[Graphic]Federated
World-Class Investment Manager
[Graphic]
J. CHRISTOPHER DONAHUE
President
Federated Municipal Securities Fund, Inc.
President's Message
Dear Shareholder:
Federated Municipal Securities Fund, Inc. was created in 1976, and I am pleased
to present its 22nd Annual Report. As of March 31, 1999, the fund had total net
assets of $668.5 million. Over 63% of the fund's assets were invested in
municipal bonds rated AAA, AA or A by Standard & Poor's, with 22.1% invested in
bonds rated BBB by Standard & Poor's, and 14.7% invested in non-rated bonds. The
fund pursues tax-free income for its shareholders.1
This report covers the 12-month reporting period from April 1, 1998 through
March 31, 1999. It begins with an interview with J. Scott Albrecht, Vice
President, who co-manages the fund with Mary Jo Ochson, Senior Vice Presi dent,
both of Federated Investment Management Company. Following their dis cussion
covering the fund's performance and investment strategies are three additional
items of shareholder interest. First is a series of graphs showing the fund's
long-term investment performance. Second is a complete listing of the fund's
municipal bond holdings, and third is the publication of the fund's financial
statements.
Federated Municipal Securities Fund, Inc. pursues monthly, tax-free income from
a broadly diversified portfolio of long-term municipal bonds with an average
quality rating of A+. On March 31, 1999, the fund's portfolio included 115
tax-free securities issued by municipalities across the United States.
The fund produced a tax-free 30-day SEC yield of 4.19% on March 31, 1999 for
Class A Shares, based on offering price.2 This translates into the equivalent of
taxable yields of 6.07%, 6.55% and 6.94% for investors in the 31%, 36% and 39.6%
federal tax brackets.3
1 Income may be subject to the federal alternative minimum tax, and state and
local taxes.
2 The 30-day current SEC yield is calculated by dividing the investment income
per share for the prior 30 days by the net asset value per share on that date.
The SEC yields are compounded and annualized. The 30-day SEC yields on March 31,
1999 for Class B and C Shares were 3.50% and 3.51%, respectively, based on
offering price (i.e., less any applicable sales charge).
3 The SEC yields and their taxable equivalents for investors in the 31%, 36%,
and 39.6% federal tax brackets are: Class A Shares [6.07%, 6.55%, and 6.94%];
Class B Shares [5.07%, 5.47%, and 5.79%]; and Class C Shares [5.09%, 5.48%, and
5.81%].
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows.4
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 4.46% $0.52 $10.91 to $10.87 = (0.4%)
Class B Shares 3.53% $0.42 $10.91 to $10.87 = (0.4%)
Class C Shares 3.54% $0.42 $10.91 to $10.87 = (0.4%)
</TABLE>
Thank you for selecting Federated Municipal Securities Fund, Inc. as a conve
nient, diversified way to pursue tax-free income. Of course, you have the option
of receiving income from the fund or building your account by rein vesting your
monthly dividends and compounding tax-free.
Sincerely yours,
[Graphic]
J. Christopher Donahue
President
May 15, 1999
4 Performance quoted is based on net asset value, reflects past performance, and
is not indicative of future results. Investment return and principal value will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns for the period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, and C Shares were
(0.21%), (1.95%), and 2.55%, respectively.
[Graphic]
J. SCOTT ALBRECHT
Vice President
Federated Investment Management Company
[Graphic]
MARY JO OCHSON
Senior Vice President
Federated Investment Management Company
Investment Review
WHAT IS YOUR REVIEW OF THE MUNICIPAL BOND MARKETPLACE OVER THE 12-MONTH
REPORTING PERIOD?
Demand for municipal bonds was impacted by "rate shock" that individual
investors experienced when long-term yields on municipal bonds were at or below
the 5.00% threshold. Demand from institutional investors such as arbi trageurs,
property & casualty insurers and corporations, was relatively mixed with some
institutions actually being net sellers over the period. Municipal bond
insurance continued to have a significant influence on the market. The
prevalence of bond insurance, combined with a low nominal inter est rate
environment, allowed credit spreads to remain historically tight.
However, particular credit concerns have developed within specific sectors of
the municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility sector and public power sector
have also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
HOW HAS FEDERATED MUNICIPAL SECURITIES FUND, INC. PERFORMED WITH RESPECT TO
TOTAL RETURN AND INCOME DURING THE FISCAL YEAR ENDED MARCH 31, 1999, AND WHAT
FACTORS IMPACTED THE FUND'S PERFORMANCE?
For the 12-month reporting period ended March 31, 1999, the fund's Class A
Shares produced a total return of 4.46%, based on net asset value.1 The Lip per
General Municipal Funds Average produced a total return of 4.87% for the
period.2 The fund underperformed the Lipper General Municipal Funds Average
because, as interest rates rose over the reporting period, the portfolio
duration was slightly longer than the target. The fund's current 30-day SEC
yield on March 31, 1999, was 4.19% for Class A Shares, based on offering price.3
FEDERAL MUNICIPAL SECURITIES FUND, INC. IS A HIGH-QUALITY MUNICIPAL BOND FUND
THAT HAD A WEIGHTED AVERAGE QUALITY OF A+ AT THE END OF THE REPORTING PERIOD.
WHAT ROLE DOES CREDIT ANALYSIS PLAY IN MANAGING THE FUND?
The fund uses a credit intensive approach to selecting securities. We have
assembled a team of experienced analysts who perform extensive research on every
issue. The analysts who work on this fund have an average of 13 years of
analytical experience. Each analyst also has relevant work experience in some of
the sectors that they follow.
Each issue is independently reviewed by our analysts regardless of whether it
has received a rating from one of the rating agencies. This review involves
discussions with the issuer, borrower, investment bankers, and other involved
parties. When appropriate, the analyst makes an on-site visit. After the
research is completed, the analyst's recommendation is reviewed by our credit
committee, which consists of senior department personnel, including portfolio
managers and other analysts. If the committee agrees that the secu rity meets
our standards, we buy it.
After we purchase an issue, we continue to follow it. In addition to follow ing
broad sector trends, the credit staff continuously reviews all of our
securities. When we see signs of changing situations, we alter our holdings
accordingly.
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF MARCH 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME/COUPON/MATURITY NET ASSETS
<S> <C>
District of Columbia-
Georgetown University,
7.15%, 4/1/2021 3.41%
Indianapolis, IN Airport
Authority-Federal
Express, 7.10%,
1/15/2017 3.18%
Washington, DC
Convention Center,
4.75%, 10/1/2028 3.06%
Wayne County, MI-
Detroit, Metropolitan
Wayne County Airport,
5.00%, 12/1/2028 2.88%
New York State Dormitory
Authority, Department of
Mental Hygiene,
5.375%, 2/15/2026 2.71%
TOTAL 15.24%
</TABLE>
1 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on net
asset value, for Class B and C Shares were 3.53% and 3.54%, respectively. Total
returns for the period, based on offering price (i.e., less any applicable sales
charge), for Class A, B and C Shares were (0.21%), (1.95%) and 2.55%,
respectively.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. These figures do not take sales charges into account.
