SEMI-ANNUAL REPORT
[Graphic]
J. CHRISTOPHER DONAHUE
President
Federated Municipal Securities Fund, Inc.
President's Message
Dear Fellow Shareholder:
Federated Municipal Securities Fund, Inc. was created in 1976, and for over two
decades, investors who want to pursue tax-free income from a high-quality
municipal bond portfolio have received generous monthly income. 1 I am pleased
to present the fund's 23rd Semi-Annual Report. On September 30, 1999, the fund's
net assets of $595.8 million were invested across 124 tax-free securities issued
by municipalities across the U.S. The fund's weighted average effective maturity
was 11.89 years.
This report covers the first half of the fund's fiscal year which is the
six-month period from April 1, 1999 through September 30, 1999. It begins with
an interview with J. Scott Albrecht, Vice President, who co-manages the fund
with Mary Jo Ochson, Senior Vice President, both of Federated Investment
Management Company. Following their discussion 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 high-quality tax-free
municipal securities that comprise the fund's holdings, and third is the
publication of the fund's financial statements.
Over the six-month reporting period, the overall bond market was weak from a
total return perspective as rising interest rates caused bond prices to decline.
While municipal bond prices also suffered from this trend, municipal bonds
continued to offer historically high yields compared to the yields available on
U.S. Treasury securities. As a result, Federated Municipal Securities Fund, Inc.
produced a competitive stream of tax-free income.
1 Income may be subject to the federal alternative minimum tax and state and
local taxes.
Federated Municipal Securities Fund, Inc. was able to deliver to shareholders a
yield advantage over the average municipal bond fund. The fund's 30-day SEC
yield for Class A Shares on September 30, 1999 was 4.45%, based on offering
price. 2 This is the equivalent of a 7.37% yield on a taxable bond investment
for an investor in the 39.6% federal income tax bracket and equivalent to
taxable yields of 6.95% and 6.45% for investors in the 36% and 31% tax brackets,
respectively.
Individual share class total return performance for the six-month reporting
period, including income distributions, follows. 3
<TABLE>
<CAPTION>
TOTAL RETURN INCOME NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares (5.35%) $0.26 $10.87 to $10.04 = (7.63%)
Class B Shares (5.77%) $0.21 $10.87 to $10.04 = (7.63%)
Class C Shares (5.76%) $0.21 $10.87 to $10.04 = (7.63%)
</TABLE>
Thank you for entrusting a portion of your wealth in Federated Municipal
Securities Fund, Inc. The fund is a convenient way to invest in a broad array of
municipal securities. You can receive income from the fund or increase your
wealth by reinvesting your monthly dividends so they may compound tax-free.
As always, we welcome your comments and suggestions.
Sincerely yours,
[Graphic]
J. Christopher Donahue
President
November 15, 1999
2 The SEC yields are compounded and annualized. The 30-day SEC yields on
September 30, 1999 for Class B and C Shares were 3.77% and 3.78%, based on
offering price (i.e., less any applicable sales charge), respectively. The
taxable yield equivalents, based on offering price (i.e., less any applicable
sales charge), for investors in 31.0%, 36.0% and 39.6% federal tax brackets were
as follows: Class B Shares-5.46%, 5.89% and 6.24%, respectively; Class C
Shares-5.48%, 5.91%, and 6.26%, respectively.
3 Performance quoted is based on net asset value, reflects past performance and
is no guarantee 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 six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A, B
and C Shares were (9.59%), (10.85%) and (6.69%), respectively.
[Graphic]
J. SCOTT ALBRECHT
Vice President
Federated Investment Management Company
[Graphic]
MARY JO OCHSON
Senior Vice President
Federated Investment Management Company
Investment Review
FROM A TOTAL RETURN PERSPECTIVE, THE FIRST HALF OF THE FUND'S FISCAL YEAR WAS A
RELATIVELY DIFFICULT ONE FOR BONDS IN GENERAL, ALTHOUGH MUNICIPAL BONDS REMAINED
ATTRACTIVE RELATIVE TO U.S. TREASURY SECURITIES. WHAT ARE YOUR COMMENTS ON THE
MUNICIPAL BOND MARKETPLACE OVER THE REPORTING PERIOD?
From a total return standpoint, the past six months were relatively difficult,
reflecting a rise in interest rates across the maturity spectrum. The continued
strong growth of the domestic economy and diminished concerns about
international economic problems were the primary reasons for this rise in
yields. For example, yields on the 30-year Treasury moved up 0.38% since April
1999, while the Bond Buyer's Revenue Bond Index ("RBI") was up 0.67% over the
same period. 1
The reduced appetite for tax-exempt securities from traditional crossover buyers
(corporations and insurance companies) was also a driver of the upward trend in
municipal yields. Demand was weak from crossover buyers due to the large supply
of pre-Year 2000 ("Y2K") corporate debt issuance, which has created attractive
relative value opportunities in the corporate market. Although direct retail
demand has been powerful, it was not able to support the trading of larger
blocks of municipal bonds, which normally would support bond prices.
Municipal yields as a percentage of Treasury yields are down from last year's
record levels, but remain high when compared to any year except 1998. The
RBI/30-Year Treasury ratio is now 98.5% compared to an historical average of
about 88%. We believe that at these levels, municipal bonds offer attractive
relative value.
1 The Bond Buyer Revenue Bond Index is a standard against which municipal bonds
are measured. This index is unmanaged and investments cannot be made in an
index.
HOW HAS FEDERATED MUNICIPAL SECURITIES FUND, INC. PERFORMED WITH RESPECT TO
TOTAL RETURN AND INCOME FOR THE SIX-MONTH REPORTING PERIOD ENDED
SEPTEMBER 30, 1999?
