FEDERATED MUNICIPAL SECURITIES FUND, INC.
SUPPLEMENT TO PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AS
APPROPRIATE, DATED JULY 31, 1998
At the June 30, 1999 shareholder meeting, shareholders approved the
following changes to become effective July 1, 1999:
(1) Elected three Directors.
(2) Ratified the selection of the Fund's independent auditors.
(3) Made the following changes to the Fund's fundamental investment
policies:
(a) Amended the Fund's fundamental investment policy regarding
diversification to read as follows:
"With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer
(other than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such U.S. government
securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be
invested in securities of that issuer, or the Fund would own more
than 10% of the outstanding voting securities of that issuer."
(b) Amended the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities to read as follows:
"The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
(c) Amended the Fund's fundamental investment policy regarding
investments in real estate to read as follows:
"The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by
real estate or interests therein. The Fund may exercise its rights
under agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an
orderly manner."
(d) Amended the Fund's fundamental investment policy regarding
investments in commodities to read as follows:
"The Fund may not purchase or sell physical commodities, provided
that the Fund may purchase securities of companies that deal in
commodities. For purposes of this restriction, investments in
transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts
that settle by payment of cash are not deemed to be investments in
commodities."
(e) Amended the Fund's fundamental investment policy regarding
underwriting securities to read as follows:
"The Fund may not underwrite the securities of other issuers, except
that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under
circumstances where it may be considered to be an underwriter under
the Securities Act of 1933."
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(f) Amended the Fund's fundamental investment policy regarding lending
to read as follows:
"The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
(g)Amended the Fund's fundamental investment policy regarding
concentration of the Fund's investments in securities of companies in
the same industry to read as follows:
"The Fund will not make investments that will result in the
concentration of its investments in the securities of issuers
primarily engaged in the same industry, provided that the Fund may
invest more than 25% of the value of its assets in industrial
development bonds. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry. As to
industrial development bonds, the Fund may purchase securities of an
issuer resulting in the ownership of more than 25% of the Fund's
assets in one industry, and the Fund reserves the right to invest
more than 25% of its assets in industrial development bonds in the
same state."
(h) Amended the Fund's fundamental investment policy regarding
investments in municipal securities to read as follows:
"The Fund will invest its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax."
(i) Amended, and made non-fundamental, the Fund's fundamental
investment policy regarding buying securities on margin to read as follows:
"The Fund will not purchase securities on margin, provided that the
Fund may obtain short-term credits necessary for the clearance of
purchases and sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments."
(j) Amended, and made non-fundamental, the Fund's fundamental
investment policy on pledging assets to read as follows:
"The Fund will not mortgage, pledge, or hypothecate any of its
assets, provided that this shall not apply to the transfer of
securities in connection with any permissible borrowing or to
collateral arrangements in connection with permissible activities."
(k) Made non-fundamental the Fund's current fundamental investment
policies regarding permissible investments.
(l) Made non-fundamental the Fund's current fundamental investment
policy regarding temporary investments and eliminated the Fund's
current non-fundamental investment limitation that prohibits the Fund
from investing more than 20% of its assets in temporary investments.
(m)Made non-fundamental the Fund's current fundamental investment
policy regarding engaging in when-issued and delayed delivery
transactions and eliminated the Fund's current non-fundamental
investment policy that prohibits the Fund from engaging in such
transactions to the extent that would cause the segregation of more
than 20% of the value of the Fund's total assets.
(n) Made non-fundamental the Fund's current fundamental investment
policy regarding investing in securities other investment companies.
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(4) Eliminated the following fundamental investment policies of the Fund:
(a) The fundamental investment policy on investments in oil, gas and
minerals.
(b) The fundamental investment policy on selling securities short.
(c) The fundamental investment policy regarding trading portfolio
securities.
(5) Amended the Fund's non-fundamental investment policy regarding illiquid
securities to read as follows:
"The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15%
of the Fund's net assets."
(6) Adopted the following non-fundamental investment policy:
"The Fund may engage in reverse repurchase agreements."
(7) Adopted the following non-fundamental investment policy:
"In applying the Fund's concentration restriction: (a) utility companies
will be divided according to their services, for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry; (b) financial service companies will be classified according
to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (c) asset-backed securities will be classified according
to the underlying assets securing such securities. To conform to the
current view of the SEC staff that only domestic bank instruments may be
excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank
instruments from industry concentration tests so long as the policy of
the SEC remains in effect.
(8)Approved 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.
July 2, 1999
[Graphic]
Federated Securities Corp., Distributor
Cusip 313913105
Cusip 313913204
Cusip 313913303
G02620-03 (7/99)