3 The SEC yields are compounded and annualized. The 30-day SEC yields on March
31, 1999, for Class B and C Shares were 3.50% and 3.51%, respec tively, based on
offering price (i.e., less any applicable sales charge).
HOW WERE THE FUND'S ASSETS ALLOCATED IN TERMS OF CREDIT QUALITY AS OF MARCH 31,
1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
AAA 31.50%
AA 10.70%
A 21.40%
BBB 22.10%
Non-rated 14.70%
</TABLE>
The average quality rating of the fund is A+.
WHAT KIND OF ENVIRONMENT DO YOU FORESEE FOR MUNICIPAL BONDS?
The municipal bond market is undergoing fundamental changes which are being
driven by new technology. The municipal bond market's use of this new tech
nology will lead to better dissemination of information and could result in
greater market efficiency. These changes include technology-based initia tives
such as competitive bidding for municipal bond issues over the Internet and may
eventually lead to Internet trading of municipal bonds.
We expect the volume of municipal issuance in 1999 to be around $230 billion
with a potential increase in refunding volume in what may be a lower interest
rate environment. Municipal bond insurance may become less prevalent as bond
insurers pull away from certain sectors of the market and toughen underwrit ing
standards, especially for hospitals. The prevalence of more uninsured municipal
bonds in the marketplace may contribute to additional credit spread widening in
the coming period.
Year 2000 ("Y2K") spending by municipal governments is a potential credit factor
that must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. While the market does not expect any
material interruptions in the supply of necessary municipal services, there
remains the potential for some state functions to suffer temporary disrup tions.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $23,000 IN THE CLASS A SHARES OF
FEDERATED MUNICIPAL SECURITIES FUND, INC. ON 10/4/76, REINVESTED YOUR DIVIDENDS
AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN
WORTH $90,336 ON 3/31/99.
YOU WOULD HAVE EARNED A 6.27% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE INVESTMENT
LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/99, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (0.21%), 4.74%, and 6.52%, respectively. Class B Shares'
average annual 1-year and since inception (7/26/94) total returns were (1.95%)
and 4.44%, respectively. Class C Shares' average annual 1-year, 5- year, and
since inception (4/21/93) total returns were 2.55%, 4.79%, and 4.04%,
respectively. 2
[Graphic representation "A1" omitted. See Appendix.]
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 22
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $56,055.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends and
capital gains, and did not redeem any shares, you would have invested only
$23,000, but your account would have reached a total value of $56,055 1 by
3/31/99. You would have earned an average annual total return of 7.15%.
A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all earnings. An investment plan works for you when
you invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
[Graphic representation "A2" omitted. See Appendix.]
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investors Profile-
Investing for Tax-Free Income
Larry and Barbara Bartlett are a fictional couple who, like all other
tax-sensitive shareholders, want to keep more of what they earn.
Larry owns a successful architectural firm and Barbara is a marketing execu
tive. Their combined income puts them in the 39.6% federal tax bracket. On March
31, 1989, the Bartletts invested $26,000 in the Class A Shares of Fed erated
Municipal Securities Fund, Inc.
As this chart shows, in 10 years, their original $26,000 investment has grown to
$48,908. This represents a 6.52% average annual total return, which would be
equivalent to a tax-free yield of 10.79%. 1 As far as the Bartletts are
concerned, this fund has made all the difference.
[Graphic representation "A3" omitted. See Appendix.]
1 Income may be subject to the federal alternative minimum tax, and state and
local taxes.
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Municipal Securities Fund, Inc.-
Class A Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in Fed
erated Municipal Securities Fund, Inc. (Class A Shares) (the "Fund") from March
31, 1989 to March 31, 1999 compared to the Lehman Brothers Municipal Bond Index
(LBMBI),2 and the Lipper General Municipal Funds Average (LGMFA).3
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year (0.21%)
5 Years 4.74%
10 Years 6.52%
Start of Performance (10/4/76) 6.27%
</TABLE>
[Graphic representation "A4" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBI and LGMFA have been adjusted to reflect reinvestment of
dividends on securities in the index and average.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 The LGMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges.
Federated Municipal Securities Fund, Inc.-
Class B Shares
GROWTH OF $10,000 INVESTMENT
The graph above illustrates the hypothetical investment of $10,000 1 in Fed
erated Municipal Securities Fund, Inc. (Class B Shares) (the "Fund") from July
26, 1994 (start of performance) to March 31, 1999 compared to the Lehman
Brothers Municipal Bond Index (LBMBI),2 and the Lipper General Municipal
Funds Average (LGMFA).3
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year (1.95%)
Start of Performance (7/26/94) 4.44%
</TABLE>
[Graphic representation "A5" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 2.00% contingent deferred sales charge on any redemption
less than five years from the purchase date. The maximum contin gent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBI and LGMFA have been adjusted to reflect reinvestment of
dividends on securities in the index and average.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 The LGMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Federated Municipal Securities Fund, Inc.-
Class C Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in Fed
erated Municipal Securities Fund, Inc. (Class C Shares) (the "Fund") from April
21, 1993 (start of performance) to March 31, 1999 compared to the Leh man
Brothers Municipal Bond Index (LBMBI),2 and the Lipper General Municipal Funds
Average (LGMFA).3
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year 2.55%
5 Years 4.79%
Start of Performance (4/21/93) 4.04%
</TABLE>
[Graphic representation "A6" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00% con
tingent deferred sales charge would be applied on any redemption less than one
year from the purchase date. The Fund's performance assumes the rein vestment of
all dividends and distributions. The LBMBI and LGMFA have been adjusted to
reflect reinvestment of dividends on securities in the index and average.
2 The LBMBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 The LGMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-100.4%
ALABAMA-4.3%
$ 10,000,000 Alabama State Docks
Department, Docks
Facilities Refunding
Revenue Bonds, 5.50%
(MBIA INS)/(Original
Issue Yield: 5.75%),
10/1/2022 AAA $ 10,470,800
2,000,000 Courtland, AL IDB, Solid
Waste Disposal Revenue
Bonds (Series A), 6.50%
(Champion International
Corp.)/(Original Issue
Yield: 6.654%), 9/1/2025 BBB 2,133,880
5,500,000 Jefferson County, AL,
Sewer Revenue Capital
Improvement Warrants
(Series 1999A), 5.375%
(FGIC INS), 2/1/2036 AAA 5,603,620
3,620,000 Jefferson County, AL,
Sewer Revenue Refunding
Warrants
(Series 1997-A), 5.625%
(Original Issue Yield:
5.68%), 2/1/2018 AAA 3,821,996
6,260,000 Jefferson County, AL,
Sewer Revenue Warrants
(Series 1997D), 5.70%
(Original Issue Yield:
5.73%), 2/1/2018 AAA 6,656,446
TOTAL 28,686,742
ALASKA-0.8%
2,000,000 Alaska Industrial
Development and Export
Authority, Refunding
Revenue Bonds (Series
A), 5.25% (MBIA
INS)/(Original Issue
Yield: 5.39%), 4/1/2023 AAA 1,987,860
2,000,000 2 Anchorage, AK, UT GO
Bonds (Series A), 5.00%
(FGIC INS)/(Original
Issue Yield: 5.03%),
4/1/2017 AAA 1,987,100
1,100,000 2 Anchorage, AK, UT GO
Bonds (Series A), 5.00%
(FGIC INS)/(Original
Issue Yield: 5.08%),
4/1/2018 AAA 1,088,692
TOTAL 5,063,652
ARIZONA-0.1%
1,000,000 Show Low, AZ IDA,
Hospital Revenue Bonds
(Series 1998A), 5.50%
(Navapache Regional
Medical
Center)/(American
Capital Access
INS)/(Original Issue
Yield: 5.584%),
12/1/2017 A 1,019,730
CALIFORNIA-5.2%
4,500,000 Bonita Canyon, CA Public
Facilities Financing
Authority, Community
Facilities District No.