The fund's return was consistent with the market over the reporting period. For
the six-month reporting period ended September 30, 1999, the fund's total return
for Class A Shares was (5.35%), based on net asset value. 2 This return lagged
the Lipper General Municipal Fund Average3 total return of (3.63%) and the
(2.16%) return of the Lehman Brothers Municipal Bond Index.4
The income of this fund was very competitive during the reporting period. The
fund's current 30-day SEC yield on September 30, 1999 was 4.45% for Class A
Shares, based on offering price, which was competitive with the 4.50% 30-day SEC
yield of other funds with Class A Shares in its Lipper peer group. Tax-
equivalent yields for the fund's Class A Shares ranged from 6.45% for an
investor in the 31% tax bracket to 7.37% for an investor in the 39.6% tax
bracket. 5
WHAT STRATEGIES ARE YOU EMPLOYING TO TAKE ADVANTAGE OF THE CURRENT MARKET
ENVIRONMENT?
The fund's objective is to provide for its shareholders a high level of current
income which is exempt from federal regular income tax. We pursue this objective
by taking advantage of relative value opportunities in both individual security
selection and overall portfolio structure. The rising interest rate environment
has provided an opportunity to take advantage of tax-loss swaps. These swaps
build a pool of tax-loss carry-forwards that can be used to offset any
recognized capital gains within the portfolio, and also provide an opportunity
to increase the overall yield of the portfolio.
We concentrate the fund's security selection on credit quality. Credit spreads
continue to be narrow by historical standards, providing little incentive to buy
lower quality paper. We continuously look for securities with favorable
liquidity characteristics and structural features. Call protection and coupon
selection are important determinants of how a bond will perform as interest
rates vary. We have not been active buyers of coupon bonds of less than 5% due
to the tax risks associated with market discounted securities. The municipal
yield curve offers the best "roll down" value in the 15-year range. The value of
this "roll down the curve" effect combined with the municipal yield curve's
flatness beyond the 20-year sector has forced us to concentrate purchases in the
15-20 year area.
2 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 six-month reporting
period, based on net asset value, for Class B and C Shares were (5.77%) and
(5.76%), respectively. Total returns for the six-month reporting period, based
on offering price (i.e., less any applicable sales charge), for Class A, B and C
Shares were (9.59%), (10.85%) and (6.69%), respectively.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper figures do not take sales charges into account.
4 The Lehman Brothers Municipal Bond Index is a broad-based total return
performance benchmark for the long-term, investment grade bond market. This
index is unmanaged, and investments cannot be made in an index.
5 The SEC yields are compounded and annualized. The 30-day SEC yields on
September 30, 1999 for Class B and C Shares were 3.77% and 3.78%, based on
offering price (i.e., less any applicable sales charge), respectively. The
taxable yield equivalents, based on offering price, for investors in 31.0%,
36.0%, and 39.6% federal tax brackets were as follows: Class B Shares- 5.46%,
5.89% and 6.24%, respectively; Class C Shares-5.48%, 5.91% and 6.26%,
respectively.
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
ISSUER/COUPON/MATURITY NET ASSETS
<S> <C>
Indianapolis, IN Airport
Authority-FDX Corp.,
7.100% due 1/15/2017 3.45%
Salt Lake City, UT Hospital
Authority-IHC Hospitals,
8.125% due 5/15/2015 2.78%
Springfield, TN Health &
Educational Facilities
Board-NorthCrest Medical
Center, 8.500% due
4/1/2024 2.66%
Dallas-Ft. Worth, TX
International Airport
Facilities Authority-
American Airlines, 7.250%
due 11/1/2030 2.27%
Illinois Health Facilities
Authority- Edgewater
Hospital & Medical Center,
9.250% due 7/1/2024 2.24%
TOTAL 13.40%
</TABLE>
HOW WERE THE FUND'S ASSETS ALLOCATED IN TERMS OF CREDIT QUALITY AS OF SEPTEMBER
30, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
AAA 35.83%
AA 24.48%
A 11.29%
BBB 18.05%
Non-Rated 9.15%
</TABLE>
WHAT IS YOUR OUTLOOK FOR MUNICIPAL CREDIT QUALITY AND CREDIT SPREADS AS WE
APPROACH THE YEAR 2000?
Municipal credit quality, in general, has benefited from the strong U.S.
economy. Municipal tax receipts at all levels of government have exceeded
forecasts, which has allowed municipal fund balances and reserves to expand.
There are sectors of the municipal revenue bond market that have experienced
credit weakness. For example, the hospital sector, in particular, has
experienced credit downgrades as a result of the reductions in Medicare
reimbursement by the federal government and overly ambitious expansion plans.
Y2K spending by municipal governments is a potential credit factor that must be
taken into consideration as far as both the cost and effectiveness of their Y2K
preparedness. While the market does not expect any material interruptions in the
supply of necessary municipal services, there does remain the potential for some
functions to suffer temporary disruptions.
Last Meeting of Shareholders
The Special Meeting of shareholders of Federated Municipal Securities Fund, Inc.
(the "Fund") was held on June 30, 1999. On April 15, 1999, the record date for
shareholders voting at the meeting, there were 61,255,009 total outstanding
shares. The following items were considered by shareholders and the results of
their voting were as follows.
