfolio turnover 64% 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, 1998, 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. Shares of the Fund are offered in three classes of shares known as
Class A Shares, Class B Shares, and Class C Shares ("Shares") which represent
interests in a single portfolio of securities. The Fund is designed for
individuals and institutions seeking a high level of current income which is
exempt from federal regular income tax 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.

YEAR 2000 STATEMENT

Like other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator, and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on its operations. 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. The Fund may invest no more than 35% of its net assets in
lower quality municipal bonds. These bonds will usually offer higher yields than
higher-rated bonds, but involve greater investment risk at the time of issue.
(See "Investment Risks.") 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 on which is exempt from federal regular income tax.
CHARACTERISTICS The Fund may invest in both investment grade and lower rated
municipal bonds. The Fund invests 65% of its assets in municipal bonds which
have the same characteristics assigned by Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's ("S&P") to bonds of investment grade quality
("BBB" rated or better). The Fund will limit its purchases of municipal bonds
rated Ba and BB or below (commonly known as "junk bonds") to no more than 35% of
its net assets. 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 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. In certain cases, the Fund's adviser may choose bonds
which are unrated if it judges the bonds to have the same characteristics as
otherwise permissible municipal bonds.

There is no limit to portfolio maturity. A description of the ratings categories
is contained in the Appendix to this prospectus.

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Directors, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase together
with other illiquid securities and repurchase agreements providing for
settlement in more than seven days after notice to 15% of its net assets.
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.

INVERSE FLOATERS

The Fund may invest in securities known as "inverse floaters" which represent
interests in municipal securities. The Fund intends to purchase inverse floaters
to assist in pursuing its investment objective. These obligations pay interest
rates that vary inversely with changes in the interest rates of specified
short-term municipal securities or an index of short-term municipal securities.
The interest rates on inverse floaters will typically decline as short-term
market interest rates increase and increase as short-term market rates decline.
Inverse floaters will generally respond to changes in market interest rates more
rapidly than fixed-rate long-term securities (typically twice as fast). As a
result, the market values of inverse floaters will generally be more volatile
than the market values of fixed-rate municipal securities. Typically, the
portion of the portfolio invested in inverse floaters will be subject to
additional volatility.

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 readily
marketable securities 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). These
securities will 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

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. Private activity bonds are typically one type of "revenue" bonds.
In most cases, lower quality bonds are private activity bonds or other revenue
bonds which are not payable from general tax revenues.

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

The value of Shares will fluctuate. The amount of this fluctuation is dependent
upon the quality and maturity of the municipal bonds in the Fund's portfolio as
well as on market conditions. 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. Generally
speaking, the lower quality, long-term bonds in which the Fund invests have
greater fluctuation in value than high quality, shorter-term bonds.

Municipal bond prices are interest rate sensitive, which means that their value
varies inversely with market interest rates. Thus, if market interest rates have
increased from the time a bond was purchased, the bond, if sold, might be sold
at a price less than its cost. Similarly, if market interest rates have declined
from the time a bond was purchased, the bond, if sold, might be sold at a price
greater than its cost. (In either instance, if the bond was held to maturity, no
loss or gain normally would be realized as a result of interim market
fluctuations.)

Prices of lower grade bonds also fluctuate with changes in the perceived quality
of the credit of their issuers. Consequently, Shares may not be suitable for
persons who cannot assume the somewhat greater risks of capital depreciation
associated with higher tax-exempt income yields. In addition, bonds rated "BBB"
by S&P or "Baa" and below by Moody's have speculative characteristics. Changes
in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. A large portion of the Fund's portfolio may be invested in bonds
whose interest payments are from revenues of similar projects (such as housing
or hospitals) or where issuers share the same geographic location. As a result,
the Fund may be more susceptible to similar economic, political or regulatory
developments than would a portfolio of bonds with a greater geographic and
project variety. This susceptibility may result in greater fluctuations in share
price.

Many issuers of municipal bonds which have characteristics of rated bonds choose
not to have their obligations rated. Unrated bonds may carry a greater risk and
a higher yield than rated securities. Although unrated bonds are not necessarily
of lower quality, the market for them may not be as broad as that for rated
bonds since many investors rely solely on the major rating agencies for credit
appraisal.

Further, the lower rated or unrated municipal bonds which the Fund may purchase
are frequently traded only in markets where the number of potential purchasers
and sellers is limited. This consideration may have the effect of limiting the
availability of such bonds for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell such bonds at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets. The Fund will not invest more than 15% of its total
assets in securities which are not readily marketable.