98-1 Special Tax Bonds
(Series 1998), 5.375%
(Original Issue Yield:
5.50%), 9/1/2028 NR 4,362,795
9,400,000 California PCFA,
Refunding Revenue Bonds
(Series A), 5.90% (San
Diego Gas &
Electric)/(Original
Issue Yield: 5.934%),
6/1/2014 A 10,509,670
600,000 California Public
Capital Improvements
Financing Authority,
Trust Receipts (Series
1996 FR-3) Weekly VRDNs
(MBIA INS)/(Bank of New
York, New York LIQ) AAA 600,000
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 14,600,000 California Statewide
Communities Development
Authority, Special
Facilities Revenue
Bonds, 5.625% (United
Air Lines)/(Original
Issue Yield: 5.75%),
10/1/2034 BB+ $ 14,992,594
3,000,000 Long Beach California
Harbor, Revenue Bonds,
5.375% (MBIA
INS)/(Original Issue
Yield: 5.75%), 5/15/2020 AAA 3,057,120
1,500,000 Los Angeles, CA Unified
School District, Trust
Receipts FR/RI-A26
Weekly VRDNs (Bank of New
York, New York LIQ) A-1+C 1,500,000
TOTAL 35,022,179
DISTRICT OF COLUMBIA-8.8%
8,275,000 District of Columbia
Hospital Authority,
Revenue Refunding Bonds
(Series A), 7.125%
(Medlantic Healthcare
Group)/(Original Issue
Yield: 7.30%), 8/15/2019 BBB+ 9,254,015
2,000,000 District of Columbia
Hospital Authority,
Revenue Refunding Bonds
(Series B), 7.00%
(Medlantic Healthcare
Group)/(Original Issue
Yield: 7.282%),
8/15/2015 BBB+ 2,241,180
22,250,000 District of Columbia,
Revenue Bonds (Series
B), 7.15% (Georgetown
University)/(Original
Issue Yield: 7.191%),
4/1/2021 A- 22,764,642
4,000,000 District of Columbia,
Revenue Bonds, 5.625%
(AmericanUniversity)/
(AMBAC, Inc.
INS)/(Original Issue
Yield: 5.90%), 10/1/2026 AAA 4,188,760
22,000,000 Washington, DC
Convention Center
Authority, Dedicated
Senior
Lien Tax Revenue Bonds,
4.75% (AMBAC, Inc.
INS)/(Original Issue
Yield: 5.15%), 10/1/2028 AAA 20,467,920
TOTAL 58,916,517
FLORIDA-2.7%
4,335,000 Florida State Board of
Education
Administration, UT GO
Capital Outlay Bonds,
9.125% (Florida
State)/(Original Issue
Yield: 9.173%), 6/1/2014 AA+ 6,179,109
665,000 Florida State Board of
Education
Administration, UT GO
Capital Outlay Bonds,
9.125% (Florida
State)/(United States
Treasury COL)/(Original
Issue Yield: 9.173%),
6/1/2014 AAA 941,161
6,635,000 Florida State Department
of Transportation, Right
of Way Acquisition &
Bridge Construction
Bonds (Series 1997A),
5.00% (Original Issue
Yield: 5.10%), 7/1/2014 AA+ 6,750,051
3,000,000 Florida State, UT GO
Bonds, Broward County
Expressway Authority,
10.00% (Original Issue
Yield: 10.105%),
7/1/2014 AA+ 4,541,280
TOTAL 18,411,601
GEORGIA-0.4%
3,000,000 Effingham County, GA
Development Authority,
Solid Waste Disposal
Revenue Bonds (Series
1998), 5.625% (Fort
James Corp.), 7/1/2018 BBB- 3,006,150
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
HAWAII-1.4%
$ 5,000,000 Hawaii State Department
of Budget & Finance,
Residual Interest Tax-
Exempt Securities
(Series PA-343),
6.39863% (Hawaiian
Electric Company, Inc.),
4/1/2012 NR $ 5,295,200
4,000,000 Honolulu, HI City &
County, UT GO Bonds (Series 1999C), 5.00% (Original Issue
Yield:
5.11%), 7/1/2019 AAA 3,947,040
TOTAL 9,242,240
IDAHO-0.1%
1,000,000 Idaho Health Facilities
Authority, Hospital
Revenue Bonds
(Series 1998), 5.45%
(Idaho Elks
Rehabilitation
Hospital)/
(Original Issue Yield:
5.53%), 7/15/2023 BBB 991,530
ILLINOIS-4.7%
8,295,000 Cook County, IL,
Refunding GO Bonds
(Series 1997A), 6.25%,
11/15/2013 AAA 9,581,057
5,000,000 Illinois Development
Finance Authority,
Housing Revenue Bonds,
6.10% (Catholic
Charities Housing
Development Corp.),
1/1/2020 NR 5,078,650
11,240,000 Illinois Health
Facilities Authority,
Hospital Revenue Bonds
(Series A), 9.25%
(Edgewater Hospital &
Medical Center, IL),
7/1/2024 NR 14,169,369
2,500,000 Illinois Health
Facilities Authority,
Revenue Bonds (Series
1998), 5.25% (Centegra
Health System)/(Original
Issue Yield: 5.512%),
9/1/2024 A- 2,406,575
TOTAL 31,235,651
INDIANA-4.5%
6,200,000 Indiana Health Facility
Financing Authority,
Hospital Revenue Bonds,
6.625% (Floyd Memorial
Hospital, IN)/(Original
Issue Yield: 6.902%),
2/15/2022 A 6,772,632
2,000,000 Indiana Health Facility
Financing Authority,
Hospital Revenue
Refunding Bonds, 5.25%
(Floyd Memorial
Hospital, IN)/(Original
Issue Yield: 5.50%),
2/15/2022 A 1,967,180
19,000,000 Indianapolis, IN Airport
Authority, Special
Facilities Revenue
Bonds, 7.10% (FDX
Corp.)/(Original Issue
Yield: 7.178%),
1/15/2017 BBB 21,242,760
TOTAL 29,982,572
IOWA-1.7%
2,000,000 Des Moines, IA, Aviation
System Revenue Bonds
(Series 1998B), 5.125%
(FSA INS)/(Original
Issue Yield: 5.40%),
7/1/2018 AAA 1,980,520
9,500,000 Iowa Finance Authority,
Hospital Facilities Revenue Bonds (Series 1998A), 5.125%
(Iowa Health System)/(MBIA INS)/ (Original Issue Yield:
5.36%), 7/1/2020 AAA 9,378,115
TOTAL 11,358,635
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
KANSAS-0.2%
$ 1,000,000 Newton, KS, Hospital
Revenue Refunding Bonds
(Series 1998), 5.75%
(Newton Healthcare
Corp.)/(Original Issue
Yield: 5.787%),
11/15/2024 BBB- $ 1,000,660
LOUISIANA-3.7%
