LIBERTY MUNICIPAL SECURITIES FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Supplement to Combined Prospectus dated May 31, 1995
Please delete the sub-section entitled "Federal Income Tax" on page 28, and
replace it with the following:
"Federal Income Tax
The Fund will pay no federal income tax because it expects to
meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies. Shareholders are not
required to pay the federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal
bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax
for corporations.
The alternative minimum tax, up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies
when it exceeds the regular tax for the taxable year.
Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax-
preference" items not included in regular taxable income and
reduced by only a portion of the deductions allowed in the
calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax preference
item for both individuals and corporations. Unlike traditional
governmental purpose municipal bonds, which finance roads,
schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund
may purchase all types of municipal bonds, including private
activity bonds. Thus, should it purchase any such bonds, a
portion of the Fund's dividends may be treated as a tax
preference item.
In addition, in the case of a corporate shareholder, dividends
of the Fund which represent interest on municipal bonds may be
subject to the 20% corporate alternative minimum tax because the
dividends are included in a corporation's "adjusted current
earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the
concept of a corporation's "earnings and profits." Since
"earnings and profits" generally includes the full amount of any
Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the
corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on
some temporary investments and any realized net short-term gains
are taxed as ordinary income.
These tax consequences apply whether dividends are received in
cash or as additional shares. Information on the tax status of
dividends and distributions is provided annually."
July 14, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 530900109
Cusip 530900406
Cusip 530900208
G01281-01 (7/95)