REDUCING RISKS OF LOWER-RATED SECURITIES

The Fund's investment adviser believes that the risks of investing in lower
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:

CREDIT RESEARCH

When purchasing bonds, rated or unrated, the Fund's investment adviser performs
its own credit analysis in addition to using recognized rating agencies. This
credit analysis considers the economic feasibility of revenue bond project
financing and general purpose borrowings, the financial condition of the issuer
or guarantor with respect to liquidity, cash flow and ability to meet
anticipated debt service requirements, and political developments that may
affect credit quality.

DIVERSIFICATION

The Fund invests in securities of many different issuers to reduce portfolio
risks.

ECONOMIC ANALYSIS

The Fund's adviser also considers trends in the overall economy, in geographic
areas, in various industries, and in the financial markets.

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; or

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

The above investment limitations cannot be changed without shareholder approval.
The following limitation, 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 15% 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.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Minimum and Subsequent Investment Amounts $1500/$100 $1500/$100 $1500/$100
Maximum Sales Charge 4.50%* None None
Maximum Contingent Deferred Sales Charge** None 5.50+ 1.00%#
Conversion Feature No Yes++ No
</TABLE>

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

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

** 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:

<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

++ Class 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, Inc. ("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 02266-8600; 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 in a minimum amount of $50 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.

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; 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 Class A Shares in quantity;
* combining concurrent purchases of
* Class A Shares by you, your spouse, and your children under age 21, or *
Class A Shares of two or more Federated Funds (other than money market
funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous Class A Share
purchases still invested in the Fund);
* signing a letter of intent to purchase a specific dollar amount of Class A
Shares within 13 months; or
* using the reinvestment privilege within 120 days of redeeming Class A
Shares of an equal or lesser amount.

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. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp.

Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the 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. 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. Shareholders who desire to automatically exchange
Shares, of a like share class, in a pre-determined amount on a monthly,
quarterly, or annual basis may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or your
financial intermediary. 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.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.

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. 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 an 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 of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through his financial 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 Shares and
Class C Shares. SYSTEMATIC WITHDRAWAL PROGRAM ("SWP") ON CLASS B SHARES

A contingent deferred sales charge will not be charged on SWP redemptions of
Class B Shares if:

* shares redeemed are 12% or less of the account value in a single year; *
the account is at least one year old; * all dividends and capital gains
distributions are reinvested; and * the account has at least a $10,000
balance when the SWP is established;
(multiple Class B Shares accounts cannot be aggregated to meet this minimum
balance).

A contingent deferred sales charge will be charged on redemption amounts that
exceed the 12% annual limit. In measuring the redemption percentage, the account
is valued when the SWP is established and then annually at calendar year-end.
Redemptions can be made only at a rate of 1% monthly, 3% quarterly, or 6%
semi-annually. 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 and any
designated beneficiaries;

* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1U2;
* 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;
* which are reinvested in the Fund under the reinvest- ment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and

* 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 intermediary, 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 ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.

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. 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, Inc. All of the Class A
(voting) Shares of Federated Investors, Inc. are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Director of Federated
Investors, Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Director of Federated Investors, Inc.

Federated Advisers and other subsidiaries of Federated Investors, Inc. 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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors, Inc. 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 approximately 4,000 financial
institutions nationwide.

Mary Jo Ochson has been a portfolio manager of the Fund since 1996. Ms.
Ochson joined Federated Investors, Inc. or its predecessor 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 a portfolio manager of the Fund since 1996. Mr.
Albrecht joined Federated Investors, Inc. or its predecessor 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. Mr. Albrecht is a Chartered Financial Analyst and
received his M.S. in Public Management from Carnegie Mellon University.

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 interests. 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, Inc.
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, Inc.

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, Inc., 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, Inc., 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, Inc. as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

SHAREHOLDER INFORMATION

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 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 July 7, 1998, the following
shareholder of record owned 25% or more of the outstanding Class C Shares of the
Fund: Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C
Shares for its clients), Jacksonville, Florida, owned approximately 433,243
Shares (27.66%) 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

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.