3,000,000 Caddo Parish, LA IDB,
Exempt Facility Revenue
Bonds (Series 1998),
5.60% (Pennzoil
Products)/(Original
Issue Yield: 5.70%),
12/1/2028 BBB- 2,974,440
6,000,000 De Soto Parish, LA
Environmental
Improvement Authority,
Revenue Bonds, 7.70%
(International Paper
Co.), 11/1/2018 BBB+ 6,925,500
3,550,000 St. Charles Parish, LA,
Solid Waste Disposal
Revenue Bonds (Series
A), 7.00% (Louisiana
Power & Light
Co.)/(Original Issue
Yield: 7.04%), 12/1/2022 BBB 3,820,297
10,000,000 St. James Parish, LA,
Solid Waste Disposal
Revenue Bonds, 7.70%
(Freeport McMoRan,
Inc.)/(Original Issue
Yield: 7.75%), 10/1/2022 NR 10,727,900
TOTAL 24,448,137
MARYLAND-2.0%
12,220,000 Maryland State Community
Development
Administration, SFM
Revenue Bonds (5th
Series), 6.75%, 4/1/2026 AA 13,105,095
MASSACHUSETTS-5.7%
10,000,000 Commonwealth of
Massachusetts, UT GO
Bonds (Series 1997C),
5.00% (Original Issue
Yield: 5.30%), 8/1/2017 AA- 10,003,300
11,473,739 Massachusetts IFA, Solid
Waste Disposal Revenue
Bonds, 8.50%, 11/1/2012 NR 11,387,686
2,200,000 Massachusetts State HFA,
Rental Housing Mortgage
Revenue Bonds (Series
1995E), 5.90% (AMBAC,
Inc. INS), 7/1/2025 AAA 2,303,796
15,000,000 Massachusetts Turnpike
Authority, Metropolitan
Highway System Revenue
Bonds (Series A), 5.00%
(Original Issue Yield:
5.55%), 1/1/2037 AAA 14,445,000
TOTAL 38,139,782
MICHIGAN-4.2%
1,250,000 Flint, MI Hospital
Building Authority,
Rental Revenue Bonds
(Series 1998B), 5.375%
(Hurley Medical
Center)/(Original Issue
Yield: 5.53%), 7/1/2028 BBB 1,163,875
1,000,000 Flint, MI Hospital
Building Authority,
Rental Revenue Bonds
(Series 1998B), 5.375%
(Hurley Medical
Center)/(Original Issue
Yield: 5.48%), 7/1/2018 BBB 954,350
6,500,000 2 Michigan Strategic Fund,
Limited Obligation
Revenue Refunding Bonds
(Series A), 5.55%
(Detroit Edison
Co.)/(MBIA INS),
9/1/2029 AAA 6,651,320
20,000,000 Wayne County, MI,
Revenue Bonds (Series
A), 5.00% (Detroit
Metropolitan Wayne
County
Airport)/(Original Issue
Yield: 5.33%), 12/1/2028 AAA 19,236,400
TOTAL 28,005,945
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
MINNESOTA-2.9%
$ 3,800,000 St. Paul, MN Housing &
Redevelopment Authority,
Hospital Revenue
Refunding Bonds (Series
A), 6.625% (Healtheast,
MN)/(Original Issue
Yield: 6.687%),
11/1/2017 BBB $ 3,929,428
1,000,000 St. Paul, MN Housing &
Redevelopment Authority,
Revenue Bonds (Series
1997A), 5.70%
(Healtheast,
MN)/(Original Issue
Yield: 5.756%),
11/1/2015 BBB 969,720
12,000,000 VRDC/IVRC Trust, GO
Inverse Variable Rate
Certificates, 7.973%
(Regents of University
of Minnesota), 5/18/2012 AA 14,475,000
TOTAL 19,374,148
MISSOURI-1.5%
8,010,000 Kansas City, MO, UT GO
Bonds (Series B), 5.125%
(Original Issue Yield:
5.25%), 2/1/2017 AA 8,114,450
1,960,000 Missouri State Housing
Development Commission,
Single Family Mortgage
Revenue Bonds (Series
1997C-1), 6.55% (GNMA
Home Mortgage Program
COL), 9/1/2028 AAA 2,178,442
TOTAL 10,292,892
NEW HAMPSHIRE-0.4%
2,500,000 New Hampshire Higher
Educational & Health
Facilities Authority,
Revenue Bonds (Series
1998), 5.30% (Franklin
Pierce
College)/(American
Capital Access
INS)/(Original Issue
Yield: 5.48%), 10/1/2028 A 2,443,475
NEW JERSEY-0.3%
2,100,000 New Jersey EDA,
Kapkowski Road Landfill
Revenue Bonds, 6.50%
(New Jersey Metromall
Urban Renewal,
Inc.)/(Original Issue
Yield: 6.55%), 4/1/2018 NR 2,174,256
NEW MEXICO-0.8%
5,000,000 Farmington, NM, PCR
Refunding Bonds (Series
A), 7.20% (Southern
California Edison
Co.)/(Original Issue
Yield: 7.30%), 4/1/2021 A+ 5,375,900
NEW YORK-11.8%
6,500,000 Long Island Power Authority, Electric System Revenue Bonds
(Series 1998A), 5.25% (Original Issue Yield:
5.47%), 12/1/2026 A- 6,502,210
9,000,000 New York City, NY IDA,
Special Facilities
Revenue Bonds, 5.25%
(British Airways),
12/1/2032 A 8,965,440
7,500,000 3 New York City, NY,
Residual Interest Tax-
Exempt Securities
(Series PA-147),
7.55532%, 8/1/2007 NR 8,753,100
5,000,000 New York City, NY, UT GO
Bonds (Series 1998G),
5.00% (Original Issue
Yield: 5.25%), 8/1/2018 A- 4,923,550
5,000,000 New York City, NY, UT GO
Bonds (Series 1999H),
5.25%, 3/15/2018 A- 5,055,200
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW YORK-CONTINUED
$ 10,000,000 New York State Dormitory
Authority, Educational
Facilities Revenue Bonds
(Series 1998B), 4.75%
(State University of New
York)/(Original Issue
Yield: 5.24%), 5/15/2028 A- $ 9,321,000
17,800,000 New York State Dormitory
Authority, Revenue Bonds
(Series B), 5.375% (New
York State Department of
Mental
Hygiene)/(Original Issue
Yield: 5.97%), 2/15/2026 A- 18,138,378
400,000 New York State Energy
Research & Development
Authority Daily VRDNs
(Niagara Mohawk Power
Corp.)/(Toronto-Dominion
Bank LOC) AA 400,000
900,000 New York State Energy
Research & Development
Authority, PCR Bonds
(Series B) Daily VRDNs
(Niagara Mohawk Power
Corp.)/(Morgan Guaranty
Trust Co., New York LOC) AA+ 900,000
5,050,000 New York State Local
Government Assistance Corp., Residual Interest Tax-Exempt
Securities (Series PA-207), 8.57753% (AMBAC, Inc.