AGENDA ITEM 1
Election of Directors: 1
<TABLE>
<CAPTION>
SHARES VOTED SHARES
FOR WITHHELD
<S> <C> <C>
John F. Cunningham 44,127,562 979,099
Charles F. Mansfield, Jr. 44,149,187 957,474
John S. Walsh 44,174,466 932,195
</TABLE>
1 The following Directors continued their terms as Directors: John F.
Donahue, Thomas G. Bigley, John T. Conroy, Nicholas P. Constantakis,
J. Christopher Donahue, Lawrence D. Ellis, M.D., Peter E. Madden, John E.
Murray, Jr., J.D., S.J.D., and Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Deloitte and Touche LLP as the Fund's independent
auditors.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
43,345,620 362,713 1,398,328
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To approve amending the Fund's fundamental investment policy regarding
diversification.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
33,876,423 1,291,520 2,370,152
</TABLE>
(b) To approve amending the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,868,723 2,323,780 2,645,593
</TABLE>
(c) To approve amending the Fund's fundamental investment policy regarding
investments in real estate.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
33,022,028 2,301,341 2,514,727
</TABLE>
(d) To approve amending the Fund's fundamental investment policy concerning
investments in commodities.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,332,705 2,849,503 2,655,888
</TABLE>
(e) To approve amending the Fund's fundamental investment policy regarding
underwriting securities.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
33,281,313 2,018,272 2,538,510
</TABLE>
(f) To approve amending the Fund's fundamental investment policy regarding
lending assets by the Fund.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,707,007 2,370,372 2,760,716
</TABLE>
(g) To approve amending the Fund's fundamental investment policy regarding
concentration of the Fund's investments in the securities of companies in the
same industry.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
33,219,925 2,099,241 2,518,930
</TABLE>
(h) To approve amending the Fund's fundamental investment policy regarding
investments in municipal securities.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
34,024,862 1,504,770 2,308,464
</TABLE>
(i) To approve amending and making non-fundamental, the Fund's fundamental
investment policy regarding buying securities on margin.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
31,970,723 3,055,625 2,811,747
</TABLE>
(j) To approve amending and making non-fundamental, the Fund's fundamental
investment policy regarding pledging assets.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,178,686 2,881,539 2,777,871
</TABLE>
(k) To approve making non-fundamental the Fund's fundamental investment policies
regarding permissible investments.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,640,857 2,353,418 2,844,820
</TABLE>
(l) To approve making non-fundamental the Fund's fundamental investment policy
regarding temporary investments.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,983,279 2,128,564 2,726,252
</TABLE>
(m) To approve making non-fundamental the Fund's fundamental investment policy
regarding engaging in when-issued and delayed delivery transactions.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,873,734 2,046,460 2,917,902
</TABLE>
(n) To make non-fundamental the Fund's fundamental investment policy regarding
investing in securities of other investment companies.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,676,806 2,342,671 2,818,619
</TABLE>
AGENDA ITEM 4
To remove certain of the Fund's fundamental investment policies:
(a) To approve eliminating the Fund's fundamental investment policy on investing
in oil, gas and minerals.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,613,713 2,701,398 2,522,984
</TABLE>
(b) To approve eliminating the Fund's fundamental investment policy on selling
securities short.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,181,728 2,969,319 2,687,049
</TABLE>
(c) To approve eliminating the Fund's fundamental investment policy regarding
trading portfolio securities.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,856,376 2,289,302 2,692,418
</TABLE>
AGENDA ITEM 5
To approve amendments to the Fund's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law.
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINED
<S> <C> <C>
32,192,752 3,130,435 2,514,909
</TABLE>
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 $85,507 ON 9/30/99. YOU WOULD HAVE EARNED A 5.88% 1 AVERAGE ANNUAL TOTAL
RETURN FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all tax-free distributions in fund
shares. This increases the number of shares on which you can earn future
tax-free dividends, and you gain the benefit of compounding tax free.
As of 9/30/99, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (9.56%), 3.31%, and 5.35%, respectively. Class B Shares'
average annual 1-year, 5-year and since inception (7/26/94) total returns were
(11.13%), 3.02% and 2.98%, respectively. Class C Shares' average annual 1-year,
5-year, and since inception (4/21/93) total returns were (7.06%), 3.35%, and
2.77%, respectively. 2
The graphic presentation here displayed consists of a 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 9/30/99. The "y" axis is measured in increments of $20,000 ranging from $0 to
$100,000 and indicates that the ending value of a hypothetical initial
investment of $23,000 in the fund's Class A Shares, assuming all sales charges
and the reinvestment of capital gains and dividends, would have grown to $85,507
on 9/30/99.
1 Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 4.50% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and is no guarantee 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.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charge 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 $56,311.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Municipal Securities Fund, Inc. on 10/4/76, reinvested your dividends and
capital gains and did not redeem any shares, you would have invested only
$23,000 but your account would have reached a total value of $56,311 1 by
9/30/99. You would have earned an average annual total return of
6.41%.
A practical investment plan helps you pursue a high level of income through
tax-free municipal bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all tax-free earnings. An investment plan can work
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.
The graphic presentation here displayed consists of a 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 9/30/99. 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 $56,311 on 9/30/99.
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 Investor Profile-
Investing for Tax-Free Income
Larry and Barbara Bartlett are a fictional couple who, like all other
tax-sensitive shareholders, want to keep more of what they earn.
Larry owns a successful architectural firm and Barbara is a marketing executive.
Their combined income puts them in the 39.6% federal tax bracket. On September
30, 1989, the Bartletts invested $25,000 in the Class A Shares of Federated
Municipal Securities Fund, Inc.
As this chart shows, in 10 years, their original $25,000 investment has grown to
$42,102. 1 This represents a 5.35% average annual total return. As far as the
Bartletts are concerned, this fund has made all the difference.
The graphic presentation here displayed consists of a 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 9/30/89 to 9/30/99. The
"y" axis is measured in increments of $10,000 ranging from $0 to $50,000 and
indicates that the ending value of hypothetical initial investment of $25,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $42,102 on 9/30/99.
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.