APPENDIX

STANDARD AND POOR'S ("S&P") 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.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

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.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FEDERATED MUNICIPAL
SECURITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
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

[Graphic]
Federated Investors

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

PROSPECTUS
JULY 31, 1998

An Open-End, Diversified Management
Investment Company

[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 313913105
Cusip 313913204
Cusip 313913303
G00322-01 (7/98)

[Graphic]

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 July 31, 1998. 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 MUNICIPAL SECURITIES FUND, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated July 31, 1998

[Graphic]

Cusip 313913105
Cusip 313913204
Cusip 313913303
8051601B (7/98)

[Graphic]

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1
Restricted and Illiquid Securities 1 Temporary Investments 1 Futures
Transactions 2 Investing in Securities of Other Investment Companies 2
Portfolio Turnover 2 INVESTMENT LIMITATIONS 3 Selling Short and Buying on
Margin 3 Borrowing Money 3 Pledging Assets 3 Investing in Commodities or
Minerals 3 Investing in Real Estate 3 Underwriting 3 Making Loans 3
Diversification of Investments 3 Concentration of Investments 3 Investing in
Restricted and Illiquid Securities 4 FEDERATED MUNICIPAL SECURITIES FUND, INC.
MANAGEMENT 4 The Funds 7 Fund Ownership 7 Director Compensation 8 Director
Liability 8 INVESTMENT ADVISORY SERVICES 8 Adviser to the Fund 8 Advisory Fees
9 BROKERAGE TRANSACTIONS 9 OTHER SERVICES 9 Fund Administration 9 Custodian And
Portfolio Accountant 9 Transfer Agent 9 Independent Auditors 9 PURCHASING
SHARES 10 Quantity Discounts and Accumulated Purchases 10 Concurrent Purchases
10 Letter of Intent 10 Reinvestment Privilege 10 Conversion of Class B Shares
11 Purchases by Sales Representatives, Fund Directors, and Employees 11
Conversion to Federal Funds 11 Distribution Plan (Class B Shares and Class C
Shares Only) and Shareholder Services 11 DETERMINING NET ASSET VALUE 12 Valuing
Municipal Bonds 12 REDEEMING SHARES 12 Redemption in Kind 12 Contingent
Deferred Sales Charge 12 TAX STATUS 13 The Fund's Tax Status 13 TOTAL RETURN 13
YIELD 13 TAX-EQUIVALENT YIELD 14 Tax-Equivalency Table 14 PERFORMANCE
COMPARISONS 15 Economic and Market Information 15 ABOUT FEDERATED INVESTORS,
INC. 16 Mutual Fund Market 16 Institutional Clients 16 Bank Marketing 16
Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 FINANCIAL STATEMENTS 16

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 a 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
may consider doing so. If ratings made by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's ("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. RESTRICTED AND ILLIQUID
SECURITIES

The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in adopting release for Rule 144A under the Securities Act of
1933. The Directors consider the following criteria in determining the liquidity
of certain restricted securities:

* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertaking to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.

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:

* as a reaction to market conditions;
* 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
* 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 readily marketable
securities 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

In conjunction with the Fund's ability to invest in the securities of other
investment companies, it may invest in the securities of affiliated money market
funds as an efficient means of managing the Fund's uninvested cash.

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, 1998, and 1997,
the portfolio turnover rates were 64% and 33%, 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.

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 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. 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.

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 RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not determined to
be liquid under criteria established by the Directors and repurchase agreements
providing for settlement in more than seven days after notice.

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

Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc., Chairman and Trustee, Federated
Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President of the Company.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA

Birthdate: February 3, 1934

Director

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

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

Director or Trustee of the Funds; 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.

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA

Birthdate: September 3, 1939

Director

Director or Trustee of the Funds; Formerly, Partner, Anderson Worldwide SC.

William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Director

Director or Trustee of the Funds; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.

J. Christopher Donahue*
Federated Investors Tower
Pittsburgh, PA

Birthdate: April 11, 1949

Executive Vice President and Director

President or Executive Vice President of the Funds; President and Director,
Federated Investors, Inc.; President and Trustee, 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; 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, Esq.
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Director

Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Director

Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center--Downtown;
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
formerly, Member, National Board of Trustee, Leukemia Society of America.

Edward L. Flaherty, Jr., Esq.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA

Birthdate: June 18, 1924

Director

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

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL

Birthdate: March 16, 1942

Director

Director or Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company
and State Street Corporation; Director, VISA USA and VISA International;
Chairman and Director, Massachusetts Banker Association; Director,
Depository Trust Corporation.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA

Birthdate: December 20, 1932

Director

Director or Trustee of the Funds; President, Law Professor, Duquesne
University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor
of Law, Villanova University School of Law.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Director

Director or Trustee of the Funds; President, World Society for Ekistics, Athens;
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; formerly, Professor, United States
Military Academy; Professor, United States Air Force Academy. Marjorie P.
Smuts 4905 Bayard Street Pittsburgh, PA

Birthdate: June 21, 1935

Director

Director or Trustee of the Funds; Public Relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America;
Business owner.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930

Executive Vice President

Director or Trustee of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
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.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 26, 1938

Executive Vice President, Secretary and Treasurer

Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds; Executive Vice President, Secretary, and Director, Federated
Investors, Inc.; 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.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA

Birthdate: May 17, 1923

Vice President

President or Vice President of some of the Funds; Director or Trustee of
some of the Funds; Executive Vice President, Federated Investors, Inc.;
Chairman and Director, Federated Securities Corp.