INS), 4/1/2008 NR 6,294,875
6,025,000 New York State Local
Government Assistance
Corp., Residual Interest
Tax-Exempt Securities
(Series PA-207A),
8.57753%, 4/1/2007 NR 7,449,430
2,000,000 New York State Mortgage
Agency, Mortgage Revenue
Bonds
(Series 30-B), 6.65%
(FHA GTD), 10/1/2025 Aaa 2,128,300
TOTAL 78,831,483
NORTH CAROLINA-1.4%
9,000,000 Martin County, NC IFA,
(Series 1995) Solid
Waste Disposal Revenue
Bonds, 6.00%
(Weyerhaeuser Co.),
11/1/2025 A 9,385,380
OHIO-0.6%
1,000,000 Cuyahoga County, OH
Health Care Facilities,
Revenue Refunding Bonds,
5.50% (Benjamin Rose
Institute)/(Original
Issue Yield: 5.75%),
12/1/2028 NR 985,530
3,000,000 Franklin County, OH
Health Care Facilities,
Revenue Refunding Bonds,
5.50% (Ohio Presbyterian
Retirement
Services)/(Original
Issue Yield: 5.64%),
7/1/2017 NR 2,969,070
TOTAL 3,954,600
OKLAHOMA-1.2%
7,500,000 Tulsa, OK Municipal
Airport, Revenue Bonds,
7.60% (American
Airlines)/(Original
Issue Yield: 7.931%),
12/1/2030 BBB- 8,119,350
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-5.8%
$ 2,310,000 Allegheny County, PA
HDA, Refunding Revenue
Bonds (Series 1998A),
5.125% (South Hills
Health System)/(Original
Issue Yield: 5.34%),
5/1/2023 A2 $ 2,205,403
2,000,000 Allegheny County, PA
HDA, Refunding Revenue
Bonds (Series 1998A),
5.125% (South Hills
Health System)/(Original
Issue Yield: 5.40%),
5/1/2029 A2 1,888,800
2,210,000 Elizabeth Forward, PA
School District, GO UT
Bonds, 6.75% accrual
(MBIA INS)/(Original
Issue Yield: 6.75%),
9/1/2018 AAA 834,385
1,300,000 Latrobe, PA IDA, College
Revenue Bonds, 6.75%
(St. Vincent College,
PA)/(Original Issue
Yield: 7.00%), 5/1/2024 AAA 1,490,333
12,865,000 Pennsylvania State
Higher Education
Facilities Authority,
Revenue Bonds (Series
A), 7.375% (Medical
College of
Pennsylvania)/(United
States Treasury
PRF)/(Original Issue
Yield: 7.45%), 3/1/2021 AAA 13,998,407
1,100,000 Philadelphia, PA
Hospitals & Higher
Education Facilities
Authority, Hospital
Revenue Bonds (Series
1996A) Daily VRDNs
(Children's Hospital of
Philadelphia)/(Morgan
Guaranty Trust Co., New
York LIQ) AA 1,100,000
15,000,000 Philadelphia, PA School
District, UT GO (Series
B), 5.50%
(AMBAC, Inc.
INS)/(Original Issue
Yield: 5.95%), 9/1/2025 AAA 15,504,300
2,000,000 Sayre, PA, Health Care
Facilities Authority,
Revenue Bonds (Series
A), 7.10% (Guthrie
Healthcare System,
PA)/(Original Issue
Yield: 7.175%), 3/1/2017 AAA 2,152,180
TOTAL 39,173,808
PUERTO RICO-0.7%
2,000,000 3 Puerto Rico Highway and
Transportation
Authority, Residual
Interest Tax-Exempt
Securites (Series PA
331A), 7.84384% (Ambac
Financial Group, Inc.
INS), 7/1/2013 NR 2,366,400
2,000,000 3 Puerto Rico Highway and
Transportation
Authority, Residual
Interest Tax-Exempt
Securities (Series PA
331B), 7.84384% (AMBAC,
Inc. INS), 7/1/2014 NR 2,356,720
TOTAL 4,723,120
TENNESSEE-2.5%
13,000,000 Springfield, TN Health &
Educational Facilities
Board, Hospital Revenue
Bonds, 8.50% (NorthCrest
Medical
Center)/(Original Issue
Yield: 8.875%), 4/1/2024 AAA 16,590,860
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
TEXAS-12.3%
$ 4,000,000 Brazos River Authority,
TX, PCR Revenue Bonds
(Series A), 7.875%
(Texas Utilities
Electric Co.), 3/1/2021 BBB+ $ 4,321,560
12,750,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue
Bonds, 7.25% (American
Airlines)/(Original
Issue Yield: 7.428%),
11/1/2030 BBB- 13,983,818
5,000,000 Fort Worth, TX Higher
Education Finance Corp.,
Revenue Bonds, 5.00%
(Texas Christian
University)/(Original
Issue Yield: 5.287%),
3/15/2027 AA- 4,821,250
3,000,000 Georgetown, TX HFDC,
Revenue Bonds, 5.375%
(Wesleyan Homes,
Inc.)/(American Capital
Access INS)/(Original
Issue Yield: 5.55%),
8/15/2028 A 2,943,330
2,000,000 Gulf Coast, TX Waste
Disposal Authority,
Revenue Bonds (Series
A), 6.875% (Champion
International
Corp.)/(Original Issue
Yield: 7.15%), 12/1/2028 BBB 2,170,700
4,490,000 Gulf Coast, TX Waste
Disposal Authority,
Revenue Bonds, 5.60%
(Valero Energy Corp.),
4/1/2032 BBB- 4,443,349
2,200,000 Harris County, TX HFDC,
Hospital Revenue Bonds
(Series 1997A), 6.00%
(Memorial Hospital
System), 6/1/2011 AAA 2,474,538
4,000,000 Harris County, TX HFDC,
Hospital Revenue Bonds
(Series 1997A), 6.00%
(Memorial Hospital
System), 6/1/2012 AAA 4,503,840
2,000,000 Lufkin, TX HFDC, Health
System Revenue Bonds
(Series 1998), 5.70%
(Memorial Health System
of East Texas)/(Original
Issue Yield: 5.75%),
2/15/2028 BBB 1,989,460
6,000,000 3 Matagorda County, TX
Navigation District
Number One, Residual
Interest Tax-Exempt
Securities (Series PA-
427), 6.79863% (Houston
Industries, Inc.)/(MBIA
INS), 11/1/2029 NR 5,835,780
3,700,000 Red River Authority, TX,
PCR Bonds, 6.875%
(Hoechst Celanese
Corp.)/(Original Issue
Yield: 6.939%), 4/1/2017 A+ 3,984,974
1,700,000 Richardson, TX Hospital
Authority, Hospital
Revenue Refunding and
Improvement Bonds,
5.625%
(Baylor/Richardson
Medical Center,
TX)/(Original Issue
Yield: 5.70%), 12/1/2028 BBB+ 1,646,280
3,850,000 Richardson, TX Hospital
Authority, Refunding
Revenue Bonds, 6.50%
(Baylor/Richardson
Medical Center,
TX)/(Original Issue
Yield: 6.72%), 12/1/2012 BBB+ 4,170,359
2,420,000 Richardson, TX Hospital
Authority, Refunding
Revenue Bonds, 6.50%
(Baylor/Richardson
Medical Center,
TX)/(Original Issue
Yield: 6.72%), 12/1/2012 BBB+ 2,717,176
615,000 Richardson, TX Hospital
Authority, Refunding
Revenue Bonds, 6.75%
(Baylor/Richardson
Medical Center,
TX)/(Original Issue
Yield: 6.82%), 12/1/2023 BBB+ 672,521
385,000 Richardson, TX Hospital
Authority, Refunding
Revenue Bonds, 6.75%
(Baylor/Richardson
Medical Center,
TX)/(Original Issue
Yield: 6.82%), 12/1/2023 BBB+ 436,340
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
TEXAS-CONTINUED
$ 1,400,000 Sabine River Authority,
TX, PCR Bonds (Series B)
Daily VRDNs (Texas
Utilities Electric