Portfolio of Investments
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-98.8%
ALABAMA-1.4%
$ 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 $ 2,036,340
6,260,000 Jefferson County, AL,
Sewer Revenue Warrants
(Series 1997D), 5.70%
(Original Issue Yield:
5.73%), 2/1/2018 AAA 6,246,040
TOTAL 8,282,380
ALASKA-0.2%
1,100,000 Anchorage, AK, UT GO Bonds,
Series A, 5.00% (FGIC
INS)/(Original Issue
Yield: 5.08%), 4/1/2018 AAA 996,897
CALIFORNIA-4.1%
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+ 9,856,652
5,000,000 California State Public
Works Board, Lease Revenue
Refunding Bonds, Series A,
5.25% (Trustees of the
California State
University), 10/1/2015 A+ 4,855,150
2,500,000 Foothill/Eastern
Transportation Corridor
Agency, CA, Toll Road
Refunding Revenue Bonds
(Series 1999), 5.25%,
1/15/2013 AAA 2,498,600
4,000,000 Foothill/Eastern
Transportation Corridor
Agency, CA, Toll Road
Refunding Revenue Bonds
(Series 1999), 5.375%,
1/15/2015 AAA 3,979,040
3,000,000 Los Angeles, CA Unified
School District, UT GO
Bonds (Series C), 5.625%,
7/1/2015 AAA 3,053,010
TOTAL 24,242,452
COLORADO-3.2%
5,580,000 Denver (City & County), CO,
Excise Tax Revenue
Refunding Bonds (Series
1999A), 5.50% (FSA INS),
9/1/2013 AAA 5,628,546
6,650,000 Denver (City & County), CO,
Excise Tax Revenue
Refunding Bonds (Series
1999A), 5.50% (FSA INS),
9/1/2014 AAA 6,662,236
6,000,000 Jefferson County, CO
School District No. R-001,
Refunding UT GO Bonds,
6.50%, 12/15/2011 AAA 6,723,900
TOTAL 19,014,682
CONNECTICUT-1.6%
4,200,000 Connecticut State HEFA,
(Series 1999 U-1) Weekly
VRDNs
(Yale University) AAA 4,200,000
5,000,000 Connecticut State, UT GO
Bonds (Series 1999A),
5.25%, 6/15/2011 AA 5,058,500
TOTAL 9,258,500
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
DISTRICT OF COLUMBIA-2.5%
$ 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+ $ 9,016,854
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+ 2,183,880
4,000,000 District of Columbia,
Revenue Bonds, 5.625%
(American
University)/(AMBAC
INS)/(Original Issue
Yield: 5.90%), 10/1/2026 AAA 3,854,960
TOTAL 15,055,694
FLORIDA-4.0%
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+ 5,812,195
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 887,822
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+ 6,324,747
3,000,000 Florida State, UT GO Bonds,
Broward County Expressway
Authority, 10.00%
(Original Issue Yield:
10.105%), 7/1/2014 AA+ 4,272,300
6,135,000 Orange County, FL, Health
Facilities Authority,
Hospital Revenue Bonds
(Series 1999D), 5.75%
(Orlando Regional
Healthcare System)/(MBIA
INS), 10/1/2013 AAA 6,260,338
TOTAL 23,557,402
GEORGIA-0.4%
2,500,000 Effingham County, GA
Development Authority,
Solid Waste Disposal
Revenue Bonds (Series
1998), 5.625% (Fort James
Corp.), 7/1/2018 BBB- 2,385,600
HAWAII-2.2%
10,000,000 Hawaii State Department of
Budget & Finance, Special
Purpose Revenue Refunding
Bonds (Series A), 4.95%
(Hawaiian Electric
Company, Inc.)/(MBIA INS),
4/1/2012 AAA 9,675,000
4,000,000 Honolulu, HI City & County,
UT GO Bonds (Series 1999C),
5.00% (Original Issue
Yield: 5.11%), 7/1/2019 AAA 3,593,720
TOTAL 13,268,720
ILLINOIS-4.5%
8,295,000 Cook County, IL, Refunding
GO Bonds (Series 1997A),
6.25%, 11/15/2013 AAA 8,963,577
5,000,000 Illinois Development
Finance Authority, Housing
Revenue Bonds, 6.10%
(Catholic Charities
Housing Development
Corp.), 1/1/2020 NR 4,779,700
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
ILLINOIS-CONTINUED
$ 11,160,000 Illinois Health Facilities
Authority, Hospital
Revenue Bonds (Series A),
9.25% (Edgewater Hospital
& Medical Center, IL),
7/1/2024 NR $ 13,339,325
TOTAL 27,082,602
INDIANA-4.9%
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 6,623,646
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 1,759,500
19,000,000 Indianapolis, IN Airport
Authority, Special
Facilities Revenue Bonds,
7.10% (FDX
Corp.)/(Original Issue
Yield: 7.178%), 1/15/2017 BBB 20,547,740
TOTAL 28,930,886
LOUISIANA-4.0%
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- 2,771,550
6,000,000 De Soto Parish, LA
Environmental Improvement
Authority, Revenue Bonds,
7.70% (International Paper
Co.), 11/1/2018 BBB+ 6,677,880
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 3,751,214
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 10,512,500
TOTAL 23,713,144
MARYLAND-2.9%
12,145,000 Maryland State Community
Development
Administration, SFM
Revenue Bonds (5th
Series), 6.75%, 4/1/2026 Aa2 12,491,497
5,000,000 Prince George's County,
MD, Consolidated Public
Improvement UT GO Bonds,
5.50%, 10/1/2013 AAA 5,081,300
TOTAL 17,572,797
MASSACHUSETTS-3.9%
10,000,000 Commonwealth of Massachusetts, UT GO Bonds (Series 1997C),
5.00% (Original Issue Yield:
5.30%), 8/1/2017 AA- 9,143,400
3,000,000 Massachusetts Port
Authority, PFC Revenue
Bonds (Series 1999A),
5.125% (Original Issue
Yield: 5.25%), 7/1/2016 AAA 2,816,970
3,000,000 Massachusetts Port
Authority, PFC Revenue
Bonds (Series 1999A),
5.125% (Original Issue
Yield: 5.29%), 7/1/2017 AAA 2,791,590
2,200,000 Massachusetts State HFA,
Rental Housing Mortgage
Revenue Bonds (Series
1995E), 5.90% (AMBAC INS),
7/1/2025 AAA 2,185,370
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MASSACHUSETTS-CONTINUED
$ 3,035,000 Worcester, MA, LT GO Bonds,
(Series A), 5.75% (FSA
INS), 4/1/2013 AAA $ 3,134,852
3,120,000 Worcester, MA, LT GO Bonds,
(Series A), 5.75% (FSA
INS), 4/1/2014 AAA 3,196,939
TOTAL 23,269,121
MICHIGAN-0.3%
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 Baa1 1,083,850
1,000,000 Flint, MI Hospital
Building Authority,
Revenue Rental Bonds
(Series 1998B), 5.375%
(Hurley Medical