* 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; 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 Core
Trust; 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.; 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; Regions Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; 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; WCT Funds; and World Investment
Series, Inc.

FUND OWNERSHIP

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

As of July 7, 1998, no shareholders of record owned 5% or more of the Class A
Shares and Class B Shares of the Fund.

As of July 7, 1998, 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 Class C Shares for its clients), Jacksonville, Florida, owned
approximately 433,243 shares (27.66%).

DIRECTOR COMPENSATION

<TABLE>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $0.00 $0 for the Fund and 56 investment companies
Chairman and Director

J. Christopher Donahue, $0.00 $0 for the Fund and 18 investment companies
President and Director

Thomas G. Bigley, $1,539.94 $111,222 for the Fund and 56 investment companies
Director

John T. Conroy, Jr., $1,694.18 $122,362 for the Fund and 56 investment companies
Director

Nicholas P. Constantakis,** $383.92 $0 for the Fund and 36 other investment companies
Director

William J. Copeland, $1,694.18 $122,362 for the Fund and 56 investment companies
Director

James E. Dowd, Esq., $1,694.18 $122,362 for the Fund and 56 investment companies
Director

Lawrence D. Ellis, M.D., $1,539.94 $111,222 for the Fund and 56 investment companies
Director

Edward L. Flaherty, Jr., Esq., $1,694.18 $122,362 for the Fund and 56 investment companies
Director

Peter E. Madden, $1,539.94 $111,222 for the Fund and 56 investment companies
Director

John E. Murray, Jr., J.D., S.J.D., $1,539.94 $111,222 for the Fund and 56 investment companies
Director

Wesley W. Posvar, $1,539.94 $111,222 for the Fund and 56 investment companies
Director

Marjorie P. Smuts, $1,539.94 $111,222 for the Fund and 56 investment companies
Director
</TABLE>

* Information is furnished for the fiscal year ended March 31, 1998.

** Mr. Constantakis became a member of the Board of Directors on July 21,
1998. He did not receive any fees as of the fiscal year end of the Fund.

+ 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, Inc. All the Class A (voting) shares of
Federated Investors, Inc. 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, 1998, 1997, and 1996, the Fund's Adviser earned $3,872,458,
$4,379,885, and $4,644,716, 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, 1998, 1997, and 1996, 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, Inc., 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, 1998, 1997, and 1996, the Administrators
earned $530,941, $547,583, and $573,123, 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." For further information on any of the programs listed
below, please contact your financial intermediary or Federated Securities Corp.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As described in the prospectus, larger purchases of Class A Shares reduce or
eliminate the sales charge paid. For example, the Fund will combine all Class A
Share purchases 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 intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases.

CONCURRENT PURCHASES

Shareholders have the privilege of combining concurrent purchases of Class A
Shares of two or more funds in the Federated Complex in calculating the
applicable sales charge.

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

LETTER OF INTENT

A shareholder can sign a letter of intent committing to purchase a certain
amount of Class A Shares within a 13-month period in order to combine such
purchases in calculating the applicable sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.

While this letter of intent will not obligate the shareholder to purchase Class
A 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. The letter may be dated as
of a prior date to include any purchase made within the past 90 days. Prior
trade prices will not be adjusted.

REINVESTMENT PRIVILEGE

The reinvestment privilege is available for all Shares of the Fund within the
same Share class.

Class A shareholders who redeem from the Fund may reinvest the redemption
proceeds back into the same Share class at the next determined net asset value
without any sales charge. The original Shares must have been subject to a sales
charge and the reinvestment must be within 120 days.

Similarly, Class C shareholders who redeem may reinvest their redemption
proceeds in the same Share class within 120 days. Class B Shares also may be
reinvested within 120 days of redemption, although such reinvestment will be
made into Class A Shares. Shareholders would not be entitled to a reimbursement
of the contingent deferred sales charge if paid at the time of redemption on any
Share class. However, reinvested Shares would not be subject to a contingent
deferred sales charge, if otherwise applicable, upon later redemption.