Co.)/(UBS AG LOC) AA+ $ 1,400,000
535,000 San Antonio, TX Electric
& Gas, PRF Revenue Bonds,
5.00%/(Original Issue
Yield: 6.00%), 2/1/2002 NR 557,930
11,915,000 San Antonio, TX Electric
& Gas, Revenue Bonds,
5.00% (Original Issue
Yield: 6.10%), 2/1/2017 BBB- 11,837,791
5,000,000 Tarrant County, TX HFDC,
System Revenue Bonds
(Series 1997A), 5.75%
(Texas Health Resources
System)/(MBIA INS),
2/15/2015 AAA 5,479,300
1,405,000 Texas State, UT GO
Veterans Housing
Assistance, 7.00%,
12/1/2025 AA 1,518,369
TOTAL 81,908,665
UTAH-3.5%
13,500,000 Salt Lake City, UT
Hospital Authority,
Hospital Revenue
Refunding Bonds (Series
A), 8.125% (IHC
Hospitals Inc.,
UT)/(United States
Treasury COL)/(Original
Issue Yield: 8.17%),
5/15/2015 AAA 17,488,575
6,000,000 Tooele County, UT,
Hazardous Waste
Treatment Revenue Bonds
(Series 1998A), 5.70%
(Union Pacific Corp.),
11/1/2026 BBB- 5,966,640
TOTAL 23,455,215
VIRGINIA-0.2%
1,600,000 Roanoke, VA IDA,
Hospital Revenue Bonds
(Series 1997A) Daily
VRDNs (Carillion Health
System)/(Nationsbank,
N.A., Charlotte LIQ) AA- 1,600,000
WASHINGTON-0.8%
5,000,000 Washington State Public
Power Supply System,
(Nuclear Project No. 2)
Refunding Revenue Bonds
(Series 1998A), 5.00%
(Original Issue Yield:
5.18%), 7/1/2012 AA- 5,053,250
WEST VIRGINIA-1.2%
1,368,351 Marion County, WV County
Commission, Refunding
Revenue Bonds, 10.00%
(Adirondack Recycling),
12/1/2025 NR 889,428
9,790,831 Marion County, WV County
Commission, Refunding
Revenue Bonds, 8.00%
(Adirondack Recycling),
12/1/2025 NR 6,853,581
TOTAL 7,743,009
WISCONSIN-0.6%
$ 4,000,000 Wisconsin Health and
Educational Facilities
Authority, Revenue Bonds
(Series 1998A), 5.375%
(The Richland Hospital,
Inc.)/(American Capital
Access INS)/(Original
Issue Yield: 5.46%),
6/1/2028 A $ 3,936,000
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
WYOMING-1.4%
$ 8,460,000 Sweetwater County, WY
Water Pollution
Authority, (Series A),
7.00% (FMC Corp.),
6/1/2024 BBB- $ 9,253,802
TOTAL INVESTMENTS
(IDENTIFIED COST
$632,720,414) 4 $ 671,026,031
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 28.5% of the
portfolio as calculated based upon total portfolio market value.
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
2 When-issued security
3 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At March 31, 1999, these
securities amounted to $19,312,000 which represents 2.9% of net assets.
4 The cost of investments for federal tax purposes amounts to $632,720,414. The
net unrealized appreciation of investments on a federal tax basis amounts to
$38,305,617 which is comprised of $43,354,652 appreciation and $5,049,035
depreciation at March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($668,509,438) at March 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation COL -Collateralized EDA
- -Economic Development Authority FGIC -Financial Guaranty Insurance Company FHA
- -Federal Housing Administration FSA -Financial Security Assurance GNMA
- -Government National Mortgage Association GO -General Obligation GTD -Guaranty
HDA -Hospital Development Authority HFA -Housing Finance Authority HFDC -Health
Facility Development Corporation IDA -Industrial Development Authority IDB
- -Industrial Development Bond IFA -Industrial Finance Authority INS -Insured LIQ
- -Liquidity Agreement LOC -Letter of Credit MBIA -Municipal Bond Investors
Assurance PCFA -Pollution Control Finance Authority PCR -Pollution Control
Revenue PRF -Prerefunded SFM -Single Family Mortgage UT -Unlimited Tax VRDNs
- -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$632,720,414) $ 671,026,031
Cash 31,069
Income receivable 12,342,102
Receivable for
investments sold 4,728,196
Receivable for shares
sold 693,814
TOTAL ASSETS 688,821,212
LIABILITIES:
Payable for investments
purchased $ 18,571,571
Payable for shares
redeemed 333,983
Income distribution
payable 1,228,953
Accrued expenses 177,267
TOTAL LIABILITIES 20,311,774
Net assets for
61,487,927 shares
outstanding $ 668,509,438
NET ASSETS CONSIST OF:
Paid in capital $ 646,224,229
Net unrealized
appreciation of
investments 38,305,617
Accumulated net realized
loss on investments (12,835,164)
Distributions in excess
of net investment income (3,185,244)
TOTAL NET ASSETS $ 668,509,438
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per Share
($562,883,233 /
51,772,752 shares
outstanding) $10.87
Offering Price Per Share
(100/95.50 of $10.87)1 $11.38
Redemption Proceeds Per
Share $10.87
CLASS B SHARES:
Net Asset Value Per Share
($88,756,282 / 8,163,539
shares outstanding) $10.87
Offering Price Per Share $10.87
Redemption Proceeds Per
Share (94.50/100 of
$10.87) 1 $10.27
CLASS C SHARES:
Net Asset Value Per Share
($16,869,923 / 1,551,636
shares outstanding) $10.87
Offering Price Per Share $10.87
Redemption Proceeds Per
Share (99.00/100 of
$10.87) 1 $10.76
1 See "Investing in the Fund" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MARCH 31, 1999
INVESTMENT INCOME:
Interest $ 39,383,504
EXPENSES:
Investment advisory fee $ 3,832,697
Administrative personnel
and services fee 517,819
Custodian fees 42,941
Transfer and dividend
disbursing agent fees
and expenses 455,275
Directors'/Trustees'
fees 16,778
Auditing fees 19,128
Legal fees 4,580
Portfolio accounting
fees 135,631
Distribution services
fee-Class B Shares 653,674
Distribution services
fee-Class C Shares 129,084
Shareholder services
fee-Class A Shares 1,455,986
Shareholder services
fee-Class B Shares 217,892
Shareholder services
fee-Class C Shares 43,028
Share registration costs 47,580
Printing and postage 88,189
Insurance premiums 3,201
Taxes 54,190
Miscellaneous 16,430
TOTAL EXPENSES 7,734,103
WAIVERS:
Waiver of shareholder
services fee-Class A
Shares $ (815,352)
Waiver of shareholder
services fee-Class C
Shares (1,721)
TOTAL WAIVERS (817,073)