Center)/(Original Issue
Yield: 5.48%), 7/1/2018 Baa1 892,890
TOTAL 1,976,740
MINNESOTA-3.7%
5,000,000 Northern Municipal Power
Agency, MN, Electric
System Revenue Bonds,
5.40% (Original Issue
Yield: 5.52%), 1/1/2015 AAA 4,920,500
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- 3,770,094
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- 902,380
12,000,000 VRDC/IVRC Trust, GO
Inverse Variable Rate
Certificates, 7.273%
(University of Minnesota),
5/18/2012 AA 12,615,000
TOTAL 22,207,974
MISSOURI-1.8%
855,000 Kansas City, MO IDA,
Multifamily Housing
Revenue Bonds, 6.70%
(Woodbridge Apartments
Project), 8/1/2015 NR 834,566
8,010,000 Kansas City, MO, UT GO
Bonds (Series B), 5.125%
(Original Issue Yield:
5.25%), 2/1/2017 AA 7,578,822
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 2,067,761
TOTAL 10,481,149
NEW JERSEY-2.4%
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 2,111,886
6,210,000 New Jersey Health Care
Facilities Financing
Authority, Revenue Bonds
(Series 1999), 5.625%
(Meridian Health System
Obligated Group)/(FSA
INS), 7/1/2012 AAA 6,345,130
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW JERSEY-CONTINUED
$ 6,000,000 New Jersey State,
Refunding UT GO Bonds
(Series F), 5.25%,
8/1/2014 AA+ $ 5,911,500
TOTAL 14,368,516
NEW YORK-14.8%
11,000,000 Metropolitan
Transportation Authority,
NY, Commuter Facilities
Service Contract Revenue
Bonds (Series 8), 5.50%
(FSA INS)/(Original Issue
Yield: 5.65%), 7/1/2021 AAA 10,680,010
7,800,000 New York City Municipal
Water Finance Authority,
Water and Sewer System
Revenue Bonds (Series
1995A) Daily VRDNs (FGIC
INS)/(FGIC Securities
Purchase, Inc. LIQ) AAA 7,800,000
3,000,000 New York City, NY Transit
Authority Metropolitan
Transportation Authority
Triborough Bridge and
Tunnel Authority,
Certificates of
Participation (Series
1999A), 5.625% (AMBAC
INS), 1/1/2012 AAA 3,072,630
3,000,000 New York City, NY Transit
Authority Metropolitan
Transportation Authority
Triborough Bridge and
Tunnel Authority,
Certificates of
Participation (Series
1999A), 5.625% (AMBAC
INS), 1/1/2013 AAA 3,047,220
2,100,000 New York City, NY
Transitional Finance
Authority, (Series 1998A-
1) Weekly VRDNs
(Commerzbank AG, Frankfurt
LIQ) AA 2,100,000
4,595,000 New York City, NY
Transitional Finance
Authority, Future Tax
Secured Revenue Bonds
(Series C), 5.25%,
5/1/2013 AA 4,518,172
5,000,000 New York City, NY, UT GO
Bonds (Series 1998G),
5.00% (Original Issue
Yield: 5.25%), 8/1/2018 A- 4,447,700
5,000,000 New York City, NY, UT GO
Bonds (Series 1999H),
5.25%, 3/15/2018 A- 4,624,100
2,500,000 New York State Dormitory Authority, Revenue Bonds (Series A),
5.50% (University of Rochester, NY)/(Original Issue Yield:
5.60%), 7/1/2016 A+ 2,437,050
6,800,000 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- 6,261,168
4,700,000 New York State Energy
Research & Development
Authority,
(Series 1985A) Daily VRDNs
(Niagara Mohawk Power
Corp.)/(Toronto-Dominion
Bank LOC) AA- 4,700,000
2,500,000 New York State
Environmental Facilities
Corp., Refunding Notes
(Series F), 5.25%,
6/15/2014 AA- 2,428,725
4,000,000 New York State
Environmental Facilities
Corp., State Clean Water &
Drinking Revolving Fund
(Series 1998C), 5.25%,
6/15/2013 AA- 3,936,360
5,050,000 New York State Local
Government Assistance
Corp., Residual Interest
Tax-Exempt Securities
(Series PA-207), 7.92658%
(AMBAC INS), 4/1/2008 NR 5,763,262
6,025,000 New York State Local
Government Assistance
Corp., Residual Interest
Tax-Exempt Securities
(Series PA-207A),
7.92658%, 4/1/2007 NR 6,870,850
2,000,000 New York State Mortgage
Agency, Mortgage Revenue
Bonds
(Series 30-B), 6.65% (FHA
GTD), 10/1/2025 Aa2 2,070,460
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW YORK-CONTINUED
$ 4,000,000 New York State Thruway
Authority, Local Highway &
Bridge Service Contract
Revenue Bonds, 5.625%,
4/1/2013 AAA $ 4,071,200
4,000,000 New York State Thruway
Authority, Service
Contract Revenue Bonds
(Series 1998A-2), 5.375%,
4/1/2016 AAA 3,889,200
5,320,000 Triborough Bridge & Tunnel
Authority, NY, General
Purpose Revenue Bonds
(Series 1999B), 5.75%,
1/1/2015 AA 5,412,249
TOTAL 88,130,356
NORTH CAROLINA-3.8%
9,000,000 Martin County, NC IFA,
(Series 1995) Solid Waste
Disposal Revenue Bonds,
6.00% (Weyerhaeuser Co.),
11/1/2025 A 8,876,880
6,000,000 North Carolina State,
Public Improvement UT GO Bonds (Series 1999A), 5.25% (Original
Issue Yield:
5.38%), 3/1/2015 AAA 5,890,980
7,200,000 Person County, NC
Industrial Facilities &
PCFA Daily VRDNs (Carolina
Power & Light
Co.)/(SunTrust Bank,
Atlanta LOC) Aa3 7,200,000
400,000 Wake County, NC Industrial
Facilities & PCFA, (Series
1990B) Daily VRDNs
(Carolina Power & Light
Co.)/(Bank of New York,
New York LOC) AA- 400,000
TOTAL 22,367,860
OHIO-1.7%
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 A2 868,700
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 A2 2,760,420
2,000,000 Ohio State Air Quality
Development Authority,
(Series 1985A) Daily VRDNs
(Cincinnati Gas and
Electric Co.)/(UBS AG LOC) AA+ 2,000,000
200,000 Ohio State Air Quality
Development Authority,
Revenue Bonds
(Series B) Daily VRDNs
(Cincinnati Gas and
Electric Co.)/(J.P. Morgan
Delaware, Wilmington LOC) AAA 200,000
4,000,000 Ohio State Building
Authority, State
Facilities Bonds, (Series
1999), 5.50%, 10/1/2013 AA- 4,031,200
TOTAL 9,860,320
OKLAHOMA-1.3%
7,500,000 Tulsa, OK Municipal
Airport, Revenue Bonds,
7.60% (American
Airlines)/(Original Issue
Yield: 7.931%), 12/1/2030 BBB- 7,892,775
OREGON-1.3%
5,000,000 Clackamas County, OR
School District, UT GO
Bonds, 5.25% (North
Clackamas School District
#12)/(FGIC INS), 6/1/2011 AAA 5,046,800