In addition, if Shares were reinvested through a financial intermediary, the
financial intermediary would not be entitled to an advanced payment from
Federated Securities Corp. on the reinvested Shares, if otherwise applicable.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary of the reinvestment in order to eliminate a sales
charge or a contingent deferred sales charge. If the shareholder redeems Shares
in the Fund, there may be tax consequences.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. 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:

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

* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* 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.

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.

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, 1998, payments in the amounts of $638,542
(Class B Shares) and $139,644 (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, 1998, payments in the amounts of $1,499,514
(Class A Shares), $212,847 (Class B Shares), and $46,548 (Class C Shares) were
made pursuant to the Shareholder Services Agreement, of which $839,728 (Class A
Shares), $0 (Class B Shares), and $1,862 (Class C Shares) were voluntarily
waived. 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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. 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
prospectus 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

The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any on shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Directors determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Directors deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities receive less
than the redemption value 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 six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.

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:

* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.

TOTAL RETURN

The Fund's average annual total returns based on offering price for the
following periods ended March 31, 1998, were:

<TABLE>
SHARE CLASS INCEPTION DATE ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
Class A 10/4/76 6.23% .26% 7.05% 6.36%
Class B 7/26/94 4.55% N/A N/A 4.27%
Class C 4/21/93 9.30% N/A N/A 4.15%
</TABLE>

The average annual total return for all classes 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 offering price 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
charge, adjusted over the period by any additional Shares, assuming a
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investments based
on the lesser of the original purchase price or the offering price of Shares
redeemed.

YIELD

The Fund's yields for the thirty-day period ended March 31, 1998, were:

SHARE CLASS YIELD
Class A 4.11%
Class B 3.41%
Class C 3.42%

The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per Share of any
class of Shares 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
twelve-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by any class of Shares because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in any class of Shares, the
performance will be reduced for those shareholders paying those fees.

TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yields for the thirty-day period ended March 31, 1998,
for Class A Shares, Class B Shares, and Class C Shares were:

SHARE CLASS YIELD
Class A 5.71%
Class B 4.74%
Class C 4.75%

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 (the maximum effective federal
rate for individuals) and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE

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

TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND

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

JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450

SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450

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

Note: The maximum marginal tax rate for each bracket was used
in calculating the taxable yield equivalent.

The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.

* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The performance of each of the classes of Shares depends upon such variables as:

* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested; * changes in
interest rates and market value of portfolio securities; * changes in the
Fund's or any class of Shares' expenses; and * 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:

* 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.
* 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.
* Lehman Seven Year State General Obligations Index is an index of general
obligation bonds rated A or better with 6-8 years to maturity.
* 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 ("ICI"). For example, according to the ICI,
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 $4.4 trillion to the more than 6,700 funds available.
ABOUT FEDERATED INVESTORS, INC.

Federated Investors, Inc. 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, 1997, Federated Investors, Inc.
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 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.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated Investors, Inc. are: U.S. equity and
high yield - J. Thomas Madden; U.S. fixed income - William D. Dawson, III;
and International - Henry A. Frantzen. The Chief Investment Officers are
Executive Vice Presidents of the Federated advisory companies.

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 $4.4 trillion to the more than 6,700 funds available.*

Federated Investors, Inc., through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS

Federated Investors, Inc. meets the needs of approximately 900 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 Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.

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, 1998, are
incorporated herein by reference to the Annual Report of the Fund dated March
31, 1998 (File Nos. 2-57181 and 811-2677). A copy of this report may be obtained
without charge by contacting the Fund.

* Source: Investment Company Institute.

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, l998 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 of the Registrant; (14)
(2) (i) Copy of Amended and Restated 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)
(viii) Copy of Amendment to By-Laws effective February
23, 1998; + (ix) Copy of Amendment to By-Laws effective
February 27, 1998; +
(x) Copy of Amendment By-Laws effective May 12, 1998; +
(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; (16)
(5) Conformed copy of Investment Advisory Contract of the Registrant; (9)
- ------

+ 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)

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)

16. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 50 on Form N-1A filed May 29, 1997. (File Nos. 2-57181 and
811-2677)