Net expenses 6,917,030
Net investment income 32,466,474
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (10,509,648)
Net change in unrealized
appreciation of
investments 7,900,594
Net realized and
unrealized loss on
investments (2,609,054)
Change in net assets
resulting from
operations $ 29,857,420
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income $ 32,466,474 $ 32,145,972
Net realized gain (loss)
on investments
($2,566,287 and
$3,273,099 net gain,
respectively, as
computed for federal tax
purposes) (10,509,648) (664,845)
Net change in unrealized
appreciation 7,900,594 42,415,663
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 29,857,420 73,896,790
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (27,771,720) (28,187,919)
Class B Shares (3,383,778) (3,245,800)
Class C Shares (670,339) (712,253)
Distributions in excess
of net investment income
Class A Shares - (446,648)
Class B Shares - (66,543)
Class C Shares - (12,628)
Distributions from net
realized gains
Class A Shares - (1,381,790)
Class B Shares - (204,140)
Class C Shares - (39,946)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (31,825,837) (34,297,667)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 134,901,460 129,961,665
Net asset value of shares
issued to shareholders
in payment of
distributions declared 19,740,788 21,687,238
Cost of shares redeemed (180,394,469) (188,612,798)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (25,752,221) (36,963,895)
Change in net assets (27,720,638) 2,635,228
NET ASSETS:
Beginning of period 696,230,076 693,594,848
End of period $ 668,509,438 $ 696,230,076
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.53 0.46 0.55 0.66 0.67
Net realized and
unrealized gain (loss)
on investments (0.05) 0.64 (0.36) (0.09) (0.05)
TOTAL FROM INVESTMENT
OPERATIONS 0.48 1.10 0.19 0.57 0.62
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.52) (0.46) (0.55) (0.66) (0.67)
Distributions in excess
of net investment income
1 - (0.01) (0.05) - -
Total distributions from
net investment income (0.52) (0.47) (0.60) (0.66) (0.67)
Distributions from net
realized gain
on investments - (0.03) (0.10) (0.01) (0.23)
TOTAL DISTRIBUTIONS (0.52) (0.50) (0.70) (0.67) (0.90)
NET ASSET VALUE, END OF
PERIOD $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 2 4.46% 11.28% 1.84% 5.32% 5.90%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.87% 0.86% 0.93% 0.98% 0.92%
Net investment income 4.86% 4.70% 5.37% 5.97% 6.17%
Expense
waiver/reimbursement 3 0.14% 0.14% 0.14% 0.13% -
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $562,883 $591,310 $595,515 $663,538 $708,712
Portfolio turnover 31% 64% 33% 29% 41%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.06
Income from Investment
Operations:
Net investment income 0.43 0.38 0.47 0.56 0.40
Net realized and
unrealized gain (loss)
on investments (0.05) 0.64 (0.37) (0.09) (0.03)
TOTAL FROM INVESTMENT
OPERATIONS 0.38 1.02 0.10 0.47 0.37
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.38) (0.47) (0.56) (0.40)
Distributions in excess
of net investment income
2 - (0.01) (0.04) - -
Total distributions from
net investment income (0.42) (0.39) (0.51) (0.56) (0.40)
Distributions from net
realized gain on
investments - (0.03) (0.10) (0.01) (0.11)
TOTAL DISTRIBUTIONS (0.42) (0.42) (0.61) (0.57) (0.51)
NET ASSET VALUE, END OF
PERIOD $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 3 3.53% 10.30% 0.94% 4.40% 3.49%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.76% 1.75% 1.82% 1.86% 1.84% 4
Net investment income 3.97% 3.81% 4.50% 5.23% 5.94% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $88,756 $87,304 $77,536 $58,296 $18,201
Portfolio turnover 31% 64% 33% 29% 41%
</TABLE>
1 Reflects operations for the period from July 26, 1994 (date of initial pub lic
offering) to March 31, 1995.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
3 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.91 $10.31 $10.82 $10.92 $11.20
Income from Investment
Operations:
Net investment income 0.43 0.37 0.46 0.56 0.58
Net realized and
unrealized gain (loss)
on investments (0.05) 0.65 (0.36) (0.09) (0.05)
TOTAL FROM INVESTMENT
OPERATIONS 0.38 1.02 0.10 0.47 0.53
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.37) (0.46) (0.56) (0.58)
Distributions in excess
of net investment income
1 - (0.02) (0.05) - -
Total distributions from
net investment income (0.42) (0.39) (0.51) (0.56) (0.58)
Distributions from net
realized gain on
investments - (0.03) (0.10) (0.01) (0.23)
TOTAL DISTRIBUTIONS (0.42) (0.42) (0.61) (0.57) (0.81)
NET ASSET VALUE, END OF
PERIOD $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 2 3.54% 10.31% 0.95% 4.42% 4.96%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.75% 1.74% 1.81% 1.82% 1.81%
Net investment income 3.98% 3.83% 4.51% 5.16% 5.28%
Expense
waiver/reimbursement 3 0.01% 0.01% 0.01% 0.04% -
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $16,870 $17,616 $20,544 $25,914 $22,389
Portfolio turnover 31% 64% 33% 29% 41%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999
ORGANIZATION
Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares and Class C Shares. The investment objective of
the Fund is to provide for its shareholders a high level of cur rent income
which is exempt from federal regular income tax.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems rel evant.
Short-term securities are valued at the prices provided by an indepen dent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amor tized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
Distributions are determined in accordance with income tax regulations which may
differ from the generally accepted accounting principles. These distri butions
do not represent a return of capital for federal income tax purposes.