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
OREGON-CONTINUED
$ 2,980,000 Salem-Keizer, OR School
District #24J, UT GO Bonds,
5.25% (Oregon School
Boards Assoc. GTD),
6/1/2012 AA $ 2,978,421
TOTAL 8,025,221
PENNSYLVANIA-2.3%
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 2,008,083
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 1,711,260
1,695,000 Allegheny County, PA IDA,
Cargo Facilities Lease
Revenue Bonds (Series
1999), 6.625% (AFCO Cargo
PIT LLC Project)/(Original
Issue Yield: 6.75%),
9/1/2024 NR 1,672,507
1,300,000 Latrobe, PA IDA, College
Revenue Bonds, 6.75% (St.
Vincent College,
PA)/(Original Issue Yield:
7.00%), 5/1/2024 AAA 1,441,583
5,000,000 Pennsylvania
Intergovernmental Coop
Authority, Special Tax
Refunding Revenue Bonds,
5.25% (Philadelphia
Funding Program),
6/15/2013 AAA 4,901,500
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 2,104,400
TOTAL 13,839,333
PUERTO RICO-0.7%
2,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securites (Series
PA 331A), 7.22247% (AMBAC
INS), 7/1/2013 NR 2,094,760
2,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securities (Series
PA 331B), 7.22247% (AMBAC
INS), 7/1/2014 NR 2,066,480
TOTAL 4,161,240
SOUTH CAROLINA-1.0%
6,000,000 South Carolina
Transportation
Infrastructure Bank,
Revenue Bonds, 5.50%
(AMBAC INS), 10/1/2011 Aaa 6,146,820
TENNESSEE-3.4%
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 15,854,670
2,280,000 Tennessee Housing
Development Agency, Home
Ownership Program Revenue
Bonds (Series 1999-2A),
5.35%, 7/1/2012 AA 2,216,798
2,405,000 Tennessee Housing
Development Agency, Home
Ownership Program Revenue
Bonds (Series 1999-2A),
5.40%, 7/1/2013 AA 2,332,610
TOTAL 20,404,078
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
TEXAS-11.9%
$ 4,000,000 Brazos River Authority,
TX, PCR Revenue Bonds
(Series A), 7.875% (Texas
Utilities Electric Co.),
3/1/2021 BBB+ $ 4,222,680
12,750,000 Dallas-Fort Worth, TX
International Airport
Facilities, Revenue Bonds,
7.25% (American Airlines,
Inc.)/(Original Issue
Yield: 7.428%), 11/1/2030 BBB- 13,523,033
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 2,674,560
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 2,117,180
4,490,000 Gulf Coast, TX Waste
Disposal Authority,
Revenue Bonds, 5.60%
(Valero Energy Corp.),
4/1/2032 BBB- 4,037,677
900,000 Harris County, TX HFDC,
(Series 1994) Daily VRDNs
(Methodist Hospital,
Harris County, TX) AA 900,000
2,200,000 Harris County, TX HFDC,
Hospital Revenue Bonds
(Series 1997A), 6.00%
(Memorial Hospital
System), 6/1/2011 AAA 2,339,458
4,000,000 Harris County, TX HFDC,
Hospital Revenue Bonds
(Series 1997A), 6.00%
(Memorial Hospital
System), 6/1/2012 AAA 4,234,800
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 1,800,880
6,000,000 Matagorda County, TX
Navigation District Number
One, Residual Interest
Tax-Exempt Securities
(Series PA-427), 6.14767%
(Houston Industries,
Inc.)/(MBIA INS),
11/1/2029 NR 4,535,580
3,700,000 Red River Authority, TX,
PCR Bonds, 6.875% (Hoechst
Celanese Corp.)/(Original
Issue Yield: 6.939%),
4/1/2017 A+ 3,913,675
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+ 1,500,386
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+ 2,628,362
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+ 3,904,093
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+ 421,756
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+ 632,687
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
TEXAS-CONTINUED
$ 535,000 San Antonio, TX Electric &
Gas, PRF Revenue Bonds,
5.00% (Original Issue
Yield: 6.00%), 2/1/2002 AA $ 548,231
11,915,000 San Antonio, TX Electric &
Gas, Revenue Bonds, 5.00%
(Original Issue Yield:
6.10%), 2/1/2017 AA 10,886,616
5,000,000 Tarrant County, TX HFDC,
System Revenue Bonds
(Series 1997A), 5.75%
(Texas Health Resources
System)/(MBIA INS),
2/15/2015 AAA 5,089,200
1,085,000 Texas State, UT GO Veterans
Housing Assistance, 7.00%,
12/1/2025 AA 1,139,618
TOTAL 71,050,472
UTAH-2.8%
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 16,568,684
WASHINGTON-2.7%
5,905,000 Seattle, WA, Library Facilities UT GO Bonds (Series 1999A),
5.375%,
12/1/2012 AA+ 5,932,104
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- 4,752,800
5,595,000 Washington State,
Convention and Trade
Center Certificates of
Participation, 5.125%
(Original Issue Yield:
5.30%), 7/1/2013 AAA 5,344,567
TOTAL 16,029,471
WEST VIRGINIA-1.0%
6,000,000 West Virginia State, GO
State Road Bonds, Series
1999, 5.75%, 6/1/2014 AA- 6,145,619
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 3,562,240
WYOMING-1.5%
8,460,000 Sweetwater County, WY
Water Pollution Authority,
(Series A), 7.00% (FMC
Corp.), 6/1/2024 BBB- 8,859,396
TOTAL INVESTMENTS
(IDENTIFIED COST
$579,945,451) 2 $ 588,709,141
</TABLE>
Securities that are subject to alternative minimum tax represent 23.0% 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 The cost of investments for federal tax purposes amounts to $579,945,451. The
net unrealized appreciation of investments on a federal tax basis amounts to
$8,763,690 which is comprised of $20,114,421 appreciation and $11,350,731
depreciation at September 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($595,802,315) at September 30, 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 -Guaranteed
HDA -Hospital Development Authority HEFA -Health and Education Facilities
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 LT -Limited Tax MBIA -Municipal Bond Investors Assurance PCR
- -Pollution Control Revenue PCFA -Pollution Control Finance Authority PFC -Public
Finance Commission 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