<PAGE>

(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) Conformed copy of Distributor's Contract (Class B
Shares) including Exhibit 1 and Schedule A; (17)
(iv) 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);
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract of the
Registrant; (13)
(ii) Conformed copy of Custody Fee Schedule; (17)
(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)(iii) 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);
(iv) Conformed copy of Principal Shareholder Servicer's Agreement
(Class B Shares) including Exhibit 1 and Schedule A; (17)
. (v) Conformed copy of Shareholders Services Agreement
(Class B Shares) including Exhibit 1 and
Schedule A; (17)
(vi) Conformed copy of Amended and Restated Shareholder Services Agreement; +

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

+ 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)

17. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 51 on Form N-1A filed May 29, 1998. (File Nos. 2-57181 and
811-2677)

<PAGE>

(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) (iii) The
responses described in Item 24(b)(6)(iii) are hereby
incorporated by reference.
(iv) Conformed copy of Exhibit 1 and Schedule A to the 12b-1 Distribution
Plan (Class B Shares) of the Registrant; (17)
(16) Copy of Schedule for Computation of Fund Performance Data;(14)
(17) Copy of Financial Data Schedules; (16)
(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. (16)

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

+ 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)

16. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 50 on Form N-1A filed May 29, 1997. (File Nos. 2-57181 and
811-2677)

17. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 51 on Form N-1A filed May 29, 1998. (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 July 7, 1998
-------------- ------------------

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

Class A Shares 21,503
Class B Shares 2,608
Class C Shares 521

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 four of the Trustees and one
of the Officers of the investment adviser are included in Part B of
this Registration Statement under "Federated Municipal Securities Fund,
Inc. Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger

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

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>

(Vice Presidents cont.) Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka

Assistant Vice Presidents: Arthur J. Barry
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Natalie F. Metz
Joseph M. Natoli
Keith J. Sabol
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle

Assistant Treasurer: Richard B. Fisher

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.

<PAGE>

Item 29. Principal Underwriters:

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:

111 Corcoran 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 Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; 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; Regions
Funds; RIGGS Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.

<PAGE>

(b)

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

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

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

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

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

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

James M. Heaton 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 Distributor With Registrant

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

Ernest G. Anderson 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

David J. Callahan 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 Distributor With Registrant

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

Marc C. Danile 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

Raymond Hanley 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

Charlene H. Jennings 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

<PAGE>

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

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Alec H. Neilly 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

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

<PAGE>

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

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

Colin B. Starks 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

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

Beth C. Dell Assistant 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 Distributor With Registrant

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert M. Rossi 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

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., certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Ruel 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
28th day of July, 1998.

FEDERATED MUNICIPAL SECURITIES FUND, INC.
BY: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue
July 28, 1998

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/ Nicholas J. Seitanakis Attorney In Fact July 28, 1998
Nicholas J. Seitanakis 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

Nicholas P. Constantakis* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit 2 under Form N-1A
Exhibit 3(ii) under Item 601/Reg. SK

FEDERATED MUNICIPAL SECURITIES FUND, INC.

(formerly: Liberty Municipal Securities Fund, Inc.)

Amendment #11
to the By-Laws

(effective February 23, 1998)

Delete Sections 1, 2, 3, 4 & 5 from Article IV, OFFICERS, and replace with the
following:

Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be a
President, one or more Vice Presidents, a Treasurer, and a Secretary. The
Board of Directors, in its discretion, may elect or appoint a Chairman of
the Board of Directors and other Officers or agents, including one or more
Assistant Vice Presidents, one or more Assistant Secretaries, and one or
more Assistant Treasurers. A Vice President, the Secretary or the
Treasurer may appoint an Assistant Vice President, an Assistant Secretary
or an Assistant Treasurer, respectively, to serve until the next election
of Officers. Two or more offices may be held by a single person except the
offices of President and Vice President may not be held by the same person
concurrently. It shall not be necessary for any Director or any Officer to
be a holder of shares in any Series or Class of the Corporation.

Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers shall
be elected annually by the Board of Directors at its Annual Meeting. Each
Officer shall hold office for one year and until the election and
qualification of his successor, or until earlier resignation or removal.
The Chairman of the Board of Directors, if there is one, shall be elected
annually by and from the Directors, and serve until a successor is so
elected and qualified, or until earlier resignation or removal.

Section 3. REMOVAL. Any Officer elected by the Board of Directors or whose
appointment has been ratified by the Board of Directors may be removed
with or without cause at any time by a majority vote of all of the
Directors. Any other employee of the Corporation may be removed or
dismissed at any time by the President.

Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall take
effect at the time specified therein or, if no time is specified, at the
time of receipt. Unless otherwise specified , the acceptance of such
resignation shall not be necessary to make it effective.