The following reclassifications have been made to the financial statements:
INCREASE (DECREASE)
UNDISTRIBUTED NET
PAID-IN CAPITAL INVESTMENT INCOME
$(25,483) $25,483
Net investment income, net realized gains/losses and net assets were not
affected by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Additionally, net capital losses of $18,626,739 attributable to security
transactions incurred after October 31, 1998, are treated as arising on April 1,
1999, the first day of the fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security posi
tions such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and rev enues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.01 per share) authorized were as fol
lows:
PERCENTAGE OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 375,000,000
Class B Shares 250,000,000
Class C Shares 375,000,000
TOTAL 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,327,327 $ 113,274,145 9,670,305 $ 103,414,194
Shares issued to
shareholders in payment
of distributions
declared 1,619,511 17,770,129 1,807,665 19,419,915
Shares redeemed (14,392,026) (157,856,794) (15,033,250) (160,904,159)
NET CHANGE RESULTING
FROM
CLASS A SHARE
TRANSACTIONS (2,445,188) $ (26,812,520) (3,555,280) $ (38,070,050)
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,554,992 $ 17,066,503 2,304,892 $ 24,638,393
Shares issued to
shareholders in payment
of distributions
declared 140,590 1,542,609 162,455 1,793,068
Shares redeemed (1,537,205) (16,860,862) (1,983,725) (21,309,970)
NET CHANGE RESULTING
FROM
CLASS B SHARE
TRANSACTIONS 158,377 $ 1,748,250 483,622 $ 5,121,491
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 414,516 $ 4,560,812 176,581 $ 1,909,078
Shares issued to
shareholders in payment
of distributions
declared 39,027 428,050 44,200 474,255
Shares redeemed (517,122) (5,676,813) (598,603) (6,398,669)
NET CHANGE RESULTING
FROM
CLASS C SHARE
TRANSACTIONS (63,579) $ (687,951) (377,822) $ (4,015,336)
NET CHANGE RESULTING
FROM
SHARE TRANSACTIONS (2,350,390) $ (25,752,221) (3,449,480) $ (36,963,895)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company (formerly, Federated Advisers), the
Fund's investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to (a) a maximum of 0.30% of the average daily net
assets of the Fund, and (b) 4.50% of the gross income of the Fund, excluding
capital gains or losses.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administra tive Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Feder ated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
Shares and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS
Class B Shares 0.75%
Class C Shares 0.75%
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Service Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of each class of shares for the period. The fee paid to FSSC is used
to finance certain services for shareholders and to maintain shareholder
accounts. FSSC may voluntarily choose to waive any portion of its fee. FSSC can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended March 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursu ant to
Rule 17a-7 under the Act amounting to $134,400,000 and $165,280,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1999, were as follows:
Purchases $210,914,333
Sales $265,786,267
CONCENTRATION OF CREDIT RISK
At March 31, 1999, 17.2% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial insti tutions
and financial guaranty assurance agencies. The percentage of invest ments
insured by or supported (backed) by a letter of credit from any one institution
or agency did not exceed 6.7% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
FEDERATED MUNICIPAL SECURITIES FUND, INC.:
We have audited the accompanying statement of assets and liabilities, includ ing
the portfolio of investments of Federated Municipal Securities Fund, Inc. as of
March 31, 1999, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended March 31, 1999 and March
31, 1998, and the financial highlights for the periods pre sented. These
financial statements and financial highlights are the respon sibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the finan cial
statements. Our procedures included confirmation of the securities owned at
March 31, 1999, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the over all financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Munici pal
Securities Fund, Inc. as of March 31, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
May 14, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
JOHN S. WALSH
officers
JOHN F. DONAHUE
Chairman
J. CHRISTOPHER DONAHUE
President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
NICHOLAS J. SEITANAKIS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance corporation, the Federal Reserve Board, or any other gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts con
cerning its objective and policies, management fees, and other information.
AS OF MARCH 31, 1999
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT AS OF MARCH 31, 1999
Federated Municipal Securities Fund, Inc.
Established 1976
22ND ANNUAL REPORT
[Graphic]
Federated
Federated Municipal Securities Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 313913105
Cusip 313913204
Cusip 313913303
8042830 (5/99)
[Graphic]
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 10/4/76
to 3/31/99. The "y" axis is measured in increments of $20,000 ranging from $0
to$100,000 and indicates that the ending value of hypothetical initial
investment of $23,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $90,336 on 3/31/99.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 10/4/76
to 3/31/99. The "y" axis is measured in increments of $10,000 ranging from $0 to
$60,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $56,055 on 3/31/99.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from3/31/89
to 3/31/99. The "y" axis is measured in increments of $10,000 ranging from $0 to
$50,000 and indicates that the ending value of a hypothetical initial investment
of $26,000 in the fund's Class A Shares would have grown to $48,908 on 3/31/99.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Municipal Securities Fund, Inc., based on a 4.50% sales
charge are represented by a solid line. The Lehman Brothers Municipal Bond Index
(the "LBMBI") is represented by a dotted line and the Lipper General Municipal
Funds Average (the "LGMFA") is represented by a dashed line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund, the LBMBI and the
LGMFA. The "x" axis reflects computation periods from 3/31/89 to3/31/99. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class A Shares, based on a
4.50% sales charge, as compared to the LBMBI and the LGMFA. The ending values
were $18,809, $22,072, and $20,687, respectively. The legend in the upper right
quadrant of the graphic presentation indicates the fund's Class A Shares Average
Annual Total Returns for the one-year, five-year and 10-year periods ended
3/31/99 and from the start of performance of the fund's Class A Shares (10/4/76)
to 3/31/99. The total returns were (0.21%), 4.746%, 6.52%, and 6.27%,
respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Municipal Securities Fund, Inc., based on a 2.00% contingent
deferred sales charge are represented by a solid line. The Lehman Brothers
Municipal Bond Index (the "LBMBI") is represented by a dotted line and the
Lipper General Municipal Funds Average (the "LGMFA") is represented by a dashed
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class B Shares of the fund,
the LBMBI and the LGMFA. The "x" axis reflects computation periods from 7/26/94
to 3/31/99. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class B
Shares, based on a 2.00% contingent deferred sales charge, as compared to the
LBMBI and the LGMFA. The ending values were $12,254,$14,022, and $13,516,
respectively. The legend in the upper right quadrant of the graphic presentation
indicates the fund's Class B Shares Average Annual Total Returns for the
one-year period ended 3/31/99 and from the start of performance of the fund's
Class B Shares (7/26/94) to 3/31/99. The total returns were (1.95%) and 4.44%,
respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Municipal Securities Fund, Inc., based on a 1.00% contingent
deferred sales charge are represented by a solid line. The Lehman Brothers
Municipal Bond Index (the "LBMBI") is represented by a dotted line and the
Lipper General Municipal Funds Average (the "LGMFA") is represented by a dashed
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class C Shares of the fund,
the LBMBI and the LGMFA. The "x" axis reflects computation periods from 4/21/93
to 3/31/99. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class C
Shares, based on a 1.00% contingent deferred sales charge, as compared to the
LBMBI and the LGMFA. The ending values were $12,657, $14,622, and $13,940,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class C Shares Average Annual Total Returns for the
one-year and five-year periods ended 3/31/99 and from the start of performance
of the fund's Class C Shares (4/21/93) to 3/31/99. The total returns were 2.55%,
4.79%, and 4.04%, respectively.
