FEDERATED MUNICIPAL SECURITIES FUND, INC.

Class A Shares
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Class B Shares
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Class C Shares
Supplement to the Statement of Additional Information dated May 31, 2001

1.   Please  delete the  "Derivative  Contracts"  section and  replace  with the
     following:

     "Derivative Contracts

     Derivative contracts are financial  instruments that require payments based
     upon  changes  in the  values of  designated  (or  underlying)  securities,
     currencies,  commodities, financial indices or other assets or instruments.
     Some derivative  contracts (such as futures,  forwards and options) require
     payments relating to a future trade involving the underlying  asset.  Other
     derivative  contracts  (such as swaps)  require  payments  relating  to the
     income or returns from the underlying asset or instrument.  The other party
     to a derivative contract is referred to as a counterparty.

     Many   derivative   contracts  are  traded  on  securities  or  commodities
     exchanges.  In this case,  the exchange  sets all the terms of the contract
     except for the price.  Investors  make  payments due under their  contracts
     through the exchange.  Most exchanges  require investors to maintain margin
     accounts through their brokers to cover their potential  obligations to the
     exchange.  Parties to the contract make (or collect)  daily payments to the
     margin  accounts  to  reflect  losses  (or  gains)  in the  value  of their
     contracts.  This  protects  investors  against  potential  defaults  by the
     counterparty.  Trading  contracts on an exchange  also allows  investors to
     close out their contracts by entering into offsetting contracts.

     For example, the Fund could close out an open contract to buy an asset at a
     future date by entering into an offsetting  contract to sell the same asset
     on the same date.  If the  offsetting  sale price is more than the original
     purchase price,  the Fund realizes a gain; if it is less, the Fund realizes
     a loss.  Exchanges may limit the amount of open contracts  permitted at any
     one time. Such limits may prevent the Fund from closing out a position.  If
     this happens,  the Fund will be required to keep the contract open (even if
     it is losing  money on the  contract),  and to make any  payments  required
     under  the  contract  (even  if it  has to  sell  portfolio  securities  at
     unfavorable  prices to do so). Inability to close out a contract could also
     harm the Fund by preventing  it from  disposing of or trading any assets it
     has been using to secure its obligations under the contract.

     The Fund may also  trade  derivative  contracts  over-the-counter  (OTC) in
     transactions negotiated directly between the Fund and the counterparty. OTC
     contracts  do not  necessarily  have  standard  terms,  so they  cannot  be
     directly offset with other OTC contracts.  In addition,  OTC contracts with
     more specialized  terms may be more difficult to price than exchange traded
     contracts.

     Depending upon how the Fund uses derivative contracts and the relationships
     between the market value of a derivative  contract and the underlying asset
     or  instrument,  derivative  contracts  may increase or decrease the Fund's
     exposure to interest rate risks, and may also expose the Fund to liquidity,
     leverage and tax risks.  OTC contracts also expose the Fund to credit risks
     in the event that a counterparty defaults on the contract.

     The Fund may trade in the following types of derivative contracts,  as well
     as combinations of these contracts,  including, but not limited to, options
     on futures contracts, options on forward contracts and options on swaps.

     FUTURES CONTRACTS

     Futures  contracts provide for the future sale by one party and purchase by
     another party of a specified amount of an underlying asset or instrument at
     a  specified  price,  date,  and time.  Entering  into a contract to buy an
     underlying asset is commonly  referred to as buying a contract or holding a
     long position in the asset.  Entering into a contract to sell an underlying
     asset is  commonly  referred  to as selling a  contract  or holding a short
     position in the asset.  Futures  contracts  are  considered to be commodity
     contracts.  Futures  contracts  traded OTC are  frequently  referred  to as
     forward contracts.

     The Fund may buy or sell the following types of futures (including forward)
     contracts: interest rate and index financial futures contracts.

     OPTIONS

     Options are rights to buy or sell an underlying  asset or instrument  for a
     specified price (the exercise price) during,  or at the end of, a specified
     period.  A call  option  gives  the  holder  (buyer)  the  right to buy the
     underlying  asset or instrument from the seller  (writer) of the option.  A
     put  option  gives the  holder  the right to sell the  underlying  asset or
     instrument to the writer of the option. The writer of the option receives a
     payment,  or premium,  from the buyer, which the writer keeps regardless of
     whether  the buyer  uses (or  exercises)  the  option.  If the Fund  writes
     options on  futures  contracts,  it will be subject to margin  requirements
     similar to those applied to futures contracts.