Section 5. VACANCIES. Any vacancy in any of the offices, whether by
resignation, removal or otherwise, may be filled for the unexpired portion
of the term by the President. A vacancy in the office of Assistant Vice
President may be filled by a Vice President; in the office of by the
Secretary; or in the office of Assistant Treasurer by the Treasurer. Any
appointment to fill any vacancy shall serve subject to ratification by the
Board of Directors at its next Regular Meeting.

Exhibit 2 under Form N-1A
Exhibit 3(ii) under Item 601/Reg. SK

Federated Municipal Securities Fund, Inc.

Amendment #12
to the By-Laws

(effective February 27, 1998)

Delete Section 7 Proxies of Article I, Meetings of Shareholders, and replace
with the following:

Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which is
dated more than eleven months before the meeting named therein shall be
accepted unless otherwise provided in the proxy. Every proxy shall be in
writing and signed by the Shareholder or his duly authorized agent or be
in such other form as may be permitted by the Maryland General Corporation
Law, including electronic transmissions from the shareholder or his
authorized agent. Authorization may be given orally, in writing, by
telephone, or by other means of communication. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for
which the original transmission could be used. Every proxy shall be dated,
but need not be sealed, witnessed or acknowledged. Where Shares are held
of record by more than one person, any co-owner or co-fiduciary may
appoint a proxy holder, unless the Secretary of the Corporation is
notified in writing by any co-owner or co-fiduciary that the joinder of
more than one is to be required. All proxies shall be filed with and
verified by the Secretary or an Assistant Secretary of the Corporation, or
the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.

Exhibit 2 under Form N-1A
Exhibit 3(ii) under Item 601/Reg. SK

Federated Municipal Securities Fund, Inc.

Amendment #13
to the By-Laws

(effective May 12, 1998)

Strike Section 3 - Place of Meetings from Article I - Meeting of Shareholder and
replace it with the following:

Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the
Corporation or a particular Series or Class, shall be held at such place
within or without the State of Maryland as may be fixed by the Board of
Directors.

Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. SK

Amended and Restated
SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and enterered into as of the first day of March, 1994),
by and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this
form of Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business trust,
having its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").

1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance
of Services. FSS hereby accepts such appointments. FSS agrees to provide
or cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description
of the Services which FSS is providing hereunder.

2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.

For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.

3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund ("Independent Board Members") cast in
person at a meeting called for that purpose.

4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:

(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;

(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and

(c) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to
terminate.

5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.

6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. FSS shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such Fund's
Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.

This Section 6 shall survive termination of this Agreement.

7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.

8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Fund that is a Massachusetts business
trust and agrees that the obligations assumed by each such Fund pursuant
to this Agreement shall be limited in any case to such Fund and its assets
and that FSS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.

9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund
and to such Fund at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.

11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.

12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.

13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Attest: Investment Companies (listed on Exhibit 1)

/s/ John W. McGonigle By:/s/ John F. Donahue
John W. McGonigle John F. Donahue
Secretary Chairman

Attest: Federated Shareholder Services

/s/ Joseph M. Huber By: /s/ John W. McGonigle
Joseph M. Huber John W. McGonigle
Secretary President

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

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Shareholders of
Federated Municipal Securities Fund, Inc.,:

We consent to the incorporation by reference in Post-Effective Amendment No. 52
to the Registration Statement (No. 2-57191) of Federated Municipal Securities
Fund, Inc. of our report dated May 8, 1998, 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
July 27, 1998