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$579,945,451) $ 588,709,141
Income receivable 10,444,548
Receivable for investments
sold 10,203,768
Receivable for shares sold 212,228
TOTAL ASSETS 609,569,685
LIABILITIES:
Payable for investments
purchased $ 10,778,362
Payable for shares
redeemed 233,675
Income distribution
payable 2,423,785
Payable to Bank 189,136
Accrued expenses 142,412
TOTAL LIABILITIES 13,767,370
Net Assets for 59,322,352
shares outstanding $ 595,802,315
NET ASSETS CONSIST OF:
Paid in capital $ 623,947,843
Net unrealized
appreciation of
investments 8,763,690
Accumulated net realized
loss on investments (33,723,974)
Distributions in excess of
net investment income (3,185,244)
TOTAL NET ASSETS $ 595,802,315
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($501,041,151 / 49,887,235
shares outstanding) $10.04
Offering Price Per Share
(100/95.50 of $10.04) 1 $10.51
Redemption Proceeds Per
Share $10.04
CLASS B SHARES:
Net Asset Value Per Share
($80,623,688 / 8,027,506
shares outstanding) $10.04
Offering Price Per Share $10.04
Redemption Proceeds Per
Share (94.50/100 of
$10.04) 1 $9.49
CLASS C SHARES:
Net Asset Value Per Share
($14,137,476 / 1,407,611
shares outstanding) $10.04
Offering Price Per Share $10.04
Redemption Proceeds Per
Share (99.00/100 of
$10.04) 1 $9.94
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 18,198,745
EXPENSES:
Investment advisory fee $ 1,767,448
Administrative personnel
and services fee 239,165
Custodian fees 23,386
Transfer and dividend
disbursing agent fees and
expenses 292,017
Directors'/Trustees' fees 8,993
Auditing fees 10,590
Legal fees 3,453
Portfolio accounting fees 65,904
Distribution services fee-
Class B Shares 317,869
Distribution services fee-
Class C Shares 58,998
Shareholder services fee-
Class A Shares 667,366
Shareholder services fee-
Class B Shares 105,956
Shareholder services fee-
Class C Shares 19,666
Share registration costs 17,834
Printing and postage 52,619
Insurance premiums 1,763
Taxes 24,657
Miscellaneous 9,517
TOTAL EXPENSES 3,687,201
WAIVERS:
Waiver of shareholder
services fee-Class A
Shares $ (373,725)
Waiver of shareholder
services fee-Class C
Shares (787)
TOTAL WAIVERS (374,512)
Net expenses 3,312,689
Net investment income 14,886,056
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (20,888,810)
Net change in unrealized
appreciation of
investments (29,541,927)
Net realized and
unrealized loss on
investments (50,430,737)
Change in net assets
resulting from operations $ (35,544,681)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
SEPTEMBER 30, MARCH 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 14,886,056 $ 32,466,474
Net realized gain (loss) on
investments ($(20,888,810)
and $2,566,287,
respectively, as computed
for federal tax purposes) (20,888,810) (10,509,648)
Net change in unrealized
appreciation/depreciation (29,541,927) 7,900,594
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (35,544,681) 29,857,420
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (12,904,032) (27,771,720)
Class B Shares (1,671,183) (3,383,778)
Class C Shares (310,841) (670,339)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (14,886,056) (31,825,837)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 54,942,830 134,901,460
Net asset value of shares
issued to shareholders in
payment of
distributions declared 7,767,995 19,740,788
Cost of shares redeemed (84,987,211) (180,394,469)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (22,276,386) (25,752,221)
Change in net assets (72,707,123) (27,720,638)
NET ASSETS:
Beginning of period 668,509,438 696,230,076
End of period $ 595,802,315 $ 668,509,438
</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>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 $11.20
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.26 0.53 0.46 0.55 0.66 0.67
Net realized and
unrealized gain (loss) on
investments (0.83) (0.05) 0.64 (0.36) (0.09) (0.05)
TOTAL FROM
INVESTMENT OPERATIONS (0.57) 0.48 1.10 0.19 0.57 0.62
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (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 (0.26) (0.52) (0.47) (0.60) (0.66) (0.67)
Distributions from net
realized gain on
investment - - (0.03) (0.10) (0.01) (0.23)
TOTAL DISTRIBUTIONS (0.26) (0.52) (0.50) (0.70) (0.67) (0.90)
NET ASSET VALUE, END OF
PERIOD $10.04 $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 2 (5.35%) 4.46% 11.28% 1.84% 5.32% 5.90%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.04% 4 1.01% 1.00% 1.07% 1.11% 0.92%
Net investment income 3 4.69% 4 4.72% 4.56% 5.23% 5.84% 6.17%
Expenses (after waivers) 0.90% 4 0.87% 0.86% 0.93% 0.98% 0.92%
Net investment income
(after waivers) 4.83% 4 4.86% 4.70% 5.37% 5.97% 6.17%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $501,041 $562,883 $591,310 $595,515 $663,538 $708,712
Portfolio turnover 37% 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 distributions do
not represent a return of capital for federal tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 $11.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.21 0.43 0.38 0.47 0.56 0.40
Net realized and
unrealized gain (loss) on
investments (0.83) (0.05) 0.64 (0.37) (0.09) (0.03)
TOTAL FROM
INVESTMENT OPERATIONS (0.62) 0.38 1.02 0.10 0.47 0.37
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (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 (0.21) (0.42) (0.39) (0.51) (0.56) (0.40)
Distributions from net
realized gain on
investment - - (0.03) (0.10) (0.01) (0.11)
TOTAL DISTRIBUTIONS (0.21) (0.42) (0.42) (0.61) (0.57) (0.51)