     SWAPS

     Swaps are  contracts  in which two  parties  agree to pay each other
     (swap) the returns  derived  from  underlying  assets or  instruments  with
     differing  characteristics.  Most swaps do not involve the  delivery of the
     underlying assets or instruments by either party, and the parties might not
     own the assets or instruments underlying the swap. The payments are usually
     made on a net basis so that,  on any given day, the Fund would  receive (or
     pay) only the amount by which its payment  under the  contract is less than
     (or exceeds) the amount of the other party's  payment.  Swap agreements are
     sophisticated instruments that can take many different forms, and are known
     by a variety of names  including  caps,  floors,  and collars.  Common swap
     agreements that the Fund may use include:

     INTEREST RATE SWAPS

     Interest rate swaps are contracts in which one party agrees to make regular
     payments  equal  to a fixed  or  floating  interest  rate  times a  stated,
     notional  principal  amount  of fixed  income  securities,  in  return  for
     payments  equal  to a  different  fixed or  floating  rate  times  the same
     notional  principal  amount,  for a specific  period.  For  example,  a $10
     million  LIBOR swap would  require one party to pay the  equivalent  of the
     London  Interbank Offer Rate of interest (which  fluctuates) on $10 million
     notional  principal  amount  in  exchange  for the  right  to  receive  the
     equivalent  of a stated  fixed rate of  interest  on $10  million  notional
     principal amount.

     CAPS AND FLOORS

     Caps and floors are  contracts in which one party  agrees to make  payments
     only if an  interest  rate or index  goes  above  (cap) or below  (floor) a
     certain level in return for a fee from the other party.

     TOTAL RETURN SWAPS

     Total return swaps are contracts in which one party agrees to make payments
     of the total  return from the  underlying  asset or  instrument  during the
     specified  period, in return for payments equal to a fixed or floating rate
     of  interest  or  the  total  return  from  another   underlying  asset  or
     instrument.

2.  Please add the following after the first paragraph under "Investment Risks":

      "Credit Risks

     The Fund may  invest up to 100% of its  assets in fixed  income  securities
     rated BBB or in unrated but comparable securities.  Fixed income securities
     generally compensate for greater credit risk by paying interest at a higher
     rate.  The  difference  between the yield of a security  and the yield of a
     "AAA"-rated general obligation security or index with a comparable maturity
     (the spread)  measures the additional  interest paid for risk.  Spreads may
     increase generally in response to adverse economic or market conditions.  A
     security's spread may also increase if the security's rating is lowered, or
     the security is perceived to have an increased  credit risk. An increase in
     the spread will cause the price of the security to decline.

     Credit  risk  includes  the  possibility  that  a  party  to a  transaction
     involving the Fund will fail to meet its obligations.  This could cause the
     Fund to lose benefit of the transaction or prevent the Fund from selling or
     buying other securities to implement its investment strategy.

3.  Please delete the "Tax Risks" section and replace with the following:

      "Tax Risks

     In order to be  tax-exempt,  municipal  securities  must meet certain legal
     requirements.  Failure  to meet such  requirements  may cause the  interest
     received and distributed by the Fund to shareholders to be taxable. Changes
     or proposed  changes in federal tax laws may cause the prices of  municipal
     securities to fall.

     The  federal  income  tax  treatment  of  payments  in  respect  of certain
     derivative contracts is unclear.  Additionally, the Fund may not be able to
     close out certain derivative contracts when it wants to. Consequently,  the
     Fund may receive  payments that are treated as ordinary  income for federal
     income tax purposes.

4.  Please add the following after the "Tax Risks" section:

      "Liquidity Risks

     Liquidity risk also refers to the possibility that the Fund may not be able
     to sell a security or close out a derivatives contract when it wants to. If
     this happens, the Fund will be required to continue to hold the security or
     keep the position  open,  and the Fund could incur losses.  OTC  derivative
     contracts  generally  carry  greater  liquidity  risk than  exchange-traded
     contracts."

5.  Please add the following after the "Liquidity Risks" section:

      "Leverage Risks

     Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.

     Investments  can have these same  results if their  returns  are based on a
     multiple of a specified index, security, or other benchmark."



                                                                   July 31, 2002


27600 (7/02)