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME>
Federated Municipal
Securities Fund, Inc.
Class A Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 694,344,458
<INVESTMENTS-AT-VALUE> 724,749,481
<RECEIVABLES> 13,226,554
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 737,976,035
<PAYABLE-FOR-SECURITIES> 39,478,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,267,440
<TOTAL-LIABILITIES> 41,745,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 672,001,933
<SHARES-COMMON-STOCK> 54,217,940
<SHARES-COMMON-PRIOR> 57,773,220
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,851,364)
<ACCUMULATED-NET-GAINS> (2,325,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,405,023
<NET-ASSETS> 591,310,325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,150,357
<OTHER-INCOME> 0
<EXPENSES-NET> 7,004,385
<NET-INVESTMENT-INCOME> 32,145,972
<REALIZED-GAINS-CURRENT> (664,845)
<APPREC-INCREASE-CURRENT> 42,415,663
<NET-CHANGE-FROM-OPS> 73,896,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28,187,919
<DISTRIBUTIONS-OF-GAINS> 1,381,790
<DISTRIBUTIONS-OTHER> 446,648
<NUMBER-OF-SHARES-SOLD> 9,670,305
<NUMBER-OF-SHARES-REDEEMED> 15,033,250
<SHARES-REINVESTED> 1,807,665
<NET-CHANGE-IN-ASSETS> 2,635,228
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,795)
<OVERDISTRIB-NII-PRIOR> (3,325,545)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,872,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,845,975
<AVERAGE-NET-ASSETS> 702,466,607
<PER-SHARE-NAV-BEGIN> 10.310
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.640
<PER-SHARE-DIVIDEND> 0.460
<PER-SHARE-DISTRIBUTIONS> 0.030
<RETURNS-OF-CAPITAL> 0.010
<PER-SHARE-NAV-END> 10.910
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME>
Federated Municipal Securities
Fund, Inc.
B Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 694,344,458
<INVESTMENTS-AT-VALUE> 724,749,481
<RECEIVABLES> 13,226,554
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 737,976,035
<PAYABLE-FOR-SECURITIES> 39,478,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,267,440
<TOTAL-LIABILITIES> 41,745,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 672,001,933
<SHARES-COMMON-STOCK> 8,005,162
<SHARES-COMMON-PRIOR> 7,521,540
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,851,364)
<ACCUMULATED-NET-GAINS> (2,325,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,405,023
<NET-ASSETS> 87,304,060
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,150,357
<OTHER-INCOME> 0
<EXPENSES-NET> 7,004,385
<NET-INVESTMENT-INCOME> 32,145,972
<REALIZED-GAINS-CURRENT> (664,845)
<APPREC-INCREASE-CURRENT> 42,415,663
<NET-CHANGE-FROM-OPS> 73,896,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,245,800
<DISTRIBUTIONS-OF-GAINS> 204,140
<DISTRIBUTIONS-OTHER> 66,543
<NUMBER-OF-SHARES-SOLD> 2,304,892
<NUMBER-OF-SHARES-REDEEMED> 1,983,725
<SHARES-REINVESTED> 162,455
<NET-CHANGE-IN-ASSETS> 2,635,228
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,795)
<OVERDISTRIB-NII-PRIOR> (3,325,545)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,872,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,845,975
<AVERAGE-NET-ASSETS> 702,466,607
<PER-SHARE-NAV-BEGIN> 10.310
<PER-SHARE-NII> 0.380
<PER-SHARE-GAIN-APPREC> 0.640
<PER-SHARE-DIVIDEND> 0.380
<PER-SHARE-DISTRIBUTIONS> 0.030
<RETURNS-OF-CAPITAL> 0.010
<PER-SHARE-NAV-END> 10.910
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME>
Federated Municipal Securities
Fund, Inc.
C Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 694,344,458
<INVESTMENTS-AT-VALUE> 724,749,481
<RECEIVABLES> 13,226,554
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 737,976,035
<PAYABLE-FOR-SECURITIES> 39,478,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,267,440
<TOTAL-LIABILITIES> 41,745,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 672,001,933
<SHARES-COMMON-STOCK> 1,615,215
<SHARES-COMMON-PRIOR> 1,993,037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,851,364)
<ACCUMULATED-NET-GAINS> (2,325,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,405,023
<NET-ASSETS> 17,615,691
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,150,357
<OTHER-INCOME> 0
<EXPENSES-NET> 7,004,385
<NET-INVESTMENT-INCOME> 32,145,972
<REALIZED-GAINS-CURRENT> (664,845)
<APPREC-INCREASE-CURRENT> 42,415,663
<NET-CHANGE-FROM-OPS> 73,896,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 712,253
<DISTRIBUTIONS-OF-GAINS> 39,946
<DISTRIBUTIONS-OTHER> 12,628
<NUMBER-OF-SHARES-SOLD> 176,581
<NUMBER-OF-SHARES-REDEEMED> 598,603
<SHARES-REINVESTED> 44,200
<NET-CHANGE-IN-ASSETS> 2,635,228
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,795)
<OVERDISTRIB-NII-PRIOR> (3,325,545)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,872,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,845,975
<AVERAGE-NET-ASSETS> 702,466,607
<PER-SHARE-NAV-BEGIN> 10.310
<PER-SHARE-NII> 0.370
<PER-SHARE-GAIN-APPREC> 0.650
<PER-SHARE-DIVIDEND> 0.370
<PER-SHARE-DISTRIBUTIONS> 0.030
<RETURNS-OF-CAPITAL> 0.020
<PER-SHARE-NAV-END> 10.910
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>