NET ASSET VALUE, END OF
PERIOD $10.04 $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 3 (5.77%) 3.53% 10.30% 0.94% 4.40% 3.49%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.79% 5 1.76% 1.75% 1.82% 1.86% 1.84% 5
Net investment income 4 3.94% 5 3.97% 3.81% 4.50% 5.23% 5.94% 5
Expenses (after waivers) 1.79% 5 1.76% 1.75% 1.82% 1.86% 1.84% 5
Net investment income
(after waivers) 3.94% 5 3.97% 3.81% 4.50% 5.23% 5.94% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $80,624 $88,756 $87,304 $77,536 $58,296 $18,201
Portfolio turnover 37% 31% 64% 33% 29% 41%
</TABLE>
1 Reflects operations for the period from July 26, 1994 (date of initial public
offering) to March 31, 1995.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
5 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>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.87 $10.91 $10.31 $10.82 $10.92 $11.20
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.21 0.43 0.37 0.46 0.56 0.58
Net realized and
unrealized gain (loss) on
investments (0.83) (0.05) 0.65 (0.36) (0.09) (0.05)
TOTAL FROM
INVESTMENT OPERATIONS (0.62) 0.38 1.02 0.10 0.47 0.53
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (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 (0.21) (0.42) (0.39) (0.51) (0.56) (0.58)
Distributions from net
realized gain on
investment - - (0.03) (0.10) (0.01) (0.23)
TOTAL DISTRIBUTIONS (0.21) (0.42) (0.42) (0.61) (0.57) (0.81)
NET ASSET VALUE, END OF
PERIOD $10.04 $10.87 $10.91 $10.31 $10.82 $10.92
TOTAL RETURN 2 (5.76%) 3.54% 10.31% 0.95% 4.42% 4.96%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.79% 4 1.76% 1.75% 1.82% 1.86% 1.81%
Net investment income 3 3.94% 4 3.97% 3.82% 4.50% 5.12% 5.28%
Expenses (after waivers) 1.78% 4 1.75% 1.74% 1.81% 1.82% 1.81%
Net investment income
(after waivers) 3.95% 4 3.98% 3.83% 4.51% 5.16% 5.28%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $14,137 $16,870 $17,616 $20,544 $25,914 $22,389
Portfolio turnover 37% 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 distributions do
not represent a return of capital for federal tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
SEPTEMBER 30, 1999 (UNAUDITED)
ORGANIZATION
Federated Municipal Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares and Class C Shares. The investment objective of
the Fund is to provide for its shareholders a high level of current income which
is exempt from federal regular income tax.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
Distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting distribution. These distributions do
not represent a return of capital for federal income tax purposes.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At September 30,1999, par valve share ($0.01 per share) authorized were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 375,000,000
Class B Shares 250,000,000
Class C Shares 375,000,000
TOTAL 1,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,499,487 $ 47,051,417 10,327,327 $ 113,274,145
Shares issued to shareholders in payment of
distributions declared 663,976 6,955,369 1,619,511 17,770,129
Shares redeemed (7,048,980) (73,402,218) (14,392,026) (157,856,794)
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS (1,885,517) $ (19,395,432) (2,445,188) $ (26,812,520)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 592,379 $ 6,233,643 1,554,992 $ 17,066,503
Shares issued to shareholders in payment of
distributions declared 60,620 635,017 140,590 1,542,609
Shares redeemed (789,032) (8,267,120) (1,537,205) (16,860,862)
NET CHANGE RESULTING FROM CLASS B
SHARE TRANSACTIONS (136,033) $ (1,398,460) 158,377 $ 1,748,250
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 160,476 $ 1,657,770 414,516 $ 4,560,812
Shares issued to shareholders in payment of
distributions declared 16,946 177,609 39,027 428,050
Shares redeemed (321,447) (3,317,873) (517,122) (5,676,813)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS (144,025) $ (1,482,494) (63,579) $ (687,951)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (2,165,575) $ (22,276,386) (2,350,390) $ (25,752,221)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
Shares and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average 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 disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended September 30, 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
pursuant to Rule 17a-7 under the Act amounting to $202,669,490 and $225,800,000,
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 September 30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 226,399,541
Sales $ 280,299,164
</TABLE>
CONCENTRATION OF CREDIT RISK
At September 30, 1999, 19.6% of the securities in the portfolio of investments
are backed by letters of credit or bond insurance of various financial
institutions and financial guaranty assurance agencies. The percentage of
investments insured by or supported (backed) by a letter of credit from any one
institution or agency did not exceed 6.0% of total investments.
YEAR 2000
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 measures 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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
J. CHRISTOPHER DONAHUE
President
WILLIAM D. DAWSON III
Chief Investment Officer
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
MARY JO OCHSON
Vice President
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF SEPTEMBER 30, 1999
Federated Municipal Securities Fund, Inc.
Established 1976
23RD SEMI-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
8110104 (11/99)
[Graphic]
